The Core Difference: When You Pay Taxes

A traditional IRA lets you put money in before taxes are taken out, which lowers your taxable income in the year you contribute. You pay taxes later, when you withdraw the money in retirement. A Roth IRA works the opposite way: you contribute money that has already been taxed, and then your withdrawals in retirement are tax-free.

That single difference — when the tax bill arrives — shapes almost everything else about how each account works. It affects how much you can put in each year, when you have to start taking money out, and who should choose which type.

Key Takeaways

  • Traditional IRAs reduce your taxes now but require you to pay taxes on withdrawals later; Roth IRAs cost you taxes now but give you tax-free withdrawals in retirement.
  • Your income level determines whether you can contribute to a Roth IRA at all, but there is no income limit for traditional IRAs.
  • Traditional IRAs require you to start withdrawing money at age 73; Roth IRAs have no withdrawal requirement during your lifetime.
  • Both accounts have the same annual contribution limit, which changes each year based on inflation.
  • You can have both a traditional and a Roth IRA at the same time, but your total contributions across both cannot exceed the annual limit.

Income Limits and Who Can Contribute

Anyone with earned income can open and contribute to a traditional IRA, no matter how much money they make. The only restriction is that you cannot contribute more than you earned that year.

Roth IRAs have income limits that change each year. If your income is above a certain threshold, you cannot contribute directly to a Roth. For 2024, the income limit phases out starting at $146,000 for single filers and $230,000 for married couples filing jointly, but these numbers shift annually. If your income exceeds the limit, you have other options — a backdoor Roth conversion is one route that many higher-income earners use, though it involves extra steps and tax paperwork.

If you have a workplace retirement plan like a 401(k), you may also be able to deduct traditional IRA contributions only if your income falls below certain limits. Roth contributions are not affected by having a workplace plan.

Tax Deductions and Contributions

When you contribute to a traditional IRA, you may be able to deduct the full amount from your taxes that year — meaning your taxable income goes down by that contribution. Whether you get the full deduction depends on your income and whether you or your spouse have access to a workplace retirement plan.

Roth contributions are never tax-deductible. You put in money you have already paid taxes on. The trade-off is that you never pay taxes on the growth or the withdrawals later.

For 2024, the contribution limit for both traditional and Roth IRAs is $7,000 per year if you are under age 50, and $8,000 if you are 50 or older. These limits increase periodically to keep pace with inflation. Your total contributions across all IRAs you own cannot exceed this limit in a single year.

Required Withdrawals and Access to Your Money

Traditional IRAs require you to start taking withdrawals at age 73. The IRS calculates a minimum amount based on your age and account balance, and you must withdraw at least that much each year. If you do not, you face a penalty of 25 percent of the amount you should have withdrawn (reduced to 10 percent if you correct it within two years).

Roth IRAs have no required withdrawal age during your lifetime. You can leave the money in the account to grow for as long as you live, and your beneficiaries inherit it tax-free. This makes Roths useful if you do not need the money in retirement or want to pass wealth to heirs.

Both accounts penalize early withdrawals before age 59½. With a traditional IRA, you pay income tax plus a 10 percent penalty on the amount withdrawn. Roth IRAs are more flexible: you can withdraw your contributions (not the earnings) at any time without penalty, because you already paid taxes on that money. Withdrawing earnings before 59½ triggers the same 10 percent penalty and taxes, though some exceptions exist — for example, first-time home purchases up to $10,000 lifetime.

Investment Options and Growth

Both traditional and Roth IRAs hold the same types of investments: stocks, bonds, mutual funds, exchange-traded funds (ETFs), and some alternative investments depending on your provider. The account type does not limit what you can buy — only when and how you pay taxes on it.

The real difference is the tax treatment of growth. In a traditional IRA, your investments grow tax-deferred, meaning you do not pay taxes on dividends or capital gains each year. You pay taxes only when you withdraw. In a Roth, your investments grow tax-free, and you never pay taxes on the gains if you follow the withdrawal rules.

Who Should Choose Each Type

A traditional IRA makes sense if you expect to be in a lower tax bracket in retirement than you are now, or if you need to lower your taxable income this year. It is also the only option if your income exceeds Roth limits and you do not want to do a backdoor conversion.

A Roth IRA is often better if you are young, expect your income to rise, or believe tax rates will be higher in the future. It is also the choice if you want flexibility — no required withdrawals, tax-free growth, and the ability to withdraw contributions without penalty. If you have a high income now but expect a lower one later, a backdoor Roth lets you convert traditional IRA money into a Roth, though this involves tax calculations and IRS forms.

Many people benefit from having both. You can contribute to a traditional IRA one year and a Roth the next, or split your annual contribution between them. The key is that your total across both cannot exceed the annual limit.

Frequently Asked Questions

Can I convert a traditional IRA to a Roth?

Yes. You can convert all or part of a traditional IRA to a Roth at any time. You will owe income taxes on the amount converted in that tax year, but the money then grows tax-free in the Roth. This is called a Roth conversion, and it is a common strategy for people who exceed Roth income limits.

What happens to my IRA when I die?

Your beneficiary inherits the account. With a traditional IRA, they owe income taxes on withdrawals. With a Roth, withdrawals are tax-free. Beneficiaries must generally withdraw the entire account within 10 years, though the rules vary by relationship and account type.

Can I have both a traditional and Roth IRA at the same time?

Yes, but your combined contributions in a single year cannot exceed the annual limit. If you contribute $4,000 to a traditional IRA, you can only contribute $3,000 to a Roth that same year (assuming the $7,000 limit for 2024).

Do I pay taxes on Roth IRA contributions?

No. You contribute money you have already paid income tax on. The account grows tax-free, and may have access to withdrawals are tax-free. You never pay taxes again on that money if you follow the rules.

What if my income is too high for a Roth IRA?

You can do a backdoor Roth conversion: contribute to a traditional IRA (which has no income limit) and then convert it to a Roth. You will owe taxes on any earnings during the conversion, but this is a legal way around the income limit. Consult a tax professional, as the process involves IRS forms and calculations.