Traditional IRA vs. Roth IRA: How They Work Differently

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 this year. You pay taxes later, when you withdraw the money in retirement. A Roth IRA takes money that has already been taxed, so you pay nothing when you take it out later.

That single difference — when the tax bill arrives — shapes almost everything else about how each account works. It affects how much you can contribute, when you can withdraw without penalty, and whether the account makes sense for your current income level.

Key Takeaways

Traditional IRAs reduce your taxes now but require you to pay taxes on withdrawals in retirement, while Roth IRAs use after-tax money now so withdrawals are tax-free later.
Traditional IRAs have required minimum withdrawals starting at age 73, but Roth IRAs do not require you to withdraw anything during your lifetime.
Roth IRAs let you withdraw your contributions (not earnings) at any time without penalty, but Traditional IRAs charge a 10% penalty plus taxes if you withdraw before age 59½.
Income limits restrict who can contribute to a Roth IRA, but Traditional IRAs accept contributions from anyone with earned income, regardless of how much they make.
The choice between them often depends on whether you expect to be in a higher or lower tax bracket in retirement than you are now.

How Contributions Work and What They Cost You Now

With a Traditional IRA, you contribute money before income tax is withheld. If you contribute $7,000 in a year, you can deduct that $7,000 from your taxable income on your tax return. That means if you earn $60,000 and contribute $7,000 to a Traditional IRA, you only report $53,000 as taxable income. The tax savings happen immediately.

With a Roth IRA, you contribute money that has already been taxed. You do not get a deduction. If you earn $60,000 and contribute $7,000 to a Roth, you still report $60,000 as taxable income. You pay taxes on the full amount, then put the after-tax money into the Roth. There is no tax break this year.

The 2024 contribution limit for both types is $7,000 per year (or $8,000 if you are 50 or older). However, income limits apply only to Roth IRAs. If your income exceeds certain thresholds — which vary by filing status and change yearly — you cannot contribute to a Roth at all. Traditional IRAs have no income limit, though the tax deduction phases out if you have a workplace retirement plan and earn above a certain amount.

Withdrawals in Retirement: Taxes and Penalties

When you withdraw from a Traditional IRA in retirement, that money counts as ordinary income and you owe income tax on it. If you withdraw $30,000, you pay income tax on $30,000 at whatever your tax rate is that year. You must start taking withdrawals at age 73 (this age changed under recent law); if you do not, the IRS charges a penalty.

When you withdraw from a Roth IRA, you pay no income tax on the withdrawal, because the money was already taxed when you put it in. You can withdraw your contributions at any time without penalty. You can also withdraw earnings (the money your investments made) tax-free and penalty-free after age 59½, as long as the account has been open for at least five years. There is no requirement to withdraw anything during your lifetime.

If you withdraw from a Traditional IRA before age 59½, you owe income tax plus a 10% early withdrawal penalty on the amount withdrawn — with some exceptions for hardship situations like disability or medical expenses. Roth IRAs are more flexible: you can always pull out your contributions without penalty, though earnings withdrawn early are subject to tax and the 10% penalty.

Required Withdrawals and Account Longevity

A Traditional IRA requires you to take money out starting at age 73. These are called required minimum distributions, or RMDs. The IRS calculates how much you must withdraw each year based on your age and account balance. If you do not take the full amount, you face a penalty equal to 25% of the shortfall (reduced to 10% if you correct it within two years).

A Roth IRA has no required minimum distributions during your lifetime. You can leave the money untouched for as long as you live, letting it grow tax-free. This makes a Roth useful if you do not need the money in retirement or want to leave a larger inheritance. After you die, beneficiaries do have withdrawal requirements, but the account itself does not force you to take anything out while you are alive.

Income Limits: Who Can Contribute

Anyone with earned income can open and contribute to a Traditional IRA, no matter how much money they make. Your income does affect whether you can deduct the contribution on your taxes — if you have a workplace 401(k) or similar plan and earn above a threshold, the deduction phases out — but you can still contribute the money itself.

A Roth IRA has strict income limits. For 2024, if you are single and earn more than $146,000, you cannot contribute to a Roth. If you are married filing jointly, the limit is $230,000. These numbers change each year. If your income is above the limit, you have no Roth option through a direct contribution, though some people use a "backdoor Roth" strategy (converting a Traditional IRA to a Roth) as a workaround.

Which One Makes Sense for Your Situation

Choose a Traditional IRA if you want to lower your taxable income this year, expect to be in a lower tax bracket in retirement than you are now, or earn too much to contribute to a Roth. It is also useful if you want the tax deduction to offset other income.

Choose a Roth IRA if you expect to be in a higher tax bracket in retirement, want tax-free withdrawals, do not need the money in retirement, or want flexibility to withdraw contributions without penalty. A Roth is also valuable if you are young and have decades for the money to grow tax-free, or if you want to leave tax-assistance programs to heirs.

You can have both a Traditional and a Roth IRA at the same time, but your total contributions across both accounts cannot exceed the annual limit ($7,000 in 2024, or $8,000 if 50 or older).

Conversions: Moving Money Between Account Types

You can convert money from a Traditional IRA to a Roth IRA at any time. When you do, you owe income tax on the amount converted in that tax year. For example, if you convert $20,000 from a Traditional IRA to a Roth, you pay income tax on $20,000 as if it were ordinary income.

People often convert when their income is temporarily lower (between jobs, for instance) or when they have losses to offset the conversion income. After the conversion, that money grows tax-free in the Roth and can be withdrawn tax-free in retirement. You cannot convert a Roth back to a Traditional IRA.

Frequently Asked Questions

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

Yes. You can open both accounts and contribute to both, but your total contributions across all IRAs in a single year cannot exceed the annual limit — $7,000 in 2024, or $8,000 if you are 50 or older. If you contribute $4,000 to a Traditional IRA, you can only contribute $3,000 to a Roth that year.

What happens to my Roth IRA if I die?

Your beneficiary inherits the account and can withdraw the money. They do not owe income tax on withdrawals, but they must withdraw the entire balance within 10 years (under current rules). The account itself does not disappear — it passes to whoever you named as beneficiary.

Can I withdraw my contributions from a Roth IRA without paying taxes?

Yes. You can withdraw the money you contributed (not the earnings it made) at any time, for any reason, without taxes or penalties. This is one of the main advantages of a Roth. Earnings can only be withdrawn tax-free and penalty-free after age 59½ and if the account has been open for at least five years.

If I convert a Traditional IRA to a Roth, do I have to pay taxes?

Yes. When you convert, you owe income tax on the amount converted in that tax year. If you convert $25,000, you pay income tax on $25,000 as ordinary income. After the conversion, future growth in the Roth is tax-free, and withdrawals in retirement are tax-free.

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

You cannot contribute directly to a Roth if your income exceeds the limit. However, you can use a backdoor Roth strategy: contribute to a Traditional IRA (which has no income limit), then immediately convert it to a Roth and pay taxes on the conversion. This is legal but has tax complications if you already have Traditional IRA balances, so consult a tax professional first.

This guide is for general information only and is not medical, financial, legal, or other professional advice. For decisions specific to your situation, consult a qualified professional. See our Editorial Policy.