The core difference: when you pay taxes
A traditional IRA lets you deduct contributions from your taxable income in the year you make them, lowering what you owe the IRS that year. You pay income tax later, when you withdraw the money in retirement. A Roth IRA works the opposite way: you contribute money that has already been taxed, and withdrawals in retirement come out tax-free.
The choice between them hinges on whether you think your tax rate will be higher now or in retirement. If you expect to earn less in retirement than you do today, a traditional IRA's upfront deduction saves you money at a higher rate now. If you expect to earn the same or more, or straightforward want to lock in today's tax rate, a Roth IRA avoids a larger tax bill later.
Both accounts hold the same types of investments — stocks, bonds, mutual funds, exchange-traded funds — and both grow tax-free while the money sits inside. The difference is purely about when the IRS gets paid.
Key Takeaways
- Traditional IRA contributions may lower your taxable income this year, but withdrawals in retirement are taxed as ordinary income.
- Roth IRA contributions use after-tax money, but all withdrawals in retirement, including growth, are tax-free.
- Income limits restrict who can contribute to a Roth IRA, but traditional IRAs have no income cap.
- Traditional IRAs require withdrawals starting at age 73, while Roth IRAs have no mandatory withdrawal age during the account holder's lifetime.
- Both accounts allow you to withdraw contributions (not earnings) from a Roth penalty-free at any time, but traditional IRA early withdrawals are taxed and penalized before age 59½.
Contribution limits and who can use each account
For 2024, you can contribute up to $7,000 per year to either a traditional or Roth IRA if you are under age 50. If you are 50 or older, you can contribute an additional $1,000 catch-up amount, for a total of $8,000. These limits explore to the combined total across all IRAs you own — if you contribute $4,000 to a traditional IRA and $3,000 to a Roth IRA in the same year, you have used $7,000 of your limit.
Anyone with earned income can open and contribute to a traditional IRA with no income restrictions. A Roth IRA, however, has income phase-out ranges. For 2024, if you file taxes as a single person and your modified adjusted gross income exceeds $146,000, your Roth contribution limit begins to shrink. It phases out completely at $161,000. If you are married filing jointly, the phase-out starts at $230,000 and ends at $240,000. These thresholds change each year.
If your income is above the Roth limit, you can still contribute to a traditional IRA. You can also use a strategy called a "backdoor Roth" — contributing to a traditional IRA and then converting it to a Roth — though this involves tax complications that depend on whether you have other traditional IRAs.
Tax deductions for traditional IRA contributions
Whether you can deduct a traditional IRA contribution depends on whether you or your spouse have access to a workplace retirement plan like a 401(k), and how much you earn. If neither you nor your spouse is covered by a workplace plan, you can deduct the full amount you contribute, regardless of income.
If you are covered by a workplace plan, the deduction phases out within an income range. For 2024, if you file as single and are covered by a workplace plan, you can deduct the full amount if your modified adjusted gross income is $77,000 or less. The deduction shrinks between $77,000 and $87,000, and disappears entirely above $87,000. If you are married filing jointly and the person contributing is covered by a plan, the phase-out runs from $123,000 to $143,000.
If you are married, file jointly, and your spouse has a workplace plan but you do not, a separate phase-out applies to you: $230,000 to $240,000 for 2024. Your spouse's workplace plan triggers the limit, even though you do not have one.
Withdrawals before retirement and the 59½ rule
With a Roth IRA, you can withdraw your own contributions at any time, for any reason, without tax or penalty. If you contributed $50,000 over several years and the account has grown to $65,000, you can withdraw the $50,000 whenever you need it. Withdrawing the $15,000 in earnings before age 59½ triggers a 10% penalty and income tax on that amount, unless an exception applies.
With a traditional IRA, any withdrawal before age 59½ is generally subject to a 10% early withdrawal penalty plus income tax on the full amount withdrawn. Some exceptions exist — you can withdraw penalty-free (though still taxed) for a first-time home purchase up to $10,000 lifetime, medical expenses above 7.5% of your adjusted gross income, health insurance premiums while unemployed, or substantially equal periodic payments under IRS rules. Withdrawals for education expenses are also penalty-free but still taxed.
The Roth's ability to access contributions without penalty makes it more flexible if you might need the money before retirement, though this should not be the primary reason to choose one account over another.
Required withdrawals in retirement
Starting in 2023, traditional IRA owners must begin taking required minimum distributions (RMDs) in the year they turn 73. The IRS calculates the minimum amount based on your age and account balance using a life expectancy table. If you do not take the full RMD, you owe a 25% penalty on the amount you failed to withdraw (reduced to 10% if you correct it within two years).
Roth IRAs have no required minimum distribution requirement during your lifetime. This means you can leave the money untouched as long as you live, allowing it to grow tax-free for decades. Your beneficiaries will eventually have to withdraw the money after you die, but you never have to.
This difference matters if you do not need the retirement income and want to leave money to heirs, or if you want maximum flexibility over when to take withdrawals. Traditional IRA owners who do not need the RMD can roll it into a Roth IRA in some cases, though this creates a taxable event.
Comparing the accounts side by side
| Traditional IRA | Roth IRA | |
|---|---|---|
| 2024 contribution limit | $7,000 (under 50); $8,000 (50+) | $7,000 (under 50); $8,000 (50+) |
| Income limits on contributions | None | $146,000–$161,000 single; $230,000–$240,000 married filing jointly |
| Tax treatment of contributions | May be tax-deductible | After-tax (not deductible) |
| Tax treatment of withdrawals | Taxed as ordinary income | Tax-free (if account is 5+ years old and you are 59½+) |
| Early withdrawal of contributions | Taxed and penalized before 59½ | Penalty-free and tax-free anytime |
| Required minimum distributions | Begin at age 73 | None during account holder's lifetime |
| Inherited by spouse | Spouse can roll into their own IRA or take RMDs | Spouse can roll into their own Roth or treat as inherited |
Converting between account types
You can convert money from a traditional IRA to a Roth IRA at any time. The amount you convert is treated as a taxable withdrawal from the traditional IRA in that year, meaning you owe income tax on it. After the conversion, that money grows tax-free in the Roth and can be withdrawn tax-free in retirement.
A conversion makes sense if you expect tax rates to rise, if you have a low-income year and want to convert at a lower rate, or if you want to reduce future required minimum distributions. It does not make sense if the tax bill would be large or if you cannot pay the tax from outside the IRA (paying it from the IRA itself reduces the amount that gets converted).
If you convert and then change your mind, you can undo it with a "recharacterization," though this option is limited. You must recharacterize by the tax filing important date (including extensions) for the year of the conversion. After that, the conversion is permanent.
Frequently Asked Questions
Can I have both a traditional IRA and a Roth IRA at the same time?
Yes. Your combined contributions to all IRAs cannot exceed the annual limit ($7,000 for 2024 if you are under 50), but you can split that between a traditional IRA and a Roth IRA however you choose. Many people use both — contributing to a traditional IRA for the tax deduction and to a Roth for tax-free growth.
What happens to my IRA if I die?
Your beneficiary inherits the account. If your spouse inherits a traditional or Roth IRA, they can roll it into their own IRA or treat it as inherited and take distributions over their lifetime. Non-spouse beneficiaries must withdraw the entire account within 10 years under current rules, though the withdrawal schedule depends on when you died and the account type.
Can I contribute to an IRA if I am self-employed?
Yes, as long as you have self-employment income. You can contribute to a traditional or Roth IRA using the same limits as any other worker. Self-employed people can also open a SEP IRA or Solo 401(k), which allow much higher contributions, but a regular IRA is available to you as well.
Do I have to choose one account type and stick with it?
No. You can contribute to a traditional IRA one year and a Roth IRA the next year. You can also convert between them. Your choice does not lock you in — you can adjust your strategy as your income, tax situation, or retirement timeline changes.
Which account should I open first?
That depends on your current income, expected retirement income, and whether you want a tax break this year or in retirement. If you are in a high tax bracket now and expect to be in a lower one in retirement, a traditional IRA's deduction helps more. If you are in a lower bracket now or expect to be in a higher one later, a Roth IRA's tax-free growth helps more. If you are unsure, opening both and splitting contributions between them hedges your bet on future tax rates.