Traditional or Roth? Understanding IRAs

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Main takeaways

• Traditional IRAs offer upfront tax deductions, while Roth IRAs provide tax-free withdrawals in retirement.

• RMDs apply only to traditional IRAs, which currently start at age 73. 

• Roth IRAs have income limits on contributions, whereas traditional IRAs mainly restrict deductions if you or your spouse have a workplace retirement plan.

• Using both account types creates tax diversification, giving you more flexibility and control over your income strategy in retirement.

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Individual retirement accounts (IRAs) are among the most powerful tools you can use to build your nest egg. Because they offer tax advantages over regular brokerage accounts, you end up keeping more of the money you earn and invest. 

Before getting started with IRAs, however, you’ll have to choose whether a traditional or Roth version of the account best suits your needs. We’ll compare these two popular account types and explain who may benefit most from each one. 

What are the differences between a traditional and Roth IRAs? 

Traditional IRAs and Roth IRAs are both effective ways to grow your retirement assets, but there are several key differences between the two. Here’s what you should know to make sure you’re eligible to contribute and that you snag the biggest tax benefit possible. 

Tax treatment

Perhaps the most important differentiator between these two accounts has to do with their tax treatment. 

Contributions to traditional IRAs are tax-deductible upfront if you meet income requirements, allowing you to get a tax break in the year you contribute. For that reason, they’re sometimes referred to as “pre-tax IRAs.” Your assets grow on a tax-deferred basis until you make a withdrawal after age 59½. At that point, the money you pull out is taxed at your ordinary income rate.

By contrast, you make Roth IRA contributions with after-tax dollars, but you can make completely tax-free withdrawals once you’re 59½ and have owned the account for at least five years. So you’re trading an upfront tax benefit—the ability to write off contributions—for a more long-term reward. 

Required minimum distributions (RMDs) 

When you put money into a traditional IRA, you have to take required minimum distributions every year once you reach age 73 (though it’ll go up to age 75 for those born in 1960 or after). If you don’t, you’re smacked with a whopping 50% penalty on the required amount you didn’t withdraw.

These RMDs, which are based on your statistical life expectancy, give you less flexibility when it comes to your income sources in retirement. They can also force you to sell assets when the market happens to be on a downswing.

Conversely, Roth IRAs don’t have RMDs. So you have more leeway in terms of when you pull money out. And you could potentially leave more money in your account for your heirs when you pass away. 

Income limits

In 2025, you can contribute a total of $7,000 to IRAs, or up to $8,000 if you’re age 50 or older. If neither you nor your spouse have a workplace retirement plan, you can deduct the full amount that you put into a traditional IRA. If you or your spouse do have a retirement plan at work, however, the amount of your deduction depends on your income level

By contrast, contributions to a Roth IRA are completely restricted if your income exceeds certain limits.

Filing Status	2025 MAGI	Allowed Contribution
Single or head of household	Less than $150,000	Up to the limit
	$150,000 to $164,999	Reduced amount
	$165,000 or more	Zero
Married, filing jointly	Less than $236,000	Up to the limit
	$236,000 to $245,999	Reduced amount
	$246,000 or more	Zero
Married, filing separately	Less than $10,000	Reduced amount
	$10,000 or more	Zero

Source: Internal Revenue Service 

Is a traditional or Roth IRA right for you? 

There’s really no one-size-fits-all answer to whether a traditional IRA or a Roth IRA is the better tool for retirement savings—it depends on your unique circumstances. 

In general, a traditional IRA may represent the better solution if you’re already well-established in your career and expect to be making less, not more, income in retirement. In that situation, taking advantage of the deduction for contributions will probably yield you a bigger tax break than the one you’ll get later on. That assumes, though, that your current income is low enough to allow you a full deduction on what amount you invest in the IRA.

If you meet the income requirements, a Roth tends to be a good idea if you’re young and haven’t reached your peak earning years. Investing with after-tax dollars can also be worthwhile if you want more flexibility once you reach your retirement years and don’t want to deal with RMDs. 

Using tax diversification in your portfolio

When choosing an IRA, however, you should always consider how these accounts fit into your overall retirement strategy. Having a mix of traditional and Roth accounts, including your workplace retirement plan, creates tax diversification. That’s critical to helping you maximize your net income when you leave the workforce. 

For one, having accounts with different tax treatment allows you to hedge your bets. You may not know for sure whether your tax bracket is going to be higher or lower by the time you retire. By having both traditional and Roth assets from which you can draw, you’re in a safe middle ground.

Tax diversification also helps you access your holdings more strategically in retirement. For example, you can use traditional retirement accounts to provide a base level of income. Should you need additional funds, you can make tax-free withdrawals from your Roth IRA to keep you from jumping into a higher income tax bracket. 

Keep in mind that your contributions don’t need to be all-or-nothing. The contribution limit applies to all your IRAs, but how you split them is up to you—provided that you meet the Roth income requirements. So you can contribute $3,500 to a traditional IRA and another $3,500 to a Roth IRA, if that makes sense for your financial situation. 

The upshot

Both traditional and Roth IRAs can be powerful tools to build long-term wealth—the right choice depends on your income, tax situation and retirement goals. By understanding their differences—or even blending the two—you can create a tax-smart strategy that provides financial security later in life.