The core difference is when you pay tax. A traditional IRA can give you a deduction now and taxes the money as ordinary income when you take it out. A Roth IRA gives no deduction now, and qualified withdrawals later come out tax free. Nearly every other difference follows from that one split.
The differences at a glance
| Feature | Traditional IRA | Roth IRA |
|---|---|---|
| Contributions | May be deductible, depending on income and workplace plan coverage | Never deductible, made with after tax money |
| Growth inside the account | Tax deferred | Tax free if the rules are met |
| Qualified withdrawals | Taxed as ordinary income | Not taxed |
| Income limit to contribute | None, though the deduction phases out | Yes, eligibility phases out above limits the IRS updates annually |
| Required minimum distributions | Yes, starting at an age set by law | None for the original owner |
| Taking money out early | Income tax plus a 10 percent additional tax unless an exception applies | Contributions come out anytime, earnings follow their own rules |
How a traditional IRA works
Money goes in before tax, at least potentially. Whether you can actually deduct the contribution depends on your income and on whether you or your spouse is covered by a retirement plan at work. If you contribute without taking a deduction, that after tax money becomes basis and gets tracked on IRS Form 8606, which is what stops it being taxed a second time on the way out.
Investments grow untouched by tax while they sit inside the account. Withdrawals in retirement are taxed as ordinary income at whatever rate applies in that year. Once you reach the age Congress has set, required minimum distributions begin and the government starts collecting on what it let you defer. That age has been changed more than once in recent years, so look up the current one on IRS.gov instead of trusting an older article.
How a Roth IRA works
Money goes in after tax, with no deduction at all. From that point on, if the rules are met, nothing is taxed again. Not the growth, and not the withdrawal.
Qualified means two conditions are satisfied. The account has to have been open five years, and you have to be 59 and a half or older, with narrow exceptions for death, disability and a first home purchase up to a lifetime cap. Your contributions, as opposed to the earnings on them, can be withdrawn at any time without tax or penalty, because that money was already taxed once.
There are also no required minimum distributions for the original owner, which is why Roth balances often stay invested the longest. Eligibility to contribute does phase out above certain modified adjusted gross income levels, and those levels are adjusted for inflation each year.
Rules that apply to both
- You need earned income for the year. Investment income and most retirement income do not count.
- One annual contribution limit covers all of your IRAs combined, Roth and traditional together. The IRS sets it each year, so check the current figure on IRS.gov.
- Contributions for a tax year can generally be made up to the federal filing deadline for that year rather than the end of the calendar year.
- A spousal IRA lets a working spouse contribute on behalf of a spouse with little or no income when the couple files jointly.
- You can hold both account types and split contributions between them, as long as the combined total stays inside the annual limit.
Where to get the current numbers
Every dollar figure attached to IRAs moves. Contribution limits, catch up amounts for older savers, Roth income phase outs and traditional deduction phase outs are all adjusted, and any page quoting them goes stale within a year. The primary sources are IRS.gov, Publication 590-A for contributions and Publication 590-B for distributions. Both are updated each filing season and cost nothing to read, which makes quoting a number from anywhere else a bad habit.
The trade off nobody can settle for you
A traditional IRA is a bet that your tax rate will be lower when you withdraw than it is today. A Roth is a bet on the opposite. Nobody knows future tax rates or your future income, which is why plenty of people end up holding both and treating it as hedging rather than optimizing.
Your own answer depends on your current bracket, your state, your workplace plan and your timeline. A CPA or a tax professional who can actually see your return is the right place to take that question. This page describes how the two account types are structured, and it is not tax or investment advice.
