Roth IRA vs Traditional IRA Explained Simply

Written by Dawn Allcot is a personal finance writer with more than two decades experience

Roth IRA vs Traditional IRA Explained Simply

IRAs, or individual retirement accounts, are a great way to bolster retirement savings. They can also supplement an employer-sponsored 401(k) through additional tax-advantaged accounts. For self-employed individuals or those who don’t have access to an employer-sponsored 401(k), IRAs can play an even larger role in retirement savings.

Roth IRAs and traditional IRAs have different advantages for savers and retirees. Understanding the basics can help you choose the best retirement vehicles for your situation.

While there are some significant nuances we’ll dive into later in this article, the key difference between a Roth IRA and a traditional IRA is where in life you reap the tax benefits of these investments.

Traditional IRA

A traditional IRA is funded with pre-tax dollars at the point you put the money into your account. Thus, the portion of your income going into the IRA isn’t included in your adjusted gross income (AGI). Your AGI is your gross income minus eligible deductions, including traditional retirement account contributions. The money you put into a traditional IRA reduces your AGI and your taxable income, thus impacting and your tax bracket. When you lower your AGI you can also lower your tax bracket, so investing money in a traditional IRA can reduce the taxes you pay at the time of investment.

Roth IRA

A Roth IRA is funded with after-tax dollars. Thus, a Roth IRA has no impact on your AGI at the time of investment. The benefit comes later in life. When you withdraw funds from a Roth IRA after age 59 1/2 , it is tax-free, as long as you’ve held the account five years. So, you reap the tax benefits at the point of retirement vs the time of investment.

Is a Traditional IRA the Right Choice for You?

Typically, when you're starting your career, you don't earn as much money as you do later in life. And you probably want and need to use more of your income to pay bills and support your lifestyle and family. So, you don't have as much money to save and invest. This is a time when you might find a traditional IRA to be an attractive option to save for retirement.

That said, it could be costly later in life, especially if you're in a line of work where your income will increase dramatically over the course of your career. As the traditional IRA value grows over time and you hit retirement age and expect to keep working, you will have to pay taxes on the withdrawls at your higher tax bracket. But, if you expect to retire and then start to withdraw from your IRA, you would have a lower income than during your working years and the traditional IRA would be a smart choice.

Is a Roth IRA a Better Choice for Early Career Professionals?

If you’re saving and investing steadily for retirement, it’s reasonable to think you’ll be in a higher tax bracket in retirement.

A Roth IRA allows you to make after-tax contributions. That money grows tax free. Then, you can make withdrawals to fund your retirement without paying taxes on those withdrawals.

It makes sense to pay taxes on your income earlier in your career, when you have a lower AGI, since you’ll be in a lower tax bracket and can pay a smaller percentage of your income.

That’s why a Roth IRA is worth considering if you expect to have a higher income after retirement.

Who Else Should Consider a Roth IRA?

It’s not just early-career professionals who benefit from the tax-free growth of a Roth IRA.

Upper-Middle Earners Making Catch-up Contributions

Each year the IRS provides a "maximium allowable income" that refers to an income threshold for tax benefits. If you’re earning more than the maximum allowable amount ($153,000 in 2026), a Roth IRA provides you a way to make catch-up contributions. You can’t make catch-up contributions into a traditional IRA if your income exceeds the IRS limit.

Taxpayers with Employer-Sponsored Retirement Plans

Similarly, you may lose the tax deduction benefits of a traditional IRA if you also have an employer-sponsored retirement plan.

If your modified adjusted gross income (MAGI) exceeds $91,000, you can’t deduct any of your traditional IRA contributions. If your MAGI is between $81,000 and $91,000, you can take a partial deduction.

For married couples filing jointly, the rules are slightly different. Partial deductions are allowed if you participate in a workplace retirement plan and, together with your spouse, have a combined MAGI of between $129,000 and $149,000. The deduction phases out fully at $149,000.

However, if your spouse participates in a plan, you’re allowed to fully deduct your own traditional IRA contributions if your combined MAGI is $242,000 or less. With a combined MAGI between $242,000 and $252,000, you can take a partial deduction. The deduction fully phases out at $252,000.

NOTE: Please speak with a tax professional or financial advisor about investment options.

How Much Can You Contribute to an IRA?

In 2026, you can make total contributions (not including catch-up contributions) of $7,500 into traditional and Roth IRAs, combined. If you’re 50 or older, you can contribute an extra $1,100 in these accounts as catch-up contributions in 2026 for a total of $8,100.

Individuals who turn 60 to 63 in 2026 can make catch-up contributions to reach a total of $11,250.

If you earned more than $153,000 in 2025 ($242,000 for married couples filing jointly), you must make all catch-up contributions to a Roth account using after-tax dollars in 2026.

To contribute to an IRA, either you or your spouse (if filing jointly) must have taxable income. Your total combined contributions cannot exceed your taxable income, according to IRS.gov.

Roth IRA vs. Traditional IRA Withdrawals and Required Minimum Distributions

Roth IRAs offer advantages for early retirees or anyone who may want more flexibility in how to save or spend their money later in life. That’s because Roth IRAs don’t require you to take distributions at any point. You can keep the money in the account and pass it on to your heirs after your death.

On the other hand, a traditional IRA requires minimum distributions once you reach age 73. At that point, you’ll also pay taxes on the money.

If you need to withdraw funds from your traditional IRA before age 59 ½, you’ll also pay an additional 10% tax. But, unlike a Roth IRA, you won’t pay any penalties on the withdrawals.

Understanding Contributions vs. Earnings in Your Roth IRA

You can withdraw Roth IRA contributions at any time without paying penalties or taxes, since you already paid the taxes when you funded the account.

But there are different rules for earnings.

You’ll pay taxes and penalties if you withdraw earnings before you reach age 59 ½ and until you’ve held the account for five years or more. This applies even if you’ve converted a 401(k) or a traditional IRA into a Roth account.

How to Avoid Early Withdrawal Penalties on a Roth IRA

However, there are a few exceptions to the 10% penalty. You may be able to withdraw Roth IRA earnings without a penalty before the age of 59 ½ and before five years if you’re:

Paying for qualified education expenses
Withdrawing up to $5,000 within a year following the birth or adoption of a child
Paying for certain healthcare costs or medical bills
Are a military reservist called to active duty
Covering an IRS levy

You’ll still have to pay taxes on these distributions.

You can withdraw Roth IRA earnings without taxes or penalties if you’ve held the IRA for at least five years and are 59 ½.