Planning for retirement means thinking about the future while still managing today’s money. For many people, opening an Individual Retirement Account (IRA) is one of the easiest ways to start saving for the long term. But with two main types to choose from—Roth and Traditional—it can be tough to know which one makes the most sense.
Both accounts help you grow your money over time, but they work in different ways when it comes to taxes and withdrawals. Choosing the right one depends on your income, your tax bracket, and how you picture your finances during retirement.
What to Know Before Choosing an IRA
This article walks through the basics of Roth and Traditional IRAs, their differences, and how to decide which might fit your situation better.
You’ll learn about when you pay taxes, how contributions and withdrawals work, and what role your current income plays in making the most of each account. This is for anyone looking to start saving smarter—whether you’re just starting your first job or thinking ahead to life after work.
Understanding the Roth IRA
A Roth IRA is a retirement account where you pay taxes on your money now, but not later. That means your contributions are made with money you’ve already paid taxes on. When it’s time to retire, your withdrawals—including earnings—are tax-free, as long as you follow the rules.
One of the biggest benefits of a Roth IRA is that what you earn over time grows without being taxed again. This can be a good option for people who expect their income to go up in the future or who think they’ll be in a higher tax bracket during retirement.
Roth IRAs also offer some flexibility. You can withdraw your contributions (not the earnings) at any time without paying penalties or taxes. This makes it more accessible if you ever need to tap into the account in an emergency.
However, not everyone can contribute to a Roth IRA. If your income is too high, you might not qualify. The IRS sets annual limits based on your modified adjusted gross income (MAGI), so it’s worth checking if you’re eligible.
Understanding the Traditional IRA
With a Traditional IRA, your contributions may be tax-deductible, depending on your income and whether you’re covered by a workplace retirement plan. This means you might lower your taxable income now by putting money into the account.
The money then grows tax-deferred, which means you don’t pay taxes on it until you withdraw it in retirement. At that point, you’ll pay income tax on both your contributions and your earnings.
This setup can be useful if you’re in a higher tax bracket now and think you’ll be in a lower one after you retire. It lets you delay taxes until a time when your rate may be lower, potentially saving you money in the long run.
One thing to keep in mind is that Traditional IRAs have required minimum distributions (RMDs). Once you hit age 73, you have to start taking money out whether you need it or not, and those withdrawals will be taxed.
Tax Timing: Pay Now or Pay Later?
The biggest difference between the two IRAs comes down to timing. A Roth IRA has you pay taxes upfront, then lets your money grow tax-free. A Traditional IRA gives you a tax break now but makes you pay taxes later when you withdraw.
If you’re early in your career or currently in a low tax bracket, a Roth IRA might be the better pick. You pay taxes while your rate is low and enjoy tax-free growth later.
If you’re earning more now and expect to be in a lower bracket after retirement, a Traditional IRA may make more sense. It gives you a break when your taxes are high and delays them until you’re likely paying less.
Your personal financial goals, expected income changes, and comfort with future tax rates all play a role here. There’s no one-size-fits-all answer—it’s about what makes the most sense for your life.
Contribution Limits and Age Rules
Both types of IRAs have contribution limits set by the IRS. For 2024, the limit is $6,500 per year, or $7,500 if you’re 50 or older. You can’t exceed these amounts, but you can contribute to both a Traditional and Roth IRA in the same year—as long as your combined total doesn’t go over the limit.
Roth IRAs don’t have age limits for contributions as long as you have earned income. Traditional IRAs used to have age restrictions, but now you can contribute at any age, thanks to recent changes in the law.
Each account also has its own rules for withdrawing money early. Roth IRAs are more flexible, especially for first-time homebuyers or qualified education expenses. Traditional IRAs usually involve taxes and penalties if you take out money before age 59½, unless you qualify for an exception.
What If You Want Both?
Some people decide not to choose between them. Instead, they split their contributions between a Traditional and a Roth IRA. This approach lets you take advantage of both tax strategies and gives you more flexibility in retirement.
Having both accounts also means you can adjust your withdrawals later to manage your tax bill. If you need income but don’t want to push yourself into a higher tax bracket, you can pull from the Roth. If you want the deduction now, you can contribute more to the Traditional.
This blended strategy isn’t for everyone, but it can work well if you’re unsure where your future income and taxes will land. It offers some balance and room to pivot if things change down the road.
Choosing between a Roth IRA and a Traditional IRA doesn’t have to be complicated. Think about your income, your tax situation, and how you want to manage your money in retirement. Both options offer solid ways to build a secure future—it’s just a matter of picking the one that fits your plan today.
