The core difference is when you pay tax. With a traditional IRA, contributions may be tax-deductible now, and withdrawals in retirement are taxed as income. With a Roth IRA, you contribute money you have already paid tax on, and qualified withdrawals in retirement are tax-free.
Side-by-side
| Feature | Traditional IRA | Roth IRA |
|---|---|---|
| Tax break | Contribution may be deductible now | No deduction now |
| Growth | Tax-deferred | Tax-free if rules are met |
| Withdrawals in retirement | Taxed as ordinary income | Qualified withdrawals are tax-free |
| Required minimum distributions | Yes, starting later in life | Not for the original owner |
| Contribution rules | Annual limits apply; deductibility depends on income and workplace plan | Annual limits apply; eligibility phases out at higher incomes |
Limits and income thresholds change most years, so check the current figures on the IRS website instead of relying on a number printed here.
A worked comparison
Imagine $5,000 of pre-tax income and an assumed 7% yearly return for 30 years (a growth factor of about 7.61). In the traditional account, the full $5,000 is invested and taxed on withdrawal. In the Roth, you pay tax first and invest what remains. The table shows the after-tax result for different tax rates now and later:
| Tax rate now | Tax rate in retirement | Traditional (after tax) | Roth (after tax) | Better |
|---|---|---|---|---|
| 22% | 22% | $29,688 | $29,688 | Tie |
| 22% | 12% | $33,494 | $29,688 | Traditional |
| 12% | 22% | $29,688 | $33,494 | Roth |
| 24% | 24% | $28,927 | $28,927 | Tie |
| 32% | 22% | $29,688 | $25,882 | Traditional |
When the tax rate is the same, both end at $29,688. The difference comes entirely from the rate change, not from the account type itself. This simplified example ignores contribution limits, state taxes, fees and market swings.
Questions to help you decide
- Is your income lower now than you expect it to be later (early career)? That favors Roth.
- Are you in a high bracket now and expect lower income in retirement? That can favor traditional.
- Do you want flexibility? Roth contributions (not earnings) can generally be withdrawn without tax or penalty, while earnings have rules.
- Do you already have a lot in pre-tax accounts? A Roth can add tax diversification.
Next steps
Many people use both over a career. If your employer offers a match on a workplace plan, capturing it is usually a priority. See how savings can grow with the Retirement Calculator, and how much to aim for in how much to save by age. Unfamiliar terms are in the glossary.
Common questions
What is the main difference between a Roth and a traditional IRA?
Traditional contributions may be deductible now and are taxed when withdrawn. Roth contributions are after-tax, and qualified withdrawals are tax-free.
Can I have both a Roth and a traditional IRA?
Yes, but annual contribution limits apply across your IRAs combined. Check the IRS for current rules.
Which is better for young savers?
Often Roth, because earnings are tax-free and your tax rate may rise later, but it depends on your income and expectations.
Are there income limits?
Yes. Roth eligibility phases out at higher incomes, and traditional deductibility can depend on income and whether you have a workplace plan.