Both are US individual retirement accounts that let investments grow without yearly tax; the difference is when you pay income tax. A Traditional IRA contribution may be deductible now, and every withdrawal in retirement is taxed as income. A Roth IRA contribution is made with money already taxed, and qualified withdrawals, growth included, are tax-free. The rule of thumb: if you expect a lower tax rate in retirement than today, Traditional wins; if you expect the same or higher, Roth wins or ties, and Roth adds flexibility.
This page explains the general rules. Contribution limits, income limits and deduction phase-outs change yearly; check the IRS figures for the current year before acting.
At a glance
| Property | Traditional IRA | Roth IRA |
|---|---|---|
| Tax on contributions | Often deductible now (may be limited if you or a spouse have a workplace plan and higher income) | No deduction; you contribute after-tax money |
| Tax on growth | Deferred | None |
| Tax on withdrawals | Taxed as ordinary income | Qualified withdrawals are tax-free |
| Who can contribute | Anyone with earned income | Direct contributions phase out above an income limit |
| Early access | Withdrawals before 59½ are generally taxed plus a 10% penalty, with exceptions | Contributions can be withdrawn any time, tax- and penalty-free |
| Required minimum distributions | Yes, from age 73 (75 for people born in 1960 or later) | None for the original owner |
| Effect on taxable income in retirement | Raises it | None |
| Annual contribution limit | Shared with the Roth | Shared with the Traditional |
The marginal-rate logic
Tax is multiplication, and multiplication does not care about order. Take $5,000 of pre-tax earnings, a 22% marginal tax rate today and investments that grow 7% a year for 30 years (a growth factor of 1.07^30 ≈ 7.6123):
- Roth: pay 22% tax first, invest $3,900, and it grows to $29,687.79, all tax-free.
- Traditional: invest the full $5,000, which grows to $38,061.28, then pay tax on withdrawal.
| Tax rate on withdrawal | Traditional after tax | Roth | Difference |
|---|---|---|---|
| 12% (lower than today) | $33,493.92 | $29,687.79 | Traditional +$3,806.13 |
| 22% (same as today) | $29,687.79 | $29,687.79 | Tie |
| 32% (higher than today) | $25,881.67 | $29,687.79 | Roth +$3,806.13 |
So the decision is really a forecast: compare your marginal rate today with the rate you expect to pay on the withdrawals. Use the Income Tax Calculator to find today's marginal rate, and the Roth IRA Calculator or IRA Calculator to project your own numbers.
One twist favours the Roth when you contribute the maximum: the limit is a dollar amount, and a Roth dollar is worth more because its tax is already paid. $5,000 in a Roth grows to $38,061.28 that is all yours; $5,000 in a Traditional grows to the same figure but is worth $29,687.79 after 22% tax.
Traditional IRA
The deduction lowers this year's tax bill at your current marginal rate. Withdrawals later fill the lower tax brackets first, so a retiree with modest other income may pay a lower average rate on them than the rate they deducted at.
Choose Traditional when:
- You are in a high bracket now and expect a noticeably lower one in retirement.
- You need the deduction to stay under an income threshold this year.
- You plan to retire somewhere with lower or no state income tax.
Roth IRA
Roth money is tax-free in retirement, does not raise your taxable income (which can affect how much of Social Security is taxed and some income-based charges), and has no required minimum distributions during your lifetime, which makes it good to leave to heirs. Contributions can come back out at any time, so it doubles as a last-resort reserve.
Choose Roth when:
- You are early in your career or in a low bracket now.
- You expect higher income, or higher tax rates, later.
- You value flexibility and tax diversification, or want to avoid RMDs (see the RMD Calculator for what a Traditional balance would force out).
Which should you choose?
- Low bracket today: Roth.
- High bracket today, expect a much lower one in retirement: Traditional.
- Not sure: split between them, or use a Roth IRA alongside a pre-tax workplace plan such as a 401(k) to hold both kinds of money.
- Income above the Roth limit: a Traditional IRA (deductible or not); ask a tax professional about conversion strategies.
- Employer match available: contribute enough to your workplace plan to get the full match first; check with the 401(k) Calculator.
For how these accounts fit together with workplace plans and Social Security, see How Retirement Savings Work.