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Roth IRA vs. traditional IRA: What’s the difference?

Traditional and Roth IRAs both offer tax advantages for retirement savings but differ in key ways.

Individual retirement accounts (IRAs) come in two main types: traditional and Roth. These IRAs share several similarities but differ in a few notable ways.

Find out how Roth IRAs and traditional IRAs compare and which might be best for you.

Roth IRA vs. traditional IRA: How they compare

Roth IRATraditional IRA
Tax benefits
  • Tax-free earnings growth
  • Qualified withdrawals are tax-free
  • Contributions may be tax-deductible
  • Funds grow tax-deferred
2023 income limitsSingle tax filers with a modified adjusted gross income (MAGI) of less than $153,000 or married couples filing jointly with a MAGI less than $228,000 can contributeNo income limits
2023 contribution limits$6,500 ($7,500 if you’re over 50)$6,500 ($7,500 if you’re over 50)
Withdrawal penalties / rules
  • Withdrawal contributions at any time, tax- and penalty-free
  • A 10% penalty applies if you withdraw earnings before you’re age 59 and a half and if it has not been five years since you first contributed to a Roth IRA
Withdrawals before you’re age 59 and a half are subject to taxes and incur a 10% early-withdrawal penalty
Required minimum distributions (RMDs)No RMDsYou must start taking distributions at age 72 (or 73 if you reach age 72 after December 31, 2022)

What is a Roth IRA?

Created by the Taxpayer Relief Act of 1997, the Roth IRA is a type of IRA that gives you tax-free withdrawals in retirement. Your contributions to a Roth IRA are categorized as post-tax money, or money on which you’ve already paid taxes. This lets the funds in your Roth account grow tax-free and lets you withdraw your money free of tax when you retire.

With after-tax contributions, you can withdraw your contributions at any time without additional taxes or penalties. You’ve already given Uncle Sam its due, so you’re free to withdraw your contributions at any point. The Internal Revenue Service (IRS) treats investment earnings a little differently, though. You need to reach the age of 59 and a half and have held a Roth IRA for at least five years since your first contribution before you can withdraw earnings without owing tax. The IRS calls these “qualified distributions.”

Because you don’t have to pay taxes on qualified distributions, a Roth IRA may be desirable if you expect to be in a higher tax bracket in retirement. Instead of paying taxes later when you’re making more money, you pay taxes today while your taxable income is lower.

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Roth IRA income and contribution limits

Roth IRAs have income limits that don’t apply to traditional IRAs. If your MAGI is above the threshold set by the IRS each year, you cannot contribute to a Roth IRA directly. We say “directly” because there’s a workaround called a backdoor Roth IRA that lets you fund a Roth IRA even if your income disqualifies you from contributing directly.

If you’re eligible to contribute to a Roth IRA, you can contribute up to $6,500 ($7,500 if you’re age 50 or older) in 2023. This is the same contribution limit that applies to traditional IRAs, and it’s the total you can contribute across all your Roth or traditional IRAs.

Single

Modified AGIContribution
< $138,000up to the limit
≥ $138,000 but < $153,000a reduced amount
≥ $153,000zero

Married filing jointly

Modified AGIContribution
< $218,000up to the limit
≥ $218,000 but < $228,000a reduced amount
≥ $228,000zero

Roth IRA withdrawal penalties

While you can withdraw Roth IRA contributions at any time without penalty, the IRS treats the earnings portion of your account differently. You must pay a 10% penalty if you withdraw any account earnings prior to age 59 and a half and before it’s been at least five years since you first contributed to a Roth IRA. To clarify, even if you’re of retirement age, say 65, you still have to wait five years after you first made a Roth IRA contribution to withdraw earnings penalty-free.

There are some exceptions to this 10% early-withdrawal penalty. These include using the funds to pay a qualified higher education expense or to make payments necessary to prevent eviction from your primary residence. You can also withdraw up to $10,000 penalty-free before you’re 59 and a half to make a first-time home purchase. Other exceptions are available as well.

Roth IRA pros and cons

Pros

  • Withdraw contributions at any time without taxes or penalties
  • Qualified withdrawals of earnings are tax-free
  • Not subject to required minimum distributions
  • Great for those who expect to be in a higher tax bracket in retirement

Cons

  • Contributions are not tax-deductible
  • Contributions are subject to income limits
  • 5-year withdrawal rule applies

What is a traditional IRA?

Congress created the traditional IRA in 1974 as a way to give workers without an employer-sponsored retirement plan a tax-advantaged way to save for retirement. It’s the original IRA, and it lets you deduct your contributions and defer taxes.

Depending on your MAGI and whether you’re covered by a retirement plan at work, your contributions to a traditional IRA may be tax-deductible. In other words, if you contribute $3,000 this year to a traditional IRA and qualify for a full deduction, you can deduct the $3,000 from your taxable income when you file taxes in April. This lowers your taxable income for the year, which lowers how much you’ll need to pay in taxes.

Aside from the possible tax deduction, traditional IRAs let you delay paying taxes on your contributions and any earnings growth over the years until you reach retirement. You fund a traditional IRA with pre-tax dollars — money that has yet to be taxed — so you’ll owe taxes when you withdraw the money later on.

Opposite of the Roth IRA, a traditional IRA may be a good option if you expect to be in a lower income tax bracket in retirement. You delay paying taxes today while your taxable income is higher and pay the taxes later when you’re in a lower tax bracket. The traditional IRA may also be appealing if you want an immediate tax break, as you’re allowed to deduct contributions in the year you make them.

Traditional IRA income and contribution limits

The traditional IRA has no income limits, so you can contribute to this account no matter your MAGI. The most you can contribute to both your traditional and Roth IRAs in 2023 is $6,500 ($7,500 if you’re age 50 or older) in total.

While there’s no income limit, you need to qualify to deduct your contributions from your taxable income. Eligibility depends on your MAGI, filing status and whether you have a retirement plan at work.

Single

Have a workplace retirement plan?Modified AGIDeductible amount
Yes≤ $73,000Full deduction up to the limit
Yes> $73,000 but < $83,000Partial deduction
Yes≥ $83,000No deduction
NoAny amountFull deduction up to the limit

Married filing jointly or qualifying widow(er)

Have a workplace retirement plan?Modified AGIDeductible amount
Yes, both spouses≤ $116,000Full deduction up to the limit
Yes, both spouses> $116,000 but < $136,000Partial deduction
Yes, both spouses≥ $136,000No deduction
Yes, one spouses≤ $218,000Full deduction up to the limit
Yes, one spouses> $218,000 but < $228,000Partial deduction
Yes, one spouses≥ $228,000No deduction
No, neither spouseAny amountFull deduction

Traditional IRA withdrawal penalties

The 5-year withdrawal rule that applies to Roth IRAs does not apply to traditional IRAs. You only incur a 10% early-withdrawal penalty if you withdraw funds before you’re age 59 and a half. The same exceptions to the early-withdrawal penalty for Roth IRAs also apply.

Traditional IRA owners can’t let the money sit in their account indefinitely. Starting at age 72 (73 if you reach age 72 after December 31, 2022), you must begin taking withdrawals each year. If you don’t withdraw the full amount of your RMD by the due date, the amount not withdrawn is subject to a 25% excise tax.

You can calculate the minimum you must withdraw by taking your account balance as of December 31 of the previous year and dividing it by the appropriate distribution period noted on the IRS’s “Uniform Lifetime Table.”

Traditional IRA pros and cons

Pros

  • No income limits for contributions
  • Contributions can be tax-deductible
  • Earnings grow tax-deferred
  • No 5-year withdrawal rule
  • Great for those who expect to be in a lower tax bracket in retirement

Cons

  • You must begin taking distributions by age 72 or 73 or face extra taxes
  • Both contributions and earnings are subject to a 10% early-withdrawal penalty prior to age 59 and a half
  • Tax deductibility is reduced if you’re covered by a workplace retirement plan

Can you have both a traditional and a Roth IRA?

Yes, you can have both a traditional and a Roth IRA and many people do — especially if you’re unsure of your future tax situation. Financial planners call having both a form of tax diversification, because you’ll have both taxable and tax-free withdrawal options in retirement.

While you can have both a traditional and a Roth IRA, you can only contribute $6,500 in total in 2023.

Compare brokerages that offer Roth IRA accounts

Narrow down top brokers by annual fee, stock trade fee and more to find the best for your budget and financial goals.

1 - 6 of 6
Name Product Minimum deposit Annual fee Retirement account types
SoFi IRA
Finder Score: 4.2 / 5: ★★★★★
SoFi IRA
$0
$0 per month
Roth, Traditional, SEP, Rollover
Trade stocks, options, ETFs, mutual funds and alternative asset funds, with no-cost financial advice and a no-cost robo-advisor.
JP Morgan Personal Advisors
Finder Score: 3.3 / 5: ★★★★★
JP Morgan Personal Advisors
$25,000
0.6% on balances of $25,000 to $249,999

0.5% on balances of $250,000 to $1,000,000

0.4% on balances of $1,000,000+
Roth, Traditional
Ongoing access to an advisory team with personalized, expert-built portfolios. Provider terms & conditions apply
Robinhood Retirement
Finder Score: 4.4 / 5: ★★★★★
Robinhood Retirement
$0
0%
Roth, Traditional, Rollover
Boost your retirement savings with 1% in matching funds on every dollar contributed, transferred or rolled over to a Robinhood IRA.
Vanguard IRA
Finder Score: 4 / 5: ★★★★★
Vanguard IRA
$0
0.3%
Roth, Traditional, SEP, Spousal, Rollover
Save for retirement with Vanguard's commission-free stocks, ETFs and 160+ no-transaction-fee mutual funds.
Interactive Brokers IRA
Finder Score: 4.5 / 5: ★★★★★
Interactive Brokers IRA
$0
N/A
Roth, Traditional, SEP, Rollover
Choose from 6 IRA account options, with access to stocks, ETFs , futures, currencies and more.
Acorns Later
Finder Score: 4.2 / 5: ★★★★★
Acorns Later
$0
$3 per month
Roth, Traditional, SEP
Automatic ETF investing with as little as $5. Annual fee of $3, $5 or $9 per month depending on subscription.
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Bottom line

Both Roth and traditional IRAs are valuable investment accounts that give you tax benefits to save for retirement. The traditional IRA gives you an immediate tax break, while the Roth IRA lets you withdraw money tax-free in retirement. Consider your expected tax bracket in retirement when choosing the best IRA account in 2024 for you.

If you’re still unsure which account is best for you, consider consulting a financial advisor who can look at your unique situation.

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