Roth vs. traditional IRA: how they differ

An individual retirement arrangement, or IRA, is a retirement account a person opens on their own rather than through an employer. There are two main kinds, traditional and Roth. They hold the same sorts of investments and share the same annual contribution limit. What separates them is when the money is taxed and what rules apply on the way out.

The core difference is when tax is paid

With a traditional IRA, contributions may be tax-deductible in the year they are made. The money then grows without being taxed each year, and withdrawals are generally taxed as ordinary income.

With a Roth IRA, the order is reversed. The IRS states plainly that contributions to a Roth IRA cannot be deducted. The money goes in after tax, grows without annual tax, and withdrawals that meet the requirements for a "qualified distribution" are tax-free.

So the choice is often described as paying tax now (Roth) or paying tax later (traditional). Neither is automatically better. The result depends on a person's tax rate today compared with their tax rate when the money comes out, and the future rate is something nobody knows for certain.

Side-by-side comparison

Contribution limits are shared

The annual limit applies to all of a person's traditional and Roth IRAs added together. According to the IRS, for 2026 the total cannot be more than $7,500, or $8,600 for someone age 50 or older, and it cannot be more than the person's taxable compensation for the year. Someone could put the whole amount in one type or split it between the two.

Rollovers from a workplace plan do not count against this limit. The details, including the rules for a spouse without earnings, are covered in IRA contribution limits and income rules.

How income affects each type

Income matters for both account types, but in different ways.

• Traditional IRA. Anyone with compensation can contribute. Whether the contribution is deductible is a separate question. The IRS explains that the deduction is allowed in full if neither spouse is covered by a retirement plan at work, and may be reduced or eliminated above certain income levels if either is covered.
• Roth IRA. The ability to contribute directly shrinks and then disappears as modified adjusted gross income rises through a phase-out range that depends on filing status.

A person who earns too much to deduct a traditional contribution can still make a nondeductible one. That fact is the starting point for the arrangement often called a backdoor Roth IRA.

Rules for taking money out

Traditional IRA. Withdrawals are generally included in income. Before age 59½, a 10% additional tax usually applies on top of regular income tax unless one of the exceptions fits. Those exceptions are described in early withdrawals and the rule of 55.

Roth IRA. IRS Publication 590-B says a person does not include in income distributions that are a return of regular contributions. In other words, the amount originally contributed can generally be taken back without tax. Earnings are treated differently. They come out tax-free only in a qualified distribution, which requires that a five-year period has passed and that the owner is at least 59½, disabled, deceased, or using up to a lifetime $10,000 for a first home. The timing rules are explained in the Roth IRA five-year rules.

Required minimum distributions

The law does not let money stay in a traditional IRA indefinitely. The IRS says owners generally have to start taking withdrawals when they reach age 73. These required minimum distributions, or RMDs, are taxable and happen whether or not the owner wants the income.

Roth IRAs have no RMDs while the original owner is alive. That can matter to someone who expects not to need the money, or who wants more control over taxable income late in life. Beneficiaries of either type are subject to distribution rules after the owner's death.

Questions that often shape the choice

Because the answer turns on personal facts, it may help to think in terms of questions rather than rules of thumb.

• Is the current tax bracket likely to be higher or lower than the bracket in retirement? A deduction is worth more in a high-bracket year; tax-free withdrawals are worth more if later rates are higher.
• Is the traditional contribution deductible at all? If not, the comparison changes.
• Is income within the Roth contribution range?
• How valuable is flexibility? Roth contributions can be withdrawn without tax, and there are no lifetime RMDs.
• What other accounts exist? Many people end up with a mix of pre-tax and Roth money, an idea discussed in the three account buckets.

Some people split contributions between the two types precisely because future tax rates are uncertain. It is also possible to move traditional IRA money into a Roth later through a Roth conversion, which is a taxable event in the year it happens.