Roth IRA vs. Traditional IRA: Which Retirement Path Is Right for You?
When it comes to building a secure retirement, Individual Retirement Accounts (IRAs) are powerful tools. But not all IRAs are created equal. The two most common types—Roth IRA and Traditional IRA—offer different tax advantages, rules, and long-term benefits.
Here’s how they compare:
Tax Treatment
• Traditional IRA: Contributions may be tax-deductible now, but withdrawals in retirement are taxed as income.
• Roth IRA: Contributions are made with after-tax dollars, but qualified withdrawals in retirement are completely tax-free.
Income Limits
• Traditional IRA: No income limits to contribute, but deductibility may phase out depending on your income and whether you have a workplace retirement plan.
• Roth IRA: Contributions are limited or phased out at higher income levels (e.g., $161,000–$240,000 for married couples filing jointly in 2025).
Required Minimum Distributions (RMDs)
• Traditional IRA: RMDs begin at age 73.
• Roth IRA: No RMDs during the account holder’s lifetime—giving you more control and flexibility.
Contribution Limits (2025)
• Both: Up to $7,000 annually ($8,000 if age 50 or older), across all IRAs combined.
Withdrawal Rules
• Traditional IRA: Early withdrawals (before age 59½) may incur taxes and a 10% penalty.
• Roth IRA: Contributions can be withdrawn anytime tax- and penalty-free; earnings can be withdrawn tax-free after age 59½ if the account is at least 5 years old.
Which One Should You Choose?
• Choose a Traditional IRA if you want a tax break now and expect to be in a lower tax bracket in retirement.
• Choose a Roth IRA if you prefer tax-free income later and expect your tax rate to be higher in the future.
Final Thought
Both accounts offer powerful ways to grow your retirement savings. The right choice depends on your current income, tax situation, and long-term goals. And in some cases, a mix of both might be the smartest strategy.