Introduction
Individual Retirement Accounts (IRAs) come in two main flavors: Traditional and Roth. Both grow your investments tax-advantaged, but they differ in when and how taxes are applied. The choice between them is one of the most consequential personal finance decisions you can make, because it affects your tax bill in retirement — potentially by tens of thousands of dollars.
How Traditional IRAs Work
Contributions to a Traditional IRA may be tax-deductible in the year you make them, depending on your income and whether you have access to a workplace retirement plan. Your money grows tax-deferred — you don't owe taxes on gains until you withdraw the money in retirement. Withdrawals in retirement are taxed as ordinary income. You must begin taking Required Minimum Distributions (RMDs) at age 73, whether you need the money or not.
How Roth IRAs Work
Roth IRA contributions are made with after-tax dollars — you get no immediate deduction. However, qualified withdrawals in retirement are completely tax-free, including all the growth. There are no RMDs during your lifetime, giving you more flexibility to pass wealth to heirs or let it keep growing. To contribute to a Roth IRA, your income must be below certain thresholds ($161,000 for single filers, $240,000 for married filing jointly in 2024, with phased limits in between).
The Core Question: Now or Later?
The fundamental trade-off is: do you want to pay taxes now (Roth) or in retirement (Traditional)? If you expect to be in a higher tax bracket in retirement than you are today, the Roth wins — you lock in today's lower rate. If you expect to be in a lower bracket in retirement (because your income drops), the Traditional wins — you defer taxes to when they're cheaper. If rates stay the same, the math works out nearly identically.
Who Should Choose Roth
Young people early in their careers who are currently in low tax brackets benefit most from Roth IRAs. Self-employed individuals who can control their taxable income to stay in lower brackets benefit from Roth flexibility. Anyone who wants no RMDs and wants to leave a tax-free inheritance to children should lean Roth. High earners above the income limit can use a "backdoor Roth" — contribute to a nondeductible Traditional IRA, then convert it.
Who Should Choose Traditional
Higher earners who get a meaningful deduction today and expect lower income in retirement benefit most from Traditional IRAs. Anyone who needs to reduce their current-year taxable income — to qualify for financial aid, avoid phase-outs, or reduce their effective tax rate — benefits from the Traditional deduction. If you live in a high state-income-tax state now and plan to retire in a lower-tax state, Traditional can make sense.
Conclusion
Most financial advisors suggest diversifying: contribute to both a Roth and a Traditional account if possible. Having both gives you flexibility to manage your tax liability in retirement. Use our Retirement Calculator to model your specific situation.