Traditional IRA vs. Roth IRA: Which Is Right for You?
Individual Retirement Accounts (IRAs) offer tax-advantaged ways to save for retirement outside of an employer plan. The two main types — Traditional and Roth — have different tax treatments that can significantly impact your long-term wealth.
Key Differences at a Glance
- Traditional IRA: Tax-deductible contributions now, taxed withdrawals in retirement
- Roth IRA: After-tax contributions now, tax-free withdrawals in retirement
- Both have a $7,000 annual contribution limit in 2025 ($8,000 if age 50+)
- Roth IRAs have income limits; Traditional IRA deductibility may be limited if you have a workplace plan
When to Choose a Traditional IRA
A Traditional IRA makes sense when you need a tax deduction now and expect to be in a lower tax bracket in retirement. If your employer does not offer a retirement plan, your Traditional IRA contributions are fully deductible regardless of income.
When to Choose a Roth IRA
A Roth IRA is ideal if you expect your income and tax rate to be higher in retirement. It is also excellent for younger workers who are currently in low tax brackets. Roth IRAs have no required minimum distributions (RMDs) during the owner's lifetime, making them powerful estate planning tools.
2025 Roth IRA Income Limits
- Single filers: Full contribution if MAGI under $150,000; phase-out up to $165,000
- Married filing jointly: Full contribution if MAGI under $236,000; phase-out up to $246,000
- Above these limits? Consider a backdoor Roth IRA conversion
Can You Have Both?
Yes. You can contribute to both a Traditional and Roth IRA in the same year, but your total contributions across both accounts cannot exceed the annual limit of $7,000 ($8,000 if age 50+).
