Traditional IRA vs. Roth IRA: Which Is Best?

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The key difference between a Roth and a traditional IRA is when taxes are applied to your investment. Both offer tax advantages you can’t get in a regular, non-retirement investment account. Both can help you reach your long-term savings goals. But there are fundamental tax differences between the two types of accounts.

Depending on your current and future tax situations, one account might give you an edge. Understanding the ins and outs of both types of accounts can help you decide which one is the better option to maximize your long-term savings.

What Is the Difference Between an IRA and a Roth IRA?

In many ways, traditional and Roth IRAs are two sides of the same coin. Both provide tax benefits for retirement savings, but they do it in opposite ways.

Here’s a breakdown of the Roth vs. traditional IRA comparison, examining similarities and differences between the two types of accounts.

Traditional IRA

A traditional IRA is a tax-deferred retirement account that offers income tax deductions on certain contributions.

  • Main benefits: Tax deduction on eligible contributions; tax-deferred earnings growth
  • Main drawbacks: Distributions taxed as ordinary income; early withdrawal penalties; required distributions when you reach a certain age; tax deductions for contributions limited by income
  • Tax implications: Contributions and earnings grow tax-deferred until withdrawn; fully taxable when withdrawn; contributions can be tax-deductible
  • Withdrawal rules: Can take money out of an IRA at any time, though penalties may apply if you take early withdrawals; required minimum distributions begin once you turn age 72
  • Early withdrawal penalties: 10% penalty on early withdrawals — before age 59 ½ –, unless you qualify for exemptions; might be able to withdraw up to $10,000 penalty-free for first-time homebuyer expenses
  • IRA vs. Roth IRA contribution limits: up to $6,000 to an IRA for 2021, or $7,000 if you’re age 50 or older

Retire Comfortably

A traditional IRA is best for taxpayers likely to be in a lower income tax bracket after retirement. It’s also an appropriate vehicle for taxpayers who want the benefit of a current tax deduction rather than waiting until retirement to enjoy the primary tax benefit.

Roth IRA

A Roth IRA is a tax-deferred retirement investment account that allows for tax-free withdrawals on qualified distributions.

  • Main benefits: Earnings grow tax-free; no mandatory distribution requirements; no age limit on contributions; tax-free and penalty-free withdrawals of contributions
  • Main drawbacks: No tax deduction on contributions; early withdrawal penalties; income restrictions on contributions
  • Tax implications: No requirement to report income, dividends or capital gains within a Roth IRA; qualified withdrawals are tax-free
  • Withdrawal rules: Can withdraw contributions at any time without paying taxes or penalties –excluding early withdrawals; no required minimum distributions
  • Early withdrawal penalties: 10% early withdrawal penalty may apply, before age 59 1/2
  • Income requirements and limitations: Contributions not allowed for individuals and couples whose income exceeds the allowed amounts

The Roth IRA is best for taxpayers who anticipate higher tax rates in retirement. Younger investors and those who want more flexibility in their retirement accounts should also consider a Roth IRA.

Is It Better To Contribute To a Roth or Traditional IRA?

If you’re not sure which type of IRA is best for you, here’s an overview of the key differences between a Roth IRA and a traditional IRA.

Feature Traditional IRA Roth IRA
Eligibility Anyone with taxable compensation Anyone who has taxable compensation and a modified adjusted gross income below certain amounts
Tax breaks Qualifying contributions are deductible Contributions are not deductible
Annual income limit for making contributions None -Married filing jointly: $208,000
-Married filing separately: $10,000
-Single, head of household or married filing separately living apart: $140,000
Distribution Mandatory distributions start after you turn 72 No mandatory distributions
Withdrawals Withdrawals are taxable Qualified distributions are not taxed

Traditional IRA vs. Roth IRA: Which Is Better?

When choosing between a traditional IRA and a Roth IRA, there are many factors to consider. Here are a few of them.

Your Tax Bracket

A Roth IRA is preferred if you anticipate being in a higher tax bracket after you retire than while you are working. Your net after-tax income will be higher if you’re taking withdrawals at a time when you’re in a high tax bracket.

Retire Comfortably

For example, say you’re in the 15% tax bracket while working, but anticipate jumping up to the 22% bracket after you retire. If you contributed $1,000 to a traditional IRA while working, you’d get a $150 tax break. But you’d pay $220 in tax on that contribution when you withdraw it after retirement.

With a Roth IRA, the scenario plays out oppositely. You won’t get to save the $150 in taxes on your contribution — but you also won’t pay the $220 in tax on your withdrawal.

Your Age

A Roth IRA is typically preferred over a traditional IRA if you are a younger investor. If you start while you are young, by the time you retire, the earnings in your Roth are likely to far exceed your contributions.

Although you missed out on the tax deductions you would have received by contributing to a traditional IRA, the tax-free treatment of your distributions should outweigh that benefit because your distributions will represent a much larger slice of your retirement pie.

Other Retirement Accounts

You might prefer a Roth IRA if your retirement will already be funded by other sources, such as a 401(k). You can continue to contribute indefinitely without taking mandatory distribution requirements. With a traditional IRA, you are forced to withdraw from your account even if you don’t need the money yet.

Your Income: IRA vs. Roth IRA Income Limits

Sometimes you have no choice between a traditional IRA and a Roth IRA. If your income is too high to contribute to a Roth IRA, then a traditional IRA is obviously the only option.

TraditionalIRA vs. Roth IRA: The Bottom Line

The biggest selling point of a traditional IRA is the advantage of tax-deferred growth. But that doesn’t mean it’s the best investment vehicle for everyone.

Roth IRAs offer more flexibility. And keep in mind that the tax landscape and your finances may change: You don’t know today what tax bracket you’ll be in during retirement. So think twice before giving up the features of a Roth IRA just because you don’t want to pay taxes now.

Above all, what matters right now is saving for retirement. To learn more about IRAs or to open an IRA account, visit

This article has been updated with additional reporting since its original publication.

Information is accurate as of Feb. 18, 2021.

Our in-house research team and on-site financial experts work together to create content that’s accurate, impartial, and up to date. We fact-check every single statistic, quote and fact using trusted primary resources to make sure the information we provide is correct. You can learn more about GOBankingRates’ processes and standards in our editorial policy.

About the Author

After earning a B.A. in English with a Specialization in Business from UCLA, John Csiszar worked in the financial services industry as a registered representative for 18 years. Along the way, Csiszar earned both Certified Financial Planner and Registered Investment Adviser designations, in addition to being licensed as a life agent, while working for both a major Wall Street wirehouse and for his own investment advisory firm. During his time as an advisor, Csiszar managed over $100 million in client assets while providing individualized investment plans for hundreds of clients.

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