• A traditional IRA is funded by pre-tax income, while Roth IRAs are funded by after-tax dollars.
  • Unlike traditional IRAs, contributions made to a Roth IRA aren't tax deductible and distributions aren't taxed.
  • For both traditional and Roth IRAs, contributions can be made at any age and savings grow while untaxed.
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The two main types of individual retirement accounts, or IRAs, are traditional IRAs and Roth IRAs. These differ from their contribution limits to distribution requirements. However, you don't always have to choose one over the other.

"People assume you only have to have one type of IRA, but that's not the case," says Liz Young, head of investment strategy at SoFi. A Roth IRA may make sense at one point in your life, while a traditional IRA can make sense at another. At times, you'll want to keep both tax-advantaged accounts open.

Find out when each account makes sense for you. 

Traditional IRA vs. Roth IRA: At a glance

Traditional IRAs and Roth IRAs vary in their tax advantages and who can contribute to them.

  • Traditional IRAs make contributions tax-deductible up to a certain amount, grow savings tax-free, and subject withdrawals to income tax.
  • Roth IRAs are available under a certain income threshold, grow savings tax-free, and offer tax-free withdrawals.

The Internal Revenue Service (IRS) limits the amount you can contribute each year to all of your traditional and Roth IRAs. For 2021, that limit is $6,000, or $7,000 if you're 50 years or older.

What is a traditional IRA?

A traditional IRA is a retirement account that offers tax-deductible contributions and tax-deferred retirement savings. It's available to all income brackets, although high-income taxpayers may face some drawbacks. 

"As your income grows and you start earning more money and [are] pushed into higher tax brackets, a traditional IRA starts to make more sense," says Kathleen Kenealy, Certified Financial Planner and director of financial planning at Boston Private, a Silicon Valley Bank company.

Traditional IRA contributions: You (and your spouse) can make regular contributions to a traditional IRA at any age. You can deduct contributions in full if you and your spouse don't have an employer-sponsored retirement plan. If you or your spouse do, your deduction amount will depend on your income. 

Over the years, your money that grows in the account is not subject to taxes during that time. 

Traditional IRA withdrawals: Distributions, or withdrawals, from traditional IRAs are taxed according to your tax bracket in retirement.

You must start taking distributions, known as required minimum distributions (RMDs), by April 1 of the year after you turn 72 and by December 31 of later years. Withdrawing money before you turn 59.5 will result in a 10% penalty, with some exceptions.

Pros Cons
  • Tax-deductible contributions 
  • Tax-deferred savings 
  • Contributions can be made at any age
  • Contributions may not be fully deductible for high-income taxpayers
  • Contributions limit lumped with Roth IRAs

What is a Roth IRA?

Roth IRAs offer tax-deferred savings and tax-free withdrawals, making them a smart choice for those who expect higher tax rates in retirement. 

Roth IRA contributions: A Roth IRA is available only under income thresholds set by the IRS. If you qualify, you can make contributions to a Roth IRA at any age.

Tax filing status Modified adjusted gross income Contribution limit
Single, head of household or married filing separately and you do not live with your spouse Less than $125,000 Up to $6,000 to $7,000, depending on age
Between $125,000 and $140,000 A reduced amount (use this worksheet to determine how much)
$140,000 or more Cannot contribute
Married filing separately and you live with your spouse Less than $10,000 A reduced amount (use this worksheet to determine how much)
$10,000 or more Cannot contribute
Married filing jointly or widow/widower Less than $198,000 Up to $6,000 to $7,000 per, depending on age
Between $198,000 and $208,000 A reduced amount (use this worksheet to determine how much)
$208,000 or more Cannot contribute

Your money in a Roth IRA will grow over time and is not taxable.

Roth IRA withdrawals: Roth IRAs offer more flexibility when it comes to taking distributions. You can make withdrawals if you are disabled, once you reach age 59.5, or after five years from the tax year when you made your first contribution. Qualified distributions also include those that are made:

  • To a beneficiary or to your estate after your death
  • For qualified first home purchases (lifetime limit of $10,000)
  • For qualified disasters

Roth IRAs don't impose RMDs, and you can continue contributing during retirement. "This is a useful tool to control your taxable income in retirement and supplement it with tax-free Roth IRA distributions — a move that is quite tactical," suggests Matt Rogers, Certified Financial Planner and director of financial planning at Fidelity's eMoney Advisor.

If you withdraw from a Roth IRA early and don't meet any exceptions, you will face a 10% tax penalty.

Pros Cons
  • Tax-deferred savings
  • Tax-free withdrawals
  • Contributions can be made at any age
  • Distributions can be taken five years after first contribution, or for qualified exceptions
  • Contributions limit lumped with traditional IRAs
  • Income thresholds limit who can contribute to a Roth IRA and how much

The financial takeaway

If there had to be a winner between the two, it would be a Roth IRA. Its savings grow tax-deferred, distributions are not taxed, and you often don't have to wait until retirement to use the money. Its main downside is that it's not available to everyone — mostly high-income individuals. 

Traditional IRAs aren't without their benefits, though. Their savings also grow tax-deferred, and you often get a tax break for contributing to one. Just make sure to keep up with all of its requirements and limitations. 
Lauren Perez
Lauren Perez is a New York City-based freelance writer who has been on the personal finance beat for five years. Her work has appeared in Forbes, MagnifyMoney, LendingTree, and SmartAsset. In addition to deposits and investing, Lauren can be found writing personal essays and covering culture.