The choice between a Roth IRA and a Traditional IRA depends on individual circumstances and financial goals. If you anticipate being in a higher tax bracket in retirement, a Roth IRA may be more beneficial due to tax-free withdrawals. If you are currently in a high tax bracket and want to reduce your taxable income, a Traditional IRA may be more suitable. Consider your income, tax bracket, and retirement goals when making your decision.
| Attribute | Roth IRA | Traditional IRA |
|---|---|---|
| Contribution Limit | For 2024: $7,000 (under age 50), $8,000 (age 50 or older). For 2025: Same as 2024, $7,000 (under age 50), $8,000 (age 50 or older). The contribution limit can't exceed your taxable compensation for the year. | For 2024 and 2025, the limit is $7,000 if you're under age 50, and $8,000 if you're age 50 or older. This is the combined limit for all your Traditional and Roth IRAs. You can contribute up to 100% of your taxable compensation if that amount is less. |
| Tax Deduction for Contributions | Contributions are made with after-tax dollars and are not tax-deductible. | It depends on your Modified Adjusted Gross Income (MAGI), filing status, and whether you (or your spouse) are covered by a retirement plan at work. If you and your spouse do not have access to a workplace retirement savings plan, then you can deduct the full amount of your IRA contributions, up to the contribution limit. If you (or your spouse) have a retirement plan at work, your deduction may be limited. For single filers covered by a workplace retirement plan, the deduction phase-out range for 2025 is between $79,000 and $89,000 MAGI. For married couples filing jointly, with the contributing spouse covered by a workplace retirement plan, the deduction phase-out range for 2025 is between $126,000 and $146,000 MAGI. If you are married filing separately and covered by a workplace plan, the phase-out range remains between $0 and $10,000. Even if you can't deduct contributions, the money in a Traditional IRA still grows tax-deferred. |
| Tax on Investment Growth | Investments grow tax-free. | Investment growth within a Traditional IRA is tax-deferred. You don't pay taxes on dividends, interest, or capital gains until you withdraw the money in retirement. |
| Tax on Withdrawals in Retirement | Qualified withdrawals are tax-free. | Withdrawals in retirement are taxed as ordinary income. This is because contributions are typically made on a pre-tax basis. |
| Income Eligibility Limits | For 2024, single filers must have a Modified Adjusted Gross Income (MAGI) under $146,000 to contribute the full amount. The ability to contribute is reduced if MAGI is between $146,000 and $161,000, and is eliminated if MAGI is $161,000 or more. For those married filing jointly, the MAGI must be under $230,000 to contribute the full amount. Contribution ability is reduced if MAGI is between $230,000 and $240,000, and is eliminated if MAGI is $240,000 or more. For 2025, single filers must have a MAGI under $150,000 to contribute the full amount. The ability to contribute is reduced if MAGI is between $150,000 and $165,000, and is eliminated if MAGI is $165,000 or more. For those married filing jointly, the MAGI must be under $236,000 to contribute the full amount. Contribution ability is reduced if MAGI is between $236,000 and $246,000, and is eliminated if MAGI is $246,000 or more. | There are no income limits to contribute to a *non-deductible* Traditional IRA. Income limits *do* affect whether you can deduct your contributions. |
| Age Restrictions for Contributions | There is no age limit for making contributions to a Roth IRA. | There is no age limit for making regular contributions to Traditional IRAs. |
| Required Minimum Distributions (RMDs) | Roth IRAs do not have RMDs during the owner's lifetime. | RMDs start at age 73. Your first RMD must be taken by April 1 of the year following the year you reach age 73. Every year thereafter you must take an RMD by December 31. The amount of your RMD is calculated by dividing the value of your Traditional IRA by a life expectancy factor, as determined by the IRS. If you don't take the RMD, you may be subject to a penalty. Under SECURE 2.0, if you don't take your RMD by the IRS deadline, a 25% excise tax on insufficient or late RMD withdrawals applies. If the RMD is corrected timely, the penalty can be reduced down to 10%. |
| Early Withdrawal Penalties | You can always withdraw your contributions tax-free and penalty-free. Early withdrawals of earnings (before age 59 1/2) may be subject to income tax and a 10% penalty, unless an exception applies. | Generally, there's a 10% penalty for withdrawals before age 59 1/2, in addition to regular income tax. Exceptions exist where you may avoid the penalty. Some common exceptions include: Qualified disaster recovery distributions, Distributions for birth or adoption expenses (up to $5,000), Unreimbursed medical expenses exceeding 7.5% of your adjusted gross income (AGI), Health insurance premiums if you're unemployed, Qualified higher education expenses, First-time home purchase (up to $10,000 lifetime limit), Disability or death, IRS levy, Qualified reservist distributions, Substantially equal periodic payments, Distributions for victims of domestic abuse (up to the lesser of $10,000 or 50% of the account balance) |
| Contribution Deadline | The deadline to contribute to a Roth IRA for a given tax year is typically April 15 of the following year. For example, the deadline for 2024 contributions is April 15, 2025. | The deadline to make a Traditional IRA contribution for a given tax year is typically April 15 of the following year (the unextended federal tax deadline). |
| Spousal IRA Options | You can contribute to a Roth IRA for a non-working spouse, provided you file jointly and have enough earned income to cover both contributions. | If you file a joint return, you may be able to contribute to an IRA for your spouse, even if they don't have taxable compensation, as long as you have enough earned income to cover both contributions. |
| Investment Options Available | Investment options include stocks, bonds, mutual funds, and ETFs. | You can invest in a variety of assets, such as stocks, bonds, mutual funds, and ETFs. |
| Estate Planning Implications | The balance in a Roth IRA generally goes to your heirs tax-free, provided the account has been open and contributed to for at least five years. | If you die before taking all your distributions, how the account is treated depends on whether you had started taking distributions before your death. Beneficiaries will generally need to include distributions they receive in their gross income. If the IRA does not have a designated beneficiary and you have not begun taking distributions from it, then the 5-year rule applies. |