Roth IRA vs. Traditional IRA: Which Is Right for You?

Filing & Brackets · RETIREMENT

Roth and traditional IRAs both build tax-advantaged retirement savings — but the tax break works differently. Here's how to choose the right account based on your income, tax rate, and timeline.

Individual Retirement Accounts (IRAs) are one of the most powerful tax-advantaged savings tools available to anyone with earned income. In 2025, you can contribute up to $7,000 per year ($8,000 if age 50 or older). The core question is whether you want the tax break now (traditional IRA) or later (Roth IRA). The answer depends on your current income, your expected tax rate in retirement, and how long your money has to grow.

Traditional IRA: Tax Break Now

With a traditional IRA, you may deduct your contribution from your taxable income today — reducing your current-year tax bill. The money grows tax-deferred: you pay no tax on dividends, interest, or capital gains inside the account. When you withdraw money in retirement, you pay ordinary income tax on every dollar.

Key rules:
• Contributions may be deductible if you (or your spouse) are not covered by a workplace plan, OR if covered, your income is below the deductibility limit
• Required minimum distributions (RMDs) begin at age 73
• Early withdrawals (before age 59½) are subject to income tax plus a 10% penalty (with exceptions)

Roth IRA: Tax Break Later

With a Roth IRA, you contribute after-tax dollars — no deduction now. But the money grows completely tax-free, and qualified withdrawals in retirement are also tax-free. No RMDs apply during your lifetime.

Key rules:
• Eligibility phases out at higher incomes: $150,000–$165,000 (single) and $236,000–$246,000 (married filing jointly) for 2025
• You can withdraw your original contributions (not earnings) at any time without penalty
• Qualified withdrawals (account at least 5 years old, age 59½ or older) are 100% tax-free
• No RMDs — the account can continue to grow tax-free indefinitely

Which Is Better: The Core Decision

The math is simple in theory: if your tax rate in retirement will be higher than it is today, Roth wins. If your tax rate in retirement will be lower, traditional wins. If they'll be equal, it's a wash.

Choose Roth when:
• You're early in your career and in a low tax bracket
• You expect higher income (and taxes) in retirement
• You want flexibility — Roth contributions can be withdrawn anytime
• You want to avoid RMDs
• You want tax-free wealth to pass to heirs

Choose traditional when:
• You're in a high bracket now and expect lower income in retirement
• You need the deduction today to reduce your current tax bill
• You're over income limits for Roth contributions

The Backdoor Roth IRA

If your income exceeds the Roth IRA eligibility limits, the 'backdoor Roth' is a legal workaround:
1. Make a non-deductible contribution to a traditional IRA (no income limit)
2. Convert the traditional IRA to a Roth IRA

As long as you have no other pre-tax IRA balances (the 'pro-rata rule' can create a tax bill if you do), this conversion is mostly tax-free. High-income earners use this strategy to get money into a Roth account every year despite exceeding the direct contribution limit.

Converting a Traditional IRA to Roth

You can convert all or part of a traditional IRA to a Roth at any time, at any income level. The converted amount is taxable in the year of conversion at your ordinary income tax rate — but once it's in the Roth, all future growth is tax-free.

Conversions make the most sense when:
• Your income is temporarily low (a career break, early retirement, loss year)
• You've recently retired but haven't started Social Security or RMDs yet — a 'Roth conversion window'
• Tax rates are scheduled to increase (a fair expectation after 2025 and even more so as OBBBA provisions eventually sunset)

Frequently Asked Questions

Can I contribute to both a Roth IRA and a traditional IRA in the same year?

Yes, but your total combined contributions cannot exceed the annual limit ($7,000 in 2025, $8,000 if 50+). You can split the $7,000 between them however you like.

Can I contribute to an IRA if I also have a 401(k)?

Yes. Having a 401(k) doesn't prevent you from contributing to an IRA. However, if you (or your spouse) have a workplace plan, your traditional IRA deduction may be reduced or eliminated based on income. Roth IRA contributions are unaffected by workplace plan participation — only your income limits apply.

What is the 5-year rule for Roth IRAs?

To take tax-free qualified distributions from a Roth IRA, the account must be at least 5 years old AND you must be at least 59½ (or meet another exception like death or disability). The 5-year clock starts January 1 of the year you made your first Roth contribution.

I'm 65 and still working. Can I still contribute to an IRA?

Yes. As of 2020, there's no age limit on traditional or Roth IRA contributions. You just need earned income (wages, salary, self-employment) at least equal to your contribution. Roth eligibility still depends on your income.

Should I do a Roth conversion in 2025?

Possibly — especially if you're in a temporarily lower income year. Tax rates under the OBBBA are favorable now, but political uncertainty about future tax rates is real. Converting at today's known rates can lock in tax-free growth. Run the numbers with a tax professional first.