Roth IRA vs. Traditional IRA

How It Works

The choice between Roth and Traditional IRAs is one of the most common tax planning decisions, and the right answer depends on your current versus future tax rates. Traditional IRA contributions may be tax-deductible (subject to income limits if you have a workplace plan), investments grow tax-deferred, and withdrawals in retirement are taxed as ordinary income. Roth IRA contributions are never deductible, investments grow tax-free, and qualified withdrawals in retirement are completely tax-free. The 2025 IRA contribution limit is $7,000 ($8,000 if age 50 or older), shared across all IRA accounts. Roth IRA contributions phase out at $150,000 to $165,000 AGI for single filers and $236,000 to $246,000 for married filing jointly. If you expect to be in a higher tax bracket in retirement — perhaps due to large retirement account balances, pension income, or future tax rate increases — the Roth is typically better because you lock in today's lower rate. If you expect a lower rate in retirement, the Traditional IRA's current deduction is more valuable. Young workers early in their careers often benefit from Roth contributions because their current tax rate is low. The "backdoor Roth" strategy allows high-income earners to contribute to a Roth IRA regardless of income limits by first making a non-deductible Traditional IRA contribution and then converting it. Roth IRAs also offer greater flexibility: contributions (not earnings) can be withdrawn anytime without penalty, and there are no required minimum distributions during the owner's lifetime.