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Planning for retirement is important, with a retirement account crucial to your future financial stability. If you lack access to a workplace savings plan, an individual retirement account (IRA) could be a smart choice. However, deciding between a Roth IRA vs. traditional IRA can be challenging. This decision will significantly impact your financial future, so it’s crucial to understand the key differences between these two types of accounts.
For help fine tuning your retirement plan, consider working with a financial advisor.
Roth vs. Traditional IRAs: The Basics
The investing portion of Roth IRAs and traditional IRAs works exactly the same. You put money into your account and invest it as you please.
This can include a number of different securities, such as:
You can keep investing while you work and see your account grow over time, thanks to compound interest. When you retire, you begin making withdrawals, often as monthly distributions.
Tax Treatment
The difference between Roth and traditional IRAs concerns taxes.
Contributions to a traditional IRA are tax-deductible, meaning that every dollar you contribute lowers your taxable income, up to the IRS limit. This stands at $7,500 in 2026 and $7,000 in 2025. The money grows without being taxed until you start taking distributions. When you reach retirement and begin taking distributions, the money is taxed as normal income.
In some states, however, IRA benefits are exempt from state income taxes. If you have traditional IRAs, you must take required minimum distributions (RMDs), which apply when you turn 73, or 75 for those born in 1960 or later. You can’t leave the money in the account to grow indefinitely.
A Roth IRA, on the other hand, is funded with after-tax dollars, so you can’t deduct your contributions. Because you pay taxes on the money before it goes into the account, no taxes are due when you take the money out.
Roth IRAs also aren’t subject to RMD rules, so there is no need to worry about mandatory withdrawals.
Roth IRA vs. Traditional IRA: Withdrawals
Withdrawal rules differ significantly between Roth and traditional IRAs, particularly regarding taxes and penalties.
For traditional IRAs, early withdrawals before age 59 ½ generally incur a 10% penalty. However, some exceptions exist for specific circumstances, such as first-time home purchases and higher education expenses.
Roth IRAs, in contrast, allow tax-free and penalty-free withdrawals at any time. However, earnings withdrawals must meet the five-year rule and the age 59 ½ requirement to be tax-free. The five-year rule states that at least five years must pass from the beginning of the tax year in which the first Roth contribution was made before earnings can be withdrawn tax-free.
If withdrawn earlier, earnings may be subject to income tax and a penalty unless an exception applies.
How to Choose
Choosing between a traditional and Roth IRA often depends on your current and expected future tax bracket.
If you are in a relatively high tax bracket now and think that your tax bracket will be lower in retirement, a traditional IRA makes more sense. If you are in a very low tax bracket now, though, and expect your income tax rate to be much higher when you retire, a Roth IRA may be a better choice.
If you already have a 401(k) through your job, you’re getting a lot of the benefits of a traditional IRA already. Your contributions lower your taxable income, and your account grows tax-deferred.
401(k) plans have higher contribution limits than IRAs. If you already use a 401(k), you may want to diversify your retirement holdings by opening a Roth IRA on the side. That way, when you hit retirement, you’ll have at least one source of tax-free income.
Roth IRA contributions are subject to annual income limits, which may dictate which type of IRA you can contribute to.
For the 2026 tax year, single filers can make a full contribution of $7,500 to a Roth IRA if their modified adjusted gross income (MAGI) is less than $153,000, or $242,000 for married couples filing jointly.
Single filers can make a partial contribution in 2026 if their MAGI is more than $153,000 but less than $168,000, or more than $242,000 but less than $252,000 for joint filers.
If your income exceeds the Roth IRA limits, however, you can execute a backdoor Roth conversion.
Roth vs. Traditional IRA: How They Differ in Retirement
One of the main advantages of a Roth IRA is that it doesn’t have RMDs. That means that you never have to tap your savings if you have other sources of retirement income to support you.
For high-net-worth estate planning, Roth IRAs offer significant advantages. Once you have a Roth IRA, you can leave it to your heirs in your will. You can continue contributing to it each year you earn income, making it a great way to accrue tax advantages if you continue to work part-time in retirement.
You can also contribute to a non-deductible traditional IRA and then roll it over to a Roth IRA. You must pay taxes on the money you roll over, but then your Roth IRA will be set.
Keep in mind, however, that a Roth IRA backdoor conversion may not be available forever. Some policymakers argue it’s a loophole that allows high-income earners to bypass Roth IRA income limits.
Tax Diversification and Conversion Planning
Holding both Roth and traditional IRAs gives retirees flexibility over how income is taxed from year to year.
Distributions from traditional IRAs are included in taxable income, while qualified Roth withdrawals are excluded. Drawing from one account type versus the other can change adjusted gross income. This, in turn, affects Medicare premium surcharges, the portion of Social Security benefits subject to tax, as well as access to income-based credits or deductions.
Roth conversions are a related planning tool. A conversion transfers assets from a traditional IRA to a Roth IRA, creating taxable income in the year the transfer occurs. Once converted, the assets follow Roth rules, meaning qualified withdrawals are not taxed. The outcome depends on the size of the conversion, other income in that year and the length of time the assets remain in the Roth before withdrawals begin.
Estate treatment differs between the two account types. Distributions from inherited traditional IRAs are taxed as ordinary income to beneficiaries. Inherited Roth IRAs generally allow tax-free withdrawals if holding period requirements are satisfied. These distinctions matter under current rules that require most non-spouse beneficiaries to fully distribute inherited retirement accounts within a defined time window.
Workplace retirement plans factor into tax diversification, as well. Many workers build substantial pre-tax balances through 401(k) or 403(b) plans. Adding Roth IRA contributions or completing Roth conversions can alter the balance between taxable and non-taxable retirement income. This changes how income is sourced in retirement without changing investment allocation or total savings.
Bottom Line
Almost half of Americans lack a retirement account. If you’re choosing between a Roth and a traditional IRA, you’re in a privileged position. Consider the tax and estate planning implications when deciding between a Roth IRA and a traditional IRA. And remember, any time you open a new investing account, you should shop around until you find the best brokerage account with low fees. Fees eat into the value of your retirement holdings over time. Opt for low fees, and you’ll keep more of your hard-earned dollars.
Retirement Tips
- Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- Use SmartAsset’s free retirement calculator to get a sense of it you’re on track to meet your goals.
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