Retirement Accounts
Individual Retirement Accounts (IRAs) are excellent tools for setting aside money for retirement, helping you build a secure financial future.

R. Tyler End, CFP®
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Published March 18th, 2024
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Updated April 1st, 2025
Table of Contents
Key Takeaways
There are two types of IRAs: Roth IRAs and Traditional IRAs.
A Traditional IRA lets you put funds in pre-tax, while a Roth IRA’s funds have already been taxed.
High-income taxpayers may find they aren’t able to contribute to a Roth IRA. A Traditional IRA allows contributions, but if your income rises above a certain threshold, you’ll lose the tax deductibility.
Individual retirement accounts (IRAs) are a great way to save money for retirement. But if you're considering an IRA, you'll have two choices: Roth or Traditional. A Traditional IRA may be better for those seeking immediate tax deductions, especially if they’re in a higher tax bracket today than they expect to be in retirement.
When you compare a Traditional IRA to a Roth IRA, the most significant difference is how they're taxed. With a Traditional IRA, you contribute pre-tax dollars. In contrast, you make Roth IRA contributions with after-tax dollars. For some, a Traditional IRA may be the better option due to immediate tax benefits. However, many others will benefit from the tax-free withdrawals a Roth IRA provides.
Roth IRA vs. Traditional IRA: Overview
Individual retirement accounts (IRAs) have long served as a great alternative to 401(k) retirement accounts, which an employer sets up. You can independently set up an IRA through a broker or your favorite lender. Traditionally, those third parties have many more investment selections than an employer-based plan like a 401(k).
When choosing between a Roth IRA and a Traditional IRA, you must consider the differences in contributions, taxation, and withdrawals.
Tax Differences
The most significant difference between a Traditional IRA and a Roth IRA is how you pay taxes. However, there are other tax differences between the two. This table breaks it down:
Roth IRA | Traditional IRA | |
---|---|---|
Taxes on contributions | Made with after-tax dollars | Made with pre-tax dollars (may be deductible) |
Taxes on withdrawals | Tax-free if qualified (age 59½ + 5-year rule) | Taxed as ordinary income |
Tax deductibility | Not deductible | May be fully, partially, or non-deductible based on income |
Another difference between Roth IRA and Traditional IRA is the deductibility. Depending on your income, the IRS may allow you to deduct some of your Traditional IRA contributions on your taxes. For 2025, the deduction limits for a Traditional IRA are as follows:
Filing Status | MAGI | Deduction Eligibility |
---|---|---|
Single or head of household (covered by a retirement plan) | ≤ $79,000 | Full deduction |
$79,001–$89,000 | Partial deduction | |
≥ $89,001 | No deduction | |
Married filing jointly (contributor covered by a plan) | ≤ $126,000 | Full deduction |
$126,001–$146,000 | Partial deduction | |
≥ $146,001 | No deduction | |
Married filing jointly (contributor not covered, spouse is) | ≤ $236,000 | Full deduction |
$236,001–$246,000 | Partial deduction | |
≥ $246,001 | No deduction | |
Married filing separately (covered by a plan) | $0–$10,000 | Partial deduction |
≥ $10,001 | No deduction |
Contribution Differences
The Roth and Traditional IRAs are the same when it comes to how much you can contribute. Both plans have a yearly limit regulating this, which can change from one year to the next.
For 2025, both types of IRA allow contributions of up to $7,000 per person. If you’re aged 50 or older, you can contribute up to $8,000, giving you a $1,000 catch-up contribution.
You can contribute to both a Roth and a Traditional IRA in the same year, but the combined total across all IRAs cannot exceed these limits.
It’s also important to note that:
- Traditional IRAs have no income limits for making contributions (though deductibility may be limited).
- Roth IRAs have income limits that may reduce or eliminate your ability to contribute depending on your modified adjusted gross income (MAGI).
Income Limits
Another major consideration if you’re choosing either Roth or Traditional IRA is your income. Look at your anticipated modified adjusted gross income based on your filing status to see what you can contribute to a Roth IRA. Some higher earners can’t contribute to a Roth IRA at all. There is no income limit on the ability to make contributions to a Traditional IRA. However, there are income limits on whether those contributions will be tax-deductible or not.
Filing Status | MAGI | Contribution Limit |
---|---|---|
Single | Less than $150,000 | Full contribution (up to $7,000 / $8,000 if age 50+) |
$150,000–$165,000 | Reduced contribution | |
$165,000 or more | No contribution allowed | |
Married filing jointly | Less than $236,000 | Full contribution (up to $7,000 / $8,000 if age 50+) |
$236,000–$246,000 | Reduced contribution | |
$246,000 or more | No contribution allowed | |
Married filing separately | $0–$10,000 | Reduced contribution |
Over $10,000 | No contribution allowed |
Withdrawal Differences
The magic number to know if you have either a Traditional or Roth IRA is 59½. You’ll ideally leave the money in your IRA account until you reach that age. Once you’re 59½, you can take the money out penalty-free. Before 59½, you’ll pay a 10 percent penalty.
One of the Roth IRA advantages, though, is that the 10 percent penalty only applies to the growth you’ve made on the money you put in. You’ve already paid taxes on it, so you’re not deferring taxes the way you would with a Traditional IRA. However, the earnings will be both taxed and penalized if withdrawn early.
With a Traditional IRA, you didn’t pay taxes when you contributed the money, so you’ve had the funds in a tax shelter of sorts for the years they’ve been in. This means every dime you take out will be taxed when you withdraw the funds--both the original investment and your earnings.
Another note when looking at withdrawals from an IRA that is Roth versus Traditional IRA is that Roth IRAs don’t require you to take the money out at any point in your lifetime. Traditional IRAs, on the other hand, require that you take required minimum distributions (RMDs) by the age of 73. If you reached 70½ before the rules changed in 2020, you were required to start taking it out then to avoid penalties.
Final Thoughts
The benefits of an IRA are that you can set them up on your own, without an employer’s help, and that you have a wider range of investment options. If you’re looking for a way to reduce your taxable income now, a Traditional IRA might be a better option for you. But a Roth IRA gives you access to tax-free funds when you retire, which may just be when you need tax relief the most. It’s in your best interest to talk to a Certified Financial Planner® to discuss your particular circumstances and goals for retirement to help determine which retirement account may be best for you.
Frequently Asked Questions
What is the main difference between a Roth IRA and a Traditional IRA?
The primary difference lies in the tax treatment of contributions and withdrawals. Contributions to a Traditional IRA may be tax-deductible in the year they are made, but withdrawals in retirement are taxed as ordinary income. In contrast, Roth IRA contributions are made with after-tax dollars, meaning you don't get a tax deduction upfront, but withdrawals in retirement are tax-free, provided certain conditions are met.
Who can contribute to a Roth IRA or a Traditional IRA?
Anyone with earned income below certain limits can contribute to a Roth IRA. Traditional IRAs have no income limits for contributions, but the ability to deduct those contributions on your tax return may be limited based on your income and whether a retirement plan at work covers you or your spouse.
Can I deduct my Traditional IRA contributions on my taxes?
Your ability to deduct Traditional IRA contributions depends on your income, filing status, and whether a retirement plan at work covers you (or your spouse, if applicable). The IRS provides specific guidelines and income limits that determine the deductibility.
Can I have both a Roth IRA and a Traditional IRA?
Yes, you can have both types of IRAs simultaneously. However, the total amount you contribute to all of your IRAs (Roth and Traditional combined) cannot exceed the annual contribution limit.
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Tyler is a Certified Financial Planner® and CEO & Co-Founder at Retirable, the retirement peace of mind platform. Tyler has nearly 15 years of experience at leading companies in the wealth management and insurance industries. Before Retirable, Tyler worked as Head of Operations Expansion at PolicyGenius, expanding the company’s reach into new products — turning PolicyGenius into an industry-leading disability and P&C insurance distributor. Before working at PolicyGenius, Tyler worked as Wealth Management Advisor at prominent financial services organizations.
As an advisor, Tyler played an integral role in helping clients define goals, achieve financial independence and retire with peace of mind. Through this work, Tyler has helped hundreds of thousands of people get the financial planning and insurance advice they need to succeed. Since founding Retirable, Tyler’s innovative approach to retirement planning has been featured in publications such as Forbes, Fortune, U.S. News & World Report, and more.
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Share this advice

Tyler is a Certified Financial Planner® and CEO & Co-Founder at Retirable, the retirement peace of mind platform. Tyler has nearly 15 years of experience at leading companies in the wealth management and insurance industries. Before Retirable, Tyler worked as Head of Operations Expansion at PolicyGenius, expanding the company’s reach into new products — turning PolicyGenius into an industry-leading disability and P&C insurance distributor. Before working at PolicyGenius, Tyler worked as Wealth Management Advisor at prominent financial services organizations.
As an advisor, Tyler played an integral role in helping clients define goals, achieve financial independence and retire with peace of mind. Through this work, Tyler has helped hundreds of thousands of people get the financial planning and insurance advice they need to succeed. Since founding Retirable, Tyler’s innovative approach to retirement planning has been featured in publications such as Forbes, Fortune, U.S. News & World Report, and more.
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