Roth vs. Traditional IRA
Roth = pay tax now, tax-free in retirement. Traditional = deduct now, pay tax in retirement. The right answer depends on whether your tax bracket today is higher or lower than your expected retirement bracket. Most people should do both for tax diversification.
| Roth | Traditional IRA | |
|---|---|---|
| Contribution treatment | After-tax (no deduction) | Pre-tax (deductible if income limits met) |
| Growth | Tax-free | Tax-deferred |
| Withdrawals in retirement | Tax-free | Taxed as ordinary income |
| 2025 contribution limit | $7,000 ($8,000 if 50+) | $7,000 ($8,000 if 50+) |
| 2025 income limits | Single $150-165K phaseout | Deduction phases out if you have workplace plan |
| Required minimum distributions | None during your lifetime | Begin at age 73 |
| Early withdrawal of contributions | Anytime, penalty-free | 10% penalty + tax before age 59½ |
| Best for | Lower current bracket, longer horizon | Higher current bracket, retiring to low-tax state |
Choose Roth if
- You're early in your career (low bracket now).
- You expect tax rates to rise generally.
- You want flexibility — contributions can come back out tax-free.
- You plan to leave money to heirs (no RMDs).
Choose Traditional IRA if
- You're in peak earnings (24%+ bracket).
- You'll retire in a state with no income tax.
- You need the current-year tax deduction.
- You expect your retirement income to be much lower than today.
Run the numbers yourself
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