Roth IRA vs Traditional IRA: Which Is Better?

If you're trying to decide between a Roth IRA and a Traditional IRA, you're asking the right question. Both are excellent retirement savings vehicles, but they work very differently when it comes to taxes. The right choice depends on your income, your current tax bracket, and where you think your tax rate will be in retirement.

Let's compare them head to head so you can make an informed decision.

The Core Difference: When You Pay Taxes

The fundamental distinction between these two accounts boils down to timing:

• Traditional IRA: You get a tax deduction today (contributions may be tax-deductible), and you pay income taxes when you withdraw in retirement.
• Roth IRA: You contribute after-tax dollars (no tax break today), but withdrawals in retirement are completely tax-free, including all investment gains.

Think of it like choosing when to pay your tax bill. Traditional means you pay later. Roth means you pay now. The question is: which tax rate will be lower?

2025 Contribution Limits

Both types of IRA share the same annual contribution limit:

• Under age 50: $7,000 per year
• Age 50 and older: $8,000 per year (extra $1,000 catch-up)

This limit is combined across all your IRAs. If you have both a Roth and Traditional IRA, your total contributions to both can't exceed $7,000 (or $8,000 if 50+). You can split the contributions however you want between the two types.

Income Limits

Here's where things get a bit more complicated. Both account types have income restrictions, but they work differently.

Roth IRA Income Limits (2025)

The IRS limits who can contribute to a Roth IRA based on Modified Adjusted Gross Income (MAGI):

• Single filers: Full contribution if MAGI is under $150,000. Reduced contribution between $150,000 and $165,000. No contribution above $165,000.
• Married filing jointly: Full contribution if MAGI is under $236,000. Reduced between $236,000 and $246,000. No contribution above $246,000.

If you earn too much for a direct Roth IRA contribution, you can still do a "backdoor Roth" - contributing to a Traditional IRA and then converting it to a Roth. This is legal and widely used by high earners, though you should be aware of the pro-rata rule if you have existing pre-tax IRA balances.

Traditional IRA Deduction Limits

Anyone can contribute to a Traditional IRA regardless of income. But whether your contribution is tax-deductible depends on whether you (or your spouse) have access to an employer retirement plan:

• No employer plan: Fully deductible at any income level.
• Have an employer plan (single): Full deduction if MAGI is under $79,000. Partial deduction between $79,000 and $89,000. No deduction above $89,000.
• Have an employer plan (married filing jointly): Full deduction if MAGI is under $126,000. Partial between $126,000 and $146,000.

Tax Treatment Comparison

Let's make this concrete with an example. Say you contribute $7,000 per year for 30 years with a 7% annual return:

Traditional IRA Scenario

Your $7,000 contribution gives you a tax deduction each year. In the 25% tax bracket, that saves you $1,750 annually in taxes. After 30 years, your account grows to roughly $661,000. When you withdraw in retirement, every dollar is taxed as ordinary income. If you're in the 22% bracket in retirement, withdrawing $40,000 per year costs you $8,800 in taxes.

Roth IRA Scenario

You contribute $7,000 with after-tax dollars - no tax break now. Your account also grows to roughly $661,000 (same investments, same returns). But when you withdraw that $40,000 per year in retirement? You owe nothing. Zero taxes. Every penny is yours.

Over a 25-year retirement withdrawing $40,000 annually, the Traditional IRA would cost you $220,000 in taxes. The Roth IRA? $0.

When a Traditional IRA Makes More Sense

• You're in a high tax bracket now and expect to be in a lower bracket in retirement. The tax deduction is worth more today than the taxes you'll pay later.
• You need to reduce your current taxable income. Maybe you're right on the edge of a tax bracket, or you need to lower your AGI for other tax benefits.
• You don't have access to a Roth option. If your income is too high for a Roth IRA and you don't want to deal with the backdoor conversion, a Traditional IRA still offers tax-deferred growth.
• You're close to retirement. With fewer years for compounding, the immediate tax break may be more valuable than tax-free withdrawals.

When a Roth IRA Makes More Sense

• You're early in your career and in a low tax bracket. You're paying a low tax rate now and locking in tax-free growth for decades.
• You expect your income (and tax rate) to increase. If you're a 25-year-old software engineer making $75,000, your income at 50 could be significantly higher. Pay taxes at the lower rate now.
• You want tax diversification in retirement. Having both pre-tax (Traditional/401k) and after-tax (Roth) money gives you flexibility to manage your tax bill each year.
• You want to avoid Required Minimum Distributions. Roth IRAs have no RMDs during the original owner's lifetime. You can let the money grow tax-free indefinitely.
• You want emergency access. You can withdraw your Roth IRA contributions (not earnings) at any time, penalty-free and tax-free. It's not ideal to raid your retirement, but it's a nice safety net.

The Roth Conversion Strategy

Even if you already have a Traditional IRA, you can convert some or all of it to a Roth IRA. You'll owe income taxes on the converted amount in the year of conversion, but all future growth becomes tax-free.

This strategy is especially powerful in years when your income is lower than usual - maybe you're between jobs, taking a sabbatical, or in early retirement before Social Security kicks in. Converting during a low-income year means you're paying a low tax rate on the conversion.

Project Your Retirement Savings

Use the calculator below to model how your retirement savings could grow. Whether you choose Roth or Traditional, consistent contributions and time in the market are what matter most.

Why Not Both?

Here's a strategy many financial planners recommend: contribute to both. If you have a 401(k) at work (especially a pre-tax one), pair it with a Roth IRA. This gives you a mix of pre-tax and after-tax money in retirement, which is incredibly useful for managing your tax bracket.

For example, in a year when you need $60,000, you could withdraw $40,000 from your pre-tax 401(k) (taxable) and $20,000 from your Roth IRA (tax-free). This keeps your taxable income lower and could keep you in a lower bracket.

The Bottom Line

If you're younger and in a lower tax bracket, a Roth IRA is usually the better choice. If you're in your peak earning years and need the tax deduction, a Traditional IRA (or pre-tax 401k) makes more sense. If you're unsure, splitting between both is a perfectly valid strategy.

The worst choice? Not contributing to either. Whether you go Roth or Traditional, the important thing is that you're putting money away for retirement and letting it compound over time.