Should I Use a Traditional or Roth IRA?

Understand Which Saving Vehicle Works Best For Your Retirement Plan

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An individual retirement account can help you save for retirement while enjoying some tax breaks. Both traditional and Roth IRAs have significant tax advantages, but one may be better than the other in some situations and depending on your personal circumstances.

Considering the pros and cons of each can help you decide which one could offer the most tax benefit for you when it's time to retire.

Traditional IRA vs Roth IRA

Here's a quick look at some ways in which a Roth IRA differs from a traditional IRA.

 Roth IRA Traditional IRA
 Contributions Made with after-tax money, not tax-deductible Tax-deductible
 Eligibility IRS sets income and phase-out limits for Roth IRA contributions No income limits for contribution 
Required Minimum Distributions (RMDs)  No RMDs Distributions are required to be taken once you turn 72 years old
 Tax on distributions Qualified distributions are tax-free Withdrawals are taxable, unless covered by an exception

How Traditional IRAs Work

A traditional IRA is a type of individual retirement account that allows for pre-tax contributions. These contributions may be tax deductible depending on your income, filing status, and whether you're covered by a retirement plan at work.

In a traditional IRA, your money grows tax-deferred and you can begin making withdrawals at age 59½.These withdrawals are taxed at your ordinary income tax rate at the time you take them in retirement.

You must begin taking required minimum distributions (RMDs) each year once you reach age 72. These distributions are based on your account balance, age, and life expectancy, and they could affect your final tax bill for the year.

You can contribute up to $6,000 annually to a traditional IRA in 2021 or 2022. You can make an additional catch-up contribution of $1,000 for the year if you're age 50 or older. You could see the greatest tax benefit from a traditional IRA versus a Roth if you expect to be in a lower tax bracket when you retire, because that's the point at which you'll pay tax on the money.

How Roth IRAs Work

You can think of a Roth IRA as the opposite of a traditional IRA in terms of taxation. Your contributions to a Roth IRA are made on an after-tax basis, so there's no current tax benefit to you when you make a contribution. You don't get to claim a deduction for your contributions.

You'll benefit on the other end, however, because qualified distributions from a Roth IRA are 100% tax-free. This typically benefits those who expect to be in a higher tax bracket upon retirement.

Contribution limits to a Roth IRA are the same as they are for a traditional IRA: $6,000, or $7,000 if you're age 50 or older.


Roth IRAs don't require that you take required distributions upon reaching age 72, either. This can be increasingly important as people are living and working longer.

But there are adjusted gross income limitations that may prohibit higher-income individuals from participating in a Roth: $214,000 for married taxpayers filing jointly in 2022, up from $208,000 in 2021, or $144,000 for single filers in 2021, up from $140,000 in 2021. You'll have to choose a traditional IRA instead if you earn too much money to contribute to a Roth.

Choosing Between Traditional and Roth IRAs

Here are some questions that you may want to ask yourself or discuss with your financial advisor as you weigh the pros and cons of the traditional and Roth IRA.

  • Do you expect your income to increase or decrease in retirement?
  • Do you expect your tax rate to be higher or lower when you retire?
  • What is your current tax bracket?
  • How much income will you need on a monthly basis when you retire?
  • How long do you plan to work?
  • Do you expect to pass on your IRA to someone else when you die?

Making a decision between a traditional and Roth IRA may be difficult if you're eligible to contribute to both for retirement. Again, it all comes down to whether you're more comfortable being taxed now versus being taxed later. You may also consider what will work best for you based on income limits, contribution limits, tax incentives, withdrawal rules, and future tax rates.

You can invest in both traditional and Roth IRAs, as long as you meet the income and annual contribution limits.

Look into your workplace retirement plan options. You may want to consider a traditional IRA and contributions to a Roth 401(k) if you want to hedge your bets. This would allow you to max out annual contribution limits to both plans while getting dual tax benefits.

It's always a good idea to speak with a qualified financial planner before making a decision if you're confused about the benefits of a traditional or Roth IRA, or if you're just unsure how to proceed. You can also visit the IRS website for additional information.

Article Sources

  1. Internal Revenue Service. "Traditional and Roth IRAs."

  2. Internal Revenue Service. "Publication 590-B (2020), Distributions from Individual Retirement Arrangements (IRAs)." Accessed Dec. 7, 2021.

  3. Internal Revenue Service. "Retirement Topics - IRA Contribution Limits." Accessed Dec. 7, 2021.

  4. Internal Revenue Service. "Traditional and Roth IRAs." Accessed Dec. 7, 2021.

  5. Internal Revenue Service. "2022 Limitations Adjusted as Provided in Section 415(d), Etc.," Page 4. Accessed Dec. 7, 2021.