Roth IRA vs. Traditional IRA: Which One Fits You?

Both accounts help you save for retirement with a tax break. The difference is when you get the break.

Roth IRA: pay tax now

You contribute money you've already paid tax on. It grows tax-free, and qualified withdrawals in retirement are tax-free too.

Often a good fit if you're early in your career, in a lower tax bracket now, or expect higher taxes later.

Traditional IRA: pay tax later

Contributions may be tax-deductible now, which lowers this year's tax bill. You pay income tax when you withdraw in retirement.

Often a good fit if you're in your peak earning years and expect a lower tax rate in retirement.

Things to know

• There's a yearly contribution limit shared across all your IRAs. Check the IRS's current number.
• Roth IRAs have income limits for direct contributions.
• Traditional IRA deductions can be limited if you also have a workplace plan.

Can't decide?

Many people split contributions between both types for tax flexibility later. The most important thing is to start. The account type matters less than the habit.

What changes after 70

Traditional IRAs come with required minimum distributions (RMDs) starting in your 70s, which means you must withdraw, and pay tax on, a certain amount each year. Roth IRAs don't require withdrawals during the original owner's lifetime, which gives you more flexibility.

Is a Roth conversion worth a look?

Some retirees move money from a traditional IRA to a Roth IRA in years when their income is lower, such as early retirement before Social Security begins. You pay tax on the amount converted now, but future qualified withdrawals are tax-free. It's a decision best made with a tax professional.

Leaving money to family

Roth accounts can also be a tax-friendly way to leave money to children or grandchildren. Review your beneficiaries every few years to make sure they're up to date.