Roth IRA vs. Traditional IRA: Which One is Right for You?
If you’re planning for retirement, you’ve probably heard the terms Roth IRA and Traditional IRA thrown around. At first glance, they seem almost identical—both let you invest for retirement with tax advantages and both have the same contribution limits. But there’s one massive difference: when you pay taxes. That difference could mean saving thousands of dollars—or paying way more than you need to. Let’s break down Roth IRA vs Traditional IRA so you know exactly which one to pick.
The Core Difference Between a Roth IRA & Traditional IRA
A Traditional IRA lets you contribute pre-tax dollars (reducing your taxable income today), but you pay taxes when you withdraw in retirement.
A Roth IRA does the opposite—you contribute after-tax dollars, but your money grows tax-free and you pay zero taxes when withdrawing in retirement. Simple, right? But the real question is: Which one saves you the most money?
Roth IRA vs. Traditional IRA: A Real-Life Example
Meet Jake and Emily. They both invest $6,500 per year in their IRA accounts and earn an 8% annual return for 30 years. Toggle through the different tax situations to see which IRA makes the most sense when you expect certain tax rates.
| Person | IRA Type | Annual Contribution | Value at Retirement | Taxes Owed at Withdrawal | Final Spendable Amount |
|---|---|---|---|---|---|
| Jake | Roth IRA | $5,070 (after-tax) | ~$545,000 | $0 | $545,000 |
| Emily | Traditional IRA | $6,500 (pre-tax) | ~$700,000 | $154,000 (22%) | $546,000 |
| Person | IRA Type | Annual Contribution | Value at Retirement | Taxes Owed at Withdrawal | Final Spendable Amount |
|---|---|---|---|---|---|
| Jake | Roth IRA | $5,070 (after-tax) | ~$545,000 | $0 | $545,000 |
| Emily | Traditional IRA | $6,500 (pre-tax) | ~$700,000 | $84,000 (12%) | $616,000 |
| Person | IRA Type | Annual Contribution | Value at Retirement | Taxes Owed at Withdrawal | Final Spendable Amount |
|---|---|---|---|---|---|
| Jake | Roth IRA | $5,070 (after-tax) | ~$545,000 | $0 | $545,000 |
| Emily | Traditional IRA | $6,500 (pre-tax) | ~$700,000 | $245,000 (35%) | $455,000 |
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At retirement:
- Emily must pay taxes on her entire $700,000 when she withdraws.
- Jake pays nothing—every penny is his to keep. Remember, he already paid taxes over the course of the 30 years. That is why his contributions were a little lower.
Who wins? Jake does—if tax rates increase over time. But if Emily is in a much lower tax bracket when she retires, she could end up paying less overall. Remember, Jake paid taxes on that money during those 30 years of savings.
When a Traditional IRA is the Better Choice
A Traditional IRA is best if:
- You want to reduce taxable income today. If you make $80,000 and contribute $6,500, you only pay taxes on $73,500—which can push you into a lower tax bracket.
- You expect to be in a lower tax bracket in retirement. If you retire on $40,000 per year instead of $80,000, your tax rate is much lower—so paying later might be cheaper.
- You want an upfront tax break. If your goal is maximizing tax savings this year, the Traditional IRA gives you that benefit immediately.
Example: John makes $90,000 per year and is in the 22% tax bracket. If he contributes $6,500 to a Traditional IRA, he saves $1,430 in taxes right now.
When a Roth IRA is the Better Choice
A Roth IRA is best if:
- You want tax-free withdrawals in retirement. This is huge—every dollar you withdraw is 100% yours.
- You expect to be in a higher tax bracket later. If you’re young and growing your career, you’ll likely make more in the future—which means paying taxes now at a lower rate makes sense.
- You like flexibility. With a Roth, you can withdraw your contributions (not earnings) at any time, penalty-free.
Example: Sarah is 28 years old, earns $50,000 per year, and expects to retire earning much more. She pays lower taxes now, locks in tax-free withdrawals, and avoids required minimum distributions.
Roth IRA vs. Traditional IRA: Which One is Best for You?
Choosing the right account depends on your current income, tax situation, and retirement goals.
| Choose This If… | Traditional IRA | Roth IRA |
|---|---|---|
| You want lower taxes today | ✅ Yes | ❌ No |
| You want tax-free money in retirement | ❌ No | ✅ Yes |
| You expect to be in a lower tax bracket later | ✅ Yes | ❌ No |
| You expect to be in a higher tax bracket later | ❌ No | ✅ Yes |
| You want access to your contributions before retirement | ❌ No | ✅ Yes |
| You don’t want to take required minimum withdrawals | ❌ No | ✅ Yes |
Still can’t decide? Do both!
• If you’re eligible, contribute to both a Roth IRA and a Traditional IRA for tax diversification.
• You’ll get some tax benefits now and some tax-free money later.
How to Open an IRA Today
Opening an IRA is easier than ever—most brokerages let you set one up in minutes.
- Choose a brokerage (Fidelity, Vanguard, Schwab, etc.)
- Decide on a Roth or Traditional IRA
- Link your bank account and start contributing
- Pick your investments (index funds, ETFs, stocks, bonds)