US guide Roth and traditional IRAs are United States retirement accounts governed by US tax rules. Other countries have their own individual retirement or savings accounts with different names and treatment.

An IRA is one of the most useful retirement tools available to individuals — and the choice between the two main types, Roth and traditional, trips up a lot of people. The good news is that the core difference is genuinely simple once you strip away the jargon. It comes down to one question: do you want your tax break now, or later?

This guide explains what an IRA is, how each version is taxed, the contribution rules, and a clear way to think about which one suits your situation.

What an IRA is

IRA stands for Individual Retirement Account. Unlike a 401(k), which is set up through an employer, an IRA is something you open yourself at a bank, brokerage, or fund company. That independence is part of the appeal: it is your account, it moves with you regardless of where you work, and you typically get a much wider range of investment choices.

Like a 401(k), an IRA is a container rather than an investment. You put money in, then choose what to hold inside it — often funds, and sometimes individual investments. The tax advantages are what make it a retirement account rather than an ordinary investment account, and those advantages are exactly where Roth and traditional differ.

The traditional IRA

A traditional IRA is built around a tax break today. Depending on your income and whether you or a spouse are covered by a workplace retirement plan, your contributions may be tax-deductible, lowering your taxable income for the year you contribute.

From there, the money grows without being taxed along the way. The trade-off comes later: when you withdraw funds in retirement, those withdrawals are taxed as ordinary income. In other words, you defer the tax rather than avoid it. Traditional IRAs also come with rules that eventually require you to begin taking money out later in life.

The traditional route tends to appeal to people who want to reduce their tax bill now, and who expect to be in a similar or lower tax bracket once they retire.

The Roth IRA

A Roth IRA flips the timing. You contribute money you have already paid income tax on, so there is no deduction today. In exchange, the account grows tax-free, and qualified withdrawals in retirement are generally tax-free as well — including all the growth. For a long-term saver, decades of investment gains coming out untaxed is a powerful feature.

Roth IRAs have two other traits people appreciate. Because you have already been taxed on your contributions, you can generally withdraw the amount you contributed (not the earnings) at any time without tax or penalty, which offers some flexibility. And Roth IRAs are not subject to the same lifetime required-withdrawal rules that apply to traditional accounts.

The catch is that the ability to contribute directly to a Roth phases out at higher incomes, which we cover below. The Roth route tends to appeal to people who are comfortable paying tax now — often earlier in a career, when income and tax rates may be lower — in return for a tax-free pot later.

Side-by-side comparison

Traditional IRA Roth IRA
Tax break Possibly now (contributions may be deductible) Later (qualified withdrawals are tax-free)
Growth Not taxed along the way Not taxed along the way
Withdrawals in retirement Taxed as income Generally tax-free if qualified
Income limits to contribute No income cap to contribute (deduction may be limited) Direct contributions phase out at higher incomes
Required withdrawals in later life Yes Not during the original owner's lifetime
Access to contributions before retirement Withdrawals generally taxed and may be penalised Contributions can generally be withdrawn anytime

Contribution limits & income rules

The IRS sets one annual contribution limit that applies across all your IRAs combined — you cannot contribute the full amount to each. For the 2025 tax year, the limit was $7,000, with an extra $1,000 catch-up contribution allowed for people aged 50 and over (so $8,000 in total for that group). You also need earned income, such as wages, to contribute, and you cannot contribute more than you earned.

For Roth IRAs specifically, the ability to contribute directly begins to phase out above certain income levels. For 2025, that phase-out began at higher incomes for single filers and at higher combined incomes for married couples filing jointly; above the top of the range, direct Roth contributions are not permitted.

These numbers change over time, and the income thresholds in particular are easy to state imprecisely. Confirm the current year's contribution limit and Roth income ranges directly on IRS.gov before you act — that is the authoritative, up-to-date source. What stays constant is the structure: one shared annual limit, a catch-up for older savers, and income-based limits on direct Roth contributions.

How to decide which fits you

The honest answer is that it depends on your tax situation now versus later — which nobody can predict perfectly. Still, a few practical signposts help:

  • Lean Roth if you are early in your career or currently in a lower tax bracket, and you like the idea of a tax-free pot and more flexibility.
  • Lean traditional if you want to reduce your taxable income now and expect your tax rate to be lower in retirement.
  • Consider both — some savers deliberately build a mix of taxable-later and tax-free money to give themselves options in retirement.
  • Mind the match first. If your employer offers a 401(k) match, capturing that is usually a higher priority than which IRA you pick.

Because the decision has real tax consequences, it is a sensible thing to run past a qualified tax professional, especially if your income is high or your situation is unusual.

How to open one

Opening an IRA is straightforward. You choose a provider — typically a brokerage or fund company — open the account, and decide what to invest in inside it. Many people keep this simple with a broadly diversified, low-cost fund. If you are new to that idea, our guide on index funds vs. individual stocks explains the trade-offs, and how to start investing with little money covers getting going without a large balance.

The bottom line

Roth and traditional IRAs share the same purpose — tax-advantaged retirement saving — and differ mainly on when you get the tax benefit. A traditional IRA offers a potential break now and taxes you later; a Roth asks you to pay tax now for tax-free withdrawals later. Both are strong tools, and the growth inside either one compounds over the years, as our guide to compound interest illustrates. The best account is the one you will actually fund consistently — so pick the structure that fits your situation and start.

Frequently asked questions

Can I have both a Roth IRA and a traditional IRA?

Yes. You can own both, but the annual contribution limit applies across all of your IRAs combined, not to each one separately. So the total you add across a Roth and a traditional IRA in a year cannot exceed the IRS limit for that year.

Which is better, a Roth or a traditional IRA?

Neither is universally better. A traditional IRA can help if you want a possible tax deduction now and expect a lower tax rate in retirement, while a Roth can help if you would rather pay tax now and take qualified withdrawals tax-free later. Your income, current tax bracket, and expectations about the future all play a role, so it is a reasonable question to discuss with a tax professional.

Do I need earned income to contribute to an IRA?

Generally yes. IRA contributions must come from earned income such as wages or self-employment income, and you cannot contribute more than you earned in the year. There are specific provisions, such as spousal IRAs, so check the current IRS rules for your situation.

Can I withdraw money from a Roth IRA early?

Because Roth contributions are made with money you have already paid tax on, you can generally withdraw the amount you contributed at any time without tax or penalty. The earnings are treated differently and usually need the account to be open for at least five years and you to be at least 59 and a half to be withdrawn tax-free. Confirm the details with current IRS guidance before acting.

What is a backdoor Roth IRA?

It is an informal name for a strategy some higher earners use to fund a Roth IRA when their income is above the direct contribution limits, by contributing to a traditional IRA and then converting it. It has tax implications and can be easy to get wrong, so it is an area where professional advice is especially worthwhile.

Sources & further reading

The explanations here are our own. For the current contribution limits, income ranges, and detailed rules, the authoritative source is the IRS, and the resources below are good places to confirm the specifics for your own situation: