IRAs­ can be valuable to your overall retirement plan due to their tax advantages. For the most part all you need is taxable income to get started. So how do you decide which is best?

Compare Roth and traditional IRAs side by side.  

While there are several types of IRAs, the most common by far are Roth IRAs and traditional IRAs. The major difference between the two types of accounts is when your contributions and earnings are taxed. Other differences include contribution and income limits, as well as age requirements and withdrawal penalties.

Take a look at the following chart for a basic overview of the two types of accounts.

Roth IRA Traditional IRA
Tax benefits No tax deduction on contributions


Interest earned in the IRA is tax-free.

Tax deduction on contributions


Interest earned in the IRA is tax-deferred until you take it out in retirement.

Contribution limits $5,500 age 49 and younger; $6,500 age 50 or older Same as Roth
Income limits Income affects how much you can contribute.  Current limits Income does not affect how much you can contribute.


Income (and whether you have an employer-sponsored retirement plan) can affect deduction amounts.

Age requirements Contribute at any age


Contribute until age 70½


Distributions Take your contributions out at any time without paying additional tax or a penalty.


Take earnings out without tax or penalty once you are 59½ or older (if the money has been in the IRA for at least five years).

Distributions taken after age 59½ are taxed at your tax rate at the time of the distribution.
Required minimum distributions No mandatory withdrawals during your lifetime You must begin taking required minimum distributions at age 70½.
Early withdrawal penalties Withdrawals of earned interest before age 59½ may be subject to taxes and penalties. Withdrawals made before age 59½ are taxed at your tax rate at the time of the withdrawal and may be subject to a 10% penalty.


As you can see, both types of IRAs are governed by various rules—it’s the IRS, after all. But understanding a few key concepts can help you determine which type makes the most sense for your situation.

Understand how your income affects your eligibility.

You can’t contribute to a Roth IRA if your income exceeds government-set limits, so if that’s the case for you, your decision is already made. Check here on the IRS website to see if your income allows you to be eligible for a Roth IRA.

There are no income limits for contributions to traditional IRAs. However, your deduction may be limited if you (or your spouse, if you are married) are covered by a retirement plan at work and your income exceeds certain levels. Again, you’ll want to check the IRS website for deduction limits affected by income.

Figure out when you want your tax break.

With a traditional IRA, you can take a deduction (subject to income limits) toward your savings, up to an amount specified by the IRS. Your money is taxed when you make withdrawals during retirement, which you can begin taking without penalty at age 59½.

Contributions are made to a Roth IRA after tax, and distributions are tax-free after age 59½. Since you pay taxes on the front end, you don’t have to worry about paying taxes on your retirement withdrawals.

Consider where you are in your career.

Financial planners generally recommend the Roth IRA if you’re just starting out. Since you already pay taxes up front, you don’t pay taxes on your withdrawals in retirement. Plus, you have all those years of tax-free growth to boot, since the earnings in a Roth IRA are tax-free.

A traditional IRA can make sense if you are closer to retirement, or if you expect your income to be significantly reduced when you stop working. That’s because you get a tax deduction on your contributions right away, but pay taxes later on your withdrawals.

Once you have a basic understanding of the differences between Roth and traditional IRAs, it’s a good idea to visit the Internal Revenue Service website for specific, up-to-date information. In addition, a tax professional can help you get the right mix of retirement savings products for your situation.

Compare IRAs

Last Edited: February 28, 2018