Traditional vs. Roth IRA

Traditional vs. Roth IRA: Which One Is Right for Your Retirement?

Whether you're just getting started with retirement planning or reviewing your options for tax efficiency, one of the most important decisions you'll face is choosing between a Traditional IRA and a Roth IRA.

They’re both excellent savings tools—but they work very differently. So let’s break it down in plain English to help you make the best choice for your future.

🏦 What Is an IRA?

An IRA (Individual Retirement Account) allows you to save for retirement with special tax benefits. There are two main types:

• Traditional IRA – May give you a tax break now.

• Roth IRA – Gives you a tax break later.

Both accounts help your investments grow tax-deferred, meaning you don’t pay taxes on the growth each year like you would in a regular investment account.

🧾 The Tax Difference: Pay Now or Pay Later?

🟢 Traditional IRA

• Contributions may be tax-deductible (depending on your income and if you have a workplace plan).

• Your money grows tax-deferred.

• You pay ordinary income tax on withdrawals in retirement.

• Required Minimum Distributions (RMDs) start at age 73.

🔵 Roth IRA

• Contributions are made with after-tax dollars—no deduction.

• Your money grows tax-free.

• You can withdraw tax-free in retirement (if you follow the rules).

• No RMDs during your lifetime.

If you expect your tax rate to be higher in retirement, the Roth IRA might be the better option. If you want a deduction now and expect a lower income in retirement, the Traditional IRA may work best.

📊 Contribution Limits (2025)

• Under age 50: $7,000 per year

• Age 50 and over: $8,000 per year

• Contributions can't exceed your earned income.

• You can contribute to an IRA for your spouse even if they don’t work.

💰 Income Phase-Outs for Roth IRAs (2025)

• Single filer: Contribution limit starts to phase out at $150,000, disappears at $165,000.

• Married filing jointly: Phase-out starts at $236,000, disappears at $246,000.

If you earn too much for a Roth IRA, you may want to look into a “Backdoor Roth IRA” strategy with your financial advisor.

📤 When Can You Take Money Out?

Traditional IRA:

• Withdrawals allowed at age 59½ without penalty.

• Withdrawals are taxable.

• Early withdrawals may face a 10% penalty, with some exceptions.

Roth IRA:

• You can withdraw contributions at any time, tax-free and penalty-free.

• Earnings can be withdrawn tax-free if:

o The account is at least 5 years old, and

o You're over age 59½, or using funds for a first-time home purchase, disability, or upon death.

⏳ Required Minimum Distributions (RMDs)

• Traditional IRAs require RMDs starting at age 73. If you miss them, you face a 25% penalty on the amount not withdrawn (reduced to 10% if corrected quickly).

• Roth IRAs do not require distributions during the account owner's lifetime—making them a powerful tool for estate planning.

✅ Quick Comparison Table

Feature Traditional IRA Roth IRA

Contributions deductible? Yes (if eligible) No

Tax-deferred growth? Yes Yes

Tax-free withdrawals? No Yes (if qualified)

Income limits to contribute? No Yes

RMDs during lifetime? Yes (start at 73) No

🧠 Final Thoughts: It’s Not Either/Or

Many people assume they have to choose one over the other—but you can contribute to both, as long as your combined contributions don’t exceed the annual limit.

In fact, diversifying between Traditional and Roth IRAs can give you more control over your tax situation in retirement—letting you pull from taxable and tax-free accounts strategically.

📞 Let’s Talk About It

Not sure which IRA fits your situation? I can help. Whether you’re trying to lower your tax bill today or set yourself up for a tax-free income stream in retirement, let’s create a plan that’s tailored to your goals.

Schedule a free IRA strategy session today!

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