What's the Difference Between a Traditional & Roth IRA?

An individual retirement account (IRA) can be a great way to save for your future. But how do you know which type is right for you? Traditional IRAs and Roth IRAs allow you to contribute up to $6,000 a year, plus an additional $1,000 catch-up contribution each year if you’re over 50. The key difference is whether you’d prefer to pay taxes on your savings today or in the future.

With Roth accounts, you won’t receive any tax deductions today but can take withdrawals in retirement without paying taxes.1 You may benefit from a Roth IRA if you’re young, currently in a lower tax bracket or have the majority of your investments in traditional IRA accounts or retirement plans.

With traditional IRAs, you may be eligible to take a tax deduction today and can delay paying taxes until later, when you begin taking withdrawals. This option might make sense if you’re in a higher tax bracket today than you expect to be in retirement.

Traditional vs. Roth comparison

Roth IRA Traditional IRA
Contributions Not tax-deductible
May be tax-deductible
Distributions
Tax-free when withdrawn1
Taxed as ordinary income2
Tax Rates
Expected to be higher in retirement than today (or at the time of contribution)
Expected to be lower in retirement than today (or at the time of contribution)
Tax Deductions
No tax deduction today, but prospect of tax-free income in retirement
Immediate tax savings of a deduction or pretax contribution for those in a high tax bracket today
Eligibility
Must be earning income and meet the Modified Adjusted Gross Income (MAGI) requirement3
Must be earning income and meet the Modified Adjusted Gross Income (MAGI) requirement3

How we can help

Talk to your financial advisor today to discuss which type of IRA may be right for you.

Important Information:

1Earnings distributions from a Roth IRA may be subject to taxes and a 10% penalty if the account is less than five years old and the owner is under age 59½.

2Your Traditional IRA contribution may be deductible depending upon your participation in an employer-sponsored retirement plan, and your tax-filing status. If you and your spouse (if married) are not covered by a plan, you can deduct the contribution regardless of income.

3Less than $137,000 for individuals, less than $203,000 for married couples filing jointly and less than $10,000 for married couples filing separately.

More Resources:

Is a traditional IRA right for you?

We understand that saving for retirement can be a challenge. We can help.

Think tax rates are likely to rise? A Roth IRA might be right for you.

If you suspect that taxes – and specifically, your taxes – are likely to be higher when you retire, a Roth IRA may be a good option for your retirement savings.

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