A traditional IRA offers the opportunity for your earnings to grow tax-deferred until they are withdrawn in retirement. A traditional IRA is a good choice if you’re eligible to make tax-deductible contributions and expect your tax rate during retirement to be lower than it is today (because that’s when you’ll be paying taxes).
A Roth IRA provides the opportunity for your earnings to grow tax-free. A Roth IRA may be appropriate if you expect your tax rate to be the same as it is today or higher during retirement. Generally, Roth IRAs offer greater tax savings and withdrawal flexibility than traditional IRAs, but they’re both limited by IRS regulations.
Comparing Traditional and Roth IRAs
| Traditional IRA | Roth IRA | |
|---|---|---|
| Designed for | Individuals who expect to be in a lower tax bracket after retirement or that don't qualify for a Roth IRA due to income level. | Individuals who expect to be in the same or higher tax bracket after retirement and don't exceed the income limits of a Roth IRA. |
| Eligibility | Under age 70½ with employment compensation. | Any age with employment compensation. |
| Tax Benefits | Tax-deferred growth. Contributions may be tax deductible. |
Potential tax-free growth of earnings. Tax-free qualified withdrawals. |
| IRA Account Fees | None | None |
| Required Minimum Distributions | Yes, over age 73. | Not during account owner's lifetime. |
| Rollover Allowed From 401(k), 403(b), 457 or TSP | Yes, tax-exempt. | Yes, but pre-tax contributions are subject to income tax. |
Contributions and Deadlines
| Traditional IRA | Roth IRA | |
|---|---|---|
| Maximum Contribution |
2025: Up to $7,000 ($8,000 for age 50 and over) OR your taxable compensation for the year, if your compensation was less than the dollar limit. |
2025: Up to $7,000 ($8,000 for age 50 and over) OR your taxable compensation for the year, if your compensation was less than the dollar limit. |
| Contribution Deadline | Tax filing day, no extensions. | Tax filing day, no extensions. |
Tax Information
| Traditional IRA | Roth IRA | |
|---|---|---|
| Tax Deductibility | If you're covered by an employer-sponsored retirement plan, your tax deduction depends on your income. If you're not covered by an employer-sponsored retirement plan, contributions could be fully deductible. | Contributions are not deductible. |
| Taxes on Withdrawals | Withdrawals of pre-tax contributions and earnings are taxable when distributed. | Withdrawals of contributions are always tax free. Earnings are tax free after five years, assuming one of the following: age 59½, disability, death, qualified first-time home purchase. |
| Penalty for Early Withdrawal | 10% penalty tax on withdrawals before age 59½, unless an exception applies. | Distributions from contributions are tax free. 10% penalty tax on withdrawals before age 59½, unless an exception applies. |
| Spousal IRA Allowed for Non-working Spouse | Yes | Yes |
| Custodial IRA for Minor Children | Yes | Yes |
