There are two common types of individual retirement accounts or IRAs: Roth and traditional. There are several differences between traditional and Roth IRAs, which include contribution amounts, income restrictions, how the accounts are funded, and tax benefits.
Here, we’ll explore the differences between a traditional or Roth IRA.
Roth IRAs
A Roth IRA is a retirement vehicle that you can fund using after-tax dollars (the money you receive in your paycheck after your employer withholds taxes). Roth IRAs allow for tax-free growth and tax-free distributions in retirement.
Contribution limits
Contributions to a Roth IRA are limited to $7,000 in 2025, with a catch-up contribution of $1,000 for those aged 50 and over. However, you may not be eligible to contribute the full amount, or at all, if you make over a certain amount.
Income restrictions
The amount you’re eligible to contribute to a Roth IRA is based on your adjusted gross income (AGI) and tax filing status. Individuals or couples who make over a certain amount of income may be ineligible to contribute to a Roth IRA for that tax year. The Internal Revenue Service (IRS) provides a table each year so taxpayers understand how much they can contribute to a Roth IRA.
Withdrawals and required minimum distributions
Since a Roth IRA is funded with after-tax money, qualifying withdrawals are tax-free and aren’t included as taxable income on that year’s tax return. You may withdraw your contributions at any time; however, you’ll need to wait to withdraw earnings, or you could face a penalty.
A qualifying withdrawal is one that happens:
- After age 59 1/2
- After you’ve been contributing to the Roth IRA for at least 5 years
- After you’ve become disabled
- As a first home exception up to the $10,000 limit
There are several other allowable exceptions in which the IRS might not impose an additional 10% tax on early withdrawals. However, it is advisable to consult a tax attorney or other financial professional before taking any early distributions from a retirement account.
Required minimum distributions (RMDs) are government-mandated minimum amounts you have to remove from retirement accounts each year after you reach a certain age. However, there are no RMDs for a Roth IRA until after the death of the owner. Beneficiaries who receive the assets of a Roth IRA after the account owner’s death may need to take a certain amount of money out each year to be compliant with RMDs.
Taxes
Since contributions are made with after-tax dollars, contributions to a Roth IRA are not tax-deductible. Similarly, earnings on investments in a Roth IRA are tax-free, and qualified withdrawals are also tax and penalty-free. Having the option of tax-free withdrawals from a Roth IRA in retirement may provide more flexibility in tax management.
Traditional IRAs
A traditional IRA is funded with pre-tax dollars. However, since you’re managing the account instead of an employer, you’ll likely make contributions using after-tax dollars and then deduct those contributions at tax time.
Contribution limits
The contribution limit for a traditional IRA is $7,000 for 2025.
Income restrictions
There aren’t income limits for contributions to a traditional IRA like there are for a Roth. However, you may not be able to deduct contributions from your taxes if your AGI is above a certain threshold.
