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.
Withdrawals and required minimum distributions
Unlike a Roth IRA, which doesn’t have RMDs while you’re alive, a traditional IRA is subject to RMDs. Account owners will need to start taking withdrawals at age 73. The amount of the RMD varies based on the account balance and a life expectancy factor published by the IRS.
Taxes
There are two key tax benefits of a traditional IRA: tax-deductible contributions and tax-deferred growth on earnings. However, it’s important to note that whether contributions are deductible depends on your AGI and whether you or your spouse have access to a retirement plan at work.
The following table outlines key differences between traditional and Roth IRAs.
| Type of account | Traditional | Roth |
|---|---|---|
| Contribution limit | $7,000 in 2025, plus $1,000 catch-up contribution for individuals aged 50 and over. | $7,000 in 2025, plus $1,000 catch-up contribution for individuals aged 50 and over. |
| Income restrictions | AGI above a certain threshold may limit the ability to deduct contributions. | AGI above a certain threshold may limit the ability to contribute to the account. |
| Tax advantages | Tax-deferred growth and tax-deductible contributions for some individuals. | Tax-free growth and tax-free withdrawals after age 59 1/2 when the account has been open for at least 5 years. |
| Required minimum distributions (RMDs) | RMDs starting at age 73 based on account balance and IRS life expectancy table. | No RMDs during the account owner’s lifetime. Beneficiaries may be subject to RMDs on an inherited Roth IRA. |
| Withdrawals | Must be reported as taxable income. | Are not reported as taxable income. |
Should you choose a traditional or Roth IRA?
Traditional IRAs tend to make sense for individuals who anticipate being in a lower tax bracket in retirement than they are today. Similarly, a Roth IRA may be preferable for individuals who believe they’ll be in a higher tax bracket in retirement than they are today.
If you’re not sure, consider consulting a trusted financial professional who can work with you to assess your unique financial and lifestyle needs.
Disclosure: This article is for general educational purposes. It is not intended to provide financial advice. It also is not intended to completely describe any Citi product or service. You should refer to the terms and conditions financial institutions provide for various products.
