Saving for retirement often starts with a simple question: Should I open a Traditional IRA or a Roth IRA?
Both accounts offer tax advantages designed to support long-term retirement savings, but they differ in how and when you pay taxes — and that distinction can influence your income later in life.
Knowing the difference can help you decide which option better fits your current situation and retirement income needs.
What Is an IRA?
An IRA (Individual Retirement Account) is a savings account designed to help you set aside money for retirement in a tax-advantaged way. You can open one on your own, even if you already participate in a workplace plan like a 401(k).
How Does a Traditional IRA Work?
A Traditional IRA lets you contribute money that may be tax-deductible, depending on your income and whether you or your spouse are covered by a workplace plan.
Your investments grow tax-deferred, which means you don’t pay taxes each year on earnings — only when you withdraw the money. In retirement, withdrawals are generally taxed as ordinary income.
If you take money out before age 59½, you’ll typically owe income tax plus a 10% penalty, unless you qualify for an exception (such as using funds for higher education costs, certain medical expenses, or a first-time home purchase).
You’ll also need to start required minimum distributions (RMDs) at a certain age, (currently age 73), which means you have to take out a certain amount each year once you reach that age.
📌 Read our blog post – Avoiding Common RMD Mistakes
How Does a Roth IRA Work?
A Roth IRA flips the tax treatment. You contribute after-tax dollars — money you’ve already paid taxes on — and your investments grow tax-free.
When you withdraw funds in retirement (after age 59½ and once the account has been open at least five years), your withdrawals are also tax-free. That means you don’t owe income tax later on your earnings or contributions.
Roth IRAs also have no required minimum distributions, so your money can stay invested as long as you’d like — even into your 80s or 90s.
However, Roth IRAs have income limits. For 2025, you can contribute the full amount if your modified adjusted gross income is below $150,000 (single filers) or $236,000 (married couples filing jointly). Contribution eligibility phases out at higher incomes.
Who Can Contribute to an IRA in 2025?
You can contribute to a Traditional or Roth IRA if you (or your spouse, if filing jointly) have earned income. You have until your tax filing deadline — typically April 15, 2026, for the 2025 tax year — to make your contribution.
💡 Tip: If you’re eligible for both a Traditional and a Roth IRA, you can split your contributions between them (up to the total limit). This can help balance your tax exposure in retirement.
❓How much can I contribute to an IRA in 2025? If you’re under 50, you can contribute up to $7,000 across all IRAs. If you’re 50 or older, you can add a $1,000 catch-up contribution for a total of $8,000.
Should You Invest in a Traditional or Roth IRA?
Choosing between a Traditional and a Roth IRA often depends on when you prefer to pay taxes.
- A Traditional IRA might be better if you expect to be in a lower tax bracket when you retire, since you’ll pay taxes later when you withdraw funds.
- A Roth IRA may make more sense if you expect to be in the same or higher tax bracket in the future, since withdrawals are tax-free.
Typically, younger individuals who expect their income to increase over time opt for a Roth IRA. If you’re not sure what your future tax situation will look like, consider diversifying between both types.
📌 Read our blog post – Saving for Retirement at Every Age
What Happens If You Need to Withdraw Money Early from Your IRA?
You can withdraw money from either type of IRA at any time, but the tax treatment differs.
With a Traditional IRA, early withdrawals usually trigger both income tax and a 10% penalty (unless an exception applies).
With a Roth IRA, you can always withdraw your contributions tax- and penalty-free. The earnings portion, however, could be taxed and penalized if you take it out before age 59½ or before the five-year mark.
💡 Tip: Keep an emergency fund outside your IRA so you don’t have to dip into retirement savings early.
📌 Read our blog post – Prepare for Life’s Unexpected Surprises with an Emergency Fund
What If Your Income Is Too High for a Roth IRA?
If you earn too much to contribute directly to a Roth IRA, you might still be able to take advantage of its benefits through a backdoor Roth IRA.
This strategy involves contributing to a Traditional IRA and then converting it to a Roth IRA. It’s especially useful for high-income earners who want tax-free withdrawals later in life — but it does have tax and reporting complexities.
📌 Explore our IRA Planning and Retirement Planning services
How Your IRA Fits Into Your Retirement Plan
Your IRA plays an important role in how you save and draw income for retirement — but it’s just one piece of the bigger picture. As your career, income, and tax situation evolve, it’s smart to check whether your mix of Traditional and Roth accounts still supports your broader plan.
Major life changes — like changing jobs, retiring, or adjusting your income — are good reasons to revisit your accounts and contribution strategy.
If you’d like to review your IRA options or see how they fit into your overall retirement plan, schedule a complimentary introductory meeting with our team in Glastonbury or Wilton, Connecticut.
Michael Nicoletti is a CERTIFIED FINANCIAL PLANNER® professional and works with clients throughout Connecticut and nationwide, offering financial planning and wealth management services. Based in Glastonbury and Wilton, CT, Michael helps families and individuals plan for their financial, insurance, investment, and retirement goals. Schedule a complimentary introductory meeting with Michael.
This information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete, it is not a statement of all available data necessary for making an investment decision and it does not constitute a recommendation. RMD's are generally subject to federal income tax and may be subject to state taxes. Consult your tax advisor to assess your situation. Any opinions are those of the author, and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.
Contributions to a traditional IRA may be tax-deductible depending on the taxpayer’s income, tax-filing status, and other factors. Withdrawal of pre-tax contributions and/or earnings will be subject to ordinary income tax and, if taken prior to age 59 1/2, may be subject to a 10% federal tax penalty. Roth IRA owners must be 59½ or older and have held the IRA for five years before tax-free withdrawals are permitted. 401(k) plans are long-term retirement savings vehicles. Withdrawal of pre-tax contributions and/or earnings will be subject to ordinary income tax and, if taken prior to age 59 1/2, may be subject to a 10% federal tax penalty.