Roth IRA vs Traditional IRA Explained

The choice between a Roth and a traditional IRA comes down to one question: do you want the tax break now or later? With a traditional IRA, contributions may be tax-deductible today, the money grows tax-deferred, and you pay ordinary income tax on withdrawals in retirement. A Roth IRA flips that script.

You contribute after-tax dollars, but every dollar of growth and every qualified withdrawal in retirement is completely tax-free. If you expect to be in a higher tax bracket later, which is common for young professionals early in their careers, the Roth is usually the better deal.

If you are in your peak earning years and expect a lower bracket in retirement, the traditional deduction may win. Many savers split contributions across both to hedge their bets against unknown future tax rates. Both accounts have a combined annual contribution limit, currently seven thousand dollars for those under fifty, and Roth eligibility phases out at higher incomes. The worst choice is no IRA at all, so pick one and start funding it now.