What Is Bank Fraud? How to Recognize It, Avoid It and Report It
How to Open a Bank Account for a Minor
How to Balance a Checkbook
Retirement Savings: How Much Should I Save Each Month?Roth vs. Traditional IRA: What’s the Difference?
When picking a retirement savings account, you may face the Roth IRA versus traditional IRA decision.
A Roth IRA uses after-tax dollars, while a traditional IRA uses pretax dollars, and the individual retirement accounts (IRA) have different eligibility and withdrawal rules, as well as pros and cons.
Roth vs. traditional IRA
Roth IRAs and traditional IRAs are two common retirement savings options, but they aren’t identical. One difference is the tax treatment.
- Roth IRA: Contributions to a Roth IRA are made with after-tax dollars, which means you already paid taxes on the money. When you start taking withdrawals from the account in retirement, you won’t owe any taxes on the earnings and contributions you made.
- Traditional IRA: Contributions to a traditional IRA are made with pretax dollars, so you won’t pay taxes on the funds in the year you contribute to the IRA. Instead, you’ll be taxed when you withdraw the money during retirement, when your tax rate may be lower.
IRA eligibility, rules and contribution limits
Your IRA eligibility depends on your income and tax-filing status.
To contribute to a Roth IRA, your modified adjusted gross income (MAGI) — your adjusted gross income with certain deductions added back in — must fall under specific limits set by the IRS.
Here are the Roth IRA “income phase-out limits” for 2025 by filing status:
- Single and head of household: $150,000 to $165,000
- Married filing jointly: $236,000 to $246,000
- Married filing separately: $0 to $10,000
There is no income limit to contribute to a traditional IRA, but if you earn over a certain amount, you might not be able to deduct your contribution.
Here are the traditional IRA tax-deductibility limits for 2025:
- Single filers: If you earn $89,000 or more, no deduction is allowed.
- Joint filer who also contributes to a retirement plan at work: If your joint income is $146,000 or more, no deduction is allowed.
- Joint filer whose spouse contributes to a retirement plan at work: If your joint income is $246,000 or more, no deduction is allowed.
In 2025, you can contribute up to $7,000 to a traditional IRA or Roth IRA. If you’re 50 or older, you can contribute an additional $1,000 — known as the “catch-up” contribution — for a total of $8,000.
Your IRA contribution can’t be more than your income. For example, if you worked part time for a year and only made $5,000, the maximum contribution you can make that year is $5,000.
Both Roth IRAs and traditional IRAs have no age requirements to make contributions. There used to be a legal age cap, but it was abolished in 2020.
Snapshot: Roth IRA vs. traditional IRA
| Roth IRA | Traditional IRA | |
| Age requirement for contributions | No age requirement | No age requirement |
| Age requirement for withdrawals | No age requirement | Must begin taking required minimum distributions by April 1 of the year after you turn 72 (or age 73 if your birthday is before then) |
| Annual contribution limit |
|
|
| Income limits | To make a full contribution, single tax filers must earn less than $150,000, and joint filers must earn less than $236,000 | No income limit to contribute, but high-income earners might not be able to deduct their contributions |
| Early withdrawal penalty | 10% early withdrawal penalty unless an exception applies | 10% early withdrawal penalty unless an exception applies |
| Tax treatment |
|
|
Roth IRA pros and cons
Pros
- Withdrawals have no income taxes in retirement.
- Contributions and earnings grow tax-free.
- Required minimum distributions (RMDs) do not apply.
Cons
- You’ll get no immediate tax deduction.
- You can’t contribute to the account after you reach a certain income level.
- An early withdrawal penalty applies unless you qualify for an exception.
Traditional IRA pros and cons
Pros
- Contributions might be tax deductible, helping to reduce your taxable income.
- Contributions and earnings don’t get taxed until you take withdrawals.
- Income limits don’t apply to contributions.
Cons
- Withdrawals during retirement will be taxed based on your ordinary income tax rate.
- Required minimum distributions are necessary by age 73 at the latest.
- Withdrawals before age 59 ½ usually have a 10% penalty.
Which option is right for you?
Deciding on a Roth IRA vs. a traditional IRA depends on your financial situation and which tax bracket you expect to be in when you retire.
If you think you’ll be in a higher tax bracket during retirement, a Roth IRA might be a better choice because it has tax-free withdrawals.
If you think you’ll be in a lower tax bracket during retirement, a traditional IRA can help you get a tax break now versus later.
Frequently asked questions
How much money do I need to open an IRA?
The IRS doesn’t set a minimum deposit for opening an IRA, but some providers require a minimum investment. You won’t need to fund an IRA all at once. You can choose to make contributions however often is best for you — whether that’s annually, quarterly or monthly.
Can minors contribute to an IRA?
Yes, minors can contribute to a traditional or Roth IRA, as long as they have earned income. The contribution limit for a minor is $7,000, or their earned income for the year, whichever is less. For example, if your 16-year-old worked a summer job at the mall and earned $5,000, their maximum IRA contribution is $5,000.
What’s the deadline to contribute to an IRA?
The contribution deadline for both Roth and traditional IRAs is usually April 15 of the following year. That means if you want to contribute to an IRA in 2025, you’d need to deposit the money by April 15, 2026.