Roth vs Traditional IRA: What's the Difference?

The difference between a Roth and a traditional IRA is when you pay income tax: a Roth IRA is funded with money you've already paid tax on and qualified withdrawals are tax-free, while a traditional IRA may give you a deduction now and taxes the money when you take it out. Everything else, from income limits to required withdrawals, follows from that one choice of "tax now" or "tax later".

This guide compares the two accounts side by side as of 2026, runs the tax math with a hypothetical example, and shows which situations tend to favour each. It's education, not tax advice. If you've never opened an IRA, start with our Roth IRA for beginners explainer, which covers how the account works and how to open one.

What is the difference between a Roth and a traditional IRA?

A traditional IRA is an individual retirement arrangement where contributions may be tax-deductible and withdrawals are taxed as income; a Roth IRA reverses that order. Both share the same annual limit and both can hold the same investments, such as index funds, ETFs, bonds or cash.

The $7,500 limit is shared: per the IRS, total contributions to all your traditional and Roth IRAs can't exceed it, or your taxable compensation if that's lower. So the question is never "which account gets $7,500 each" but "how do I split one $7,500".

An IRA is only a wrapper. The tax treatment is what differs; the investments inside can rise or fall in either one, and returns are not guaranteed. Choosing what goes inside is covered in our investing for beginners guide.

How does the tax math compare?

If your tax rate is the same when you contribute and when you withdraw, a Roth and a traditional IRA leave you with roughly the same after-tax money. The difference only appears when your tax rate changes between now and retirement.

Example (hypothetical): you set aside $5,000 of pre-tax earnings, your investments double before retirement, and your tax rate today is 22%.

• Traditional: you deduct and invest the full $5,000. It grows to $10,000, and you pay tax on the whole withdrawal.
• Roth: you pay 22% first, so $3,900 goes in. It grows to $7,800, and the withdrawal is tax-free.

Two real-world wrinkles change the picture:

• The traditional advantage depends on investing the tax saving. If the deduction just becomes a bigger refund that gets spent, the traditional side is worth less than the table shows.
• The limit is in dollars, not after-tax dollars. Putting $7,500 into a Roth shelters more money than putting $7,500 into a traditional IRA, because the Roth amount has already been taxed. For people who can max out the limit, that tilts slightly toward Roth.

Nobody knows future tax rates, so this is an estimate, not a calculation you can finish.

Who can contribute and who can deduct in 2026?

Anyone with taxable compensation can contribute to a traditional IRA, but only people under the income limits can contribute directly to a Roth IRA. The catch with a traditional IRA is the deduction, which can shrink if a workplace plan covers you or your spouse.

The IRS's 2026 Roth IRA phase-out ranges are $153,000 to $168,000 of modified AGI for single filers and heads of household, and $242,000 to $252,000 for married couples filing jointly. Above the top of the range, you can't contribute directly to a Roth.

For a traditional IRA, the IRS says that if neither you nor your spouse was covered by a workplace plan, you can deduct contributions up to the limit. If one of you is covered, the 2026 deduction phase-outs are:

Above those ranges you can still put money into a traditional IRA, but it becomes a nondeductible contribution. That has no upfront tax break, and only the earnings are taxed later. It's also the first step of the backdoor Roth IRA, which some higher earners use to reach a Roth anyway.

How do withdrawals and required distributions differ?

Roth IRAs are more flexible before retirement and leave you alone after it; traditional IRAs tax every withdrawal and eventually force them. That difference matters more than many beginners expect.

With a traditional IRA:

• Withdrawals of deductible contributions and all earnings are taxed as ordinary income.
• Taking money out before 59½ generally adds a 10% additional tax, unless an exception applies.
• You must start required minimum distributions (RMDs) by April 1 of the year after you reach 73, according to IRS Publication 590-B.

With a Roth IRA:

• Your regular contributions come out first and are never taxed or penalized.
• Earnings are tax-free in a qualified distribution, which needs the account to pass a five-year period plus a trigger such as reaching 59½. The details are in our explainer on the Roth IRA 5-year rule.
• The IRS says the RMD rules don't apply to Roth IRAs while the owner is alive, though beneficiaries do face them.

The lack of RMDs is a planning advantage: in retirement you choose which account to draw from each year, which can help you manage your tax bracket.

Which IRA fits which situation?

There's no universal winner, but some situations point clearly one way. Use this as a starting point, not a verdict.

A few more points that often tip the decision:

• Tax diversification. Holding money in both types gives you choices later, when tax rules may differ from today's.
• Your workplace plan. If your employer offers a 401(k) with a match, that usually comes before either IRA. Our guide on how to invest for retirement shows a common order for filling accounts.
• State taxes. Moving to a state with lower or no income tax in retirement can favour traditional; check your own state's rules.

If your situation involves self-employment income, large one-off earnings or a move abroad, a tax professional can model it properly.

Can you have both, or switch later?

Yes, you can hold both types and split each year's limit between them, and you can convert traditional money to a Roth later. You just can't go the other way: since 2018, the IRS says conversions can't be recharacterized back to a traditional IRA.

Things to know before switching:

• Converting is a taxable event. Pre-tax money you move to a Roth is added to your income for that year.
• There's no income limit on conversions. The IRS removed the income and filing-status conditions on Roth conversions starting January 1, 2010.
• You can keep several accounts. Holding a traditional IRA, a Roth IRA, or even more than one Roth is allowed, as long as total contributions stay within the shared limit. Our guide on whether you can have more than one Roth IRA covers how that works.
• Old workplace plans count too. Pre-tax 401(k) money can also move to a Roth, with the same tax hit. See rolling a 401(k) into a Roth IRA for the rules.

What are the non-US equivalents of Roth and traditional IRAs?

Roth and traditional IRAs are US accounts, but the "tax now or tax later" choice exists in most countries. The names and limits differ, so check your government's own pages.

• UK: a stocks and shares ISA behaves more like a Roth (no tax relief going in, tax-free growth), while pensions such as a SIPP behave more like a traditional IRA, with tax relief going in.
• Canada: a TFSA is the Roth-like account and an RRSP the traditional-like one.
• Australia: super has its own contribution caps and tax rules that don't map neatly onto either.

If you're a US citizen abroad, both countries' rules can apply at once, so get cross-border tax advice before contributing.

Next steps

• See the full beginner path, from first account to first fund, in our step-by-step guide to investing for beginners.
• New to the account itself? Read Roth IRA for beginners.
• Ready to open one? Our guide on how to open a brokerage account walks through the application.
• Want more income to invest in the first place? Explore our guide to making money online.