Tax savings or losses worth thousands of dollars depend on your choice between a Roth and Traditional IRA. Traditional IRAs give you immediate tax breaks through pre-tax contributions. Roth IRAs let your money grow tax-free and you can withdraw it without taxes during retirement.
The contribution limits in 2025 will be $7,000 if you’re under 50, and $8,000 if you’re 50 or older. Single filers must earn less than $150,000, whilst joint filers need to make under $236,000 to qualify for a Roth IRA in 2025.
The tax deductibility of Traditional IRA contributions begins to phase out at $89,000 for individuals who are covered by a workplace retirement plan and file jointly. Whether you choose a Traditional or Roth IRA should depend on your expected tax bracket in retirement. If you’re eligible for a qualified employer plan, your ability to deduct Traditional IRA contributions may be limited based on your income.
Roth and Traditional IRAs have distinct features that affect your long-term tax savings. This piece explains how each option works and helps you determine which one could save you more money based on your situation.
How Your Current Life Stage Affects IRA Choice
Your tax advantages from different IRA types depend on your age and career stage. The right choice between Roth vs traditional IRA at each life phase can help you save more for retirement.
Early Career (20s-30s)
A Roth IRA works better for young professionals. Most people in this age group pay lower taxes now than they will later, so paying taxes upfront makes sense. On top of that, millennials and Gen Z investors can benefit from a Roth IRA because they have decades for tax-free growth. Starting early lets you take advantage of compound interest, which can turn small contributions into large tax-free withdrawals during retirement.
Roth IRAs give younger investors more flexibility with their money. You can take out your contributions (not earnings) without penalties whenever you need them, which helps with first-home purchases or emergency expenses.
Mid-Career (40s-50s)
Traditional IRAs often give better tax benefits to people in their highest-earning years. A traditional IRA might work better if you think you’re making more money now than you will during retirement. The tax break you get today could be worth more than paying taxes later.
A Roth IRA still makes sense if you expect your peak income years closer to retirement or think you’ll pay higher taxes later. People over 50 should also take advantage of catch-up contributions by adding an extra $1,000 each year to reach the $8,000 limit for 2024.
Pre-Retirement (Late 50s-60s)
People near retirement need accurate estimates of their expenses and tax situation. Traditional IRA owners must take Required Minimum Distributions (RMDs) starting at age 73, but Roth IRAs don’t require RMDs during your lifetime. Roth IRAs offer extra benefits if you have estate planning concerns because your beneficiaries can inherit them tax-free, which helps save on state-level estate taxes.
The key question remains the same at every life stage: Will you pay lower taxes now or during retirement? Your answer helps you pick the IRA type that saves you more money on taxes.
Income Factors That Determine Your Best IRA Option
Your income plays a big role in determining which IRA options you can choose from. This makes the Roth vs traditional IRA decision more complex than it might seem at first glance. A clear understanding of income-based restrictions will help you make better retirement choices.
Your Modified Adjusted Gross Income (MAGI) determines if you can deduct traditional IRA contributions. Single filers in 2025 can’t get full deductions once they earn $79,000, and partial deductions stop at $89,000. Married couples who file jointly face limits too – full deductions end at $126,000 and partial deductions at $146,000.
High earners have other options to think about. The “backdoor Roth IRA” lets you make after-tax contributions to a traditional IRA and convert those funds to a Roth IRA if you exceed Roth income limits. This works best if you don’t have existing pre-tax IRA assets that could complicate the conversion.
There’s another reason to explore – the “mega backdoor Roth.” After maxing out your 401(k) contributions ($23,500 in 2025, or $31,000 for those 50+), you can add post-tax funds up to $70,000. Some employers provide Roth 401(k) plans without income restrictions.
Tax bracket expectations are a vital part of your decision-making process. Traditional IRAs usually benefit moderate-income investors in the 22% marginal tax bracket who expect lower tax rates in retirement. All the same, the Tax Cut and Jobs Act has expanded the range of people who might prefer traditional IRAs because of compressed tax brackets and reduced marginal rates.
Note that traditional IRAs give you more immediate spending power than Roth IRAs on a dollar-for-dollar basis. This could affect your decision whatever your income level.
Are You on Track For
Retirement?
Use Our FREE Retirement Calculator To See if You’re On Track!
Benefits of Roth IRAs vs Traditional IRAs Beyond Taxes
Roth and Traditional IRAs each come with unique benefits that affect your financial freedom and estate planning choices. Your broader retirement strategy will determine which account works best for you.
Flexibility for Early Access to Funds
Roth IRAs give you excellent access to your money. You can withdraw your contributions (not earnings) at any time, for any reason, without taxes or penalties. Young investors find this feature valuable when they need money before retirement.
Taking money from Traditional IRAs before age 59½ usually results in income tax and a 10% early withdrawal penalty. Some exceptions let you avoid penalties, such as first-time home purchases (up to $10,000), qualified education expenses, and certain medical costs.
Estate Planning Advantages
Roth IRAs serve as powerful tools to transfer wealth. These accounts skip probate when you name beneficiaries correctly. Your heirs get the assets directly without probate delays and expenses.
Your beneficiaries also receive Roth IRA funds tax-free. Non-spouse beneficiaries must take all funds within 10 years but can let the account grow tax-free during this time. Spouses get better options—they can treat inherited Roth IRAs as their own and avoid withdrawal requirements during their lifetime.
No Required Minimum Distributions
The most important non-tax benefit of Roth IRAs is that original owners never face required minimum distributions (RMDs). Traditional IRA owners must start taking RMDs by April 1 after they turn 73. These forced withdrawals might push them into higher tax brackets.
Roth IRAs let your investments grow tax-free without time limits. This makes them perfect if you don’t need retirement money right away or want to leave more to your heirs.
Your choice between Roth and Traditional IRAs depends on how you balance current tax benefits against future flexibility and estate planning goals.
Comparing Roth vs Traditional
| Feature | Roth IRA | Traditional IRA |
|---|---|---|
| 2025 Contribution Limit (Under 50) | $7,000 | $7,000 |
| 2025 Contribution Limit (50+) | $8,000 | $8,000 |
| Income Limits (Single Filer) | $165,000 | No income limit to contribute |
| Tax Treatment – Contributions | After-tax dollars | Pre-tax dollars (tax-deductible) |
| Tax Treatment – Withdrawals | Tax-free when you retire | Taxed as regular income |
| Early Withdrawal Rules | You can withdraw your contributions anytime without penalty | 10% penalty plus taxes when withdrawn before 59½ |
| Required Minimum Distributions (RMDs) | No RMDs during your lifetime | Starts at age 73 |
| Income Deduction Phase-out (Single) | N/A | $79,000-$89,000 |
| Estate Planning Benefits | Your beneficiaries receive tax-free inheritance | Your beneficiaries pay taxes on inherited funds |
| Best Suited For | – Young professionals starting their careers – People who expect higher future tax rates – Those planning their estate | – People in their peak earning years – Those who expect lower retirement tax rates – People who need immediate tax benefits |
Conclusion
The choice between Roth and Traditional IRAs is one of the most important financial decisions you’ll make. This goes beyond just tax benefits. Your choice should match your situation, stage of life, and retirement goals.
Traditional IRAs work best if you have a higher tax bracket now and expect lower rates in retirement. You get tax breaks right away on what you put in, though you’ll pay taxes when you take money out. Roth IRAs are great for young professionals. They let your money grow tax-free, and you can take out what you put in without penalties.
Timing is a vital factor. Young professionals in lower tax brackets usually benefit more from Roth IRAs. Peak earners might call it smarter to pick Traditional IRAs for immediate tax advantages. Roth IRAs make more sense for estate planning because your heirs won’t pay taxes on what they inherit. Plus, you won’t have to take required minimum distributions while you’re alive.
Smart retirement planning means you just need to evaluate your current income, future tax situation, and how much flexibility you want. Both types of IRAs are great tools to save for retirement. Your best choice depends on your financial situation and long-term goals. A careful look at these factors helps you line up the right IRA with your retirement plans and tax strategy.
FAQs
For young professionals in their 20s and 30s, a Roth IRA typically offers better advantages since they’re usually in a lower tax bracket now than they will be later. Paying taxes upfront and enjoying tax-free withdrawals in retirement can lead to significant long-term savings.
For 2025, single filers earning $165,000 or more cannot contribute to a Roth IRA, while traditional IRAs have no income limits for contributions. However, traditional IRA tax deduction benefits begin phasing out for single filers at $79,000 and completely disappear at $89,000.
Roth IRAs allow you to withdraw contributions (not earnings) at any time without penalties or taxes, while Traditional IRA withdrawals before age 59½ typically incur both income tax and a 10% penalty. Additionally, Traditional IRAs require minimum distributions starting at age 73, while Roth IRAs have no such requirement.
In 2025, both Roth and Traditional IRAs allow contributions up to $7,000 for those under 50 and $8,000 for those 50 or older. These limits apply regardless of which type of IRA you choose.
Roth IRAs are generally superior for estate planning as beneficiaries receive the funds tax-free and the account bypasses probate when beneficiaries are properly designated. Non-spouse beneficiaries must withdraw all funds within 10 years, while spouse beneficiaries can treat the inherited Roth IRA as their own.
