Roth, traditional, or both?

At a glance

• Learn about the 2 types of individual retirement accounts (IRAs): Roth and traditional.
• Choose an IRA based on factors like your income and possible tax consequences.
• Determine if you're eligible for either (or both).

When it comes to IRAs, there are 2 main types to choose from—Roth and traditional. Making that choice—and knowing when and how much you can contribute—isn't always clear, so we want to provide some context around one of our most researched topics: Roth and traditional IRAs.

Common ground

A traditional IRA allows you to contribute money that can grow tax-deferred. A Roth IRA holds after-tax money you can withdraw tax-free. They sound fundamentally different, but both are tax-advantaged accounts designed to help you save for retirement. They share other similarities too:

1. No age limit
You can contribute to both a Roth IRA and a traditional IRA at any age as long as you're otherwise eligible. However, when you reach age 73,¹ you'll be required to start taking annual distributions from your traditional IRA.

2.  Contribution limits
You typically need earned income to contribute to an IRA. For both traditional and Roth IRAs, the annual contribution limits for the 2023 tax year are $6,500 for those younger than 50 and $7,500 for those age 50 and older. The annual contribution limits for 2024 are $7,000 for those younger than 50 and $8,000 for those age 50 and older. 

These are total amounts across all your traditional and Roth IRAs; you can't contribute the maximum amount to each account separately. Depending on your income, your contribution limits may be lower. If you're married and your spouse earns low or no annual wages, they may be able to open a spousal IRA to boost your retirement savings as a couple.

3. Contribution deadline
Whether you're contributing to a traditional or a Roth, the deadline to contribute is the same for both accounts, and it's the tax-filing deadline for the tax year. For the 2023 tax year, the deadline is April 15, 2024. For the 2024 tax year, the deadline is April 15, 2025.

4. Transfer or rollover
You can transfer your IRA to another similarly registered IRA through a direct transfer. You can also withdraw money from your account for 60 days as long as you roll it back into the same or a similarly registered IRA. You can use this 60-day rollover option once every rolling 365 days. When you use the 60-day rollover option, taxes may be withheld from the withdrawal, so you'll have to use other funds to roll over the full amount of the distribution.

Learn the differences

To better understand the differences between Roth and traditional IRAs, let's focus on 3 areas: deductions, taxes, and withdrawals.

Roth IRA

Contributions you make to your Roth IRA aren't deductible. This means withdrawals of your Roth contributions (your "basis") will always come out tax- and penalty-free. You can also make tax-free withdrawals of your earnings as long as you've reached age 59½ and you've owned your Roth IRA for at least 5 years.² There are no lifetime mandatory withdrawals for a Roth IRA because your contributions have already been taxed—meaning you can withdraw your savings at your leisure in retirement.

Eligibility

Any individual with earned income (or who has a spouse with earned income) can contribute to a traditional IRA. However, the amount you can contribute to a Roth IRA could be reduced—or even eliminated—based on your modified adjusted gross income (MAGI).

If you can't make the maximum Roth IRA contribution because your MAGI is over the upper limit of the annual income range, a Roth conversion may be right for you. This is when you take all or part of the balance of an existing traditional IRA and move it into a Roth IRA. 

Learn more about income limits

Summary

Whether you're eligible to contribute to a Roth, a traditional, or both, opening an IRA is a step toward a better retirement. Contributing as soon as you can gives your principal time to reap the benefits of compounding—where your investment earnings generate their own earnings. Your eligibility to contribute may depend on your income, so if you aren't sure what to do, reach out to a tax advisor to help you make an informed decision.