Roth IRA vs. traditional IRA: Key differences & how to choose

Traditional IRAs and Roth IRAs are two of the most popular ways to save for retirement. Both can bolster your savings with earnings that compound over time and tax advantages you can leverage now or in the future.

But the differences between them are important. Whether your money is in a Roth or traditional IRA can affect how much you’re allowed to contribute, how you access your money down the line and when you get a tax break. Here’s what to consider when deciding where to put your retirement savings.

Individual retirement accounts (IRAs) are designed to offer tax advantages as you save for the future. Ideally, you set money aside over the course of your career, and when you retire, that money’s waiting for you.

While all IRAs share similarities, differences in how they’re structured can affect which type makes sense for your savings strategy.

Roth and traditional are two overarching types of IRAs that differ primarily in how they're taxed. Other IRA types may describe who the account is for or how it's funded, and some can be either Roth or traditional. Here are some common types:

• SEP IRA: If you are self-employed and saving for retirement, you may have the option to open a Simplified Employee Pension.
• SIMPLE IRA: If you operate or work for a business with fewer than 100 employees, you may be able to save with a Savings Incentive Match Plan for Employees (SIMPLE) IRA.
• Inherited IRA: If your loved one has died, you may receive an inherited IRA if the account owner left it to you. You cannot contribute to an inherited IRA, and there are unique rules that guide withdrawals.
• Rollover IRA: You fund a rollover IRA by transferring money from an employer-sponsored retirement plan.
• Spousal IRA: If you’re a nonworking spouse and meet certain requirements, your spouse may be able to establish a Roth or traditional IRA for you.
• Custodial IRA: If you’re the parent or guardian of a minor with earned income, you can open a custodial retirement account (Roth or traditional) to start saving for their future.

Traditional and Roth IRAs share many basic characteristics—they also share the same annual contribution limits. In 2026, you can contribute up to $7,500 if you're younger than 50 and up to $8,600 if you're 50 or older.

Where they differ is in their tax treatment, who can contribute to them and how withdrawals in retirement work. Here are the key differences between traditional and Roth IRAs:

A simple but significant difference is the way taxes apply to traditional and Roth IRAs. Both shield the interest, dividends and capital gains you earn as long as your money stays in the account. What differs is whether you receive the tax benefit during the year you make the contribution or when you make the withdrawals.

• You generally can deduct your contributions to a traditional IRA, reducing your tax liability during the year you make contributions. Your money grows on a tax-deferred basis, and withdrawals are taxable.
• With Roth IRAs, qualified withdrawals, including any investment growth, are tax-free since you already paid taxes on your contributions.

Let’s say you contribute $5,000 to both a traditional and a Roth IRA. Over time, each investment doubles to $10,000.

In the hypothetical traditional IRA, you may be able to deduct that $5,000 contribution from your taxable income now. But when you withdraw the $10,000 in retirement, you’ll generally owe ordinary income tax on the taxable portion of the distribution, not just the original contribution.

In the hypothetical Roth IRA, there is no upfront deduction. You contribute after-tax dollars instead, but the potential advantage comes later: you won’t owe federal income tax when you make a qualified withdrawal of that $10,000.

In other words, it’s largely a matter of timing. Do you want the potential tax benefit now, or tax-free qualified withdrawals later? The main thing to consider here is whether you believe your current or future tax rate will be higher. If your current tax rate is higher, a traditional IRA makes more sense. If you expect to be in a higher tax bracket during retirement, then a Roth may be a better choice.

Anyone with enough earned income can save up to the annual contribution limit in a traditional IRA, but that's not the case with Roth IRAs. If your income is too high, you may not be able to contribute the full amount or at all to a Roth account.

If your income falls within the Roth IRA phaseout range, you still can contribute, but not the full annual amount. The higher your income is within that range, the less you can contribute. Once your income reaches or exceeds the upper end of the range, you generally can’t contribute directly to a Roth IRA and may need to explore other options besides a Roth.

2026 Roth IRA income limits at a glance

Your income level does not limit how much you can contribute to a traditional IRA in the way it can limit Roth IRA contributions, but it may affect whether you are able to claim a deduction. This depends on your income and whether you or your spouse is covered by a workplace retirement plan.

Withdrawal rules are another key difference between traditional and Roth IRAs. Rules vary on whether you can take money out early without a penalty and whether you have to start making withdrawals by a certain age.

Because all the money in the account is tax-deferred, a 10% additional tax generally applies to the taxable portion of a traditional IRA distribution taken before age 59½ unless you qualify for an exception. This is in addition to the regular income tax you'll owe.

The IRS also mandates required minimum distributions (RMDs) from a traditional IRA once you reach a certain age. If you were born between 1951 and 1959, your RMD age is 73. If you were born in 1960 or later, your RMD age is 75. You may face penalties if you don't withdraw enough each year.

Because you already paid taxes on Roth contributions upfront, you can withdraw them at any time without incurring taxes or penalties—and the early withdrawal penalty only applies to the earnings portion of your withdrawal.

Roth accounts also have five-year rules that affect your withdrawals:

• Before making your first withdrawal, you must have held a Roth IRA for at least five years. The five-year period begins on January 1 of the first tax year for which you make a Roth IRA contribution for your benefit. Otherwise, you'll owe income tax on the earnings. This rule applies regardless of your age.
• The second five-year rule applies to Roth conversions. If you're under age 59½ and withdraw converted funds from a Roth IRA within five years of the conversion, you'll generally owe a 10% penalty on the withdrawal unless an exception applies. Even after age 59½, earnings may be subject to income tax if the requirements for a qualified distribution have not been met.

If you’re the original owner, you will never be required to take RMDs from your Roth IRA, regardless of your age. This can add flexibility to your withdrawal plan because you don't have to manage RMDs.

Choosing between a Roth and a traditional IRA involves determining which has the features that best support your savings goals and the way you intend to use the money. Think about your own situation and consider how things may change over time. What is your tax liability now versus what you think it will be in the future? Might you want to access your money before you turn 59½?

A traditional IRA might be right for you if you:

• Currently have earned income.
• Expect to be in a lower tax bracket in retirement.
• Would benefit from a potential immediate federal income tax deduction.
• Don’t think you'll need to take money out of the account until retirement.
• Plan to start withdrawing after age 59½ and are comfortable taking RMDs once you reach the required age.

A Roth IRA might be right for you if you:

• Currently have earned income.
• Have a MAGI under the income limits.
• Expect to be in a higher tax bracket in retirement.
• Would benefit from federal tax-free qualified distributions in the future.
• Want the flexibility to take out the money you've contributed before age 59½ without penalties.
• Want the option to let your money grow as long as you choose, without being required to start withdrawing it at a certain age.

While this list can help you figure out where to start, you don’t necessarily have to choose just one. You can have both a traditional and Roth IRA if you’re eligible, as long as your combined contributions stay within the annual limit.

There’s a lot to weigh when choosing an IRA, from your income and tax situation today to how and when you’ll want to use your savings later. And your answer doesn’t have to be permanent. Your needs and goals can change over time, and your retirement strategy can change with them.

A Thrivent financial advisor can help you look at the bigger picture, compare your options and decide where a Roth or traditional IRA fits into your retirement plan.