Image shows a person starting to compare a traditional IRA to a Roth IRA. Which option is best for your largely depends on your current and future tax rate.
Image shows a person starting to compare a traditional IRA to a Roth IRA. Which option is best for your largely depends on your current and future tax rate.

When saving for retirement, you’ll typically have two choices for how you’ll fund your IRA. With a traditional IRA, you’ll contribute pre-tax dollars that will grow inside the account tax-free and be taxed when the money is withdrawn. A Roth IRA, however, taxes your initial contribution so that you don’t have to pay taxes when you withdraw your savings.

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The difference between these two savings vehicles is simple enough, but figuring out which is better for you isn’t so cut-and-dried. The answer ultimately depends on whether your tax rate in retirement (or whenever you start withdrawing your funds) will be higher than it is currently. While lower- to moderate-income workers may opt for a Roth IRA because they expect to be in a higher tax bracket when they start withdrawing their retirement savings, higher earners may anticipate being in a lower tax bracket in the future, making the traditional IRA the better option.

Also, keep in mind that traditional IRA contributions are tax deductible and reduce a person’s annual tax bill, a benefit the Roth option does not provide. Remember there are income limits for those contributing to Roth IRAs: for tax year 2024, a single person must have a modified adjusted gross income (MAGI) under $146,000 and a married couple filing jointly must have a MAGI under $230,000. For 2025, those limits rise to $150,000 and $236,000, respectively).

To see how a traditional and Roth IRA stack up against each other, we compared two variations across three different tax scenarios. For each, we calculated how much a person is left with 30 years after contributing $6,000 to traditional IRA and a Roth IRA. We assumed an 8% annual rate of return in each scenario, and looked only at federal tax brackets, as state income tax varies. (In each of the scenarios, for simplicity, we assumed a lump-sum withdrawal rather than gradual distributions.)

Scenario 1: Tax Brackets Remain the Same

In our first scenario, we examined the difference between a traditional IRA and a Roth account if a person’s tax rate (22%) is the same at age 60 as it was 30 years earlier. Someone who contributed $6,000 to a traditional IRA at age 30 would see her money compound at a greater rate over the next three decades compared to a Roth IRA. That’s because income tax would reduce the Roth contribution to $4,680, while the full $6,000 could grow within the traditional account.

As a result, the traditional IRA would be worth $60,376 after 30 years, while the Roth IRA would be worth $47,093. However, a person with a traditional IRA would pay nearly $13,000 in taxes at the time she withdraws her money, making her post-tax withdrawal exactly the same as the Roth IRA: $47,093.



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