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Roth IRA vs. Traditional IRA: Which IRA is the right choice for you?
Saving for retirement doesn’t have to be complicated. Learn the difference between a traditional IRA and a Roth IRA and decide what’s right for you.
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Traditional vs Roth IRA: an overview.
While both traditional and Roth IRAs can be great ways to save for retirement, there are a few key differences. With a traditional IRA, you contribute pre-tax dollars and get an upfront tax deduction on qualified contributions. However, you’ll pay taxes on withdrawals during retirement. When contributing to a Roth IRA, you pay taxes up front but qualified withdrawals in retirement are tax-free. Traditional IRAs have required minimum distributions (RMDs) starting at age 73, assuming you turn 72 after Dec. 31, 2022. Roth IRAs don’t have RMDs for the original account holder.
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Key differences between traditional and Roth IRAs:
See how Traditional and Roth IRAs compare side-by-side in the table below.
Find the perfect fit for your financial goals.
Traditional IRA |
Roth IRA |
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|---|---|---|---|
Pay taxes on withdrawals |
Yes | No | |
Contributions |
Made with pre-tax dollars Details on Traditional IRA Contribution Limits |
Made with after-tax dollars Details on Roth IRA Contribution Limits |
|
Potential earnings |
Grow tax-deferred until withdrawal | Grow tax-free | |
Tax deductible |
Yes, if you meet income requirements | No | |
2024 income limits |
None | If you’re single: $146,000
If you’re married: $230,000 |
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2024 contribution limits |
If you’re under 50: $7,000 If you’re 50 or older: $8,000 |
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Required minimum distributions |
Generally required at age 73 | None | |
Early withdrawal penalties |
If before age 59 ½, may require you to pay taxes on earnings, plus 10% penalty | No penalties on contribution amounts, but earnings are subject to taxes and a 10% penalty for early withdrawal. | |
Tip: Use our IRA contribution calculator to determine
how much you can contribute.
Roth or traditional: Which IRA is right for you?
Take our personalized quiz and find the IRA that perfectly aligns with your retirement goals.
When to choose a traditional IRA:
If you expect to be in a lower tax bracket when you retire compared to your current one, and you qualify for the tax deductions, a traditional IRA might be right for you.
When to choose a Roth IRA:
If you expect to be in a higher tax bracket when you retire compared to your current one, and you meet the income eligibility criteria, a Roth IRA might be a good choice for you.
FAQ
Which is better, a Roth or Traditional IRA?
A Roth IRA may be better if you expect to be in a higher income tax bracket in retirement. That’s because with a Roth, you make contributions with after-tax dollars, the money in the account grows tax-free, and you generally withdraw the funds tax-free in retirement. A traditional IRA may be better for you if you expect to be in a lower tax bracket in retirement because you’ll pay taxes on withdrawals then. You can take deductions on your traditional IRA contributions upfront when you make them.
Am I eligible to open both a Roth IRA and a traditional IRA?
Yes, you’re able to open both a Roth IRA and a traditional IRA as long as you meet the income and contribution limits for both.
Can I roll over funds from one IRA type to another?
Yes, you can move funds from a traditional IRA to a Roth IRA by completing a rollover IRA. While less common, you can also rollover Roth funds to a traditional IRA. Since these may be a taxable events, we recommend that you speak to a tax advisor.
What happens to my IRA when I reach retirement age?
You can typically begin taking withdrawals from a traditional or Roth IRA when you reach age 59 ½. For a traditional IRA, you must begin taking required minimum distributions (RMDs) at age 72, or 73 if you turn 72 after Dec. 31, 2022. For a Roth IRA, there are no RMDs during your lifetime and qualified distributions are tax-free.
What are the benefits of opening a SoFi Invest IRA compared to other institutions?
With a SoFi traditional or Roth IRA, you:
• Don’t have to pay any account fees or have minimum contributions.
• Have access to a diverse range of investment options.
• Can tell us your goals and we’ll build a custom portfolio for you.
Get professional advice at no extra cost.
How can I get help choosing the right IRA with SoFi Invest?
Take the quiz above or talk to one of our Certified Financial Planner™ professionals to get an understanding of what retirement account options may be the best for you.
Ready to start your IRA journey?
Start saving for retirement today with a traditional or Roth IRA. Not sure if a Roth or traditional IRA is better for you? Our no-cost financial planners can help you decide.
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