Traditional IRA vs. Roth IRA: The Difference in Plain English

A traditional IRA and a Roth IRA are both individual retirement accounts with tax advantages. The core difference is timing: traditional IRAs generally give you a tax break now, while Roth IRAs give you tax-free withdrawals later, according to the IRS.

How does a traditional IRA work?

Contributions to a traditional IRA may be tax-deductible depending on your income and whether you or your spouse are covered by a retirement plan at work. The money grows tax-deferred, and you pay ordinary income tax when you withdraw in retirement. Withdrawals before age 59 and a half generally trigger a 10% additional tax on top of regular tax, with some exceptions.

How does a Roth IRA work?

Roth contributions are made with after-tax money, so there is no deduction now. In return, qualified withdrawals in retirement are tax-free, including all the growth. Roth IRAs also have no required minimum distributions during the original owner's lifetime, and you can withdraw your contributions (not earnings) at any time without penalty.

What are the limits for 2026?

For 2026, total contributions to all your traditional and Roth IRAs combined are capped at $7,500, or $8,600 if you are 50 or older, per the IRS. You also cannot contribute more than your taxable compensation for the year. Roth contributions phase out at higher incomes; the IRS publishes the exact income ranges each year.

Frequently asked questions

Can I have both a traditional and a Roth IRA? Yes. The annual limit applies to your combined contributions across both, not to each separately.

Which one is better? It depends on whether you expect your tax rate to be higher now or in retirement. Many people split the difference or consult a tax professional, because the answer depends on personal circumstances.

Sources and further reading: IRS, "Traditional and Roth IRAs" (https://www.irs.gov/retirement-plans/traditional-and-roth-iras); IRS, "Retirement Topics: IRA Contribution Limits" (https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-ira-contribution-limits).