Roth IRA vs Traditional IRA: Which Is Right for You?

Choosing between a Roth IRA and a Traditional IRA can feel confusing. The truth is: both can be great. The best option depends on your current tax bracket, expected future income, and how flexible you want your money to be.

Quick Summary

• Roth IRA: Pay taxes now, enjoy tax-free growth and tax-free withdrawals in retirement.
• Traditional IRA: Get a tax deduction now, pay taxes on withdrawals later.

How They’re Taxed

Roth IRA: Contributions are made with after-tax dollars. Your investments grow tax-free, and qualified withdrawals in retirement are tax-free.
Traditional IRA: Contributions may be tax-deductible now, lowering your taxable income today. Withdrawals in retirement are taxed as ordinary income.

Which One Fits a 30-Something Professional?

If you expect your income (and tax rate) to be higher in the future, a Roth IRA is often the smarter choice. You lock in taxes now while potentially enjoying decades of tax-free growth.

If your income is unusually high this year or you need an immediate tax deduction, a Traditional IRA can make sense.

Contribution Limits and Eligibility

Contribution limit: $7,000 per year (2024), $8,000 if 50+.
Roth income limits: Contributions phase out at higher incomes. If you earn too much, consider a backdoor Roth IRA.
Traditional IRA deduction: May be limited if you or your spouse are covered by a retirement plan at work and your income exceeds certain thresholds.

Flexibility and Withdrawals

• Roth: You can withdraw your contributions (not earnings) anytime, tax- and penalty-free.
• Traditional: Early withdrawals before 59½ are generally taxed and penalized.
• RMDs: Traditional IRAs require minimum distributions later. Roth IRAs do not during your lifetime.

Simple Rule of Thumb

Expect higher taxes later? Choose a Roth IRA.
Need a deduction now? Choose a Traditional IRA.
Already maxing your 401(k)? Add a Roth or Traditional IRA for extra tax-advantaged growth.

Pro Tip

Can’t contribute directly to a Roth due to income? Use a backdoor Roth: contribute to a Traditional IRA and convert to Roth. Be mindful of the pro-rata rule if you have other pre-tax IRA balances.

Action Steps

1. Check your expected tax rate now vs. retirement.
2. If in doubt, default to a Roth IRA in your 30s for tax-free growth.
3. Automate monthly contributions ($200–$600/month adds up fast).
4. Invest in low-cost index funds; keep fees under control.