🆚 IRA vs. Roth IRA: What’s the Difference?

When planning for retirement, two of the most powerful tools you’ll come across are the Traditional IRA and the Roth IRA. While both accounts offer tax advantages, they operate very differently — and the right choice depends on your income, current vs. future tax situation, and retirement goals.

• How it works: You contribute pre-tax income, reducing your taxable income for the year. Your investments grow tax-deferred.
   
• Taxes: You pay taxes later, when you withdraw the money in retirement.
   
• Contribution Limit (2025): $7,000 ($8,000 if age 50+).
   
• Income Limits: No income limits to contribute, but deductibility phases out at higher incomes if you or a spouse has a workplace retirement plan.
   
• Required Minimum Distributions: Yes — these begin at age 73.
   

⚠️ Watch-Outs:

• If you're in a higher tax bracket in retirement, this could cost you more later.
   
• Early withdrawals before age 59½ may be taxed and penalized.
   
• Once you hit age 73, you must start taking Required Minimum Distributions — even if you don’t need the cash.
   

• How it works: You contribute after-tax income, and your investments grow tax-free.
   
• Taxes: Withdrawals in retirement are 100% tax-free (if you're 59½ and the account is 5+ years old).
   
• Contribution Limit (2025): $7,000 ($8,000 if age 50+).
   
• Income Limits: Contributions begin to phase out at $146,000 for single filers and $230,000 for married couples (2025 limits).
   
• Required Minimum Distributions: None. Ever. You can let the account grow indefinitely.
   

⚠️ Watch-Outs:

• Contributions are not tax-deductible — no up-front tax break.
   
• High earners may not be eligible to contribute directly (but can use a Backdoor Roth).
   
• Withdrawing earnings before age 59½ could trigger taxes and penalties.
   

• If you expect to be in a higher tax bracket in retirement → Consider a Roth IRA.
   
• If you want a tax break today and may have lower income in retirement → A Traditional IRA could make more sense.
   
• Some people split their contributions between both to balance benefits.
   

Don’t let the watch-outs scare you — both IRAs are great tools for long-term wealth building. Just be sure to match your choice with your tax strategy and retirement timeline.

Disclaimer: This content is for informational and educational purposes only and does not constitute financial, tax, or investment advice. Always consult with a licensed financial advisor or tax professional before making decisions related to your retirement accounts.