Roth IRA vs. Traditional IRA

There are two common types of individual retirement accounts (IRAs): Roth and traditional. Both may be beneficial, but each may benefit some people more than others. Some of the differences between traditional and Roth IRAs include contribution amounts, income restrictions, how the accounts are funded and tax benefits, so which one works better for you may depend on these factors.

Here, we’ll explore the differences between traditional and Roth IRAs so you can see which one works best for you.

Roth IRAs

A Roth IRA is a retirement account that you fund using after-tax dollars (the money you receive in your paycheck after your employer withholds taxes). Roth IRAs allow for tax-free growth and tax-free distributions in retirement.

Contribution limits

Contributions to a Roth IRA are limited to $7,500 in 2026, with a catch-up contribution of $1,100 for those aged 50 and over. If you decide to open both a Roth IRA and a traditional IRA, your total combined annual limit in 2026 is $7,500, not $7,500 in each account. However, you may not be eligible to contribute the full amount, or at all, if you make over a certain amount.

Income restrictions

The amount you’re eligible to contribute to a Roth IRA is based on your adjusted gross income (AGI) and tax filing status. Individuals or couples who make over a certain amount of income may be ineligible to contribute to a Roth IRA for that tax year. The Internal Revenue Service (IRS) provides a table each year so taxpayers understand how much they can contribute to a Roth IRA.

Withdrawals and required minimum distributions

Since a Roth IRA is funded with after-tax money, qualifying withdrawals are tax-free and aren’t included as taxable income on that year’s tax return. You may withdraw your contributions at any time; however, you’ll need to wait to withdraw earnings, or you could face a penalty.

To discourage the use of IRAs for any reason other than retirement funds, there’s typically a 10% tax that is applied to an early withdrawal from an IRA. Some of the instances where you may avoid the 10% additional tax after contributing to the Roth IRA for at least five years include:

• After age 59 1/2
• After you’ve become disabled
• Because you’re terminally ill
• When you use the funds to purchase your first home (with a limit of up to $10,000)

There are several other allowable exceptions in which the IRS might not impose an additional 10% tax on early withdrawals. However, you may want to consult a tax attorney or other financial professional before taking any early distributions from a retirement account to help avoid paying a penalty.

Required minimum distributions (RMDs) are government-mandated minimum amounts you have to remove from retirement accounts each year after you reach a certain age. However, there are no RMDs for a Roth IRA until after the death of the owner. Beneficiaries who receive the assets of a Roth IRA after the account owner’s death may need to take a certain amount of money out each year to be compliant with RMDs.

Taxes

Since contributions are made with after-tax dollars, contributions to a Roth IRA are not tax-deductible. Earnings on investments in a Roth IRA are tax-free, and qualified withdrawals are also tax- and penalty-free. Having the option of tax-free withdrawals from a Roth IRA in retirement may provide more flexibility in tax management.

Traditional IRAs

A traditional IRA is funded with pre-tax dollars. However, since you’re managing the account instead of an employer, you may also make contributions using after-tax dollars and then deduct those contributions at tax time.

Contribution limits

As with Roth IRAs, the contribution limit for a traditional IRA is $7,500 for 2026, with a catch-up contribution of $1,100 for those aged 50 and over.  However, these numbers may change on a yearly basis, so it’s wise to stay up to date on the latest limits.

Income restrictions

There aren’t income limits for contributions to a traditional IRA like there are for a Roth IRA. However, you may not be able to deduct contributions from your taxes if your AGI is above a certain threshold.

Withdrawals and required minimum distributions

Unlike a Roth IRA, which doesn’t have RMDs while you’re alive, a traditional IRA is subject to RMDs. Account owners need to start taking withdrawals at age 73. The amount of the RMD varies based on the account balance and a life expectancy factor published by the IRS.

Taxes

There are two key tax benefits of a traditional IRA: tax-deductible contributions and tax-deferred growth on earnings. However, it’s important to note that whether contributions are deductible depends on your AGI and whether you or your spouse has access to a retirement plan at work.

The following table outlines key differences between traditional and Roth IRAs.

Should you choose a traditional or Roth IRA?

Traditional IRAs tend to make sense for individuals who anticipate being in a lower tax bracket in retirement than they are today. Similarly, a Roth IRA may be preferable for individuals who believe they’ll be in a higher tax bracket in retirement than they are today.

If you’re unsure, consider consulting a trusted financial professional who can help you assess your unique financial and lifestyle needs.

Disclosure: This article is for general educational purposes. It is not intended to provide financial advice. It also is not intended to completely describe any Citi product or service. You should refer to the terms and conditions financial institutions provide for various products.