Quick comparison

  • Contributions: Traditional IRA contributions may be tax-deductible today (subject to income and workplace retirement plan rules); Roth IRA contributions are made with after-tax dollars and are not deductible.
  • Growth and withdrawals: Traditional IRAs grow tax-deferred and withdrawals are taxed as ordinary income; Roth IRAs grow tax-free and qualified distributions are tax-free.
  • Required minimum distributions (RMDs): Traditional IRAs require RMDs once you reach the IRS-specified age; Roth IRAs do not require RMDs during the original owner’s life.
  • Conversions and access: You can convert a Traditional IRA to a Roth (taxes owed on pretax amounts); Roth contributions (but not converted earnings) can be withdrawn penalty- and tax-free any time.

This article explains the tax implications, real-world decision points, strategies I use in practice, and where to look for authoritative guidance.

How the tax timing works (simple framework)

The central trade-off is timing: pay taxes now (Roth) or later (Traditional).

  • Roth: You pay income tax on contributions today. Qualified withdrawals in retirement are tax-free (no federal income tax on earnings if the account has been open at least five years and the owner is age 59½ or older, or meets another qualifying exception) (see IRS, “Roth IRAs”).
  • Traditional: Contributions may be deductible now, lowering taxable income today. Withdrawals in retirement are taxed at ordinary income rates; earnings grow tax-deferred until distribution (see IRS, “Traditional IRAs”).

Authoritative sources: IRS pages on Roth IRAs and Traditional IRAs explain these rules in detail (IRS.gov/retirement-plans). Use those primary sources when you need current, binding guidance.

(Links: IRS Roth IRAs: https://www.irs.gov/retirement-plans/roth-iras; IRS Traditional IRAs: https://www.irs.gov/retirement-plans/traditional-iras)

Current limits and RMD basics (practical numbers and timing)

Note: contribution limits and income phase-outs change annually. As an example, for 2024 the IRA contribution limit is $7,000 with a $1,000 catch-up for people age 50 and older (check the IRS page for the year you’re planning). Also, the Roth IRA income phase-out ranges and deduction phase-outs for Traditional IRAs adjust each year — verify your tax year before planning (IRS, “Retirement Topics – IRA Contribution Limits”).

Required minimum distributions (RMDs) do not apply to Roth IRAs while the original owner is alive; Traditional IRAs are subject to RMD rules. SECURE 2.0 increased the RMD age in recent years (see IRS guidance on RMDs for exact starting ages for your cohort).

(Authoritative RMD guidance: https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-required-minimum-distributions)

Eligibility, income limits, and deduction phase-outs (what matters)

  • Roth IRA contributions are subject to MAGI-based phase-outs; high earners may be ineligible to contribute directly but can use strategies like a backdoor Roth (contribute to a nondeductible Traditional IRA then convert).
  • Traditional IRA deductibility depends on your income and whether you (or your spouse) participate in an employer plan. Even if you can’t deduct the contribution, you can still contribute on a nondeductible basis.

For precise MAGI thresholds and phase-out ranges, consult the IRS page for the tax year you’re evaluating — these numbers change each year.

Internal reading: our guide on Backdoor Roth IRAs gives a step-by-step on the workaround and common pitfalls (Backdoor Roth IRAs: How They Work: https://finhelp.io/glossary/backdoor-roth-iras-how-they-work/).

Tax strategies and decision rules I use with clients

1) Project your marginal tax rate now vs. expected retirement rate

  • If you expect your marginal tax rate will be lower now than in retirement, a Roth often makes sense: you pay tax at a lower rate and shield larger balances from future tax.
  • If you expect a lower rate in retirement, a Traditional IRA deduction now can be valuable.

2) Use mixed accounts for flexibility

3) Use conversions strategically in low-income years

4) Maximize employer plan matching first

  • If your employer provides a 401(k) match, prioritize capturing the match even if you favor Roth treatment later. Employer matching is effectively immediate return.

5) Consider estate planning differences

  • Roth IRAs provide heirs with tax-free distributions (subject to recent post-SECURE 2.0 distribution timing rules for beneficiaries). Traditional IRAs pass on a taxable basis, which can create estate-tax and income-tax considerations.

Real-world examples (illustrative, simplified)

Example A — Younger saver expecting higher income later

  • Age 30, single, contributes $7,000 per year to a Roth IRA. She pays tax now at a 12% marginal rate. Over decades, earnings compound tax-free — withdrawals are tax-free in retirement.
  • If she expects to be in a higher tax bracket in retirement, the Roth’s tax-free withdrawals leave more after-tax income.

Example B — Mid-career worker who needs the deduction now

  • Age 45, income currently $120k, expects retirement income around $60k. A Traditional IRA deduction reduces taxable income now and likely produces lower tax paid over the full lifetime.

Example C — Conversion in a low-income year

  • Year with unemployment or one-time loss produces low taxable income. Converting part of a Traditional IRA to Roth at a low tax cost can reduce future RMD-driven taxable income and lock in lower taxes.

These are simplified; run projections with a pro or reliable tax software before converting large amounts.

Common mistakes and pitfalls I see in practice

  • Assuming one option is always superior. Your situation (current taxes, expected retirement taxes, flexibility needs) matters.
  • Ignoring Medicare IRMAA thresholds. Large Roth conversions in your 60s can unintentionally increase Medicare Part B/D premiums for several years.
  • Mishandling backdoor Roths when you have other Traditional IRA balances (the pro rata rule taxes conversions proportionally across pre-tax and after-tax IRA funds).
  • Not considering state income tax. Some states tax retirement distributions differently, and Roth advantages can be muted if your state taxes conversions or withdrawals differently.

IRS sources explain conversion taxation and the pro rata rule (see “IRA FAQs – Conversions” at IRS.gov).

Practical checklist before choosing or converting

  • Estimate current and expected future marginal tax rates.
  • Check annual contribution limits and MAGI phase-outs for the relevant tax year (IRS contribution limits page).
  • Evaluate whether you need tax deductions today (e.g., to reduce AMT or phaseout of other credits).
  • Model partial conversions across multiple years to smooth tax impact.
  • Coordinate conversions with years of lower taxable income or capital losses if possible.

When a Roth is clearly preferable

  • You expect higher tax rates in retirement.
  • You want tax-free flexibility for retirement spending and to avoid RMDs.
  • You anticipate estate planning advantages for heirs who may prefer Roth tax-free distributions.

When a Traditional is clearly preferable

  • You need a current-year tax deduction (e.g., to reduce taxable income for credits or to avoid higher Medicare premiums).
  • You expect lower income in retirement.
  • You are ineligible for Roth contributions and don’t want to use a backdoor Roth (or it’s not appropriate given other IRA balances).

Resources and next steps

Internal guides for deeper reading:

Professional disclaimer: This article is educational and not individualized tax or legal advice. In my practice as a tax-aware financial planner, I recommend running tax projections and consulting a CPA or tax attorney before making large contributions or Roth conversions.

If you’d like, I can outline a simple conversion projection example or a checklist tailored to a sample age/income — say a 45-year-old with $120k W-2 income — to show the math behind a multi-year conversion plan.