An individual retirement arrangement (IRA) is a powerful investment vehicle. These accounts help you save for retirement on your own, without an employer. But the tax benefits vary significantly depending on whether you choose a Roth IRA or a traditional IRA.

Join Heath Grossman, CFP® as he breaks down the differences between Roth IRAs and traditional IRAs in this week’s Money Wisdom Question Series.

Type of IRA Contributions Allowed

You generally fund Roth IRAs with after-tax dollars, money that you’ve already paid taxes on. On the other hand, you generally fund traditional IRAs with pre-tax dollars, money you’ve not yet paid taxes on. Traditional IRAs may also allow non-deductible contributions.

IRA Tax Advantages

As with contributions, withdrawals also work differently for each account type. Roth IRAs offer tax-free growth and tax-free qualified withdrawals. And since you already paid taxes on the contributions, the account owner has no required minimum distributions (RMDs).

With a traditional IRA, you may benefit from an immediate tax deduction and tax-deferred growth. However, you generally pay taxes on withdrawals if you’ve funded the account with pre-tax contributions. If any funds remain, you must also begin taking RMDs at age 73, or at age 75 if your birth year is 1960 or later.

IRA Contribution Limits and Eligibility

For 2026, both Roth and traditional IRAs have the same contribution limit of $7,500. If you are age 50 or older, you can contribute an additional $1,100. To contribute to either type of account, you need earned income. For Roth IRAs, if your earned income is above a certain level, you may not be able to contribute directly.

Potential Penalties for IRA Withdrawals

Generally, you should avoid taking withdrawals from any type of IRA before age 59½ as penalties may apply. With a Roth IRA, however, you can typically withdraw the money you originally contributed at any time. At 59½, if you’ve had a Roth IRA for at least five years, you can take qualified withdrawals tax-free and penalty-free. You can also take withdrawals penalty-free from a traditional IRA, although those withdrawals will likely be taxable.

Which IRA Is Right for Me?

Because these accounts have different tax rules, Roth IRAs often fit people who expect higher taxes in retirement. In the same way, traditional accounts may be better for those who expect to be in the same or a lower tax bracket. To determine which account best fits your situation, discuss your options with a financial professional.