Which IRA is Right for Me? (Roth vs. Traditional)

What is the Difference Between a Roth IRA and a Traditional IRA?

The MissionSquare Roth IRA and MissionSquare traditional IRA can both help you address your financial needs, but their tax rules differ significantly.

With a Roth IRA, you make contributions with after-tax dollars and you’re not eligible for any immediate tax benefits or deductions. With a traditional IRA, you’re able to make contributions with pre-tax dollars, reducing your taxable income for that year by the amount you contribute.

However, withdrawals from a Roth IRA, are tax-free, whereas funds from a traditional IRA will be taxed at the time you make a withdrawal.

Deciding which IRA is right for you depends greatly on whether you think you’ll be in a higher or lower income tax bracket at time of withdrawal (after age 59½). If you anticipate being in a higher bracket in retirement, you may prefer a Roth IRA. If you think you’ll be in the same or a lower income-tax bracket in the future, a traditional IRA may make more sense.

You can open a Roth or traditional IRA with MissionSquare Retirement and make 2024 tax-year contributions until the tax-filing deadline in 2025.

Contributions

IRA contribution limits set by the IRS often vary from year to year.The limits for contributing to either a Roth or traditional IRA in 2024 are $7,000 if you are under age 50, and $8,000 if you are over age 50. The amount you are permitted to contribute to a Roth IRA, however, is subject to certain conditions.

Income Limits

The dollar amount you can contribute to a Roth IRA depends on your annual income. For example, for the tax year 2024, a couple filing jointly and reporting less than $230,000 in adjusted gross income may contribute the annual maximum of $7,000 (or $8,000 if over age 50). See 2023 limits and other rules regarding Roth IRA Contributions on the IRS website.

Generally, a traditional IRA has no income limit affecting pre-tax contributions, unless you (or your spouse) have a workplace retirement plan, such as a 401(k). In such a case, the amount of the IRA contribution you can deduct from your taxable income depends on your income and filing status. If you exceed the income limits indicated, you can still contribute up to the annual maximum allowed for a traditional IRA. You’ll just be limited in how much of your contribution can be made with pre-tax dollars.

Can I Contribute to Both a Roth IRA and a Traditional IRA?

Yes, you can contribute to both a Roth IRA and traditional IRA. For some, this is a great way to diversify earnings. Just keep in mind the contribution, withdrawal, and tax rules for each, and their implications for your financial strategy in the long run.

Withdrawals and Required Minimum Distribution (RMD)

Technically, you can withdraw from your traditional or Roth IRA at any time—but you will pay a 10% penalty if you withdraw before the age of 59½. However, there are some exceptions.

By April 1 of the year after you turn 73* (or 72 if born before July 1, 1949), you must take the Required Minimum Distribution (RMD) from a traditional IRA. The IRS calculates your RMD for each year by dividing the balance of your IRA account as of December 31 of the previous year by a certain distribution period or your life expectancy.

There are no RMD requirements for a Roth IRA, and the money can grow tax-free for your heirs, until your death. After you die, your heirs would need to take RMDs, unless the inherited IRA is to your surviving spouse.

Roth IRA vs. Traditional IRA Comparison Chart

The table below compares the two types, including IRS limits for both 2023 and 2024 tax-year contributions. If you have more questions, feel free to contact your MissionSquare Retirement representative.

Key tax advantage Tax-free growth potentialContributions may be tax-deductible

	Roth IRA vs.	Traditional IRA
Key tax advantage	Tax-free growth potential	Contributions may be tax-deductible
Maximum annual contribution	2024 tax year: $7,000, or $8,000 if age 50 or older 2023 tax year: $6,500, or $7,500 if age 50 or older
Contributions deductible from income tax	Non-deductible Roth IRA contributions are made after taxes have been taken out and are not deductible from your income tax.	Deductible No retirement plan at work Your deduction is allowed in full if you (and your spouse, if married) aren't covered by a retirement plan at work. Retirement plan at work Your deduction may be limited if you (or your spouse, if married) are covered by a retirement plan at work and your income exceeds certain levels.
Earnings grow tax-deferred	Yes	Yes
Earnings taxed upon withdrawal	No, if held five years and you're 59½ or older, or for a qualifying "first-time" home purchase; or in case of disability, or death.	Yes
Earning subject to penalty tax	No, if you're 59½ or older, or qualify for an exception.
Contributions taxed upon withdrawal	No	Yes, if contributions were deductible
Subject to IRS required minimum distributions	No	Yes
Portability – roll-ins and transfers between accounts	Assets moved ("converted") from retirement accounts to a Roth IRA are subject to tax, but future earnings may be tax-free.	You may generally move money from employer-sponsored retirement plans (401, 403(b), 457) and other IRA accounts to a traditional IRA without tax consequences.
Eligibility	There are income limits to be eligible to contribute.	There are no income limits to contribute.

* Age 70½ (if you were born before July 1, 1949), age 72 (if you were born after June 30, 1949, and before January 1, 1951), or age 73 (if you were born after December 31, 1950).