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 2022 tax-year contributions until the tax-filing deadline in 2023.

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 2022 are $6,000 if you are under age 50, and $7,000 if you are over age 50. In 2023, if you’re under age 50, you can contribute up to $6,500 per year and up to $7,500 if you’re over 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 2023, a couple filing jointly and reporting less than $218,000 in adjusted gross income may contribute the annual maximum of $6,500 (or $7,500 if over age 50). Couples earning above that threshold will be limited in what they can contribute, depending on a number of factors. IRS rules on contributions to a Roth IRA can be found here.

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 the 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 72 (or 70½ 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 2022 and 2023 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 2023 tax year: $6,500, or $7,500 if age 50 or older
2022 tax year: $6,000, or $7,000 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.
Return to top