The main difference is when you pay income taxes on the money you put in the plans. With a traditional IRA, you pay the taxes on the back end – that is, when you withdraw the money in retirement (in some cases, you may escape taxes on the front end — when you put the money into the account).
With a Roth IRA, it's the exact opposite. You pay the taxes on the front end, but there are no taxes on the back end.
And remember, in both traditional and Roth IRAs, your money grows tax free while it's in the account.
There are other differences too. While almost anyone with earned income can contribute to a traditional IRA, there are income limits for contributing to a Roth IRA. So not everyone can take advantage of a Roth.
In general, you can contribute to a Roth IRA if you have taxable income and your modified adjusted gross income is either:
- less than $191,000 if you are married filing jointly.
- less than $129,000 if you are single, head of household, or married filing separately (if you did not live with your spouse at any time during the previous year).
- less than $10,000 if you're married filing separately and you lived with your spouse at any time during the previous year
Roth IRAs are also more flexible if you need to withdraw some of the money early.
Finally, with a Roth IRA, you can leave the money in for as long as you want, letting it grow and grow as you get older and older. With a traditional IRA, by contrast, you must start withdrawing the money by the time you reach age 70½.