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Traditional or Roth IRA, or both?

Key takeaways

  • Taxes are a key consideration in deciding between a Roth IRA and a traditional IRA.
  • Flexibility should be considered as well: A Roth IRA allows you to withdraw your contributions anytime, with no taxes or penalties due.
  • It may make sense to contribute to both types of IRAs if you are eligible, so you have tax-free and taxable options when you withdraw the money in retirement.
  • To make the most of your IRA savings, invest the money for long-term growth.

You're ready to save for retirement in an IRA. But wait, there are 2 types of IRAs—a traditional IRA and a Roth IRA. Which one should you choose? You may be able to contribute to both types. Here are some things to keep in mind as you decide which is the appropriate choice for you now. You can contribute for the previous year and the current year until the tax-filing deadline in April, after which you'll only be able to make contributions for the current year.

In 2023, the annual contribution limit for IRAs, including Roth and traditional IRAs, is $6,500. If you're age 50 or older, you can contribute an additional $1,000 annually.

To be eligible to contribute the maximum amount to a Roth IRA in 2022, your modified adjusted gross income must be less than $129,000 if single or $204,000 if married and filing jointly. In 2023, the phase-out range begins at $138,000 for single filers and $218,000 for joint filers.

Contributions begin to be phased out above those amounts, and you can't put any money into a Roth IRA once your income reaches $144,000 if a single filer or $214,000 if married and filing jointly. In 2023, the cap is $153,000 for single filers and $228,000 for married couples filing jointly.

There is a taxable compensation requirement to contribute to an IRA. You, or your spouse, must have taxable compensation of at least your contribution amount.

Which kind of IRA?

With a traditional IRA, your contribution may reduce your taxable income and, in turn, your federal income taxes if you are eligible for the tax deduction.1 Earnings can grow tax-deferred until withdrawn, although if you make withdrawals before age 59½, you may incur both ordinary income taxes and a 10% penalty.2 (There are a handful of situations that may qualify for waiving the early withdrawal penalty.) After age 59½, you may make withdrawals of any amount without penalty, but federal and state taxes may apply. Starting in the year you reach age 73,3 you will need to begin taking at least the required minimum distributions (RMDs) and paying ordinary income taxes on the distribution amount.

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To estimate your tax savings on a traditional IRA contribution, you'll need your marginal tax rate. Then multiply it by the amount of money you contributed to your traditional IRA. That's generally how much a traditional IRA may reduce your federal income tax. (Keep in mind that it's an estimate. In some cases your contribution can reduce your marginal tax rate, so your federal tax savings might be smaller. On the other hand, you might also save on state income taxes. And your deduction may be limited based on your Modified Adjusted Gross Income, or MAGI). Hypothetically, a person with a 24% marginal federal income tax rate could save up to $1,440 in taxes on a contribution of $6,000, if the person is fully eligible for a tax-deductible contribution to the IRA.

While everyone with taxable compensation can contribute to a traditional IRA, if you and/or your spouse also have access to a workplace plan such as a 401(k), your ability to deduct your traditional IRA contribution may be limited, so you may want to prioritize the workplace plan. Also, your employer may offer matching contributions under the workplace plan which is another reason to prioritize. The most common types of workplace plans, 401(k)s, 403(b)s, and 457s, allow participants to save more than 3 times the annual IRA contribution limit. Contributions to these types of accounts can be made pre-tax, as opposed to IRA contributions that are made after-tax on a tax-deductible basis. This means the tax benefits can be realized each paycheck, opposed to taking a tax deduction at the end of the year.

With a Roth IRA, your contribution isn't tax-deductible the year you make it, but your money can grow tax-free and your withdrawals are tax-free in retirement, provided that certain conditions are met.4 Eligibility to contribute to a Roth IRA does not depend on a retirement plan at work for you or your spouse. As long as your MAGI is below the annual limit and you have taxable compensation equal to or greater than your contribution, you can contribute to a Roth IRA.5

Earnings on those contributions (although not the contributions themselves) may be subject to both tax and early withdrawal penalties if withdrawn before the qualifying criteria are met.4 As with the traditional IRA, there are some circumstances that qualify for an exception to the 10% penalty—like buying a first home or paying qualified educational expenses. Because Roth contributions are made after taxes have been paid, you can withdraw your contributions anytime, with no taxes or penalties due.

Unlike traditional IRAs, Roth IRAs do not have RMDs (during the original owner's life).

Spousal IRA

If your spouse doesn't work, they can have a spousal IRA. This allows non-wage-earning spouses to contribute to their own traditional or Roth IRA, provided the other spouse is working and the couple files a joint federal income tax return. If the working spouse is covered by a retirement plan at work, deductibility of contributions to a spousal traditional IRA would be phased out at higher incomes.1 This means eligible married spouses can each contribute up to the contribution limit each year to their respective IRAs.6 Spousal IRAs are also eligible for a $1,000 catch-up contribution for those 50 and older.

Making a decision

More ways to save wtih IRA's video If you are eligible to contribute to either IRA and receive a deduction for traditional IRA contributions, it is worth considering what your tax rate might be when you begin taking withdrawals. If your tax rate will be lower in the future, a traditional IRA may help you make the most of your tax benefits as you can take the deduction on your contribution this tax year and pay taxes on withdrawals in the future at a lower rate. The opposite may be true for Roth IRA contributions. If your tax rate is lower now than when you begin taking withdrawals, you may maximize your tax benefits by making a Roth IRA contribution this tax year and receiving tax free withdrawals in the future, assuming you have met the eligibility requirements.4 But tax rates don't tell the whole story.

Your saving and spending habits may help guide your choice between a traditional and Roth account. Generally, deductions from contributions to a traditional IRA can help lower your taxable income, if you are eligible, giving you more money in your pocket. If you're disciplined enough to save the tax deduction, you could even invest that money for retirement. If you tend to spend any money left at the end of the month, or any income tax refund, it's not going to help your bottom line when you retire. Of course, on the other hand, the tax savings may provide an extra incentive to save now that Roth IRAs don't offer.

With Roth IRA contributions, you won't get a tax deduction up front. But if you (like many people) tend to spend all your discretionary income, having less disposable income might be a good thing when it comes to your retirement savings.

Read Viewpoints on Traditional or Roth account? 2 tips to help you choose

Roth IRAs have additional advantages that go beyond taxes. Because you don't need to take RMDs with a Roth (during the life of the original owner) and because the assets in a Roth account can generally be bequeathed to your heirs income tax-free, Roth accounts can be a useful estate planning tool.

Not eligible to contribute to a Roth IRA because your income is too high? You can convert a traditional IRA to a Roth IRA, though you will need to pay taxes on the conversion. (Non-deductible contributions converted to a Roth IRA won't be taxed unless you have an IRA containing deductible contributions or earnings on any contributions) in which case, taxes are applied proportionally by balance and are aggregated across multiple IRA. Please consider speaking with a tax advisor prior to considering a conversion.)

For a detailed look at tax-smart conversion strategies, read Viewpoints on Why consider a Roth conversion now?

Having it both ways

It may be appropriate to contribute to both a traditional and a Roth IRA—if you can. Doing so will give you taxable and tax-free withdrawal options in retirement. Financial planners call this tax diversification, and it's generally a smart strategy when you're unsure what your tax picture will look like in retirement.

For example, with a combination of traditional and Roth IRA savings, you could take distributions from your traditional IRA until you reach the top of your income tax bracket, and then withdraw whatever you need beyond that amount from a Roth IRA, which is tax-free, provided certain conditions are met.

On the other hand, taxes in retirement may not be the whole story. Reducing your current taxable income through traditional IRA contributions may also be advantageous for other reasons, such as qualifying for student financial aid.

There's still one more tax benefit available to some taxpayers: the saver's credit. Eligibility is based on your adjusted gross income (AGI). The maximum credit available is $1,000 (single) or $2,000 (married filing jointly). Depending on your AGI, you could get a credit of up to 50% of your contribution to an IRA or workplace retirement plan. The amount of the credit goes down as AGI income goes up, phasing out at $34,000 (single) and $68,000 (married filing jointly) in 2022, $36,500 (single) and $73,000 (married filing jointly). For more information visit the IRS's Retirement Savings Contributions Credit

Investing an IRA contribution

Many people make their IRA contribution just before the tax deadline and after they have determined their MAGI for the tax year, and put the contribution into a money market fund. Then they never go back and choose a growth-oriented investment. This is generally not ideal. One of the best ways to give the money a chance to grow over the long term is by having an age- and risk-appropriate level of diversified exposure to stocks—in the form of mutual funds, ETFs, and/or individual securities. Of course, that means getting used to riding the ups and downs of the market.

Consider this hypothetical projection: One $6,000 contribution could grow to approximately $64,000 in 35 years.7 (We used a hypothetical 7% long-term compounded annual rate of return and assumed the money stays invested the entire time. Investments that have the potential to return 7% annually are generally those that come with some risk, such as stocks.)

If the $6,000 amount seems daunting, even if you can put only $550 into an IRA and leave it there invested for 35 years, earning a hypothetical annual return of 7%, it could be worth nearly $5,900 in 35 years. Make that $550 contribution every year and it could be worth over $87,000 after 35 years, using a hypothetical annual rate of return of 7%. (Note: These examples do not take into account taxes, inflation, or fees.)

Is an IRA right for you?

We can help you decide whether you might want a traditional, Roth, or rollover IRA.

More to explore

Fidelity does not provide legal or tax advice, and the information provided is general in nature and should not be considered legal or tax advice. Consult an attorney, tax professional, or other advisor regarding your specific legal or tax situation.

This information is intended to be educational and is not tailored to the investment needs of any specific investor.

Recently enacted legislation made a number of changes to the rules regarding defined contribution, defined benefit, and/or individual retirement plans and 529 plans. Information herein may refer to or be based on certain rules in effect prior to this legislation and current rules may differ. As always, before making any decisions about your retirement planning or withdrawals, you should consult with your personal tax advisor.


For a traditional IRA, for 2023 full deductibility of a contribution is available to covered individuals whose 2023 Modified Adjusted Gross Income (MAGI) is $116,000 or less (joint) and $73,000 or less (single); partial deductibility for MAGI up to $136,000 (joint) and $83,000 (single). In addition, full deductibility of a contribution is available for non-covered individuals whose spouse is covered by an employer sponsored plan for joint filers with a MAGI of $218,000 or less in 2023; and partial deductibility for MAGI up to $228,000. If neither you nor your spouse (if any) is a participant in a workplace plan, then your traditional IRA contribution is always tax deductible, regardless of your income.

2. You are always able to take money from your IRA. Some withdrawals may be taxable and some may be subject to a 10% early withdrawal penalty. If you are over age 59½, or qualify for an exception, you aren't subject to a 10% early withdrawal penalty. 3.

The change in the RMDs age requirement from 72 to 73 applies only to individuals who turn 72 on or after January 1, 2023. After you reach age 73, the IRS generally requires you to withdraw an RMD annually from your tax-advantaged retirement accounts (excluding Roth IRAs, and Roth accounts in employer retirement plan accounts starting in 2024). Please speak with your tax advisor regarding the impact of this change on future RMDs.


For a distribution to be considered qualified, the 5-year aging requirement has to be satisfied, and you must be age 59½ or older or meet one of several exemptions (disability, qualified first-time home purchase, or death among them).

5. For tax year 2022, if you're single, the ability to contribute to a Roth IRA begins to phase out at MAGI of $129,000 and is completely phased out at $144,000. If you're married filing jointly, the phaseout range is $204,000 to $214,000. For tax year 2023, if you're single, the ability to contribute to a Roth IRA begins to phase out at MAGI of $138,000 and is completely phased out at $153,000. If you're married filing jointly, the phaseout range is $218,000 to $228,000. 6. Note that the contribution limit applies to the sum of the contributions to both types of IRA for each spouse. So for each spouse, the maximum contribution limit for a traditional IRA is reduced by any amount contributed to a Roth IRA for the same year, and vice versa. 7. The hypothetical examples assume the following: one annual $6,000 IRA contribution made on January 1 of the first year, a 7% annual rate of return, and no taxes on any earnings within the IRA. The ending values do not reflect taxes, fees, or inflation. If they did, amounts would be lower. Earnings and pretax (deductible) contributions from a traditional IRA are subject to taxes when withdrawn. Earnings distributed from Roth IRAs are income tax-free provided certain requirements are met. IRA distributions before age 59½ may also be subject to a 10% penalty. Systematic investing does not ensure a profit and does not protect against loss in a declining market. Consider your current and anticipated investment horizon when making an investment decision, as the example may not reflect this. The assumed rate of return used in this example is not guaranteed. Investments that have potential for a 7% annual rate of return also come with risk of loss. This hypothetical does not reflect the impact that required minimum distributions from a traditional IRA could have if you turn 72 during the time period.

Investing involves risk, including risk of loss.

Stock markets are volatile and can fluctuate significantly in response to company, industry, political, regulatory, market, or economic developments. Investing in stock involves risks, including the loss of principal.

Fidelity does not provide legal or tax advice. The information herein is general and educational in nature and should not be considered legal or tax advice. Tax laws and regulations are complex and subject to change, which can materially impact investment results. Fidelity cannot guarantee that the information herein is accurate, complete, or timely. Fidelity makes no warranties with regard to such information or results obtained by its use, and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information. Consult an attorney or tax professional regarding your specific situation.

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