US: Traditional vs Roth IRA

An IRA (Individual Retirement Account) is a tax-advantaged retirement account you open yourself, separate from any employer. The two main types differ in when you get the tax break.

Traditional IRA

• Contributions may be tax-deductible now, lowering current taxable income.
• Investments grow tax-deferred.
• Withdrawals in retirement are taxed as income.
• Best if you expect a lower tax rate in retirement than today.

Roth IRA

• Contributions are after-tax (no deduction now).
• Investments grow tax-free, and qualified withdrawals in retirement are completely tax-free.
• More flexible: contributions (not earnings) can often be withdrawn without penalty.
• Best if you expect a higher or similar tax rate later — and great for younger savers with decades of tax-free growth ahead.
• Note: high earners face income limits on direct Roth contributions.

The core decision

It comes down to pay tax now (Roth) or later (Traditional). Many people hold both for flexibility.

Using it well

• Contribute up to the annual IRS limit (separate from your 401(k)).
• Invest it in low-cost, diversified index funds — an IRA is a wrapper, not an investment itself.

Key takeaway

IRAs add valuable tax-advantaged space on top of a 401(k). Roth's tax-free growth is especially powerful for younger investors. Confirm current limits and income rules for your situation.