--- title: "Roth IRAs vs Traditional IRAs: What You Need to Know" description: 6 things to teach your children about money image: https://blog.scmadvice.com/hubfs/Jan_%20Goals-1.jpg --- - [Why Choose SCM?](https://scmadvice.com/why-scm/) - [Our Commitment to You](https://scmadvice.com/our-commitment-to-you/) - [Our Fees](https://scmadvice.com/our-fees/) - [What We Do](https://scmadvice.com/what-we-do/) - [401(k) Plan Management](https://scmadvice.com/401k-plan-management/) - [403(b) Plan Management](https://scmadvice.com/403b-plan-management/) - [Thrift Savings Plan (TSP) Management](https://scmadvice.com/thrift-savings-plan-tsp-management/) - [Health Savings Account (HSA) Management](https://scmadvice.com/health-savings-account-hsa-management/) - [Wealth Management](https://scmadvice.com/wealth-management/) - [Financial Planning](https://scmadvice.com/financial-planning/) - [Pension Analysis](https://scmadvice.com/pension-analysis/) - [Social Security Analysis](https://scmadvice.com/social-security-analysis/) - [About SCM](https://scmadvice.com/who-we-are/) - [Our Story](https://scmadvice.com/our-story/) - [Our Team](https://scmadvice.com/who-we-are/our-team/) - [Quick Facts](https://scmadvice.com/who-we-are/quick-facts/) [![Scarborough Capital Management](https://scmadvice.com/wp-content/themes/scarborough/assets/images/logo-35th-2x.png)](https://scmadvice.com/) - [Who We Help](https://scmadvice.com/our-clients/) - [Free Resources](https://scmadvice.com/resources/) - [Blog](https://blog.scmadvice.com/) - [eBooks](https://scmadvice.com/resources/ebooks/) - [Quick Guides](https://scmadvice.com/quick-guides/) - [Start Now](https://info.scmadvice.com/contact-us) - [Why Choose SCM?](https://scmadvice.com/why-scm/) - [Our Commitment to You](https://scmadvice.com/our-commitment-to-you/) - [Our Fees](https://scmadvice.com/our-fees/) - [What We Do](https://scmadvice.com/what-we-do/) - [401(k) Plan Management](https://scmadvice.com/401k-plan-management/) - [403(b) Plan Management](https://scmadvice.com/403b-plan-management/) - [Thrift Savings Plan (TSP) Management](https://scmadvice.com/thrift-savings-plan-tsp-management/) - [Health Savings Account (HSA) Management](https://scmadvice.com/health-savings-account-hsa-management/) - [Wealth Management](https://scmadvice.com/wealth-management/) - [Financial Planning](https://scmadvice.com/financial-planning/) - [Pension Analysis](https://scmadvice.com/pension-analysis/) - [Social Security Analysis](https://scmadvice.com/social-security-analysis/) - [About SCM](https://scmadvice.com/what-we-do/) - [Our Story](https://scmadvice.com/our-story/) - [Our Team](https://scmadvice.com/who-we-are/our-team/) - [Quick Facts](https://scmadvice.com/who-we-are/quick-facts/) - [Who We Help](https://scmadvice.com/our-clients/) - [Getting Organized and On Track](https://scmadvice.com/getting-organized-and-on-track/) - [When Can We Retire?](https://scmadvice.com/when-can-we-retire/) - [Free Resources](https://scmadvice.com/resources/) - [Blog](https://blog.scmadvice.com/) - [Start Now](https://info.scmadvice.com/contact-us) - [Why Choose SCM?](https://scmadvice.com/why-scm/) - [Our Commitment to You](https://scmadvice.com/our-commitment-to-you/) - [Our Fees](https://scmadvice.com/our-fees/) - [What We Do](https://scmadvice.com/what-we-do/) - [401(k) Plan Management](https://scmadvice.com/401k-plan-management/) - [403(b) Plan Management](https://scmadvice.com/403b-plan-management/) - [Thrift Savings Plan (TSP) Management](https://scmadvice.com/thrift-savings-plan-tsp-management/) - [Health Savings Account (HSA) Management](https://scmadvice.com/health-savings-account-hsa-management/) - [Wealth Management](https://scmadvice.com/wealth-management/) - [Financial Planning](https://scmadvice.com/financial-planning/) - [Pension Analysis](https://scmadvice.com/pension-analysis/) - [Social Security Analysis](https://scmadvice.com/social-security-analysis/) - [About SCM](https://scmadvice.com/who-we-are/) - [Our Story](https://scmadvice.com/our-story/) - [Our Team](https://scmadvice.com/who-we-are/our-team/) - [Quick Facts](https://scmadvice.com/who-we-are/quick-facts/) - [Who We Help](https://scmadvice.com/our-clients/) - [Getting Organized and On Track](https://scmadvice.com/getting-organized-and-on-track/) - [When Can We Retire?](https://scmadvice.com/when-can-we-retire/) - [Free Resources](https://scmadvice.com/resources/) - [Blog](https://blog.scmadvice.com/) - [Quick Guides](https://scmadvice.com/quick-guides/) - [Start Now](https://info.scmadvice.com/contact-us) [![Scarborough Capital Management](https://blog.scmadvice.com/hubfs/ScarboroughCapitalManagement_June2019/Images/logo.png)](http://134.209.5.42) Menu ### Newsletter Subscribe to our monthly newsletter ### Categories - [financial advisor (41)](https://blog.scmadvice.com/tag/financial-advisor) - [wealth management annapolis (38)](https://blog.scmadvice.com/tag/wealth-management-annapolis) - [Personal Finance (37)](https://blog.scmadvice.com/tag/personal-finance) - [Retirement (14)](https://blog.scmadvice.com/tag/retirement) - [Retirement Planning (5)](https://blog.scmadvice.com/tag/retirement-planning) - [Annapolis (4)](https://blog.scmadvice.com/tag/annapolis) - [College Savings (2)](https://blog.scmadvice.com/tag/college-savings) - [401(k) (1)](https://blog.scmadvice.com/tag/401k) - [Investing (1)](https://blog.scmadvice.com/tag/investing) See all ### Popular posts - [![What To Do Now That You’ve Received Your Inheritance](https://blog.scmadvice.com/hubfs/SCM-inheritance.jpg)](https://blog.scmadvice.com/now-that-youve-received-your-inheritance) [What To Do Now That You’ve Received Your Inheritance](https://blog.scmadvice.com/now-that-youve-received-your-inheritance) by [Shawn J. Walker](https://blog.scmadvice.com/author/shawn-j-walker) - [![Optimizing 401(k) Contributions In 2026: Pre-Tax Or Roth?](https://blog.scmadvice.com/hubfs/401k.jpeg)](https://blog.scmadvice.com/optimizing-401k-contributions-in-2026-pre-tax-or-roth) [Optimizing 401(k) Contributions In 2026: Pre-Tax Or Roth?](https://blog.scmadvice.com/optimizing-401k-contributions-in-2026-pre-tax-or-roth) by [Gregory S. Ostrowski](https://blog.scmadvice.com/author/gregory-s-ostrowski) - [![12 Threats to Retirement Many People Aren't Prepared For](https://blog.scmadvice.com/hubfs/April4.jpg)](https://blog.scmadvice.com/12-threats-to-retirement-many-people-arent-prepared-for-1) [12 Threats to Retirement Many People Aren't Prepared For](https://blog.scmadvice.com/12-threats-to-retirement-many-people-arent-prepared-for-1) by [Jon Szostek](https://blog.scmadvice.com/author/jonathan-w-szostek) - [![Seven of Scarborough's Financial Advisors Named Five-Star Wealth Managers](https://blog.scmadvice.com/hubfs/SCM-FiveStar-1%20(1).png)](https://blog.scmadvice.com/seven-of-scarboroughs-financial-advisors-named-five-star-wealth-managers) [Seven of Scarborough's Financial Advisors Named Five-Star Wealth Managers](https://blog.scmadvice.com/seven-of-scarboroughs-financial-advisors-named-five-star-wealth-managers) by [Scarborough Capital Management](https://blog.scmadvice.com/author/scarborough-capital-management) ![](https://blog.scmadvice.com/hubfs/Jan_%20Goals-1.jpg) ![David Herman](https://blog.scmadvice.com/hubfs/Herman%20Blog.jpg) ###### by [David Herman](https://blog.scmadvice.com/author/david-herman) on April 02, 2025 ###### Categories: - [Personal Finance](https://blog.scmadvice.com/tag/personal-finance) - [financial advisor](https://blog.scmadvice.com/tag/financial-advisor) - [wealth management annapolis](https://blog.scmadvice.com/tag/wealth-management-annapolis) # Roth IRAs vs Traditional IRAs: What You Need to Know When you’re planning for retirement, one of the biggest decisions you need to make is whether to invest in a traditional IRA or a Roth IRA. We’re here to tell you the answer to that question is incredibly simple—you should try to have both. Glad we answered that! But we should probably explain why, right? We’ll look into these two types of savings plans in detail, talk about the similarities and differences between these two types of IRA, and show why it’s a good idea to invest in each.   Roth IRA vs Traditional IRA: The Similarities Let’s start by looking at the many ways in which these two types of accounts are similar. First and foremost, they’re very obviously both IRA accounts. It’s right there in the name. But what does that name mean? It stands for Individual Retirement Arrangement. That means that each plan is built specifically to help one person plan for retirement. Notice we said “one person.” When they put the Individual in IRA, they really meant it. As long as you’re alive, you can’t gift or transfer your IRA to anyone else. If you do this, you’ll lose the tax protections offered by the IRA for whatever money you transfer. They were serious about the Retirement part too—both traditional and Roth IRAs have penalties for withdrawals before age 59-½ (though Roth accounts offer some exceptions to this). These investment accounts were specifically designed to help people save for their golden years, so once you start investing in one you shouldn’t expect to take money out for a good long time. The Arrangement part is specific as well—your IRA is technically an arrangement between you (the owner) and the business in charge of managing your IRA. This is why it’s A for Arrangement and not for Account (and why it’s not redundant to say “IRA account.”) So both types of IRA are designed to help an individual save for retirement, which is one of the main reasons you want one of each, if you can—it’s never a bad idea to over-prepare for retirement. Both main types of IRAs also incentivize savings by offering tax benefits. However, the specific types of tax benefits offered are the biggest differentiators between these two types of retirement plans. Let’s take a closer look at each.   Taxes and Traditional IRAs Traditional IRAs allow you to contribute pre-tax dollars, and you won’t pay taxes on your contributions until you start to withdraw. This has a two-fold benefit: you may be able to get yourself into a lower tax bracket in a given year by contributing to your IRA and lowering your taxable income (if your employer doesn’t offer some other kind of retirement plan). When you retire, your IRA will count as taxable income—but you’ll most likely be in a lower bracket then. So you’re paying less to the government when you put money in (by reducing your taxable income through pre-tax donations) and paying lower taxes down the road when you take money out (because you’ll be on a retirement income, which will probably be lower than your current income). In between, your investments will grow and compound on a tax-deferred basis, meaning you won't pay capital gains or dividend taxes while they grow. Sounds like a pretty great deal, right? Well, that’s because it is. The government wants you to invest in an IRA and plan for retirement so that you are more likely to be able to fend for yourself instead of relying on Social Security (if it still exists when you retire).   Roth IRAs: Taxed Up Front Roth IRAs take the opposite approach to Traditional IRAs when it comes to taxation. Your contributions to your Roth account come from income that has already been taxed. They’ll still grow tax-free, so you won’t have to pay capital gains or dividends taxes (just like a Traditional IRA). And then, when it comes time to take qualified withdrawals from your Roth IRA, they’ll be 100% tax-free. That’s right—with Roth IRAs, you don’t have to pay taxes when you start taking withdrawals (as long as you hit all the qualifications). Since your money was taxed once before going in, it won’t be taxed again. And that’s a pretty sweet deal, especially if you’re expecting to be in a higher tax bracket when you hit the magic age of 59-½ than you are now. Or if you’re concerned that future changes to tax laws might put a pinch on your retirement income. So the biggest difference between the two types of IRA accounts is when you pay the taxes. Traditional IRAs take out taxes when you take out withdrawals, and Roth IRAs don’t (because they only take money that’s already been taxed).   Pay Attention to Restrictions IRAs are a great benefit to individual retirement planning, but they do come with restrictions. Aside from the age restrictions on withdrawals, there are also certain requirements and restrictions on your contributions and even your eligibility. These restrictions change from year to year, so it’s best to make an appointment with a qualified financial planner before opening a new IRA. But, generally speaking, IRA restrictions center around yearly contribution limits ($7,000 in 2025, or $8,000 if you’re age 50 or older. And counting total contributions to both your Roth and Traditional IRA accounts). Roth IRAs also come with income eligibility limits. Again, these change from year to year, but for 2025 you have to earn under $150,000 as an individual or $ 236,000 as a jointly filing couple to qualify for your maximum Roth IRA contributions.   So Which One is Best? For most people, the best option is both (as long as you hit the qualifications to contribute to both types of accounts). This way you’ll have some tax-free income at retirement, and some tax-free contributions now. That’s called having your cake and eating it too. So even though there’s been a lot of excitement over the recent changes allowing for [“backdoor Roth IRA”](https://www.schwab.com/learn/story/backdoor-roth-is-it-right-you?src=SEM&ef_id=Cj0KCQiA_NC9BhCkARIsABSnSTbezid8NPw12TlL_1-7otnt9nNs08Yd0VwbU42jqTDgs2OlDridL7kaAlC7EALw_wcB:G:s&s_kwcid=AL!5158!3!652715970840!e!!g!!backdoor%2520roth%2520conversion!194428220!70693370521&keywordid=kwd-643088290045&gad_source=1&gclid=Cj0KCQiA_NC9BhCkARIsABSnSTbezid8NPw12TlL_1-7otnt9nNs08Yd0VwbU42jqTDgs2OlDridL7kaAlC7EALw_wcB) conversions, there’s nothing inherently better about them than with Traditional IRAs (unless you count the relaxed penalties for early withdrawals). They are both powerful tools to help you prepare for retirement, each with its own way of saving you money on taxes. If you’re ready to start a new IRA account or want to get a specific consultation about which type of IRA is right for you, [get in touch](https://info.scmadvice.com/contact-us?__hstc=199549809.d83db950325823657f2dc35c35bc15fc.1735835106170.1739906875953.1739910628872.36&__hssc=199549809.9.1739910628872&__hsfp=1536433112)!   *The opinions voiced on this blog are for general informational purposes only and are not intended to provide or be a substitute for specific professional financial, tax or legal advice or recommendations for any individuals.*   [![New call-to-action](https://no-cache.hubspot.com/cta/default/5952573/49b18a5f-ac01-47e9-acd9-33b3b8a2dac2.png)](https://cta-redirect.hubspot.com/cta/redirect/5952573/49b18a5f-ac01-47e9-acd9-33b3b8a2dac2) [![Scarborough Capital Management](https://blog.scmadvice.com/hubfs/ScarboroughCapitalManagement_June2019/Images/logo.png)](https://scmadvice.com/) For over 35 years, Scarborough Capital Management has been seeking to help busy people make the most of their money. With affordable 401(k) management services plus full-service financial planning and wealth management, we’re passionate about helping you achieve your financial goals… now and in the future. #### Contact - 1906 Towne Centre Blvd., Suite 260 Annapolis, MD 21401 - **Call:** 410-573-5700 or 800-200-3870 **Fax:** 410-573-5708 #### Navigate - [Why Choose SCM?](https://scmadvice.com/why-scm/) - [What We Do](https://scmadvice.com/what-we-do/) - [About SCM](https://scmadvice.com/who-we-are/) - [Who We Help](https://scmadvice.com/our-clients/) - [Free Resources](https://scmadvice.com/resources/) - [Blog](https://blog.scmadvice.com/) - [Contact Us](https://scmadvice.com/contact-us/) ##### Find on Social: - - **![Broker Check logo](https://blog.scmadvice.com/hs-fs/hubfs/Broker%20Check%20logo.png?width=140&name=Broker%20Check%20logo.png)** **Important consumer information** This site is for informational purposes only and is not intended to be a solicitation or offering of any security and: Representatives of Registered Broker-Dealer ("BD") or Registered Investment Advisor ("IA") may only conduct business in a state if the representatives and the BD and IA they represent (a) satisfy the qualification requirements of, and are approved to do business by, that state; or (b) are excluded or exempted from that state's registration requirements. Representatives of a BD or IA are deemed to conduct business in a state to the extent that they would provide individualized responses to investor inquiries that involve (a) effecting, or attempting to effect, transactions in securities; or (b) rendering personalized investment advice for compensation. We are registered to offer securities in the following states: AK, AL, AR, AZ, CA, CO, CT, DC, DE, FL, GA, IA, ID, IL, IN, KS, KY, LA, MA, MD, ME, MI, MN, MO, MS, NC, ND, NE, NH, NJ, NM, NV, NY, OH, OK, OR, PA, RI, SC, SD, TN, TX, UT, VA, WA, WI, WV, WY. Securities offered through Independent Financial Group, LLC (IFG), a registered broker-dealer. Member [FINRA](https://www.finra.org/) / [SIPC](https://www.sipc.org/). Advisory services offered through Scarborough Capital Management, a federally registered investment Adviser under the Investment Advisers Act of 1940. Registration as an investment adviser does not imply a certain level of skill or training. IFG and Scarborough Capital Management are unaffiliated entities Information provided is from sources believed to be reliable however, we cannot guarantee or represent that it is accurate or complete. Because situations vary, any information provided on this site is not intended to indicate suitability for any particular investor. Hyperlinks are provided as a courtesy and should not be deemed as an endorsement. When you link to a third-party website you are leaving our site and assume total responsibility for your use or activity on the third-party sites. [View Part 2 of Our ADV](https://scmadvice.com/wp-content/uploads/2025/04/SCM-Part-2A-of-Form-ADV-04012025.pdf)     [View Our CRS](https://scmadvice.com/wp-content/uploads/2024/04/SCM-CRS-3-22-2024.pdf)     [SCM Privacy Policy](https://scmadvice.com/wp-content/uploads/2024/04/Privacy-Policy-3.2024.pdf) Copyright 2025. Scarborough Capital Management. All rights reserved.