Roth vs. traditional IRA: Compare, then decide | Vanguard (2023)

IRAs

Understanding IRAs

What is an IRA?

Pick investments for your IRA

Roth vs. traditional IRAs

401k vs IRA

IRA Roth Conversion

How to convert to a Roth IRA online

Understanding IRAs

IRAs

Understanding IRAs

What is an IRA? Pick investments for your IRA Roth vs. traditional IRAs 401k vs IRA IRA Roth Conversion How to convert to a Roth IRA online

Start simple, with your age and income. Then compare the IRA rules and tax benefits.

IRA eligibility

Is there an age limit?

ROTH IRA
You can contribute to a Roth IRA at any age.

TRADITIONAL IRA
As a result of changes made by the SECURE Act, you can make contributions to a traditional IRA for 2020 or later regardless of your age.

How does my income affect how much I can contribute?

ROTH IRA
The amount you can contribute to a Roth IRA:

  • Can't exceed the amount of income you earned that year.
  • Can't exceed the IRS-imposed limits (see below).
  • Could be reduced—or even eliminated—based on yourmodified adjusted gross income (MAGI).

Get details on Roth IRA income limits

TRADITIONAL IRA
The amount you can contribute to a traditional IRA:

  • Can't exceed the amount of income you earned that year.
  • Can't exceed the IRS-imposed limits (see below).

There are no additional restrictions based on your income.

Can minors or nonworking spouses contribute to an IRA?

ROTH IRA
Minorsand nonworking spouses may be able to contribute, but check thespecial income rulesfirst.

TRADITIONAL IRA
Minorsand nonworking spouses may be able to contribute, but check thespecial income rulesfirst.

ROTH IRATRADITIONAL IRA

Is there an age limit?

You can contribute to a Roth IRA at any age.As a result of changes made by the SECURE Act, you can make contributions to a traditional IRA for 2020 or later regardless of your age.

How does my income affect how much I can contribute?

The amount you can contribute to a Roth IRA:
  • Can't exceed the amount of income you earned that year.
  • Can't exceed the IRS-imposed limits (see below).
  • Could be reduced—or even eliminated—based on your modified adjusted gross income (MAGI).

Get details on Roth IRA income limits

The amount you can contribute to a traditional IRA:

  • Can't exceed the amount of income you earned that year.
  • Can't exceed the IRS-imposed limits (see below).

There are no additional restrictions based on your income.

Can minors or nonworking spouses contribute to an IRA?

Minors and nonworking spouses may be able to contribute, but check the special income rules first.Minors and nonworking spouses may be able to contribute, but check the special income rules first.

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Modified adjusted gross income (MAGI)

An amount used to determine a taxpayer's IRA eligibility. Generally, it's the taxpayer's adjusted gross income calculated without certain deductions and exclusions.

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Special income rules

Anonworking spousemay still be able to contribute to an IRA as long as that person is filing a joint tax return with a working spouse. These are known as "spousal IRAs."

But the total amount contributed bybothspouses can't exceed the amount of income earned by the working spouse or the IRS limits, whichever is less.

Learn more about spousal IRAs

Minorsmay also be able to contribute to an IRA, but income limits are based on the minor's income, not the parents'.

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Special income rules

Anonworking spousemay still be able to contribute to an IRA as long as that person is filing a joint tax return with a working spouse. These are known as "spousal IRAs."

But the total amount contributed by both spouses can't exceed the amount of income earned by the working spouse or the IRS limits, whichever is less.

Learn more about spousal IRAs

Minorsmay also be able to contribute to an IRA, but income limits are based on the minor's income, not the parents'.

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Minors

IRAs for minors can't be opened online and must be authorized by a parent or custodian.

IRA contribution rules

What are the contribution limits?

ROTH IRA
For the 2022 tax year:

  • If you're under age 50, you can contribute up to $6,000.
  • If you're age 50 or older, you can contribute up to $7,000.


For the 2023 tax year:

  • If you're under age 50, you can contribute up to $6,500.
  • If you're age 50 or older, you can contribute up to $7,500.

Limits could be lower based on your income.


TRADITIONAL IRA
For the 2022 tax year:

  • If you're under age 50, you can contribute up to $6,000.
  • If you're age 50 or older, you can contribute up to $7,000.


For the 2023 tax year:

  • If you're under age 50, you can contribute up to $6,500.
  • If you're age 50 or older, you can contribute up to $7,500.

Limits could be lower based on your income.

Can I claim my contribution as a deduction on my tax return?

ROTH IRA
You can't deduct your Roth IRA contribution.

TRADITIONAL IRA
You may be able to deduct some or all of your traditional IRA contributions. The deductible amount could be reduced or eliminated if you or your spouse is already covered by a retirement plan at work.

Get details on IRA deductions

What's the deadline for making contributions in a given year?

ROTH IRA
The deadline is typicallyApril 15of the following year.

TRADITIONAL IRA
The deadline is typicallyApril 15of the following year.

How much money do I need to open a Vanguard IRA®?

ROTH IRA
You'll need $1,000 for any Vanguard Target Retirement Fund or for Vanguard STAR®Fund.

Most other Vanguard funds require an initial investment of at least $3,000, though some have higher minimums.

TRADITIONAL IRA
You'll need $1,000 for any Vanguard Target Retirement Fund or for Vanguard STAR Fund.

Most other Vanguard funds require an initial investment of at least $3,000, though some have higher minimums.

ROTH IRATRADITIONAL IRA

What are the contribution limits?

For the 2022 tax year:

  • If you're under age 50, you can contribute up to $6,000.
  • If you're age 50 or older, you can contribute up to $7,000.


For the 2023 tax year:

  • If you're under age 50, you can contribute up to $6,500.
  • If you're age 50 or older, you can contribute up to $7,500.

Limits could be lower based on your income.

For the 2022 tax year:

  • If you're under age 50, you can contribute up to $6,000.
  • If you're age 50 or older, you can contribute up to $7,000.


For the 2023 tax year:

  • If you're under age 50, you can contribute up to $6,500.
  • If you're age 50 or older, you can contribute up to $7,500.

Limits could be lower based on your income.

Can I claim my contribution as a deduction on my tax return?

You can't deduct your Roth IRA contribution.

You may be able to deduct some or all of your traditional IRA contributions. The deductible amount could be reduced or eliminated if you or your spouse is already covered by a retirement plan at work.

Get details on IRA deductions

What's the deadline for making contributions in a given year?

The deadline is typicallyApril 15of the following year.The deadline is typicallyApril 15of the following year.

How much money do I need to open a Vanguard IRA®?

You'll need $1,000 for any Vanguard Target Retirement Fund or for Vanguard STAR®Fund.

Most other Vanguard funds require an initial investment of at least $3,000, though some have higher minimums.

You'll need $1,000 for any Vanguard Target Retirement Fund or for Vanguard STAR Fund.

Most other Vanguard funds require an initial investment of at least $3,000, though some have higher minimums.

IRA withdrawal rules

Will I pay taxes on withdrawals?

ROTH IRA
You'll never pay taxes on withdrawals of your Roth IRA contributions. And you won't pay taxes on withdrawals of your earnings as long as you take them after you've reached age 59½ and you've met the5-year-holding-period requirement.

Get details on IRA withdrawals

TRADITIONAL IRA
You'll pay ordinary income tax on withdrawals of all traditional IRA earnings and on any contributions you originally deducted on your taxes.

Get details on IRA withdrawals

Is there a penalty for withdrawals taken before age 59½?

ROTH IRA
There are no penalties on withdrawals of Roth IRA contributions. But there's a 10% federal penalty tax on withdrawals of earnings.

Exceptions to the penalty tax

TRADITIONAL IRA
With a traditional IRA, there's a 10% federal penalty tax on withdrawals of both contributions and earnings.

Exceptions to the penalty tax

Will I have to takerequired minimum distributions (RMDs)?

ROTH IRA
Roth IRAs have no RMDs during your lifetime.

TRADITIONAL IRA
You must take your first RMD from your traditional IRA by April 1 of the year following the year you reach age 72 (age 70½ if you attained age 70½ before 2020).

For each subsequent year, you'll need to take your annual RMD byDecember 31.

Get details on RMDs

ROTH IRATRADITIONAL IRA

Will I pay taxes on withdrawals?

You'll never pay taxes on withdrawals of your Roth IRA contributions. And you won't pay taxes on withdrawals of your earnings as long as you take them after you've reached age 59½ and you've met the5-year-holding-period requirement.

Get details on IRA withdrawals

You'll pay ordinary income tax on withdrawals of all traditional IRA earnings and on any contributions you originally deducted on your taxes.

Get details on IRA withdrawals

Is there a penalty for withdrawals taken before age 59½?

There are no penalties on withdrawals of Roth IRA contributions. But there's a 10% federal penalty tax on withdrawals of earnings.

Exceptions to the penalty tax

With a traditional IRA, there's a 10% federal penalty tax on withdrawals of both contributions and earnings.

Exceptions to the penalty tax

Will I have to takerequired minimum distributions (RMDs)?

Roth IRAs have no RMDs during your lifetime.

Due to changes to federal law that took effect on January 1, 2023, the age at which you must begin taking RMDs differs depending on when you were born. If you reached age 72 on or before December 31, 2022, you were already required to take your RMD and must continue satisfying that requirement. However, if you had not yet reached age 72 by December 31, 2022, you must take your first RMD from your traditional IRA by April 1 of the year after you reached age 73.

For each subsequent year, you'll need to take your annual RMD by December 31.

Get details on RMDs

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5-year holding period

The 5-year holding period for Roth IRAs starts on the earlier of the date you:

  • First contributed directly to the Roth IRA.
  • Rolled over a Roth 401(k) or Roth 403(b) to the Roth IRA.
  • Converted a traditional IRA to the Roth IRA.

If you're under age 59½ and you have one Roth IRA that holds proceeds from multiple conversions, you're required to keep track of the 5-year holding period for each conversion separately.

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Qualifying exceptions to the penalty tax

Distributions received before you're age 59½ may not be subject to the 10% federal penalty tax if they're:

  • Due to your disability or death.
  • Distributed to a reservist who was ordered or called to active duty after September 11, 2001, for more than 179 days.

Or if they're to be used for:

  • A first-time home purchase (lifetime maximum: $10,000).
  • Postsecondary education expenses.
  • Substantially equal periodic payments taken under IRS guidelines.
  • Certain unreimbursed medical expenses.
  • An IRS levy on the IRA.
  • Health insurance premiums (after you've received at least 12 consecutive weeks of unemployment compensation).
  • Birth or adoption of a child (up to $5,000 per child distributed within 1 year of birth or adoption).
  • A coronavirus-related distribution to a qualified individual (made on or after January 1, 2020 and before December 31, 2020).

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Qualifying exceptions to the penalty tax

Distributions received before you're age 59½ may not be subject to the 10% federal penalty tax if they're:

  • Due to your disability or death.
  • Distributed to a reservist who was ordered or called to active duty after September 11, 2001, for more than 179 days.

Or if they're to be used for:

  • A first-time home purchase (lifetime maximum: $10,000).
  • Postsecondary education expenses.
  • Substantially equal periodic payments taken under IRS guidelines.
  • Certain unreimbursed medical expenses.
  • An IRS levy on the IRA.
  • Health insurance premiums (after you've received at least 12 consecutive weeks of unemployment compensation).
  • Birth or adoption of a child (up to $5,000 per child distributed within 1 year of birth or adoption).
  • A coronavirus-related distribution (CRD) to a qualified individual (made on or after January 1, 2020 and before December 31, 2020).

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Required minimum distributions (RMDs)

Most owners of traditional IRAs and employer-sponsored retirement plan accounts (like 401(k)s and 403(b)s) must withdraw part of their tax-deferred savings each year, starting at age 72 (age 70½ if you attained age 70½ before 2020). If you withdraw less than the RMD amount, you may owe a 50% penalty tax on the difference. Roth IRAs have no RMDs during the owner's lifetime.

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