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What's the difference between a Roth IRA and a Traditional IRA?

There are several important differences between Roth and Traditional IRAs, including age and income limits, when contributions are made and when distributions (withdrawals) are taken.

When it comes to Roth IRAs vs. Traditional IRAs, the main difference is how and when you get a tax break, whether at the time contribution is made or, in retirement when the distribution is taken
If you’re ready to start saving money with a Roth IRA account, we can help! At Credit Union of Southern California (CU SoCal), we make getting a Roth IRA account easier.
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Read-on to learn more about Roth IRA vs. traditional IRA.

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What is a Roth IRA?

A Roth IRA is a special type of retirement account that allows your monetary contributions and interest earnings to grow tax-free.
You can contribute to a Roth IRA at any age if you, or your spouse if file your income taxes jointly, have taxable income. Taxable income is any income (including wages, salary, commission, and alimony), and your modified adjusted gross income is below a certain amount specified by the IRS.
Roth IRAs are funded with your after-tax dollars, and you can make tax-free and penalty-free withdrawals after age 59 ½.
Learn more about what is a Roth IRA.

What is a Traditional IRA?

A traditional IRA is a way to save for retirement that gives you tax advantages.
According to the IRS, contributions you make to a traditional IRA may be fully or partially deductible, depending on your filing status and income, and generally, amounts in your traditional IRA (including earnings and gains) are not taxed until you take a distribution (withdrawal) from your IRA.
You can open and make contributions to a traditional IRA if you (or, if you file a joint return, your spouse) received taxable compensation during the year.
You can have a traditional IRA whether you are covered by any other retirement plan. However, you may not be able to deduct all your contributions if you or your spouse is covered by an employer retirement plan.
You can open a traditional IRA at any time. However, the time for making contributions for any year is limited.
You can open an IRA at a bank or other financial institution or with a mutual fund or life insurance company. You can also open an IRA through your stockbroker.Comparing Roth IRAs vs. Traditional IRAs


Roth. Must meet income and age requirements to open an account.

Traditional. No income and age requirements to open an account.


Roth. Contributions are made to the account after you have already paid tax, so distributions are not taxed.

Traditional. Contributions to a traditional IRA are usually pre-tax and reduce your taxable income in the year of the contribution. Distributions taken will be taxed.


The IRS determines how much can be contributed to traditional and Roth IRA accounts each tax year. The most you can contribute to all your traditional and Roth IRAs is the smaller of these dollar amounts:
  • For 2022: $6,000, or $7,000 if you’re age 50 or older by the end of the year; or your taxable compensation for the year.
  • For 2023: $6,500, or $7,500 if you’re age 50 or older by the end of the year; or your taxable compensation for the year.
Roth. Contributions are not tax deductible. Contributions can be made at any age. Eligibility is based on your income.

Traditional. Contributions may be fully or partially tax deductible. Anyone under age 70 and one-half with earned income can contribute.


Roth. Must meet income limits set by the IRS, for individuals and/or married persons filing taxes jointly.

Traditional. No income limit to open a traditional IRA.


Roth. Contributions can be withdrawn anytime with no penalty or taxation. Earnings are tax-free if they've been in the account for five years and you are at least 59 and one-half.

Traditional. Withdrawals are taxable income. Any withdrawals before age 59 and one-half may include a 10% penalty. Withdrawals are mandatory at age 72.

Pros and Cons of Traditional IRAs


Tax deduction. Contributing to a traditional IRA may reduce your taxable income for the year in which you make the contribution.

Delay taxable earnings on contributions. Your earnings will grow tax-free, however the pre-tax contributions and the earnings will be taxable upon withdrawal in retirement.Cons

Withdrawal taxes. Most traditional IRAs are based on pre-tax contributions, which means that you will pay tax on the funds in retirement as they are withdrawn.

Required withdrawals. You cannot keep retirement funds in your account indefinitely. You generally have to start taking withdrawals from your IRA or retirement plan account when you reach age 72.

Early withdrawal penalties. Generally, the amounts an individual withdraws from an IRA or retirement plan before reaching age 59 and one-half are called  “early” or ”premature” distributions. Individuals must pay an additional 10% early withdrawal tax unless an exception applies.

Pros and Cons of Roth IRAs


Tax-free growth. All the interest earned on your account is tax-free.

No withdrawal requirements. You do not have to start withdrawing money at a specific age.

Penalty-free withdrawals. You will not pay a penalty if you withdraw any part of the amount you have contributed and leave the earnings potion in the account. Withdrawing earnings before the allowable timeframe (five years) will result in a penalty unless you meet the exception criteria specified by the IRS.

No age limit. You may open and contribute to a traditional IRA at any age.

No income limit. There are no income requirements to open a traditional IRA.


No upfront benefits. Because you already paid tax on the money (from your income or other earnings) there is no additional tax break.

Earnings withdrawal restrictions. Earnings cannot be withdrawn without penalty before age 59 and one-half, unless certain exceptions apply.

Income limits. There are income thresholds, which means that high-income individuals are not eligible for a Roth IRA.

Which IRA is right for me?

Choosing an IRA is largely dependent on three factors: your financial goals, your income, and your age. Because a Roth IRA account has specific income and age limits, a traditional IRA may be a better, more flexible option if you don’t meet the
Roth requirements. It’s a good idea to consult with a tax professional and financial advisor before making any investments.

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For over 60 years CU SoCal has been providing financial services, including mortgages, Home Equity Loans, HELOCs, car loans, personal loans, credit cards, and other banking products, to those who live, work, worship, or attend school in Orange County, Los Angeles County, Riverside County, and San Bernardino County.
Please give us a call today at 866.287.6225 today to schedule a no-obligation loan consultation with a CU SoCal Member Services specialist.

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