3660 / What is the difference between a Roth IRA and a traditional IRA?

The primary difference between a Roth IRA and a traditional IRA is the tax treatment of contributions to, and withdrawals from, the account. “Qualified distributions” (see Q 3673) from a Roth IRA are not includable in gross income. Thus, earnings are tax-free, not tax deferred, as is the case with traditional IRAs. Any nonqualified distribution from a Roth IRA will be includable in income, but only to the extent that the distribution, along with all previous distributions from the Roth IRA, exceeds the aggregate amount of contributions to the Roth IRA.

Contributions from a traditional IRA are contributed on a pre-tax basis (i.e., they are deductible up to the annual contribution limit), while Roth IRA contributions are not deductible. Before 2020, contributions to a traditional IRA had to cease when the account owner reached age 70½. The age limitation was eliminated by the SECURE Act.¹ An individual may make both pre-tax and after-tax ( Q 3658) contributions to a traditional IRA, but may only make after-tax contributions to a Roth IRA.

---

Planning Point: Note that while the SECURE Act eliminated the age restriction for traditional IRA contributions, financial institutions are not required to accept post-age 70½ contributions. In other words, it is up to the specific institution to determine whether to accept these contributions beginning in 2020.²

---

Further, amounts accumulated in a traditional IRA or annuity must be distributed in compliance with the minimum distribution requirements (see Q 3682).³ Roth IRAs are not subject to the lifetime minimum distribution requirements, but are subject to certain after-death distribution requirements ( Q 3687). The chart below summarizes the primary differences between a traditional IRA and a Roth IRA.

	Traditional IRA	Roth IRA
Contribution Limit	$7,000 + $1,000 catch-up if 50 or older (2025).	$7,000 + $1,000 catch-up if 50 or older (2025).
Taxation of Contributions	Made with pre-tax dollars	Made with after-tax dollars.
Age Limit for Contributions	None.	None.
Taxation of Distributions	Taxed at ordinary income tax rates.	Tax-free if certain conditions are met.
Required Distributions	Distributions must begin April 1 of the year after the owner turns 73 (72 for 2020-2022, 70 ½ in prior years).	No lifetime distribution requirements for original account owner.

For more information on the contribution limit that applies to both traditional IRAs and Roth IRAs, see Q 3656 and Q 3659. Also, Q 3659 and Q 3661 discuss the income limits that apply to Roth IRAs, and Q 3662 discusses the rules governing converting traditional IRA funds to Roth accounts.

---

1.   IRC §§ 408A(c)(1), 408A(c)(4), prior to repeal by the SECURE Act.

2.   Notice 2020-68.