Traditional vs. Roth IRA

An IRA may be a good option if you’re looking to save some money for retirement on your own, without any connection to an employer. IRAs can be attractive because they shield your investments from capital gains taxes and allow money to grow more quickly, as dividends and interest compound without immediate taxation. And IRAs generally offer a more diverse set of investment options than a standard employer-sponsored plan, including stocks, bonds, mutual funds and exchange-traded funds (ETFs).

When setting up an IRA, you can choose a traditional option or a Roth IRA. So what’s the difference, and which one is better for you?

Traditional IRA

Contributions may be tax-deductible in the year you make them, and your money grows tax-deferred. You pay taxes on the funds when you withdraw them in retirement.

Traditional IRAs require you to start withdrawing a minimum amount of money each year once you reach a certain age.

Roth IRA

Contributions are made with after-tax money, so you don’t get a tax deduction as with a traditional IRA. Your money grows tax-free, and your qualified withdrawals in retirement are completely tax-free.

There are no required minimum distributions for Roth IRAs once you reach a specific age, as with a Traditional IRA.

Things to Know

No matter which option you choose, there are a few things to consider when opening an IRA:

Contribution Limits

For individuals under age 50, you can only contribute a certain amount of money each year ($7,500 in 2026). For those ages 50 and older, you contribute as much as $8,600 in 2026.

Withdrawal Penalties

IRAs are meant to be withdrawn in retirement. If you withdraw earnings before age 59 ½, you will trigger ordinary income taxes plus an early withdrawal penalty.

If you’re interested in opening an IRA, contact your local City branch.