Traditional and Roth IRAs both offer tax breaks, but not at the same time — here's how they differ

Saving for retirement starts with choosing the right IRA, but the decision between a traditional and a Roth IRA isn't always straightforward. Each option has unique tax benefits and rules that can greatly impact your savings over time. Are you better off paying taxes now or later? And what other differences should you know before deciding?

Let's break down the key factors to help you choose the best retirement account for your goals. Plus, we recommend our top picks for each.

IRAs are a popular choice for retirement savers because of their tax advantages.

IRAs are also easy to set up and accessible, offered at most banks and credit unions, as well as through online brokers and investment companies. You can set up automatic contributions into your IRA from your checking or savings account, which makes investing for your future one less thing to think about.

And unlike being limited to your employer's 401(k) plan, you can choose your investments with an IRA and many brokerage firms or banks will help guide you depending on your timeline to retirement.

If you already have a 401(k) plan through your employer, an IRA is an effective way to supplement your retirement savings. And since a 401(k) has the same tax benefits as a traditional IRA, the choice is easy: tagging on a Roth IRA along with your 401(k) will make sure you get a tax break now and in the future.

Overall, the rules around withdrawing early from an IRA are more lenient with Roth IRAs than with traditional IRAs.

Traditional IRAs: If you withdraw funds from your traditional IRA before age 59 and a half, you are taxed at your current income tax rate and you are charged a 10% early withdrawal penalty fee.

Roth IRAs: Withdrawing from your Roth IRA before age 59 and a half depends on whether it's your contributions or your earnings that you're tapping into. Withdrawing contributions from your Roth IRA at any age is tax- and penalty-free. Withdrawing earnings before age 59 and a half, however, incurs a 10% early withdrawal penalty and may be subject to income taxes, like with a traditional IRA.

Roth IRAs also offer a unique perk that traditional IRAs do not: First-time home purchases, college expenses and birth or adoption expenses (up to certain limits) count as exceptions to the early withdrawal penalty.

Traditional IRAs and Roth IRAs have the same contribution limits, which are set each year.

Both traditional and Roth IRAs: For 2026, your total contribution limit to both traditional and Roth IRAs is up to $7,500 if you are under 50, and up to $8,600 if you are 50 or older (including the $1,100 catch-up contribution).

Traditional IRAs also offer a helpful perk that Roth IRAs do not: Your contributions into a traditional IRA can be deducted from your taxes each year, up to certain limits. This essentially means you get rewarded for putting money into your retirement account since the contributions help reduce the amount you owe in taxes. But be careful: Instead of spending those savings each year when you do your taxes, consider reinvesting them back into your retirement account to maximize the amount of money you have available come retirement time. The deduction limits for traditional IRAs in 2026 are as follows:

You cannot make a deduction if ...

• You have a retirement plan at work and your income is $81,000 or more as a single filer/head of household
• You (or your spouse, if married) have a retirement plan at work and your income is $129,000 or more as married filing jointly
• You (or your spouse, if married) have a retirement plan at work and your income is $10,000 or more as married filing separately

If you (and your spouse, if married) do not have a retirement plan at work, you can make a full deduction up to the amount of your contribution limit.

Traditional IRAs and Roth IRAs differ when it comes to who can open an account.

Traditional IRAs: Anyone can contribute regardless of how much money they earn.

Roth IRAs: There are income limits that restrict high-earners from opening and contributing directly to a Roth IRA. The income limits for Roth IRAs in 2026 are as follows:

• Married filing jointly or qualifying widow(er): Not eligible if your modified adjusted gross income is $252,000 or more.
• Single, head of household or married filing separately (and you didn't live with your spouse at any time during the year): Not eligible if your modified adjusted gross income is $168,000 or more.
• Married filing separately (if you lived with your spouse at any time during the year): Not eligible if your modified adjusted gross income is $10,000 or more

There is a backdoor Roth IRA strategy for those who don't qualify under the income limits — this loophole allows people to make indirect contributions to a Roth IRA.

After you have gone through the commonalities and differences between traditional and Roth IRAs above, it's time to shop around for the best provider of whichever account you choose.

We reviewed and compared over 20 different accounts offered by national banks, investment firms, online brokers and robo-advisors so that you don't have to. While many providers offer both traditional and Roth IRAs, some stand out better for those looking to open a Roth IRA because they are attractive to young investors.

Here are our top-rated picks that offer traditional and Roth IRAs — and have perks that beginners can benefit greatly from, such as no minimum deposit requirement and educational tools to help you in your investing journey.

• Best overall: Charles Schwab
• Best for beginner investors eager to learn: Fidelity Investments
• Best for hands-on beginner investors: Ally Invest
• Best for hands-off beginner investors: Wealthfront
• Best for access to a financial advisor: Betterment

This article has been updated to show that account holders don't pay taxes on growth (capital gains or dividends) while the money is in the account, in either a Roth or traditional IRA. You must pay taxes, however, on any withdrawals from a traditional IRA.