Roth vs. Traditional IRA: Which One Fits Your Future?

If you’re in your 20s or 30s, retirement might feel as far away as a distant galaxy—but starting the planning and savings now can help set you up to be financially secure in retirement. One of the common retirement savings tools is the IRA. So, let’s break down the basics of what an IRA is and compare the two main types, the Roth IRA and Traditional IRA.

What’s an IRA?

An Individual Retirement Account (IRA) is a type of savings account designed to help you set aside money for retirement. It offers tax advantages that can make your savings grow faster than a regular account. There are two common types:

• Traditional IRA: You may get a tax deduction on contributions now, but you’ll pay taxes when you withdraw in retirement.
• Roth IRA: You pay taxes on contributions now, but withdrawals in retirement are tax-free.

Features

Traditional IRA

• Taxes: Tax break today (contributions may be deductible)
• Income Limits: No income cap for contributions
• Required Minimum Distributions (RMDs): Yes, starting at age 73
• Best For: If you expect to be in a lower tax bracket in retirement
• Early Withdrawal Penalty: 10% if under 59½ (exceptions apply)

Roth IRA

• Taxes: No tax break now, but withdrawals are tax-free
• Income Limits: Income limits apply (2025: $153K for singles, $228K for married)
• Required Minimum Distributions (RMDs): None—you can let it grow forever
• Best For: If you expect to be in a higher tax bracket later
• Early Withdrawal Penalty: 10% on earnings if under 59½ (exceptions apply)

Pros & Cons

Traditional IRA

Pros:

• Immediate tax deduction: Contributions may reduce your taxable income for the year.
• No income limits: Anyone with earned income can contribute.
• Potential for lower taxes later: If you expect to be in a lower tax bracket in retirement, this can save money.

Cons:

• Taxes on withdrawals: All distributions in retirement are taxed as ordinary income.
• Required Minimum Distributions (RMDs): You must start withdrawing at age 73, even if you don’t need the money.
• Early withdrawal penalty: 10% penalty plus taxes if you take money out before age 59½ (exceptions apply).

Roth IRA

Pros:

• Tax-free withdrawals: Qualified distributions in retirement are completely tax-free.
• No RMDs: Your money can keep growing as long as you want.
• Flexibility with contributions: You can withdraw your contributions (not earnings) anytime without penalty.

Cons:

• No upfront tax break: Contributions don’t reduce your taxable income now.
• Income limits: High earners may not qualify to contribute directly.
• Early withdrawal penalty on earnings: 10% penalty on earnings if withdrawn before age 59½ (exceptions apply).

How Compound Interest Works

Many IRAs grow through compound interest, which means you earn interest on your contributions and on the interest you’ve already earned. This can accelerate growth over time. However, the exact growth method can vary depending on the IRA and the investments you choose—some accounts may use different strategies like dividends or market-based returns.

Think of compound interest like a snowball rolling downhill: the earlier you start, the bigger it gets.

Starting Early vs. Waiting

When it comes to retirement savings, time isn’t just money—it’s growth. The earlier you begin contributing to an IRA, the more years your investments have to potentially compound and build momentum. Even small contributions in your 20s can snowball into a significant nest egg by the time you retire. Waiting until your 30s or 40s? You’ll still benefit, but you’ll need to save more aggressively to catch up.

• Start at 25: Contribute $6,000/year at 7% return → by 65, you could have $1.3M.
• Start at 35: Same contribution → about $650K.
• Start at 45: Same contribution → You’ll hit around $300K.

Fun Fact: Waiting just 10 years can cut your retirement savings in half. Time is your secret weapon. And, waiting until you’re 45 means you’ll need to save almost 5x more per year to catch up with someone who started at 25.

Tax Benefits in Action

• Traditional IRA: If you make $60K and contribute $6K, you might only pay taxes on $54K this year.
• Roth IRA: No tax break now but imagine pulling out $1M tax-free at retirement. That’s huge.

Quick Tips

• If you’re early in your career and expect higher income later → Roth IRA wins.

• If you need tax relief now → Traditional IRA might fit.
• Automate contributions—future you will thank you.

Both IRAs are powerful tools. The best choice depends on your current income, future expectations, and whether you want tax benefits now or later. Start early, stay consistent, and let compound interest do its magic.

Ready to get started with your retirement savings? Stop by any U.S. Eagle location or schedule an appointment online.

* All IRA share savings accounts federally insured up to $250,000 per deposit. Consult your tax advisor regarding tax benefits and implications. Must qualify for US Eagle membership, including $5 share deposit, to open accounts. See US Eagle for complete details.