The fundamental difference between a Roth IRA and a traditional IRA is when you pay taxes. With a traditional IRA, you may get a tax deduction on your contributions now, but you pay taxes on withdrawals in retirement. With a Roth IRA, you contribute money that has already been taxed, but your withdrawals in retirement are completely tax-free. This single distinction drives everything else about how the two accounts work.
Traditional IRA contributions may be fully or partially deductible depending on your income and whether you or your spouse have access to an employer-sponsored retirement plan. The money inside the account grows tax-deferred, meaning no taxes on dividends, interest, or capital gains while the money stays in the account. When you start taking distributions in retirement, those withdrawals are taxed as ordinary income. You are also required to start taking minimum distributions at age 73, whether you need the money or not.
Roth IRA contributions are never tax-deductible. You fund the account with after-tax dollars. But the payoff comes later. All growth is tax-free, and qualified withdrawals after age 59 and a half are also tax-free, as long as the account has been open for at least five years. There are no required minimum distributions during your lifetime, which means your money can continue to compound tax-free for as long as you want.
For crypto investors, this distinction is especially important. If you believe your crypto holdings will grow substantially over time, a Roth IRA lets you capture all of that growth without ever paying taxes on it. A traditional IRA defers the tax, but you will eventually pay income tax on every dollar you withdraw, including all the gains.
Income limits also differ. Roth IRAs have income eligibility thresholds that can restrict or prevent contributions for high earners. Traditional IRAs have no income limits for contributions, though the deductibility of those contributions may be limited. Both account types share the same annual contribution limits of $7,000 under age 50 and $8,000 for those 50 and older in 2025.
