The main difference between a traditional IRA and a Roth is how you are taxed upon withdrawing funds in retirement. Traditional retirement accounts like 401ks and IRAs are pretax or not taxed until you withdraw. A 401k doesn’t tax from your employer paycheck in an employer account but those accounts are pretax because they are not yet taxed. A Roth account is post tax because you have already paid all taxes on it so you’re withdrawing after taxes basically and do not have to pay them in retirement on that income.

A Roth IRA also differs from a traditional IRA in how it works as a tax haven. While it does protect you from taxes in your older years, you cannot deduct your annual contributions from your stated income on your annual tax returns like you can with a traditional IRA. One thing to note about your Roth IRA contributions also is that you can always withdraw early despite the rules of 59 1/2 retirement age.

Your total contributions are always allowed to be used at any time—the gains cannot be. Those are subject to penalties and fees. For example: Let’s say you have had the money in the IRA for a few years and over that time you have contributed a total of $30,000 and your house was damaged in a roof leak and you need to withdraw $12,000 to cover the rest of the repairs. You can absolutely do that because it’s not more than your total personal contributions. The money your money has made over time, the gains, cannot be withdrawn without penalty until the account has been made for at least five years and you are off the required age. So, if you have put in $30k over the years but it also made $14,000 so far in gains, that additional $14,000 you have made in the account is the part you can’t withdraw yet because they’re gains on your contributions, money made, not deposited.

Since money in an IRA grows tax free and so much better than HYSA or CD because they average double than the average of a high yield savings account like SoFi, Barclays, Marcus by Goldman Sachs, etc. and you can withdraw for emergencies. This is a secret of more wealthy people since Roths are great for higher income earners to avoid taxes as they work their way up in pay and to grow their money tax free over the years.

There are income limits unlike a traditional IRA. For 2025, single filers need to make under $150,000 and joint filed couples need to make $263,000 MAGI modified adjusted gross income determined by your tax preparer or CPA. Contribution limits are the same as traditional IRAs with the 2025 limits being $23,500 for people under 50, or $31,500 if at least 50.

There is much more to learn about IRAs and using them as additional resources for buying a home and building up a balance for retirement and the tax benefits but you need to open an account at an investment firm and ask the financial advisor and a CPA for taxes.