Roth IRA vs Traditional IRA: Where Should You Put Your First $7,000?

Roth IRA vs Traditional IRA: The 2025 Guide

The IRS contribution limit for IRAs has risen to $7,000 for 2025 (and $8,000 if you're 50+). But sticking that money in the wrong account could cost you thousands in taxes later.

Should you pay taxes now (Roth) or later (Traditional)?

The Difference

Feature	Roth IRA	Traditional IRA
Tax Break	None now. Tax-Free withdrawals in retirement.	Tax deduction now. Taxable withdrawals later.
Withdrawals	Contributions can be withdrawn anytime penalty-free.	Penalty if withdrawn before age 59½.
Income Limit	Yes (You can't contribute if you earn too much).	No contribution limit, but deduction is limited.

Why Roth Usually Wins

For most young professionals or those early in their careers: Roth is King.

1. Tax-Free Growth: If you invest $7,000 today and it grows to $70,000 over 30 years, you pay $0 taxes on that $63,000 of profit.
2. Emergency Fund Backup: Since you can withdraw your contributions (not earnings) anytime penalty-free, a Roth IRA doubles as a backup emergency fund.

When to Choose Traditional?

Choose Traditional if:

• You are in a very high tax bracket right now (e.g., 32% or higher) and expect to be in a much lower bracket when you retire.
• You need the upfront tax deduction to lower your AGI.

Strategy: If you earn too much for a Roth (>$161k single), look into the "Backdoor Roth IRA" strategy.

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Reference: This article was originally published on Unstory. Read the original article here.