What These Accounts Are and Why They Matter
An IRA (Individual Retirement Account) and a Roth IRA are tax-advantaged savings accounts designed specifically for retirement. The difference between them comes down to when you pay taxes: a traditional IRA lets you deduct contributions now and pay taxes when you withdraw money later, while a Roth IRA takes after-tax money now but lets you withdraw it tax-free in retirement. For seniors already retired or nearing retirement, understanding which account you have—and whether you can still contribute to one—affects how much you owe in taxes each year and how much you can pass to heirs.
These are not investment accounts you open at a bank and forget about. They are containers that hold investments—stocks, bonds, mutual funds, CDs—and the tax rules explore to the container, not what is inside it. You choose where to open the account (a brokerage, bank, or robo-advisor) and what to invest in within it.
Key Takeaways
- Traditional IRAs require you to take withdrawals starting at age 73, and those withdrawals are taxed as income; Roth IRAs have no required withdrawals during your lifetime.
- You can still contribute to either account after age 65 if you have earned income, though contribution limits are the same whether you are 35 or 75.
- Roth conversions—moving money from a traditional IRA to a Roth—are possible at any age but create a tax bill in the year you convert.
- If you inherit an IRA from someone other than a spouse, the rules changed in 2023 and you must empty it within 10 years.
- The account type matters most for tax planning in your 70s and 80s, when required withdrawals and Medicare premiums interact in ways that can cost thousands.
Traditional IRA: How It Works and When You Must Withdraw
A traditional IRA lets you contribute pre-tax money (or deduct the contribution on your tax return) and pay taxes only when you take the money out. If you are still working and under age 73, you can contribute up to $7,000 per year (or $8,000 if you are 50 or older). The contribution reduces your taxable income for that year, which is why people use them.
The catch arrives at age 73: the IRS requires you to take a minimum withdrawal every year, called a Required Minimum Distribution or RMD. The amount is based on your age and the total balance in all your traditional IRAs. If you do not take it, the penalty is 25% of the amount you should have withdrawn (reduced to 10% if you correct it within two years). For someone with a $500,000 IRA, an RMD of $20,000 that you miss costs $5,000 in penalties alone. You calculate the RMD yourself using IRS tables, or your bank or brokerage will do it for you.
Every dollar you withdraw from a traditional IRA is taxed as ordinary income in the year you withdraw it. This matters because large withdrawals can push you into a higher tax bracket, and they can also trigger higher Medicare premiums (because Medicare uses your income from two years prior to set your Part B and Part D costs). Many seniors in their 70s and 80s spend significant time with a tax professional trying to manage RMDs to minimize this effect.
Roth IRA: Tax-Free Withdrawals and No Required Withdrawals
A Roth IRA works backwards: you contribute after-tax money (no deduction), and then all withdrawals—both the money you put in and the earnings it made—come out tax-free in retirement. You can withdraw your contributions anytime without penalty. You can only withdraw the earnings tax-free if you are 59½ and the account has been open for at least five years.
There is no Required Minimum Distribution during your lifetime. You can leave the money in the account untouched for as long as you live, which makes Roths powerful for people who do not need the money and want to pass it to heirs. Your heirs will still have to empty the account within 10 years (under rules that took effect in 2023), but they withdraw it tax-free.
The trade-off is that Roth contributions are limited by income. If your modified adjusted gross income exceeds certain thresholds (which vary by year and filing status), you cannot contribute directly to a Roth. In 2024, for example, single filers begin to phase out at $146,000 and cannot contribute at all above $161,000. Married couples filing jointly phase out at $230,000 and cannot contribute above $240,000. However, there is a workaround called a backdoor Roth that allows higher-income people to contribute indirectly; it involves contributing to a traditional IRA and then converting it to a Roth in the same year.
Roth Conversions: Moving Money from Traditional to Roth
You can convert money from a traditional IRA to a Roth IRA at any age. You pay income tax on the amount you convert in the year you do it, but then that money grows tax-free and comes out tax-free. For seniors in their 60s before RMDs begin, this is sometimes a strategic move: convert a chunk of the traditional IRA to a Roth in a year when your income is lower than usual, pay the tax, and then let the Roth grow without RMDs hanging over it.
The tax bill can be substantial. If you convert $100,000 from a traditional IRA to a Roth, you owe income tax on that $100,000 in the year of conversion. For someone in the 24% federal bracket, that is $24,000 in federal tax alone, plus state tax if your state has income tax. Many people do conversions in tranches over several years to spread the tax bill across multiple years and stay in a lower bracket.
Conversions also trigger the "pro-rata rule": if you have both pre-tax and after-tax money in traditional IRAs, the IRS treats a conversion as coming proportionally from both. This can make conversions expensive if you have a large pre-tax balance. A tax professional can help you decide whether a conversion makes sense for your situation.
Inherited IRAs: What Happens If You Receive One
The rules for inherited IRAs changed significantly in 2023 under the find Act. If you inherit a traditional or Roth IRA from someone who was not your spouse, you must withdraw all the money within 10 years. You do not have to take equal amounts each year—you can leave it alone for nine years and withdraw it all in year 10—but the account must be empty by the end of year 10 or you face a 25% penalty on the amount remaining.
If you inherit from a spouse, you have more flexibility: you can treat the IRA as your own, roll it into your own IRA, or keep it as an inherited account and take RMDs based on your age. Spousal inherited IRAs are the only inherited IRAs that avoid the 10-year rule.
The tax treatment depends on the type of account. Money from an inherited traditional IRA is taxed as ordinary income when you withdraw it. Money from an inherited Roth IRA comes out tax-free. This is one reason some people do Roth conversions late in life: they want to leave tax-information programs to their heirs instead of a tax bill.
Comparing Traditional and Roth: A Quick Reference
| Feature | Traditional IRA | Roth IRA |
|---|---|---|
| Contribution tax treatment | Tax-deductible (if you meet income limits) | After-tax (no deduction) |
| Withdrawal tax treatment | Taxed as ordinary income | Tax-free (if rules are met) |
| Required Minimum Distributions | Start at age 73 | None during your lifetime |
| Can contribute after age 65? | Yes, if you have earned income | Yes, if you have earned income and income is below limits |
| Inherited by non-spouse | Must withdraw within 10 years; withdrawals are taxed | Must withdraw within 10 years; withdrawals are tax-free |
Which Account Should You Use?
If you are still working and expect to be in a higher tax bracket in retirement than you are now, a traditional IRA makes sense because you get a deduction today and pay taxes later at a higher rate—but you still come out ahead because you deferred taxes. If you expect to be in a lower bracket in retirement, the math is less clear, and a Roth may be better.
If you are already retired and do not need the money, a Roth is usually the better choice because it has no RMDs and passes tax-free to heirs. If you are in your 60s before RMDs start, a Roth conversion may be worth exploring with a tax professional, especially if you had a year of unusually low income (from a job loss, sabbatical, or business downturn).
If you are over 73 and already taking RMDs from a traditional IRA, you cannot undo that. Focus instead on managing the RMD amount to minimize the tax impact on Medicare premiums and your overall tax bill. A tax professional who understands both retirement accounts and Medicare can often find ways to reduce what you owe.
Frequently Asked Questions
Can I have both a traditional IRA and a Roth IRA at the same time?
Yes. Your total contribution across all IRAs in a year cannot exceed the annual limit ($7,000 or $8,000 if you are 50+), but you can split that between accounts however you want. Some people maintain both to have flexibility in retirement.
What happens if I do not take my Required Minimum Distribution?
The IRS charges a penalty of 25% of the amount you should have withdrawn (reduced to 10% if you correct it within two years). If your RMD was $20,000 and you missed it, you owe $5,000 in penalties plus income tax on the $20,000. You can request a waiver if you have a reasonable cause, but the IRS is strict about this.
Can I withdraw from my Roth IRA before age 59½ without penalty?
You can withdraw your contributions anytime without penalty. You cannot withdraw earnings before 59½ without a 10% penalty, unless you meet a narrow exception like disability or a first-time home purchase (up to $10,000 lifetime). The five-year rule still applies: the account must have been open for five years for any withdrawal to be tax-free.
Does a Roth conversion count as income for Medicare purposes?
Yes. The amount you convert is added to your income for that year, which can increase your Medicare Part B and Part D premiums two years later. This is why conversions are often done in years when your income is already low, or spread across multiple years to minimize the impact.
What if I have a traditional IRA and want to switch to a Roth?
You can do a Roth conversion, but you will owe income tax on the pre-tax portion of the account in the year you convert. If your IRA has $200,000 in pre-tax contributions and $50,000 in earnings, converting it all means paying income tax on the full $250,000. Many people do partial conversions over several years to manage the tax bill.