Roth IRA vs. savings accounts: Which one is right for you?

Discover the key difference between a Roth IRA and savings account to make the best choice for your financial future.

Home > Retirement > Roth IRA Vs. Savings Accounts

Key takeaways

Tax-free growth vs. flexibility: Roth IRAs offer tax-free withdrawals in retirement, while savings offer more liquidity and easy-to-access funds.
Contribution and income limits: Roth IRAs have annual contribution limits and income thresholds, while savings accounts do not have such restrictions.
Risk vs. reward: Roth IRAs provide higher long-term growth potential through investments but carry market risks. Savings accounts are generally low-risk, but may earn lower returns.

What is a Roth IRA?

A Roth IRA is a type of individual retirement account (IRA) funded with after-tax dollars. Unlike a traditional IRA, which offers tax deductions on contributions, a Roth IRA does not have upfront tax deductions, but in return it offers tax-free withdrawals in retirement (as long as you meet certain requirements).

Here is a brief step-by-step overview of how a Roth IRA works:

You make contributions using after-tax dollars up to the IRS limit.
Choose how to invest your funds — options may vary by provider, but include stocks, bonds, mutual funds, CDs, and more.
Your investments grow over time — earnings on your contributions grow tax-free.
When you reach age 59½, or your account has been open for a minimum of five years (also known as the “five-year rule”), you can withdraw contributions and earnings penalty- and tax-free.
Withdraw your earnings in retirement — or don’t; Roth IRAs have no required minimum distributions (RMDs), so your account can continue to grow throughout your lifetime. You can even pass it on to a beneficiary if you’d like.

For a more in-depth understanding of Roth IRAs, make sure to read our Roth IRA article.

Roth IRA contribution limits

The IRS has annual contribution limits for all IRAs.

The annual contribution limit for 2024 and 2025 is $7,000 for those under 50, or $8,000 for those 50 or older¹ (which includes a $1,000 in catch-up contributions).²

It is important to note that this limit applies across all IRAs and not for each individual account.

You may also want to keep contribution limits in mind when comparing Roth IRAs versus savings accounts.

Roth IRA income thresholds

Unlike a traditional IRA, a Roth IRA requires you to meet certain income limits in order to make contributions.

The income limit for full contributions in 2025 is a modified adjusted gross income (MAGI) below $150,000 for single filers or below $236,000 for married couples filing jointly.³

If your income falls above these thresholds, your contribution limit will decrease until you are no longer able to contribute. For a full list of income thresholds, turn to our Roth IRA article.

Pros and cons of a Roth IRA

If you’re comparing a Roth IRA versus savings account, it is worth noting that Roth IRAs are specifically tailored for retirement savings and offer benefits that traditional savings accounts typically don’t.

Roth IRAs are also not necessarily for everyone; there are many different retirement account options, like traditional or SIMPLE IRAs, 401(k)s, and more. It is important to consider your income and tax bracket, along with your needs and income projections nearing retirement, to see what account is best for you.

Here are some advantages and possible drawbacks to choosing a Roth IRA as part of your retirement plan:

Pros of a Roth IRA	Cons of a Roth IRA
Tax benefits: Withdrawals during retirement are tax-free if you meet the requirements. Earnings grow tax-free.	Eligibility rules and contribution limits: Need to meet income eligibility and annual contribution limits.
Investment opportunities: Funds in your account can be invested in stocks, bonds, mutual funds, and other securities, offering the potential for higher long-term growth.	No guaranteed returns: Returns are not guaranteed. Market fluctuations can potentially cause losses.
Access to funds: Contributions can be accessed at any time without being penalized.	No upfront tax benefits: No upfront tax deductions.
RMD requirement: No RMD requirements. Funds can continue to grow during your lifetime.	Early withdrawal penalties: Withdrawing earnings before age 59½, or before meeting the five-year rule, results in a penalty.
Estate planning: Useful for estate planning, Roth IRAs can be inherited with favorable tax treatments.	Hidden fees: Brokerages and individual investments can lead to different fees.
Can combine retirement plans: You can save money in other IRAs (keep contribution limit in mind), and other retirement plans like 401(k)s.	Investment risks: Choosing investments can be complicated and risky.

What is a savings account?

A savings account is a type of bank or credit union deposit account where you can store your money and earn a small amount of interest over time, based on interest rates set by the bank. It may be ideal for setting aside a sum of money you don’t need right away — like for an emergency or rainy day fund, future goals, or short-term savings.

There are many different types of savings accounts, each offering their own unique benefits — which may help your decision in choosing a Roth IRA vs savings account. Let’s explore some of the most common types of savings accounts.

Types of savings accounts

Savings accounts can be opened at your typical brick-and-mortar bank, credit union, or other financial institution, but there are also many online banking options that may offer more appealing benefits. The types of savings accounts offered may also vary depending on the type of financial institution you choose.

Some of the most common savings account options include:

Traditional savings accounts: Also known as regular or standard savings. Offer by most banks and credit unions with easy-to-access funds. Traditional savings accounts usually offer lower interest rates. May sometimes have monthly fees or minimum balance requirements.
High-yield savings accounts: High-yield savings accounts offer competitive interest rates, usually much higher than traditional savings, and are often offered by online-only banks. Some accounts require high minimum balances or monthly fees — those offered through the Raisin marketplace do not.
Money market accounts: Money market accounts are a mix between a checking and savings account. They often have higher interest rates than regular savings accounts and may come with check-writing privileges or debit access. Money market accounts may sometimes require high minimum balances. With those offered through Raisin, however, there are no minimum amounts required.
Kids or student savings accounts: Designed for younger savers, so they usually have lower minimum balance requirements. Can help teach money management.

Certificates of deposit (CDs) may also be considered in this list, but they do function a bit differently than savings accounts. CDs are considered time-deposit accounts, since you agree to leave your money in the account for a fixed term. They also offer some of the most competitive interest rates amongst savings products.

CDs may also be used within Roth IRAs to help further grow your retirement savings. Check out our IRA vs. CD page to see how CDs compare to IRAs and how you can use an IRA CD.

Savings accounts generally offer a low-risk option for storing your money.

The Raisin marketplace gives you access to various high-yield savings products with competitive interest rates all in one account. Compare interest rates and start earning money today.

Pros and cons of savings accounts

When considering the benefits of a Roth IRA vs. savings account, it is important to understand the pros and cons of each. Here are some benefits and potential drawbacks of using savings accounts to save for retirement:

Pros	Cons
Variety of savings options: Savings account options like high-yield savings accounts or money market accounts offer higher, more competitive interest rates than traditional savings accounts.	Low interest rates: Traditional savings accounts typically offer low interest rates.
Easily access your funds: You can withdraw money at any time without penalties (frequent withdrawals may be limited).	No tax advantages: Unlike retirement-specific accounts, you won’t get tax-deferred or tax-free growth.
Good for emergencies: It may be a reliable option to keep part of your retirement funds in a savings account in case you need them early or unexpectedly.	Not tailored to long-term growth: Savings are better for short-term goals or emergency funds, rather than building wealth over decades.
Useful for conservative savers: May be an ideal option for those who are risk-averse or nearing retirement and want to avoid volatility.	Missed growth opportunities: Savings grow slowly over time, compared to investments in stocks and mutual funds, for example.
Low risk: Your money won’t lose value due to market fluctuations.	Inflation risk: If your savings account interest rate is lower than the inflation rate, your money could depreciate over time.

While they are not necessarily tailored to retirement savings, savings accounts should still be part of your retirement strategy, as it is better to have a bit of extra funds rather than insufficient funds when the time comes to retire.

Which is better: a Roth IRA or savings account?

While both Roth IRAs and savings accounts serve the purpose of saving money, the underlying goal of these accounts can vary greatly.

It is important to consider your financial goals, current situation, and motivation for savings when choosing an account that best aligns with your needs. You may also want to consider the benefits of a Roth IRA vs. savings account, as this can also help you choose an account that works best for you and your goals.

Furthermore, it may also help to look at different savings accounts options, like high-yield savings accounts. When comparing Roth IRAs vs. high-yield savings accounts, you might find the high interest rates especially appealing. These types of savings accounts can also help you deal with fluctuating inflation and interest rates, to potentially avoid losing value over time.

Considering the pros and cons, along with the differences between a Roth IRA and savings account we have covered, let's compare Roth IRAs vs. savings accounts side by side to get a better overview.

Differences between a Roth IRA and savings account: An overview

To help choose which is better for you, a Roth IRA or savings account, let's look at the key differences and benefits.

Feature	Roth IRA	Savings account
Purpose	Retirement savings and long-term investment growth	Short-term savings, emergency funds, extra retirement savings, or general-purpose savings.
Tax benefits and treatment	Tax-free growth in retirement. Contributions made with after-tax dollars and qualified withdrawals are tax-free.	No tax benefits. Interest earned is taxable.
Investment options	Can invest in stocks, bonds, mutual funds, CDs, and more.	Interest earned on bank-set interest rates.
Returns	Potential for higher returns based on chosen investments.	Generally low interest rates. High-yield savings accounts and money market accounts can offer more competitive interest rates.
Risk level	Varies depending on investment choices, may be affected by market fluctuations.	Generally considered to be low-risk.
Access to funds	Contributions can be withdrawn anytime. Must meet age and time criteria to withdraw earnings to avoid penalties.	Easily accessible anytime. Limitations on frequent withdrawals may apply.
Contribution limits (2025)	$7,000 under 50, or $8,000 for 50+¹ (includes catch-up contributions).²	No limit to how much you can deposit.
Income restrictions	Yes, (MAGI) below $150,000 for single filers or below $236,000 for married couples filing jointly.³ Contribution eligibility phases out at higher income levels.	No income restrictions.
Early withdrawal penalties	Only on earnings taken out before age 59½, or before meeting the five-year rule.	No penalties (unless part of a promotional product or fixed-rate CD).
Required minimum distributions (RMDs)	No RMDs — money can be left in the account as long as you please.	Not applicable.
Estate planning benefits	Can be passed on to heirs with tax benefits.	Inherited like other bank accounts with no special tax treatment.
Best for	Long-term retirement planning with potential for tax-free growth.	Short- to mid-term savings, conservative savers, or emergency funds.
Other considerations	Investment risks, potential fees, and eligibility rules apply.	May not keep up with inflation, limited growth potential.

Understanding these differences and benefits of Roth IRAs vs. savings accounts can help you to make a well-informed decision on which account, or accounts, to prioritize.

Saving with Raisin to grow your retirement funds

Are you ready to grow your retirement funds? The Raisin marketplace gives you access to a diverse portfolio of trusted banks with various savings products and competitive interest rates — all through your Raisin profile. Choose a savings account that best fits your needs, and start multiplying your retirement savings today.

View savings offers