Retirement is a phase in life that many people look forward to throughout their careers. It's a time to leave the world of work (if you so choose) and dedicate your time to doing exactly what you want. Regardless of how your ideal retirement looks, it's safe to say that a lot will depend on how well you financially prepare leading up to it.

Part of that preparation is not just saving money but putting it to work for you so it grows over time. A smart approach is to take advantage of retirement accounts, which allow you to save and invest for retirement while simultaneously getting tax breaks -- a win-win.

Two popular retirement account options are traditional IRAs and Roth IRAs, which come with their own distinct sets of benefits and rules. Although they share similarities, there are differences between the two that make them better suited to different people. Here's a simple way to choose between the two.

How traditional IRAs work

Traditional IRAs work similarly to 401(k) plans because the tax break is on the front end, allowing you to deduct your contributions from your taxable income.

For example, if you contribute $6,500 to a traditional IRA -- the maximum amount allowed for tax year 2023 for both traditional and Roth combined -- you could reduce your taxable income by $6,500. If you're in the 24% tax bracket, this could save you $1,560 in owed taxes.

Whether you're allowed to deduct your contributions (and how much) depends on three factors: your income, filing status, and whether you or your spouse are covered by a retirement plan at work.

Since the tax break with traditional IRAs is on the front end, you'll owe taxes on withdrawals made in retirement, which become required at age 73.

How Roth IRAs work

With a Roth IRA, the tax break is on the back end. You contribute after-tax money, and your investments get to grow and compound with tax-free withdrawals in retirement.

For example, if you personally invest $40,000 in a Roth IRA over time and your investments grow to $100,000 by retirement, you can withdraw the full $100,000 tax-free. If those same investments were made in a regular brokerage account, you'd owe taxes on the $60,000 in capital gains.

You can withdraw your Roth IRA contributions, but not earnings, at any time without facing an early withdrawal penalty. However, to be eligible for tax-free retirement withdrawals, you must typically be at least 59 1/2 years old and have made your first Roth IRA contribution at least five years ago.

How to choose between the two accounts

Choosing between a traditional IRA and Roth IRA mainly comes down to your current financial situation versus your anticipated financial situation in retirement. 

For people in their peak earning years, a traditional IRA may be the better option because it allows you to get a tax break now while your tax bracket is higher than it will likely be in retirement. If you anticipate your tax bracket in retirement being higher than your current one, it may make sense to go with a Roth IRA because you can pay taxes now and then enjoy tax-free withdrawals, effectively avoiding a bigger tax bill down the road

Your income could also dictate which account you choose because Roth IRAs come with income limits. In 2023, the income limit for single filers is $153,000 and $228,000 for people married filing jointly. Peak earning years or not, people who anticipate crossing the Roth IRA income threshold may want take advantage of a Roth IRA while they're still eligible.

Some people diversify their retirement savings by having both traditional and Roth IRAs. This strategy can help you hedge against the uncertainty of future tax rates and provide more flexibility in managing your retirement income.