Roth IRA vs. Traditional IRA: Deep Dive
Choosing between a Roth IRA and a Traditional IRA is one of the most important retirement planning decisions. Both offer tax advantages, but they work in fundamentally different ways.
The Core Difference: When You Pay Taxes
- Traditional IRA: Contribute pre-tax dollars, money grows tax-deferred, pay income tax on withdrawals in retirement.
- Roth IRA: Contribute after-tax dollars, money grows tax-free, qualified withdrawals in retirement are completely tax-free.
2026 Contribution Limits
- Under age 50: $7,000 per year (combined across all IRAs)
- Age 50 and older: $8,000 per year (includes $1,000 catch-up)
Income Limits
Roth IRA
- Single filers: Full contribution up to $150,000 MAGI; phases out at $165,000
- Married filing jointly: Full contribution up to $236,000; phases out at $246,000
Traditional IRA
Anyone with earned income can contribute, but the tax deduction phases out if you have access to a workplace retirement plan above certain income thresholds.
When Roth IRA Wins
- You're early in your career with a relatively low income
- You expect your income and tax bracket to increase significantly
- You believe tax rates will be higher in the future
- You want tax-free income in retirement for flexibility
- You want to leave tax-free money to heirs
When Traditional IRA Wins
- You're in your peak earning years with a high tax bracket
- You expect a lower tax bracket in retirement
- You need the tax deduction now to reduce current liability
Withdrawal Rules
Traditional IRA
- Withdrawals before 59½ incur 10% penalty plus income tax
- Required Minimum Distributions (RMDs) begin at age 73
- All withdrawals taxed as ordinary income
Roth IRA
- Contributions can be withdrawn anytime, tax-free and penalty-free
- Earnings can be withdrawn tax-free after 59½ if account is 5+ years old
- No Required Minimum Distributions during your lifetime
The Backdoor Roth Strategy
If your income exceeds Roth limits, contribute to a Traditional IRA (non-deductible) and convert to a Roth IRA. This is legal and widely used. Be aware of the pro-rata rule if you have existing pre-tax IRA balances.
Why Not Both?
Many advisors recommend having both Roth and Traditional retirement accounts. This "tax diversification" lets you pull from tax-free or taxable accounts depending on your situation each year in retirement.
The Bottom Line
If unsure, the Roth IRA is often the safer bet — especially for younger workers. You lock in today's tax rate, get tax-free growth, avoid RMDs, and gain maximum flexibility. But if you're in a high bracket now, the Traditional IRA's deduction has real value.
