Both Traditional and Roth IRAs offer tax-advantaged growth, but the tax treatment is reversed: one gives you a tax break today, the other gives you tax-free income in retirement. The right choice depends on your current tax bracket, your expected future tax bracket, and how much flexibility you want in retirement.
How They Compare
| Feature | Traditional IRA | Roth IRA |
|---|---|---|
| Tax deduction on contributions | Yes (if eligible) | No |
| Tax-free growth | Tax-deferred (taxed on withdrawal) | Tax-free |
| Tax-free withdrawals | No (taxed as ordinary income) | Yes (if qualified) |
| Income limits for contributions | No | Yes |
| Income limits for deduction | Yes (if covered by employer plan) | N/A |
| Required Minimum Distributions | Yes (starting at age 73) | No (during your lifetime) |
| Early withdrawal penalty | 10% before age 59 1/2 | 10% on earnings before age 59 1/2 |
| Contribution age limit | None (if earned income) | None (if earned income) |
Contribution Limits
The IRS sets a combined annual contribution limit across all your IRAs (Traditional and Roth). You can split contributions between both types, but the total cannot exceed the limit.
| Year | Under 50 | Age 50+ |
|---|---|---|
| 2025 | 7000 | 8000 |
| 2026 | 7500 | 8500 |
You must have earned income (W-2 wages, self-employment income, or taxable alimony) to contribute. Investment income, Social Security, and pension distributions do not qualify.
For married couples, a working spouse can fund an IRA for a non-working spouse (a "spousal IRA") as long as the household's combined earned income covers the total contributions.
For a detailed breakdown of all retirement account contribution limits, see our annual tax and savings changes reference.
Tax Treatment: The Core Difference
Traditional IRA. Contributions may be tax-deductible, reducing your taxable income in the year you contribute. The money grows tax-deferred. When you withdraw in retirement, distributions are taxed as ordinary income.
If you make $100,000 and contribute $7,500 to a Traditional IRA (and qualify for the deduction), you are taxed on $92,500 that year. When you withdraw $7,500 in retirement, you pay income tax on the full amount plus any growth.
Roth IRA. Contributions are made with after-tax dollars. No deduction today. The money grows tax-free, and qualified withdrawals in retirement are completely tax-free: no tax on contributions, no tax on decades of growth.
If you make $100,000 and contribute $7,500 to a Roth IRA, you are still taxed on $100,000 that year. But when you withdraw the money in retirement, you owe nothing, regardless of how much the account has grown.
Income Eligibility
Roth IRA. Direct contributions are subject to income limits. If your modified adjusted gross income (MAGI) exceeds the phaseout range, you cannot contribute directly to a Roth.
| Filing Status | 2025 Phaseout | 2026 Phaseout |
|---|---|---|
| Single | $150,000 - $165,000 | $157,000 - $172,000 |
| Married Filing Jointly | $236,000 - $246,000 | $246,000 - $256,000 |
If your income exceeds these limits, a backdoor Roth IRA strategy may be available. For details on phaseout calculations, eligibility rules, and backdoor strategies, see our Roth IRA contribution limits guide.
Traditional IRA. Anyone with earned income can contribute, regardless of income. However, the tax deduction phases out at certain income levels if you (or your spouse) participate in an employer retirement plan:
| Filing Status | 2025 Phaseout | 2026 Phaseout |
|---|---|---|
| Single (active participant) | $79,000 - $89,000 | $83,000 - $93,000 |
| MFJ (active participant) | $126,000 - $146,000 | $131,000 - $151,000 |
If neither spouse participates in an employer plan, Traditional IRA contributions are fully deductible regardless of income.
Withdrawal Rules
Traditional IRA. Withdrawals before age 59 1/2 incur a 10% early withdrawal penalty plus ordinary income tax. After 59 1/2, withdrawals are taxed as ordinary income with no penalty. Exceptions to the penalty include disability, first-time home purchase (up to $10,000), and certain medical expenses.
Roth IRA. Contributions (not earnings) can be withdrawn at any time, tax-free and penalty-free. This is one of the Roth's most distinctive features. Earnings are tax-free and penalty-free after age 59 1/2 if the account has been open at least five years. Before meeting both conditions, earnings are subject to tax and the 10% penalty.
This flexibility makes Roth IRAs useful as both a retirement vehicle and an emergency reserve of last resort.
Required Minimum Distributions
Traditional IRA. Required Minimum Distributions begin at age 73 under current law (scheduled to increase to age 75 in 2033). You must withdraw a minimum amount each year based on your account balance and life expectancy. The penalty for missing an RMD is 25% of the shortfall, reduced to 10% if corrected within two years.
Roth IRA. No RMDs during your lifetime. You can let the entire balance grow tax-free indefinitely. This makes Roth IRAs powerful estate planning tools, since your heirs inherit the account with continued tax-free growth (though non-spouse beneficiaries must distribute within 10 years under the SECURE Act).
How to Choose
The decision comes down to one question: will your tax rate be higher now or in retirement?
Choose the Roth IRA if:
You are early in your career and expect your income (and tax rate) to increase over time. The Roth's value is maximized when you pay taxes at a low rate now and withdraw tax-free at what would have been a higher rate later. Decades of compounding in a tax-free account creates significant value.
You want flexibility. Roth contributions can be withdrawn penalty-free, and there are no RMDs forcing withdrawals on a schedule you do not control.
You want to minimize taxable income in retirement. Roth withdrawals do not count toward the income thresholds that trigger Medicare IRMAA surcharges, Social Security taxation, or the Net Investment Income Tax.
Choose the Traditional IRA if:
You are in a high tax bracket today and expect to be in a lower bracket in retirement. The current-year deduction is worth more when your marginal rate is high, and you pay tax on withdrawals at a lower rate later.
You need to reduce your current-year tax bill. The deduction provides immediate tax relief, which matters if you are managing cash flow tightly.
You are above the Roth income limits and the backdoor Roth strategy is not practical for you (for example, because of large existing pre-tax IRA balances that create a pro-rata tax issue).
Use both if you can. Many investors contribute to a Roth IRA and a pre-tax 401(k) simultaneously. This creates tax diversification: some retirement income taxable, some tax-free. Having both gives you flexibility to manage your tax bracket in retirement by pulling from whichever source produces the best after-tax result in a given year. See our guide on Roth conversion strategies in retirement for how to reposition assets after retirement.
Next Steps
Whichever IRA you choose, the most important step is contributing consistently. The contribution deadline is April 15 of the following year (you can make 2025 contributions until April 15, 2026), but contributing earlier in the year gives your money more time to grow.
If you already have a 401(k) from a previous employer, see our 401(k) rollover guide for how to consolidate accounts. For a broader view of retirement planning across life stages, see our retirement planning by decade guide.
For help determining which IRA fits your financial plan, start a conversation with us.
