Roth IRA vs Traditional IRA
A Roth IRA uses after-tax contributions with tax-free withdrawals in retirement; a Traditional IRA uses pre-tax contributions with taxed withdrawals. Both offer tax-advantaged retirement savings, but the timing of the tax benefit differs.
Quick Comparison
| Aspect | Roth IRA | Traditional IRA |
|---|---|---|
| Tax Treatment | Contributions are after-tax; withdrawals are tax-free | Contributions are pre-tax (tax-deductible); withdrawals are taxed |
| Contribution Limits (2026) | $7,000/year ($8,000 if age 50+) | $7,000/year ($8,000 if age 50+) |
| Income Eligibility | Phaseout starts at $146,000 (single), $230,000 (married) | No income limits to contribute; deductibility may be limited |
| Required Minimum Distributions | No RMDs during account owner's lifetime | RMDs start at age 73 |
| Early Withdrawal Rules | Contributions can be withdrawn anytime tax-free; earnings subject to penalties before 59½ | Withdrawals before 59½ typically subject to taxes and 10% penalty |
| Best For | Young earners, those expecting higher tax rates in retirement | High earners needing current tax deductions, those expecting lower tax rates in retirement |
Key Differences
1. Tax Treatment: When You Pay Taxes
Roth IRA contributions are made with after-tax dollars — meaning you've already paid income tax on that money. In exchange, all qualified withdrawals in retirement (contributions and earnings) are completely tax-free. If you contribute $6,000 and it grows to $60,000 over 30 years, you pay zero taxes on the $54,000 in growth.
Traditional IRA contributions are made with pre-tax dollars — you deduct contributions from your taxable income today, reducing your current tax bill. However, all withdrawals in retirement are taxed as ordinary income. That $60,000 account would be fully taxable upon withdrawal.
Example: If you're in the 24% tax bracket and contribute $6,000 to a Traditional IRA, you save $1,440 in taxes today. With a Roth, you pay the full $1,440 now but owe nothing later.
2. Income Eligibility Requirements
Roth IRA has strict income limits. For 2026, you can contribute the full amount if your modified adjusted gross income (MAGI) is below $146,000 (single) or $230,000 (married filing jointly). Contribution limits phase out completely at $161,000 (single) or $240,000 (married). High earners are effectively locked out unless they use a "backdoor Roth" strategy.
Traditional IRA has no income limits for making contributions — anyone with earned income can contribute. However, the tax deductibility of contributions may be limited if you (or your spouse) are covered by a workplace retirement plan and earn above certain thresholds ($77,000 single, $123,000 married for 2026).
3. Required Minimum Distributions (RMDs)
Roth IRA does not require you to take withdrawals during your lifetime. You can let the account grow indefinitely and pass it to heirs tax-free. This makes Roths powerful estate planning tools, as beneficiaries inherit tax-free growth (though they must withdraw funds within 10 years under current law).
Traditional IRA requires you to begin taking RMDs at age 73 (as of 2023, previously age 72). The IRS calculates your minimum withdrawal based on your life expectancy. Failing to take RMDs results in a 25% penalty on the amount you should have withdrawn. This forced withdrawal can push you into a higher tax bracket in retirement.
4. Early Withdrawal Flexibility
Roth IRA contributions (not earnings) can be withdrawn at any time, at any age, tax-free and penalty-free — since you already paid taxes on them. This provides an emergency liquidity option. Earnings, however, are subject to taxes and a 10% penalty if withdrawn before age 59½, unless you meet specific exceptions (first-time home purchase, qualified education expenses, disability).
Traditional IRA withdrawals before age 59½ are generally subject to both income taxes and a 10% early withdrawal penalty. Some exceptions exist (first-time home purchase up to $10,000, unreimbursed medical expenses exceeding 7.5% of AGI, substantially equal periodic payments), but early access is much more restricted.
5. Optimal Income Level Strategy
Roth IRA is generally better for younger workers in lower tax brackets who expect to be in higher brackets during retirement. If you're in the 12% or 22% bracket now, paying taxes at that rate makes sense if you'll be in the 24% or 32% bracket in retirement. Roth also benefits those who believe tax rates will rise overall in the future.
Traditional IRA makes more sense for high earners in peak earning years (32%, 35%, or 37% brackets) who expect to drop to lower brackets in retirement. The immediate tax deduction provides significant savings. For example, a $7,000 contribution in the 37% bracket saves $2,590 in current taxes.
Key Insight: The fundamental question is: "Will my tax rate be higher now or in retirement?" If higher now, choose Traditional. If higher in retirement (or equal), choose Roth.
When to Use Each
Choose Roth IRA if:
- You're early in your career with a lower current tax rate (12% or 22% bracket)
- You expect your income and tax bracket to increase significantly over time
- You want tax-free income in retirement without RMD requirements
- You're concerned about future tax rate increases
- You want flexibility to withdraw contributions (not earnings) without penalty
- You're maximizing estate planning — leaving tax-free wealth to heirs
Choose Traditional IRA if:
- You're in a high tax bracket now (24% or higher) and need current deductions
- You expect to be in a lower tax bracket during retirement
- You want to reduce your current taxable income and owe less in taxes this year
- You earn above Roth IRA income limits and don't want to do a backdoor conversion
- You don't mind taking required minimum distributions at age 73
- You plan to retire in a state with no income tax (like Florida or Texas)
Real-World Example: $7,000 Annual Contribution Over 30 Years
Scenario: A 30-year-old contributes $7,000 annually for 30 years with 7% average annual returns. Total contributions: $210,000. Account value at age 60: approximately $700,000.
Roth IRA: All $700,000 can be withdrawn tax-free. If in the 24% bracket, this saves $168,000 in taxes compared to a taxable account.
Traditional IRA: If you were in the 24% bracket during contribution years, you saved approximately $50,400 in taxes over 30 years. At withdrawal, if still in the 24% bracket, you'll pay $168,000 in taxes, netting $532,000 after tax.
Outcome: In this scenario where tax brackets remain constant, the Roth provides $168,000 more in after-tax wealth — demonstrating why Roth IRAs are powerful for long-term growth.
Pros and Cons
Roth IRA
Pros
- Tax-free withdrawals in retirement (contributions and earnings)
- No required minimum distributions during your lifetime
- Contributions can be withdrawn anytime without penalty
- Better estate planning tool — heirs inherit tax-free
- Protects against future tax rate increases
- Qualified withdrawals don't affect Social Security taxation or Medicare premiums
Cons
- No immediate tax deduction — higher tax bill today
- Income limits restrict high earners from contributing
- Less beneficial if you're in a high bracket now and low bracket in retirement
- Earnings withdrawals before 59½ face taxes and penalties
- Must have account open for 5 years for qualified withdrawals
Traditional IRA
Pros
- Immediate tax deduction reduces current year's tax bill
- No income limits for making contributions
- More money available to invest today (tax savings can be reinvested)
- Beneficial if retiring in a lower tax bracket or no-tax state
- Can reduce AGI, potentially qualifying you for other tax credits
Cons
- All withdrawals taxed as ordinary income
- Required minimum distributions start at age 73
- RMDs can push you into higher tax brackets
- Early withdrawals face taxes plus 10% penalty
- Vulnerable to future tax rate increases
- Heirs must pay income tax on inherited distributions