An individual retirement account, or IRA, is one of the most effective tools for building retirement savings, and anyone with earned income can open one. But before you contribute your first dollar, you face a choice that will shape your taxes for decades: Roth or traditional?
If you have a 401(k) at work, you may have faced the same decision there. Maybe you picked one without fully understanding the difference. Maybe a parent or friend told you to “just do the Roth” without explaining why. Either way, the choice is worth understanding, because the right answer depends on your situation, and it is not the same for everyone.
Four numbers worth memorizing
Shared IRA limit
$7,500
$8,600 if 50 or older
Potential tax savings
$1,800
On a $7,500 deductible contribution at a 24% marginal rate
Roth phase-out
$153k
Single MAGI where Roth contributions begin to phase out
RMDs begin
73
Traditional IRA — Roth IRA owners have no lifetime RMDs
The limit is shared across Traditional and Roth IRAs — $7,500 total, not $7,500 each.
Roth vs. Traditional: When Your Money Is Taxed
Roth and traditional are not different investments. They are different tax treatments for the same account. The money inside can be invested identically. What changes is when the government takes its share.
Traditional is pre-tax. You contribute money before income taxes are taken out. Contributions to a traditional IRA may be tax-deductible, which lowers your taxable income for the year. If you contribute $7,500 while in the 24% federal bracket, you reduce this year's tax bill by $1,800, so your take-home pay feels a smaller hit than the full contribution amount. The money grows tax-deferred, and every dollar you withdraw in retirement is taxed as ordinary income.
Roth is after-tax. You contribute money that has already been taxed. There is no deduction, so saving $7,500 costs you the full $7,500 out of your take-home pay today. In exchange, the money grows completely tax-free, and qualified withdrawals in retirement are tax-free as well, including every dollar of growth.
A Roth IRA also offers flexibility no other retirement account matches: you can withdraw your contributions (not earnings) at any time, at any age, without taxes or penalties.
How Are Withdrawals Taxed?
Taxed on the way out
Withdrawals are taxed as ordinary income at your rate in the year you take them. Withdrawals before age 59½ generally incur a 10% penalty on top of the tax, with exceptions for certain situations like a first home purchase or qualified education expenses.
Tax-free if qualified
Qualified withdrawals are entirely tax-free. To be qualified, the account must be at least five years old and you must be 59½ or older. Contributions can come out at any time tax- and penalty-free. Earnings withdrawn early may face taxes and penalties.
Required minimum distributions: Traditional IRAs require you to begin taking withdrawals at age 73, whether you need the money or not. Roth IRAs have no RMDs during your lifetime. Your money can keep growing tax-free for as long as you live.
Who Can Contribute?
Roth IRA Income Limits
Roth IRA eligibility phases out at higher incomes. For 2026, the ability to contribute begins phasing out at $153,000 of modified adjusted gross income for single filers and $242,000 for married couples filing jointly. Above the top of the phase-out range, direct Roth IRA contributions are not allowed.
Traditional IRA Deduction Limits
Anyone with earned income can contribute to a traditional IRA at any income level. What phases out at higher incomes is the deduction, and only if you or your spouse is covered by a workplace retirement plan. If neither of you has a workplace plan, the full deduction is available regardless of income.
Roth vs. Traditional IRA: Side-by-Side
When Roth Makes Sense and When Traditional Makes Sense
If you expect to be in a higher tax bracket in retirement than you are today, Roth generally makes sense. You pay taxes now at the lower rate and withdraw tax-free later.
If you expect to be in a lower bracket in retirement, traditional generally makes sense. You take the deduction now at the higher rate and pay taxes later at the lower one.
Early-career savers with rising incomes tend to benefit from Roth contributions. Peak earners who expect their income to drop in retirement tend to benefit from the traditional deduction. Most people fall somewhere in between, which is why contributing to both is often the strongest approach.
It comes down to one comparison
Your tax rate today versus your tax rate when you withdraw.
rate later > rate now
Roth wins
Pay tax at today's lower rate, withdraw tax-free later. Early-career savers with rising incomes.
rate later < rate now
Traditional wins
Take the deduction at the higher rate now. Peak earners expecting income to drop.
rate later ≈ unknown
Hold both
Most people. A pre-tax and after-tax mix gives you control over which bracket you fill each year.
Today's bracket is knowable. Your retirement bracket is a forecast — that's the part worth modeling with an advisor.
Your current tax bracket is knowable. Your retirement bracket is a forecast that depends on your savings, future tax law, and how you sequence withdrawals. A financial advisor can model these scenarios with you rather than leaving the biggest variable to guesswork. Get matched with a vetted advisor for free.
Common Misconceptions about IRAs
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1
Roth is always superior.
It is not. If you contribute to a Roth while in the 32% bracket and retire into the 22% bracket, you paid a 10-point premium for tax-free withdrawals. For high earners in peak years, the traditional deduction is often the better deal.
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2
High earners cannot use a Roth.
Direct Roth IRA contributions phase out at higher incomes, but the backdoor Roth, contributing to a nondeductible traditional IRA and converting it to Roth, is a legal and established strategy. Roth 401(k)s also have no income limits at all.
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3
You have to pick one.
You can contribute to both a Roth and traditional IRA in the same year, up to the shared $7,500 limit. A mix of pre-tax and after-tax accounts gives you control in retirement: draw from traditional accounts up to the top of a low tax bracket, then switch to tax-free Roth withdrawals.
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4
Conversions are only for the wealthy.
A Roth conversion moves money from a traditional account to a Roth, with tax due at conversion. Conversions are useful for anyone in a low-income year: a sabbatical, a job transition, or early retirement before Social Security begins. Converting in a low-bracket year locks in that lower rate permanently.
What About Your 401(k)?
Many employers now offer a Roth 401(k) option alongside the traditional version, and the same pre-tax versus after-tax logic applies. Two differences make the 401(k) version worth understanding on its own.
Roth 401(k)s have no income limits. Unlike Roth IRAs, anyone can contribute to a Roth 401(k) regardless of income. For high earners locked out of direct Roth IRA contributions, this is the simplest way in.
Employer matching contributions are always pre-tax. Even if you direct all of your own contributions to the Roth side, your employer's match goes into the traditional pre-tax bucket. Most Roth 401(k) savers end up with both account types automatically, which builds the blended tax strategy without any extra effort.
Contribution limits are also much higher: $24,500 in 2026, or $32,500 if you are 50 or older, shared between traditional and Roth 401(k) contributions.
Roth vs. Traditional 401(k): Side-by-Side
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Open 401(k) CalculatorHow the SECURE Act Changed the Rules
The SECURE Act of 2019 and its follow-up, SECURE 2.0, are federal laws that reshaped several long-standing retirement account rules, including when required distributions begin and how inherited accounts are taxed.
RMDs now start at age 73. Required minimum distributions from traditional accounts begin at 73, rising to 75 in 2033. That extends the window for Roth conversions between retirement and RMD age.
Roth 401(k)s no longer have RMDs. As of 2024, Roth 401(k)s are treated like Roth IRAs, with no required distributions during your lifetime.
Inherited IRAs must be emptied within 10 years. Most non-spouse beneficiaries must empty inherited accounts within a decade. Heirs pay income tax on inherited traditional balances, often during their own peak earning years, while inherited Roth balances come to them tax-free. This change made Roth accounts significantly more attractive for passing wealth to the next generation.
If your retirement or estate plan was built before 2020, the SECURE Act changes are reason enough for a review. An advisor can assess whether conversions, beneficiary updates, or a revised withdrawal sequence would strengthen your position. A free conversation is a good place to start.
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See when required distributions begin and how much yours could be.
Open RMD CalculatorTalk to a Fiduciary Before You Decide
Roth vs. traditional is a year-by-year choice, not a one-time commitment. But some of the decisions around these accounts are permanent. A conversion cannot be undone. A rollover handled incorrectly can trigger taxes you did not plan for. And the difference between a well-sequenced withdrawal strategy and a careless one compounds over decades.
If you are weighing a conversion, deciding what to do with an old 401(k), or simply unsure which mix of accounts fits your situation, this is exactly what a fiduciary advisor is for. Every advisor in the Kapitalwise network is a vetted fiduciary, legally required to act in your best interest, and screened for credentials and regulatory history before you are ever introduced.
The matching process is free and takes a couple of minutes. You will typically be connected with two advisors, sometimes three depending on your situation, and your first conversation carries no obligation.
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Get matched freeFrequently Asked Questions
Clear answers to the Roth and traditional questions we hear most often.
“Can I contribute to both a Roth and traditional IRA in the same year?”
Yes. The combined total cannot exceed $7,500 in 2026, or $8,600 if you are 50 or older. The limit is shared across both account types.
“Can I have both an IRA and a 401(k)?”
Yes. IRA and 401(k) limits are entirely separate. You can contribute the full amount to both in the same year, though your traditional IRA deduction may phase out at higher incomes if you have the workplace plan.
“What happens if I contribute to a Roth IRA and my income ends up over the limit?”
You can recharacterize the contribution to a traditional IRA or withdraw it before the tax deadline to avoid penalty. If your income regularly sits near the phase-out range, the backdoor Roth avoids the issue entirely.
“Do Roth conversions make sense after I retire?”
Often, yes. The years between retirement and RMD age are often your lowest-bracket years, making them the most efficient window to convert traditional balances to Roth. An advisor can help you calculate how much to convert each year without pushing into a higher bracket.
“Which is better for leaving money to my children?”
Generally Roth. Under the 10-year rule, heirs must empty inherited accounts within a decade. Inherited traditional balances are taxed as income. Inherited Roth balances are not.