Roth IRA vs Traditional IRA
By FiscallyAI Editorial (AI-assisted) • Updated 2026-02-19 • Educational content
âš¡ Quick Answer
Roth IRA: Pay taxes now, withdraw tax-free in retirement. Best if you expect higher taxes later.
Traditional IRA: Tax deduction now, pay taxes in retirement. Best if you expect lower taxes later.
What Is an IRA?
An IRA (Individual Retirement Account) is a tax-advantaged account for retirement savings. The main difference between Roth and Traditional is when you get the tax break.
The Key Difference: Tax Timing
| Roth IRA | Traditional IRA | |
|---|---|---|
| Contributions | After-tax (no deduction) | Pre-tax (deduction possible) |
| Growth | Tax-free | Tax-deferred |
| Withdrawals | Tax-free (after 59½) | Taxed as income |
| Required Distributions | None (during your lifetime) | Yes, starting at 73 |
2026 Contribution Limits
- Under 50: $7,000/year
- Age 50+: $8,000/year (catch-up)
These limits apply to your combined IRA contributions (Roth + Traditional).
Income Limits (2026)
Roth IRA Income Limits
| Filing Status | Full Contribution | Phase-out | Not Eligible |
|---|---|---|---|
| Single | Below $146,000 | $146,000 - $161,000 | Above $161,000 |
| Married (Joint) | Below $230,000 | $230,000 - $240,000 | Above $240,000 |
Traditional IRA Deduction Limits
Anyone can contribute to a Traditional IRA, but the tax deduction depends on income and whether you have a workplace retirement plan.
When to Choose Roth IRA
- You expect higher taxes in retirement than now (likely if you're early in your career)
- You want tax-free income in retirement
- You don't want required minimum distributions
- You want flexibility (can withdraw contributions anytime, penalty-free)
- You're young and have decades for tax-free growth
When to Choose Traditional IRA
- You expect lower taxes in retirement
- You need the tax deduction now to save on current taxes
- Your income is too high for Roth IRA
- You're in a high tax bracket now and plan to retire to a lower one
For Gen Z: Why Roth Usually Wins
If you're in your 20s, you're likely in a lower tax bracket now than you'll be later. You also have 40+ years of tax-free growth ahead. Most young investors benefit more from a Roth IRA.
Example: $7,000/year for 40 Years
| Value at Retirement | Taxes on Withdrawal | After-Tax Value | |
|---|---|---|---|
| Roth IRA | $1.5 million | $0 | $1.5 million |
| Traditional IRA | $1.5 million | $330,000 (22%)* | $1.17 million |
*Assumes 22% tax rate in retirement. Your rate may vary.
Can You Have Both?
Yes! You can have both a Roth and Traditional IRA. Your total contributions can't exceed $7,000/year ($8,000 if 50+), but you can split between them however you want.
Backdoor Roth IRA
If your income is too high for direct Roth contributions, you may be able to do a "backdoor" Roth: contribute to a Traditional IRA (non-deductible), then convert to Roth. This has some complexities — talk to a tax professional.
How to Open an IRA
- Choose a provider (Fidelity, Vanguard, Schwab all offer no-fee IRAs)
- Open the account online (10-15 minutes)
- Link your bank account
- Choose your investments (target-date funds are a good default)
- Set up automatic contributions
Related Guides
Disclaimer: This content is for educational purposes only. Tax laws change. Consult a tax professional for advice specific to your situation. Not financial advice. See our full disclaimer.