Roth vs Traditional IRA: The Complete 2026 Guide
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Introduction
Both the Roth IRA and the Traditional IRA are individual retirement accounts designed to help you save for the future — but they take fundamentally different approaches to taxes. The Traditional IRA gives you a tax break today and taxes you later. The Roth IRA taxes you today and lets your money grow and be withdrawn tax-free in retirement.
This single difference — when you pay taxes — ripples through every aspect of these accounts: who benefits most, how withdrawals work, what happens to required distributions, and how much wealth you ultimately accumulate. Choosing between them is one of the most impactful retirement planning decisions you will make.
In this guide, we break down exactly how each account works using the latest 2026 numbers, compare them side by side, and help you determine which one — or which combination — is right for your situation. Whether you are just starting your career or approaching retirement, understanding this choice can save you tens of thousands of dollars in taxes over your lifetime.
How a Traditional IRA Works
A Traditional IRA follows a tax-deferred model. You contribute pre-tax dollars (or deduct your contributions on your tax return), your investments grow tax-deferred, and you pay ordinary income tax when you withdraw the money in retirement.
2026 Traditional IRA Key Numbers
- Contribution limit: $7,000 per year ($8,000 if age 50 or older)
- Tax deduction: Full deduction if you (and your spouse) do not have an employer retirement plan. If you do, the deduction phases out based on income.
- Deduction phaseout (with employer plan): $79,000 – $89,000 MAGI (single); $126,000 – $146,000 MAGI (married filing jointly)
- Required Minimum Distributions: Must begin at age 73 (under SECURE 2.0 Act)
- Early withdrawal penalty: 10% penalty plus income tax on withdrawals before age 59 1/2 (with exceptions)
The biggest advantage of the Traditional IRA is the immediate tax deduction. If you contribute $7,000 and you are in the 24% tax bracket, you save $1,680 in taxes this year. That money stays invested and compounds over time. The trade-off is that every dollar you withdraw in retirement will be taxed as ordinary income.
One critical rule: once you turn 73, you must begin taking Required Minimum Distributions (RMDs) each year, whether or not you need the money. These distributions are calculated based on your account balance and life expectancy, and they are taxed as ordinary income. Failing to take RMDs results in a steep 25% penalty on the amount not withdrawn.
How a Roth IRA Works
A Roth IRA flips the tax equation. You contribute after-tax dollars — there is no deduction in the year you contribute. In return, your investments grow completely tax-free, and qualified withdrawals in retirement are also 100% tax-free. You never pay another dime in taxes on that money.
2026 Roth IRA Key Numbers
- Contribution limit: $7,000 per year ($8,000 if age 50 or older)
- Income limit (single filers): Phaseout begins at $150,000 MAGI, fully phased out at $165,000
- Income limit (married filing jointly): Phaseout begins at $236,000 MAGI, fully phased out at $246,000
- Required Minimum Distributions: None — Roth IRAs have no RMDs during the owner's lifetime
- Contribution withdrawals: Can be withdrawn at any time, tax-free and penalty-free
- Earnings withdrawals: Tax-free and penalty-free after age 59 1/2 and the account has been open for at least 5 years
The Roth IRA has two standout advantages. First, tax-free growth means that if you invest $7,000 per year for 30 years and your portfolio grows to $600,000, you owe zero taxes on the entire balance when you withdraw it. With a Traditional IRA, you would owe income tax on every dollar.
Second, there are no Required Minimum Distributions. You can let your Roth IRA grow untouched for your entire life, making it an exceptional tool for estate planning. Your heirs inherit the account and can take distributions tax-free (though non-spouse beneficiaries must empty the account within 10 years under current rules).
The main limitation is the income limit. High earners above the phaseout thresholds cannot contribute directly to a Roth IRA. However, there is a legal workaround known as the backdoor Roth strategy, which we cover below.
Side-by-Side Comparison
Here is a direct comparison of the two account types across every major dimension that matters for your retirement planning.
| Feature | Traditional IRA | Roth IRA |
|---|---|---|
| Tax on contributions | Deductible (pre-tax) | Not deductible (after-tax) |
| Tax on growth | Tax-deferred | Tax-free |
| Tax on withdrawals | Taxed as ordinary income | Tax-free (if qualified) |
| 2026 contribution limit | $7,000 ($8,000 if 50+) | $7,000 ($8,000 if 50+) |
| Income limits to contribute | None (deduction may be limited) | $150K–$165K single; $236K–$246K married |
| Required Minimum Distributions | Yes, starting at age 73 | None during owner’s lifetime |
| Early withdrawal (before 59 1/2) | 10% penalty + income tax | Contributions: anytime tax/penalty-free |
| Best for | Higher bracket now, lower in retirement | Lower bracket now, higher in retirement |
* Contribution limits and income thresholds are for the 2026 tax year. Roth IRA early withdrawal rules differ for contributions (always accessible) versus earnings (subject to the 5-year rule and age requirements).
When to Choose a Traditional IRA
You are in a high tax bracket now and expect to be lower in retirement
This is the classic case for the Traditional IRA. If you earn $180,000 today and are in the 32% bracket, but expect to live on $60,000 in retirement (the 22% bracket), you save significantly by deferring taxes. You deduct contributions at 32% and pay withdrawals at 22%, keeping the 10% difference.
You want an immediate tax deduction
If reducing this year's tax bill is a priority, the Traditional IRA delivers immediate relief. This can be especially valuable if you are on the edge of a tax bracket, need to reduce your AGI to qualify for other tax benefits, or simply want to reinvest the tax savings.
You are near retirement with limited time for tax-free growth
The Roth IRA's biggest advantage is decades of tax-free compounding. If you are 5 to 10 years from retirement, there is less time for that benefit to accumulate. In this case, the upfront deduction from a Traditional IRA may deliver more total value than a few years of tax-free growth.
You live in a high-tax state and plan to retire in a low-tax or no-tax state
If you currently live in California (13.3% top state rate) or New York (10.9%) but plan to retire in Florida, Texas, or another state with no income tax, you can deduct contributions at a high combined rate now and withdraw at a much lower combined rate later.
When to Choose a Roth IRA
You are currently in a lower tax bracket
If you are early in your career, between jobs, or earning less than you expect to in the future, paying taxes now at a low rate is a bargain. A 22-year-old in the 12% bracket who contributes to a Roth pays a fraction of the tax they would pay on withdrawals decades later in a potentially higher bracket.
You are young with decades of tax-free growth ahead
Time is the Roth IRA's superpower. A $7,000 annual contribution growing at 8% for 35 years becomes roughly $1.2 million — all of it tax-free. In a Traditional IRA, you would owe income tax on every dollar withdrawn, potentially giving up $250,000 or more in taxes at a 22% rate.
You want flexibility and no RMDs
The Roth IRA is the most flexible retirement account available. You can withdraw contributions at any time for any reason. There are no required minimum distributions, so you control when and if you take money out. This makes the Roth IRA an excellent "last resort" emergency fund and a powerful estate planning tool.
You expect higher income or tax rates in retirement
If you believe your income will be higher in retirement (through pensions, Social Security, rental income, or continued work) or that Congress will raise tax rates in the future, locking in today's rates with a Roth makes strategic sense. You are hedging against tax rate uncertainty.
You want tax diversification in retirement
Having both pre-tax (Traditional) and after-tax (Roth) accounts gives you flexibility to manage your tax bracket in retirement. In years when you need more income, you can pull from the Roth without increasing your taxable income, keeping you in a lower bracket and reducing taxes on Social Security benefits.
The Backdoor Roth Strategy
If your income exceeds the Roth IRA contribution limits, you are not out of luck. The backdoor Roth is a legal, IRS-approved strategy that high earners use to get money into a Roth IRA regardless of income. It works in two steps:
How the Backdoor Roth Works
- Contribute to a Traditional IRA. Make a non-deductible contribution of up to $7,000 (or $8,000 if 50+). There is no income limit for making non-deductible Traditional IRA contributions.
- Convert to a Roth IRA. Shortly after the contribution settles (often the next day), convert the entire Traditional IRA balance to your Roth IRA. Since the contribution was non-deductible, you owe little to no tax on the conversion.
Pro-Rata Rule Warning
If you have any existing pre-tax money in any Traditional IRA (including SEP and SIMPLE IRAs), the IRS applies the pro-rata rule. This means your conversion is taxed proportionally based on the ratio of pre-tax to after-tax money across all your Traditional IRA accounts — not just the one you are converting from. For example, if you have $93,000 in pre-tax Traditional IRA funds and make a $7,000 non-deductible contribution, only 7% of your conversion ($7,000 / $100,000) would be tax-free. The remaining 93% would be taxable.
The fix: If you have pre-tax IRA balances, consider rolling them into your employer's 401(k) plan (if allowed) before executing the backdoor Roth. This removes the pre-tax balance from the pro-rata calculation.
The backdoor Roth has been legal and widely used for over a decade. While Congress has proposed eliminating it in various tax reform bills, it remains available as of 2026. Consult with a tax professional to ensure it is executed correctly for your situation.
Run the Numbers for Your Retirement
Use our free calculators to project how your IRA contributions will grow over time. See the impact of tax-free compounding, model different contribution amounts, and plan your retirement with confidence.
Frequently Asked Questions
Can I contribute to both a Roth IRA and a Traditional IRA?
Yes, you can contribute to both a Roth IRA and a Traditional IRA in the same year. However, your total combined contributions across all IRAs cannot exceed the annual limit ($7,000 in 2026, or $8,000 if you are 50 or older). For example, you could put $4,000 in a Roth IRA and $3,000 in a Traditional IRA, but not $7,000 in each.
What if I exceed the Roth IRA income limit?
If your modified adjusted gross income (MAGI) exceeds the Roth IRA income limits ($165,000 for single filers or $246,000 for married filing jointly in 2026), you cannot contribute directly to a Roth IRA. However, you can use the backdoor Roth strategy: contribute to a non-deductible Traditional IRA and then convert those funds to a Roth IRA. There is no income limit on conversions.
Can I convert a Traditional IRA to a Roth IRA?
Yes. A Roth conversion allows you to move money from a Traditional IRA to a Roth IRA at any time, regardless of income. You will owe income tax on any pre-tax contributions and earnings converted in the year of the conversion. There is no limit on how much you can convert, but large conversions can push you into a higher tax bracket, so it is important to plan strategically.
Which IRA is better for young investors?
For most young investors, a Roth IRA is the stronger choice. Younger workers are typically in a lower tax bracket, so paying taxes now is less costly. More importantly, decades of tax-free growth can result in significantly more after-tax wealth at retirement. A Roth IRA also offers more flexibility since you can withdraw your contributions at any time without penalties, which provides a safety net in emergencies.
What are the early withdrawal penalties for each IRA type?
For Traditional IRAs, withdrawals before age 59 1/2 are generally subject to a 10% early withdrawal penalty plus ordinary income tax on the full amount. For Roth IRAs, you can withdraw your contributions (not earnings) at any time without penalty or taxes. Earnings withdrawn before age 59 1/2 and before the account has been open for five years are subject to the 10% penalty and income tax. Exceptions to the penalty include first-time home purchases (up to $10,000), qualified education expenses, and certain medical costs.