Roth IRA vs Traditional IRA: The Core Difference
Both IRAs offer powerful tax advantages for retirement savings — they just differ in when you pay taxes:
- Roth IRA: Pay taxes now, withdraw tax-free in retirement (including all growth)
- Traditional IRA: Deduct contributions now, pay taxes on every dollar you withdraw in retirement
Same investment, different tax timing. The "better" option depends on whether your tax rate is higher now or in retirement.
2026 IRA Contribution Limits
| Account Type | Under 50 | Age 50+ | Income Limit |
|---|---|---|---|
| Roth IRA | $7,500 | $8,600 | $153k–$168k single; $242k–$252k MFJ |
| Traditional IRA (deductible) | $7,500 | $8,600 | Phase-out if covered by workplace plan |
When Roth IRA Wins
A simple worked example: $7,500/year for 35 years at 7% grows to about $1,050,000.
- Roth: Withdraw all $1,050,000 tax-free in retirement
- Traditional (22% → 18% bracket): Withdraw $1,050,000 minus taxes = ~$861,000 after tax
- Roth advantage: ~$189,000
The Roth wins here because the growth is tax-free. The larger the account and the higher the retirement tax rate, the bigger the Roth advantage.
When Traditional IRA Wins
If you're in the 32% bracket now and expect to be in the 12% bracket in retirement, the Traditional IRA's upfront deduction is more valuable. You save 32 cents per dollar now and only pay back 12 cents per dollar later.
Frequently Asked Questions
What is the Roth IRA contribution limit for 2026?
$7,500 for those under 50, $8,600 for those 50 and older. Income phase-outs: $153,000–$168,000 for single filers, $242,000–$252,000 for married filing jointly. Above these ranges, direct Roth IRA contributions are not allowed (but Backdoor Roth is still an option).
What is a Backdoor Roth IRA?
High earners above the income limit can still fund a Roth IRA through a two-step process: (1) Contribute to a non-deductible Traditional IRA — no income limit exists for this, and (2) Convert the Traditional IRA to a Roth IRA. If you have no other pre-tax IRA balances, this conversion is essentially tax-free. As of 2026, this strategy remains fully legal.
Which is better: Roth IRA or Traditional IRA?
Choose Roth if: you're early-career (lower current tax rate), you expect higher taxes in retirement, you want tax-free income in retirement, or you want to pass tax-free assets to heirs. Choose Traditional if: you're in a high bracket now and expect to be lower in retirement, or you need the current tax deduction. When unsure, split contributions — some to each account gives tax diversification in retirement.
Can I contribute to both a Roth IRA and a 401(k)?
Yes. IRA and 401(k) limits are completely separate. In 2026, you could contribute $7,500 to a Roth IRA AND $24,500 to a 401(k), for a total of $32,000 in retirement savings. A common strategy: contribute enough to 401(k) to get the full employer match, then max your Roth IRA, then put any remaining savings back into the 401(k).
When can I withdraw from a Roth IRA tax-free?
Contributions can be withdrawn anytime, tax and penalty-free (you already paid taxes). Earnings can be withdrawn tax and penalty-free only after two conditions are met: you are at least 59½ years old AND the account has been open for at least 5 years. Breaking either rule on earnings usually means income tax plus a 10% penalty.
Does a Roth IRA have Required Minimum Distributions?
No — Roth IRAs have no Required Minimum Distributions (RMDs) during your lifetime. Traditional IRAs require you to start withdrawing at age 73. This makes the Roth particularly valuable for estate planning: the account keeps growing tax-free, and you can leave it to beneficiaries who inherit the tax-free status (though they must take distributions within 10 years under the SECURE Act).
What is the 5-year rule for Roth IRA?
There are actually two different 5-year rules: (1) For Roth IRA earnings withdrawals: your first Roth IRA contribution starts the 5-year clock. Once it's been 5 years AND you're 59½+, earnings come out tax and penalty-free. (2) For Roth conversions: each conversion has its own 5-year clock for penalty-free access to that converted amount. Contributions are always accessible without penalty.