Roth IRA vs Traditional IRA: Which One Is Right for You?

The Roth IRA vs. Traditional IRA question is one of the most common in personal finance — and one of the most consequential decisions you'll make for your retirement. The right answer depends on where you are now versus where you expect to be in retirement. Here's how to think through it.

The Core Difference: When You Pay Taxes

Both Roth and Traditional IRAs are tax-advantaged retirement accounts that let your investments grow without being taxed each year. The fundamental difference is when the tax benefit applies.

Traditional IRA:

• Contributions may be tax-deductible now (reducing your taxable income this year)
• Investments grow tax-deferred
• Withdrawals in retirement are taxed as ordinary income

Roth IRA:

• Contributions are made with after-tax money (no deduction now)
• Investments grow tax-free
• Qualified withdrawals in retirement are completely tax-free

In simple terms: Traditional IRA = pay taxes later. Roth IRA = pay taxes now.

Contribution Limits (2026)

Both accounts share the same annual contribution limit:

• Under age 50: $7,000/year
• Age 50 and older: $8,000/year (the $1,000 "catch-up" contribution)

This limit applies to your combined IRA contributions. You can split contributions between a Roth and Traditional IRA, but the total cannot exceed $7,000 (or $8,000 if 50+).

Who Can Contribute: Income Limits

Traditional IRA: Anyone with earned income (wages, self-employment income) can contribute to a Traditional IRA. However, whether contributions are tax-deductible depends on your income and whether you or your spouse have a workplace retirement plan:

• If neither you nor your spouse has a workplace retirement plan: contributions are fully deductible at any income level
• If you have a workplace plan: deductibility phases out above $79,000 (single filers) or $126,000 (married filing jointly) in 2026
• If your spouse has a workplace plan but you don't: deductibility phases out between $236,000-$246,000 for married filing jointly

Roth IRA: Roth IRA contributions are subject to income limits:

Note: Check IRS.gov for the most current figures — these limits are adjusted annually for inflation.

If your income exceeds the Roth IRA limit, you may still be able to contribute via the backdoor Roth IRA (a legal strategy involving a non-deductible Traditional IRA contribution followed by a Roth conversion). Talk to a tax professional if this applies to you.

Required Minimum Distributions (RMDs)

Traditional IRA: Starting at age 73, you must withdraw a minimum amount each year (the Required Minimum Distribution). These withdrawals are taxable. If you don't need the money, you still must take it — and pay taxes on it.

Roth IRA: No RMDs during your lifetime. Your money can stay invested and growing indefinitely. This is a significant advantage for estate planning and for those who don't need the money in retirement.

Withdrawal Rules

Traditional IRA:

• Before age 59½: Withdrawals are taxed as income plus a 10% penalty (with limited exceptions)
• After age 59½: Withdrawals taxed as ordinary income, no penalty
• Must take RMDs starting at age 73

Roth IRA:

• Contributions (not earnings) can be withdrawn at any time, tax-free and penalty-free (you've already paid tax on them)
• Earnings before age 59½: taxed plus 10% penalty unless an exception applies
• Qualified distributions (after age 59½ and the account has been open 5+ years): completely tax-free and penalty-free
• No RMDs

The Roth's ability to withdraw contributions (not earnings) at any time without penalty makes it a more flexible account in emergencies — it's not ideal to use it that way, but the option exists.

The "Pay Taxes Now vs. Later" Decision

The fundamental question is: Are you in a higher tax bracket now or will you be in a higher bracket in retirement?

Choose a Roth IRA if:

• You're in a lower tax bracket now than you expect to be in retirement. Common for young earners in the early career years.
• You expect tax rates to be higher in the future broadly (many financial planners argue the current US tax rates are historically low and likely to rise)
• You want flexibility — no RMDs, ability to access contributions, more estate planning options
• You're early in your career and have decades of tax-free growth ahead of you
• Your income is low enough to qualify for the Roth but high enough that you want to build tax-free assets

Choose a Traditional IRA if:

• You're in a high tax bracket now and expect to be in a lower bracket in retirement
• You need the tax deduction now to reduce your tax bill (Traditional contributions can reduce taxable income dollar-for-dollar if deductible)
• Your income is too high for a Roth IRA and you don't want to do a backdoor Roth
• You live in a high-tax state now but plan to retire in a no-tax state

The uncertainty argument: Since you don't know your future tax rate with certainty, diversifying between pre-tax (Traditional) and after-tax (Roth) retirement savings hedges against either outcome. Many people contribute to a Traditional 401k at work and a Roth IRA individually to achieve this tax diversification.

Where to Open Your IRA

Fidelity: Best overall for most people. No account minimum, no trading fees, commission-free index funds, excellent educational resources, and their Zero-fee index funds (FZROX for total market, FZILX for international). Easy to use and beginner-friendly.

Vanguard: The original index fund company. Excellent low-cost funds (VOO, VTI, VXUS). Mutual fund minimums can be $1,000-$3,000, but ETFs require no minimum. Interface less polished than Fidelity.

Betterment: Automated investing. You answer a few questions about your goals and risk tolerance; Betterment builds and manages a diversified portfolio of ETFs. Charges 0.25%/year. Good for people who want complete automation.

Charles Schwab: No minimums, competitive funds, good platform. A solid alternative to Fidelity.

Roth IRA Strategies Worth Knowing

Start early and let it grow. The Roth's tax-free growth is most powerful over long time horizons. A 25-year-old who contributes $7,000/year for 40 years in a Roth IRA (assuming 7% annual growth) accumulates about $1.5 million — all tax-free in retirement.

Roth IRA as emergency fund backup. While you should have a separate emergency fund, knowing that Roth IRA contributions (not earnings) can be withdrawn tax-free and penalty-free in a true emergency provides a psychological safety net. This flexibility is unique to the Roth.

Convert Traditional to Roth in low-income years. If you leave a job, take a sabbatical, or have an unusually low-income year, that's a good time to do a Roth conversion — pay taxes at your lower rate now, benefit from tax-free growth and withdrawals later.

The Bottom Line

For most young people in the early stages of their careers — earning moderate incomes, expecting income to grow, with decades of investing ahead — the Roth IRA is typically the better choice. The tax-free growth over decades, the flexibility of no RMDs, and the ability to access contributions in a pinch make it an excellent foundational retirement account.

For higher earners who want a current-year tax deduction, or those in peak earning years who expect lower income in retirement, the Traditional IRA or Traditional 401k provides a meaningful tax benefit now.

When in doubt: if your employer offers a 401k with a match, contribute enough to get the full match first (it's free money). Then open a Roth IRA at Fidelity and contribute as much as you can up to $7,000/year. Invest in low-cost index funds. Hold for decades.

That framework puts you on the right track regardless of which specific IRA you emphasize.