Roth vs Traditional IRA: Which is Better for Retirement?

Choosing between a Roth and a Traditional IRA will impact how much you pay in taxes after you withdraw earnings from your account. While both accounts offer powerful tax advantages, the better choice depends entirely on whether you anticipate being in a higher tax bracket at retirement age or lower. 

A Roth IRA is funded with after-tax dollars, providing tax-free growth on earnings and penalty-free withdrawals.

Traditional IRAs provide an immediate tax deduction in the year contributions are made, but your future withdrawals are taxed as ordinary income.

Generally, a Roth IRA is superior if you expect to be in a higher tax bracket during retirement. A Traditional IRA may be more beneficial if you need a tax break today and anticipate being in a lower bracket later. 

Below, we compare tax benefits, current income limits, and withdrawal rules to help you choose the account that aligns with your long-term financial goals.

Key Differences Between Roth and Traditional IRAs

Traditional and Roth IRAs offer tax advantages designed to help retirees save more for retirement, but the primary difference between the two accounts lies in when taxes are applied and how earnings grow. 

• Roth IRA: Contributions are made with after-tax dollars. Since you’ve already paid the IRS, your qualified withdrawals in retirement are 100% tax-free.
• Traditional IRA: Contributions are often made with pre-tax dollars (deductible). However, you will owe ordinary income tax on all withdrawals during retirement.

Both accounts offer tax advantages, but they apply at different times. That timing is what drives most decision-making.

	Roth	Traditional
Contributions	After-tax	Pre-tax (may be deductible)
Taxes on withdrawals	Tax-free (qualified)	Taxed as income
Income limits	Yes	No (for contributions)
Required minimum distributions (RMDs)	None	Required starting at age 73
Early withdrawals	Contributions can be withdrawn anytime	Taxes and penalties may apply

 

IRA Contribution Limits and Rules

To contribute to either a Roth or a Traditional IRA, you must have taxable earned income (such as wages, salaries, or self-employment income) during the tax year. Passive income from rental properties or stock dividends generally does not qualify.

The IRS sets annual contribution limits to prevent high earners from sheltering too much capital from taxes. These limits are aggregate, meaning if you have both a Roth and a Traditional account, your total combined contributions cannot exceed the annual cap.

For the current tax season, the base IRA contribution limits are:

• $7,500 per year if you are under age 50
• $8,600 per year if you are age 50 or older (includes a $1,100 catch-up contribution)
  

Roth IRA income limits

Unlike Traditional IRAs, which allow anyone with earned income to contribute, Roth IRAs have strict income eligibility requirements. These limits are based on your Modified Adjusted Gross Income (MAGI)—essentially your adjusted gross income with certain deductions added back in.

If your income exceeds these thresholds, your ability to contribute phases out until it is eliminated entirely.

Single filers/head of household

• Full contributions allowed if income is below $153,000 
• Contributions reduced if your income is more than $153,000 but less than $168,000
• Contribution reduced to $0 if income is $168,000 or more

Married filing jointly/

• Full contributions allowed if income is below $242,000
• Contributions reduced if your income is more than $242,000 but less than $252,000
• Contribution reduced to $0 if income is $252,000 or more

Married filing single

• Full contributions allowed if income is less than $10,000
• Contribution reduced to $0 if income is $10,000 or more

How to Use a Roth Conversion to Get Around Income Limits

If your income is too high for direct Roth contributions, you may still be able to access Roth benefits through a conversion strategy. This is commonly referred to as a “backdoor Roth.”

To use this strategy, follow these steps: 

1. Contribute to a Traditional IRA (non-deductible)
2. Convert those funds into a Roth IRA
3. Pay taxes on any pre-tax portion converted

This strategy can allow higher-income investors to build tax-free retirement funds, but it comes with important considerations:

• Pro-rata rule may affect how much of the conversion is taxable. The IRS looks at all of your traditional IRA balances combined, not just the contribution you’re converting. If you have pre-tax funds in any IRA, a portion of your conversion will be considered taxable. This can limit the tax efficiency of a backdoor Roth.
• Timing and existing IRA balances matter. If you already have significant pre-tax IRA funds, a conversion may trigger a larger-than-expected tax bill. Some investors choose to roll those balances into a 401(k) first (if allowed) to isolate after-tax contributions. The timing of your contribution and conversion also matters; many people convert soon after contributing to minimize taxable growth.
• Consider speaking to a tax professional. While the steps are straightforward, the tax impact can vary based on your full financial picture. A tax professional can help you evaluate whether the strategy makes sense, estimate the tax cost, and avoid common reporting mistakes, such as properly filing Form 8606.

How to Choose Between a Roth and Traditional IRA

Choosing the right retirement vehicle requires balancing immediate financial needs against anticipated future growth. 

Here are four critical factors to weigh before opening an account:

1. Evaluate Your Future Tax Bracket

Choosing the right IRA depends largely on your current income versus your projected tax rate during retirement. This comparison is often called the “Golden Rule” of retirement planning because it determines when you receive your biggest tax break.

• Choose a Roth IRA if you are currently in a lower tax bracket than you expect to be in during retirement. You pay the cheaper tax rate now to enjoy tax-free withdrawals later.
• Choose a Traditional IRA if you are currently in a high tax bracket and expect your income to drop in retirement. You take the tax deduction now when your rate is high and pay the cheaper tax rate later.

2. Factor in Liquidity and Flexibility

While retirement accounts are designed for long-term growth, life often necessitates early access to capital. Understanding the differing withdrawal rules between a Roth and a Traditional IRA can help you treat your retirement fund as a secondary emergency resource if needed.

• Roth Advantage: You can withdraw your contributions (but not earnings) at any time, for any reason, without taxes or penalties.
• Traditional Constraint: Most early withdrawals are subject to a 10% IRS penalty plus ordinary income tax, making the funds much harder to access before age 59½.

3. Consider Estate Planning and RMDs

If your goal is to preserve wealth for the next generation, you must consider how the IRS treats your account as you age. Required Minimum Distributions (RMDs) can significantly impact your tax liability in your 70s and influence how much you eventually leave to your heirs.

• Traditional IRAs force you to take Required Minimum Distributions (RMDs) starting at age 73. This can push you into a higher tax bracket even if you don’t need the cash.
• Roth IRAs have no RMDs for the original owner. Your money can stay in the account for your entire life, continuing to grow tax-free for your heirs.

4. Review Your MAGI and Eligibility

Always cross-reference your Modified Adjusted Gross Income (MAGI) with the 2026 Roth IRA income limits we discussed earlier. If you exceed the limits for a Roth, a Traditional IRA (or a Backdoor Roth conversion) may be your only path forward.

There is no one-size-fits-all answer to choosing between a Traditional or Roth IRA. 

Traditional IRAs offer a tax break today, while Roth IRAs offer a tax-free tomorrow. For many investors, tax diversification—holding both types of accounts—is often the smartest move.

This allows you to pull from different buckets in retirement to keep your taxable income within a specific bracket.

Ready to take control of your retirement? Whether you’re interested in a standard plan or a Self-Directed IRA to invest in alternative assets like real estate, the best time to start is now.

Compare your options, calculate your expected tax bracket, and start building your tax-advantaged wealth today.

FAQs

Can I contribute to both a Roth and a Traditional IRA?

Yes. You can contribute to both a Roth and a Traditional IRA.

However, the annual contribution limits apply to all IRAs, meaning your Roth and Traditional IRA contributions are combined and must stay under the IRS-set limit in that year. 

Can I have both a Self-Directed Traditional IRA and a Self-Directed Roth IRA at the same time?

Yes, you can have both a Traditional and Roth SDIRA at the same time. Just be mindful of contribution limits, as the combined amount must stay below the annual limit. 

What are Required Minimum Distributions (RMDs)?

An RMD is an annual amount of money you’re required to withdraw from a Traditional IRA once you reach age 73. The total amount you’re required to withdraw will depend on your account balance and your life expectancy factor, as determined by the IRS. Roth IRAs are not subject to RMD rules. 

Are there any specific types of “alternative assets” that are prohibited within a self-directed account?

Yes. While self-directed IRAs allow a broader range of investments, the Internal Revenue Service still prohibits certain asset types.

Common prohibited investments include collectibles, life insurance policies, and S-Corp stocks.  You’re also prohibited from engaging in any transaction that is with a disqualified person, which includes yourself, your spouse, children, grandchildren, account fiduciary, and others.

How does the “five-year aging period” for Roth IRAs work if I have multiple accounts?

Roth IRAs actually have two separate five-year clocks. The first applies to contributions: it starts on January 1 of the year you first fund any Roth IRA, applies once across all your Roth IRAs, and governs tax-free withdrawal of earnings.

The second applies to conversions: each Roth conversion has its own separate five-year clock, which governs penalty-free withdrawal of the converted amount before age 59½. If you’re using a backdoor Roth or other conversion strategy, the conversion clock is what matters for that money.