Roth IRA vs Traditional IRA: how the choice works
A Roth IRA and a Traditional IRA differ in when the tax is paid. Learn what decides the better fit, with a worked example and the 2026 rules.
A Roth IRA and a Traditional IRA are both accounts that let investments grow without yearly tax on dividends or gains. The difference is the moment you pay income tax. With a Traditional IRA you may get a tax deduction now and pay income tax on withdrawals later. With a Roth IRA you contribute money that has already been taxed, and qualified withdrawals later are tax-free. Which one leaves you with more depends mostly on one comparison: your tax rate today against your tax rate when you withdraw.
The short version
| Traditional IRA | Roth IRA | |
|---|---|---|
| Contribution | May be tax-deductible | Not deductible |
| Growth | Tax-deferred | Tax-free |
| Withdrawals in retirement | Taxed as ordinary income | Tax-free if qualified |
| Income limit to contribute | None (the deduction can phase out) | Yes, phases out at higher incomes |
| Required withdrawals | Yes, starting at age 73 or 75 | None for the original owner |
| Limit for 2026 | $7,500 combined across both types | $7,500 combined across both types |
The annual limit is shared: $7,500 is the most you can put into all of your Traditional and Roth IRAs together in 2026, with an extra $1,100 if you are 50 or older. See our limits by account page for the full list.
Why the tax rates decide it
Both accounts multiply your money by the same growth factor. So the question is only whether tax is taken before or after that multiplication, and at what rate.
- If your tax rate in retirement is lower than today's, paying tax later (Traditional) costs less.
- If it is higher, paying tax now (Roth) costs less.
- If it is the same, the two end up identical.
Nobody knows their future rate. It depends on retirement income, where you live, your filing status and tax law that can change. That uncertainty is the real reason the choice is hard, not the arithmetic.
A worked example
These are illustrations with round numbers, not forecasts. Assume you set aside $10,000 of pay before tax, you are in the 22% federal bracket today, and the money grows to four times its size by the time you withdraw it.
- Traditional: the full $10,000 goes in, grows to $10,000 × 4 = $40,000, and is taxed on withdrawal.
- Roth: tax comes first, so $10,000 × (1 − 0.22) = $7,800 goes in and grows to $7,800 × 4 = $31,200, which is tax-free.
| Tax rate on withdrawal | Traditional after tax | Roth after tax | Higher |
|---|---|---|---|
| 12% | $40,000 × 0.88 = $35,200 | $31,200 | Traditional |
| 22% | $40,000 × 0.78 = $31,200 | $31,200 | Equal |
| 32% | $40,000 × 0.68 = $27,200 | $31,200 | Roth |
Notice that the growth factor of four cancels out: the 22% row ties no matter how well the investments do. Change the numbers in the Roth vs Traditional calculator to see your own break-even. One assumption matters here: the Traditional side only matches in the tie case if the tax you saved up front is also invested instead of spent.
Beyond the tax rate
The break-even is the core of the choice, but several rules sit around it.
Contribution limits count dollars, not tax-equivalents. The $7,500 IRA limit applies to what you put in. A Roth dollar will eventually be worth more after tax than a Traditional dollar, because the Traditional one still owes tax. A saver who can fill the limit gets more after-tax exposure from the Roth side.
Income limits. Anyone with earned income can contribute to a Traditional IRA, but whether the contribution is deductible depends on your income and on whether you or a spouse are covered by a workplace plan. Roth contributions are limited by modified adjusted gross income. For 2026 the IRS phase-out range is $153,000 to $168,000 for single filers and $242,000 to $252,000 for married filing jointly.
Access to your money. You can withdraw what you contributed to a Roth IRA at any time without tax or penalty. Earnings are tax-free only for a qualified distribution, which generally means the account has been open for at least five tax years and you are 59½ or older (or meet an exception such as disability). Withdrawing Traditional IRA money before 59½ usually triggers an additional 10% tax unless an exception applies. Check the IRS pages above for the exceptions.
Required minimum distributions. Traditional IRA owners must start taking withdrawals at age 73 (75 if born in 1960 or later), whether or not they need the money. The original owner of a Roth IRA has no required withdrawals during their lifetime.
Not all-or-nothing. Some savers spread across both, which gives flexibility in retirement: with both types available, a person can choose which account to draw from each year. This is a general observation, not a recommendation.
Questions to work through
- What is my marginal federal rate today, and is it unusually high or low for my career?
- Do I expect retirement income to be higher or lower than my current income?
- Can I reach the annual limit, so that after-tax exposure matters?
- Do I value flexibility, such as withdrawing contributions without tax or avoiding required withdrawals?
- Which rules (income limits, deduction phase-outs) apply to my situation?
The IRS publishes the current federal tax brackets each year; they are the starting point for answering the first question. Once you have chosen a type, the account is opened at a broker, so the broker comparison is the next step.
This article is general information and not personal tax or financial advice. Rules change and state taxes, other income and your own circumstances can alter the result; a qualified tax professional can help with your situation.
Sources
- IRS: Roth IRAs
- IRS: Traditional IRAs
- IRS: Required minimum distributions
- IRS: 2026 contribution limits and income ranges
Figures in the text update daily from the sources listed. Information, not financial advice.