Roth IRA vs Traditional IRA

Quick comparison

The decision framework: current vs future tax bracket

The single most important factor: will you be in a higher or lower tax bracket in retirement than you are now?

• If you expect to be in a HIGHER bracket in retirement (e.g., young professional with growing income, or someone with large taxable accounts that will throw off income): use ROTH. You pay tax now at the lower rate, withdraw tax-free later at higher rate.
• If you expect to be in a LOWER bracket in retirement (e.g., late-career high earner planning to retire to lower-income lifestyle): use TRADITIONAL. Deduct now at high rate, pay later at lower rate.

For most people in their 20s-30s, ROTH wins. For most people in their 50s-60s peak earning years, TRADITIONAL wins.

When Roth is unambiguously better

• You're in your 20s and current income is below your eventual peak
• You expect to receive Social Security + pension + RMDs — those are taxable income that will push you into higher brackets
• You want to leave money to heirs (Roth has no RMDs; can grow tax-free for decades)
• You expect tax rates to rise (the 2017 tax cuts expire end of 2025; rates may revert higher)
• You want flexibility to withdraw contributions before 59½ without penalty

When Traditional is unambiguously better

• Current marginal tax bracket is 32% or higher
• You're close to retirement and expect significantly lower income post-retirement
• You need the immediate tax deduction to stay below an income threshold (e.g., to get ACA subsidies)
• You're a high-income earner already maxing 401k and Backdoor Roth ineligible

Backdoor Roth IRA strategy

If your income exceeds Roth contribution limits, the "Backdoor Roth" lets you still contribute:

1. Make a non-deductible contribution to Traditional IRA ($7,000 for 2026)
2. Convert the Traditional IRA balance to Roth IRA
3. Pay tax only on any earnings between contribution and conversion (usually minimal if done quickly)

Caveat: pro-rata rule — if you have other Traditional IRA balances, conversion is taxed proportionally. Consult a CPA.

What about 401k vs IRA?

If your employer offers a 401k with match: max the match first (it's a 50-100% return on contribution). Then decide between Roth IRA, Traditional IRA, or back to 401k:

• If 401k has good investment options: continue contributing past the match
• If 401k has high fees or limited options: use IRA for additional retirement savings
• If your employer offers Roth 401k AND Traditional 401k: the same logic applies — high earner now → Traditional 401k; expect higher bracket later → Roth 401k

Frequently Asked Questions

Can I contribute to both Roth and Traditional IRA?

Yes, but the COMBINED total can't exceed the annual limit ($7,000 in 2026, $8,000 if 50+).

What's the income limit for Roth IRA in 2026?

For single filers: full contribution under $150,000 MAGI; partial $150,000-$165,000; none above $165,000. Married filing jointly: full under $236,000; partial $236,000-$246,000; none above $246,000.

Can I convert Traditional to Roth (Roth conversion)?

Yes, anytime, regardless of income. You pay income tax on the converted amount in the year of conversion. Strategic conversions in low-income years (early retirement, sabbatical) can save lifetime tax.

What happens to my Roth IRA when I die?

Heirs (other than spouse) must withdraw within 10 years of inheriting. Tax-free withdrawals for the inheritor. Spouse can roll into their own IRA and treat as their own.

Are 529 plans better for kids than Roth IRA?

Different purposes. 529 = education only (with penalty for non-education use); Roth = retirement primarily. Some advisors favor Roth for the FIRST $7K of annual savings since it's flexible — kids can use for retirement, education, first home, or emergency.