An IRA, or individual retirement account, is one of the simplest ways to save for retirement with a tax break. The hard part is the choice at the start: Roth or traditional? Both accounts can hold the same investments, such as index funds, stocks, bonds or CDs (some self-directed IRAs can even hold certain gold bullion, and here is why gold prices go up and down). The difference is when you pay income tax. A traditional IRA may give you a tax break now. A Roth IRA gives you tax-free money later. This guide explains each one plainly, compares the rules and offers a practical way to decide.
The basic difference: tax now or tax later
With a traditional IRA, contributions may be tax-deductible. If you put in $5,000 and can deduct all of it, your taxable income for that year drops by $5,000. Your investments grow tax-deferred, and you pay ordinary income tax on withdrawals in retirement.
With a Roth IRA, you contribute money you have already paid tax on, so there is no deduction. Your investments grow, and qualified withdrawals in retirement, including all the growth, are tax-free.
Put simply, a traditional IRA bets that your tax rate is higher now than it will be in retirement. A Roth IRA bets that your tax rate will be the same or higher later.
2026 contribution limits
For 2026, the IRS limit for IRA contributions is $7,500. If you are 50 or older, you can add a catch-up contribution of $1,100, for a total of $8,600. A few rules to know:
- The limit is shared across all your IRAs. You can split it between a Roth and a traditional IRA, but the total cannot exceed the limit.
- You generally need taxable compensation, such as wages or self-employment income. You cannot contribute more than you earned for the year.
- A spouse with little or no income may still be able to contribute through a spousal IRA if the couple files a joint return.
- You can usually make contributions for a tax year up until that year's tax filing deadline, which is typically in mid-April of the following year.
Who can use each account
Roth IRA income limits
Roth IRAs have an income ceiling. Your allowed contribution shrinks, and then disappears, once your modified adjusted gross income passes a range that depends on your filing status. The IRS adjusts these ranges each year, so check the current figures on IRS.gov before contributing. Some higher earners use a strategy known as a “backdoor Roth,” contributing to a traditional IRA and then converting it. Its tax rules can be tricky, so it is worth getting professional advice.
Traditional IRA deduction rules
Anyone with earned income can contribute to a traditional IRA, regardless of income. Whether the contribution is deductible is a separate question. If neither you nor your spouse is covered by a workplace retirement plan, such as a 401(k), you can generally deduct the full amount. If you are covered, the deduction phases out at certain income levels. A nondeductible contribution is still allowed, but it loses much of the traditional IRA's advantage.
Withdrawal rules compared
- Early withdrawals: Withdrawals of earnings before age 59½ usually face income tax and a 10% additional tax, with exceptions such as certain disability, first-time home purchase and education costs.
- Roth flexibility: You can withdraw the money you contributed to a Roth IRA at any time without tax or penalty, because you already paid tax on it. Earnings are different. To withdraw them tax-free, you generally must be 59½ or older and have had a Roth IRA for at least five years.
- Required minimum distributions (RMDs): Traditional IRA owners must start taking withdrawals at a set age, currently 73 for many people. Roth IRA owners do not have to take RMDs during their lifetime.
That last point makes a Roth useful for people who may not need the money and want it to keep growing, or who plan to leave it to heirs.
A quick example
Imagine Maria and Jake each have $7,000 to save. Maria is in the 22% federal tax bracket and expects a lower income in retirement. A deductible traditional IRA saves her about $1,540 in federal tax this year, and she pays tax on withdrawals later at what she expects to be a lower rate.
Jake is 24, in the 12% bracket and expects to earn much more later. A Roth costs him the deduction now, but every dollar of growth over the next four decades can come out tax-free. These are simplified illustrations. Actual results depend on investment returns, future tax law and your own situation.
How to choose
A Roth IRA often makes sense if:
- You are early in your career or in a low tax bracket.
- You expect your income, or tax rates, to rise.
- You want access to your contributions in an emergency.
- You want to avoid required withdrawals later.
A traditional IRA often makes sense if:
- You are in a high bracket now and expect a lower one in retirement.
- You want to cut this year's tax bill.
- Your income is above the Roth limit and you qualify for the deduction.
If you truly cannot tell, splitting your contributions is reasonable. Having both taxable and tax-free money in retirement gives you more control over your tax bill each year. Also check whether your employer offers a 401(k) match. Contributing enough to get the full match is often a better first step than either IRA.
Also read: ACA Open Enrollment 2027: Dates, Price Changes and Tips and Powerball Jackpot $793 Million: Odds, Cash Value and Taxes.
FAQ
Can I have both a Roth IRA and a traditional IRA?
Yes. You can own both, but your combined contributions in a year cannot exceed the annual IRA limit.
Can I convert a traditional IRA to a Roth IRA?
Yes. This is called a Roth conversion. You owe income tax on any pre-tax money you convert in the year you convert it, so plan for the tax bill.
Where do I open an IRA?
Most brokerages, banks and robo-advisors offer both types. Look for low fees and low-cost investment options, and remember that opening the account is only the first step: you also need to choose investments for the money.
The bottom line
The Roth versus traditional decision comes down to one question: is your tax rate likely to be higher now or later? Choose the account that lets you pay tax at the lower rate, or split the difference if you are unsure. Starting early and contributing consistently matters more than picking the perfect account. This article is general information, not personal tax advice.
Sources: IRS, 2026 limits; IRS, Roth IRAs; IRS, Traditional IRAs.
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