Both kinds of IRA can hold the same funds, stocks or Treasury bills; what separates them is when income tax is paid. A traditional IRA usually defers it until money comes out, while a Roth IRA collects it before money goes in and lets qualified withdrawals leave tax-free. This comparison covers 2026 eligibility, a break-even tax-rate calculation, the withdrawal and five-year rules, the backdoor Roth, required minimum distributions and the risks of guessing wrong. Other account types are on the stocks hub.
How do Roth and traditional IRAs compare?
They share one contribution limit and the same investment choices but reverse the tax timing: traditional money is taxed on the way out, Roth money on the way in. For 2026 the combined limit across all your IRAs is $7,500, plus a $1,100 catch-up at age 50 or older, and you need at least that much taxable compensation, or a working spouse on a joint return.
| Feature | Traditional IRA | Roth IRA |
|---|---|---|
| Tax break when you contribute | A deduction, which can shrink if you or your spouse has a workplace plan | None |
| Tax on growth | Deferred until you withdraw | None, if withdrawals are qualified |
| Tax on withdrawals | Ordinary income, apart from any nondeductible basis | Tax-free once qualified |
| Income limit to contribute | None | Phased out at higher incomes |
| Your own contributions before 59½ | Taxable, plus a 10% additional tax unless an exception applies | Tax- and penalty-free at any time |
| Required minimum distributions | From 73, or 75 if born in 1960 or later | None while the owner is alive |
| Effect on taxable income in retirement | Every withdrawal adds to it | Qualified withdrawals add nothing |
Because the limit is shared, you can split it between the two types and change the mix every year. Contributions for 2026 are accepted until April 15, 2027.
Who can contribute to a Roth IRA or deduct a traditional IRA?
Anyone with taxable compensation can fund a traditional IRA, but Roth eligibility and the traditional deduction both depend on modified adjusted gross income, or MAGI. For 2026 the Roth amount you may contribute shrinks across $153,000 to $168,000 of modified AGI for single and head-of-household filers, and $242,000 to $252,000 for married couples filing jointly and is zero above the range. Married people filing separately who lived together during the year phase out between $0 and $10,000.
A traditional IRA has no income ceiling for contributing; the deduction is what phases out, and only when a workplace plan is involved:
- You are covered at work: $81,000 to $91,000 of modified AGI for single filers and heads of household, and $129,000 to $149,000 for married couples filing jointly.
- Only your spouse is covered: $242,000 to $252,000 of modified AGI on a joint return.
- Neither of you is covered: fully deductible at any income.
Worked phase-out calculations and every 2026 range, next to the 2025 figures, are in IRA and 401(k) contribution limits. Someone above the Roth range who also cannot deduct is the usual candidate for the backdoor Roth described below.
How do you find the break-even tax rate?
Compare the rate a traditional deduction saves today with the rate you expect on withdrawals; when the two match, both accounts leave the same money to spend. Multiplication works in any order: taxing $7,500 at 22% and then letting it grow gives the same result as growing it first and taxing it at the end. Only a different rate at each end, or a different amount going in, breaks the tie.
Traditional after tax = pre-tax amount × growth × (1 − retirement rate); Roth = pre-tax amount × (1 − today's rate) × growth
Worked example: $7,500 of pre-tax pay, 30 years at 6%
Dana is 35, single and in the 22% federal bracket. She sets aside $7,500 of salary and assumes 6% a year for 30 years, which multiplies any balance by about 5.7435.
- Traditional: she contributes the full $7,500 and deducts it. The account grows to $43,076.18, all of it taxable when withdrawn.
- Roth: she pays $1,650 of tax first and contributes $5,850, which grows to $33,599.42, all of it tax-free.
What the traditional account is worth after tax depends on her rate in retirement:
| Tax rate on withdrawals | Traditional after tax | Roth | Gap |
|---|---|---|---|
| 12% | $37,907.04 | $33,599.42 | Traditional ahead by $4,307.62 |
| 22% | $33,599.42 | $33,599.42 | None |
| 24% | $32,737.90 | $33,599.42 | Roth ahead by $861.52 |
| 32% | $29,291.80 | $33,599.42 | Roth ahead by $4,307.62 |
The 22% row is the break-even, and each percentage point of difference between the two rates is worth about $431 here, 1% of the pre-tax balance. The 6% is a nominal return; real returns and inflation explains what it buys after inflation.
Many savers fill the limit whichever account they pick, and then the Roth has an edge: its $7,500 has already been taxed, so it shelters more.
Worked example: Filling either IRA to the $7,500 limit
Now Dana can afford $7,500 in either account. If she picks the traditional IRA, she also invests the $1,650 tax saving in a taxable brokerage account at the same 6%.
- Roth: $7,500 grows to $43,076.18, tax-free.
- Traditional: the IRA also reaches $43,076.18 before tax. The side account reaches $9,476.76; after 15% long-term capital gains tax on its $7,826.76 gain, it is worth $8,302.75.
- Break-even: traditional comes out ahead only if the tax on withdrawals is below $8,302.75 ÷ $43,076.18, about 19.3%.
Yearly tax on the side account's dividends, left out here, would push the break-even lower still.
To rerun either example with your own numbers, use the compound interest calculator; how compound interest works explains the growth factor.
What tax rate will your IRA withdrawals face in retirement?
Often less than the rate the deduction saved, because withdrawals fill the tax brackets from the bottom and deductions shelter the first slice. For 2026 the standard deduction is $16,100 for single filers and married people filing separately, $24,150 for heads of household and $32,200 for married couples filing jointly, plus $2,050 for a single filer aged 65 or older. From 2025 through 2028, people 65 or older can deduct an extra $6,000 each, reduced by 6% of modified AGI above $75,000 ($150,000 joint). The rates on the rest are 10%, 12%, 22%, 24%, 32%, 35% and 37%, with the top rate applying above $640,600 of taxable income for single filers and $768,700 for married couples filing jointly.
Worked example: Federal tax on $60,000 of IRA withdrawals at 66
Sam is single, 66 and lives on $60,000 of traditional IRA withdrawals in 2026, with no other taxable income.
- Deductions: $16,100 standard, $2,050 for being 65 or older and the $6,000 senior deduction, in full because his income is under $75,000, for $24,150 in all.
- Taxable income: $60,000 − $24,150 = $35,850.
- Tax: 10% of the first $12,400 is $1,240, and 12% of the remaining $23,450 is $2,814, so $4,054 in total.
His average rate is 6.8% and his top rate 12%. If those contributions were deducted at 22% while he worked, the traditional IRA saved far more tax than it now costs.
Three things can push the real rate higher:
- Social Security. Once half your benefits plus other income passes $25,000 for a single filer ($32,000 joint), benefits start to become taxable, up to 85% of them above $34,000 ($44,000 joint), so each extra traditional dollar can pull more benefit into tax.
- Required minimum distributions. Large pre-tax balances force withdrawals whether or not you need the money.
- Rule and household changes. The senior deduction is scheduled to end after 2028, and a surviving spouse moves to single brackets that are mostly half as wide.
Moving from a high-tax state to one with no income tax favors deducting now; the reverse favors a Roth.
When can you take money out of each IRA without tax or penalty?
Age 59½ is the dividing line: before it, traditional withdrawals and Roth earnings generally owe income tax plus a 10% additional tax. Roth IRAs have an exit traditional IRAs lack: regular contributions can come out at any time, tax- and penalty-free, because they were taxed going in. The IRS treats Roth withdrawals as coming out in a fixed order: regular contributions, then converted amounts (oldest first, taxable part first), then earnings.
Before 59½, the 10% is waived for IRA withdrawals in situations including:
- a first home (up to $10,000 over a lifetime) or qualified higher-education costs;
- unreimbursed medical bills above 7.5% of AGI, or health insurance premiums while unemployed;
- disability, terminal illness, death or a series of substantially equal periodic payments;
- a birth or adoption (up to $5,000 per child), one emergency withdrawal of up to $1,000 a year, or, in 2026, up to $10,500 (or half the account, if less) for victims of domestic abuse;
- qualified disasters, an IRS levy or active-duty reservist service.
An exception removes only the extra 10%, not the income tax. Workplace plans use a different list: the education and first-home exceptions are IRA-only, while leaving a job in or after the year you turn 55 helps only with plan money, as 401(k) basics explains.
How do the five-year rules work?
There are two separate clocks: one decides whether Roth earnings are tax-free, and the other whether converted money owes the 10% penalty when withdrawn before 59½. The earnings clock starts on January 1 of the first tax year for which you made any Roth IRA contribution and covers all your Roth IRAs. A first contribution made in March 2027 for 2026 starts it on January 1, 2026, so the five years end on December 31, 2030. After that, earnings are tax-free at 59½ or older, on disability, under the $10,000 first-home allowance or when paid to a beneficiary.
Each conversion has its own clock, starting January 1 of the conversion year. Under 59½, withdrawing converted money within its five years triggers the 10% on the part that was taxable at conversion, though no income tax is due on it again.
Worked example: A $35,000 withdrawal at 55 from a three-layer Roth
Lee's Roth IRA holds $30,000 of regular contributions, $10,000 converted from a traditional IRA in 2027 (all of it taxable at the time) and $8,000 of earnings. In 2029, at 55, Lee withdraws $35,000.
- The first $30,000 counts as contributions: no tax and no penalty.
- The next $5,000 comes from the 2027 conversion. It is not taxed again, but its five-year window runs through December 31, 2031, so the 10% additional tax applies: $500.
- The $8,000 of earnings is not touched. Had the withdrawal reached it, that part would have been taxable and, without an exception, penalized.
Taking only $30,000, or waiting until 2032 for the rest, would have avoided the $500.
How does a backdoor Roth IRA work?
It is a two-step route for people above the Roth income limit: make a nondeductible traditional IRA contribution, then convert it to a Roth IRA. Neither step has an income limit. Form 8606 records the contribution as basis so it is not taxed again; skipping the form can cost a $50 penalty and double tax later. Conversions cannot be undone, since recharacterizing them ended after 2017.
The catch is the pro-rata rule: the taxable share of a conversion depends on all your traditional, SEP and SIMPLE IRA balances at December 31 of that year, not just the converted account. Money in 401(k) plans and a spouse's IRAs is not counted.
Worked example: How an old rollover IRA changes the tax on a backdoor Roth
Priya earns too much for a direct Roth contribution. In 2026 she contributes $7,500 to a new traditional IRA, takes no deduction and converts it a week later. She also has $67,500 of pre-tax money in a rollover IRA from a former job.
- Tax-free share: $7,500 of basis ÷ ($67,500 still in IRAs on December 31 + $7,500 converted) = 10%.
- Taxable part of the conversion: 90% of $7,500 = $6,750.
- Extra tax at a 32% rate: $2,160.
Had she moved the $67,500 into her current employer's 401(k) before year-end, if the plan accepts roll-ins, almost none of the conversion would have been taxable.
How do required minimum distributions differ?
Traditional IRAs force yearly withdrawals from age 73, or 75 for anyone born in 1960 or later, while Roth IRAs require none during the original owner's lifetime. The first can wait until April 1 of the following year, at the cost of two taxable withdrawals in one year. Each amount is the prior December 31 balance divided by an IRS Uniform Lifetime Table factor: at 75 the factor is 24.6, so a $250,000 IRA must pay out $10,162.60. Missing an RMD triggers a 25% excise tax on the amount not withdrawn, cut to 10% if fixed within two years.
Large pre-tax balances are where RMDs push income into higher brackets. Qualified charitable distributions, which let owners 70½ or older send up to $111,000 in 2026 straight to charity without it counting as income, can satisfy the RMD, and Roth conversions in the low-income years before RMDs start shrink the balance they apply to. T-bills in an IRA and safe investments for retirees cover holding the cash for planned withdrawals.
What are the risks and downsides of each choice?
The main risk is betting on a future tax rate nobody can know, but each account also has rules that turn small mistakes into taxes or penalties.
- Tax law can change. The current brackets were made permanent by the One Big Beautiful Bill Act, but any later law can rewrite them or the Roth rules.
- Traditional, then a higher bracket. Big pre-tax balances, RMDs and taxable Social Security can lift your retirement rate above the rate you deducted at.
- Roth, then needing the money early. Earnings taken before the account qualifies are taxed and often penalized.
- Excess contributions. Going over the limit, or into a Roth in a year your income ends up too high, costs 6% a year until you withdraw or recharacterize the excess.
- Backdoor surprises. A forgotten Form 8606 or a pre-tax IRA balance on December 31 can make a conversion largely taxable.
- Market risk. Neither account protects against losses, and losses inside an IRA give no capital-loss deduction.
Since nobody knows their tax rate 30 years out, many savers hold some of each, favoring traditional in high-earning years and Roth in low ones. A single target-date fund is one simple way to invest inside either account, and HSA investing covers an account that beats both for medical costs. Tax rules change, so check the current IRS figures each year and consider a tax professional before a conversion or backdoor Roth, where mistakes are hard to reverse.