Choosing between a Roth IRA vs traditional IRA comes down to one question: would you rather pay tax on your retirement savings now or later? Both accounts help you save for retirement with valuable tax breaks, and for 2026 you can put up to $7,500 into IRAs, or $8,600 if you are 50 or older. But the way each account is taxed is almost opposite, and the right choice depends on your income today, what you expect in retirement and how much flexibility you want.
This guide explains how each account works, the 2026 limits and income rules, and seven simple questions that will help you decide. It is general information, not personal financial advice, so consider speaking to a qualified adviser about your own situation.
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What is an IRA?
An individual retirement account, or IRA, is a savings account with tax advantages, designed to help people save for retirement on their own, separately from any workplace plan such as a 401(k). You open one with a bank, brokerage or investment company, then choose how to invest the money, often in funds, stocks, bonds or cash.
There are two main types for most people: traditional and Roth. You can have both, and you can contribute to both in the same year, as long as your total contributions stay within the annual limit.
To contribute, you or your spouse need earned income, such as wages or self-employment income. Investment income and pensions do not count.
How a traditional IRA works
With a traditional IRA, your contributions may be tax-deductible, which lowers your taxable income for the year you contribute. Your money then grows tax-deferred, meaning you pay no tax on interest, dividends or gains while it stays in the account.
You pay income tax when you take money out in retirement. Withdrawals are taxed as ordinary income, at whatever tax rate applies to you then.
Traditional IRAs also come with required minimum distributions. Under current rules, you generally must start withdrawing a minimum amount each year from age 73, rising to 75 for people born in 1960 or later.
How a Roth IRA works
A Roth IRA flips the tax treatment. You contribute money you have already paid tax on, so there is no deduction now. In exchange, your money grows tax-free, and qualified withdrawals in retirement are completely tax-free, including all the investment growth.
To count as qualified, withdrawals generally need to be made after age 59½ and at least five years after your first Roth contribution. Roth IRAs also have no required minimum distributions during the original owner’s lifetime, so you can leave the money to grow as long as you like.
There is extra flexibility too. You can withdraw the money you contributed, though not the earnings, at any time without tax or penalty, because you already paid tax on it.
IRA contribution limits for 2026
The IRS sets the limits each year. For 2026:
- The IRA contribution limit is $7,500
- People aged 50 or older can add a catch-up contribution of $1,100, for a total of $8,600
- The limit applies across all your IRAs combined, traditional and Roth
You can make contributions for 2026 up until the tax filing deadline in April 2027. That gives you extra time to decide which account to use, or to top up once you know your income for the year.
If you also have a workplace 401(k), those limits are separate and much higher. For 2026, employees can contribute up to $24,500 to a 401(k), with extra catch-up amounts for workers aged 50 and over.
Roth IRA income limits for 2026
Not everyone can contribute directly to a Roth IRA. The amount you can put in is reduced and eventually eliminated as your modified adjusted gross income rises.
For 2026, according to IRS figures, the Roth IRA phase-out range is $153,000 to $168,000 for single filers and heads of household, and $242,000 to $252,000 for married couples filing jointly. Above the top of the range, you cannot contribute directly to a Roth IRA.
Traditional IRAs have no income limit for contributions. But if you or your spouse are covered by a workplace retirement plan, your ability to deduct traditional IRA contributions phases out at certain income levels, which change each year. Check the IRS tables for your filing status.
Roth IRA vs traditional IRA: 7 simple ways to decide
1. Compare your tax rate now and later
This is the core question. If you expect to be in a higher tax bracket in retirement than you are now, a Roth IRA usually wins, because you pay tax at today’s lower rate. If you expect to be in a lower bracket in retirement, a traditional IRA usually wins, because you get the deduction at today’s higher rate and pay less tax later.
Many young workers early in their careers are in lower brackets than they will be later, which is why Roth IRAs are often recommended for them.
2. Think about future tax changes
Nobody knows what tax rates will be in 20 or 30 years. Some people choose a Roth partly as a hedge against the possibility that rates rise. Others prefer a guaranteed deduction today. Having money in both types of account, sometimes called tax diversification, gives you choices in retirement.
3. Consider whether you need a deduction now
If a tax deduction this year would make a real difference to your budget, a deductible traditional IRA may be more helpful. If you can afford to pay the tax now, a Roth locks in tax-free income later.
4. Check your income against the limits
If your income is above the Roth limits, the decision is partly made for you. If you are covered by a workplace plan and earn too much to deduct traditional IRA contributions, a non-deductible traditional IRA offers less benefit, which is one reason some higher earners use a backdoor Roth strategy, described below.
5. Think about flexibility
Because you can take out your Roth contributions at any time without tax or penalty, a Roth IRA can act as a backup emergency fund, although it is better to keep a separate emergency fund and leave retirement money invested. Traditional IRA withdrawals before age 59½ are generally taxed and may face a 10% penalty, with some exceptions.
6. Consider required minimum distributions
If you would like to leave your savings invested for as long as possible, or pass them on to heirs, the lack of required minimum distributions on a Roth IRA is a major advantage. Traditional IRA owners must start taking withdrawals, and paying tax on them, in their 70s.
7. Look at your whole retirement picture
If your workplace 401(k) is all pre-tax, adding a Roth IRA gives you a source of tax-free income later. If you already have large Roth savings, a traditional IRA deduction might balance things out. Think of your IRA as one part of a bigger plan, not in isolation.
What is a backdoor Roth IRA?
A backdoor Roth is a legal strategy that lets higher earners who are above the Roth income limits get money into a Roth IRA. It involves making a non-deductible contribution to a traditional IRA and then converting it to a Roth IRA.
It can work well, but there is a catch known as the pro-rata rule. If you already have pre-tax money in any traditional IRA, part of the conversion may be taxable. Because the rules are technical, it is worth getting professional advice before trying it.
Converting a traditional IRA to a Roth
You can convert money from a traditional IRA to a Roth IRA at any time, regardless of your income. You pay income tax on any pre-tax amount you convert in the year of the conversion. After that, the money grows tax-free in the Roth.
Conversions can make sense in years when your income is unusually low, for example after retiring but before claiming Social Security, or during a career break. Converting a large amount in one year can push you into a higher tax bracket, so many people convert gradually.
IRAs for the self-employed
If you are self-employed, you can use a traditional or Roth IRA like anyone else, but you also have access to accounts with much higher limits, such as a SEP IRA or a solo 401(k). These let you save a larger share of your business income for retirement.
If you are setting up a business, our guide on how to start an LLC covers the structure, and a tax professional can help you choose the right retirement plan.
Spousal IRAs
A married couple filing jointly can contribute to an IRA for a spouse who has little or no income, as long as the working spouse earns enough to cover both contributions. That means a stay-at-home parent can still build retirement savings in their own name, up to the annual limit.
How much should you save for retirement?
There is no single right number, but a common rule of thumb is to aim to save around 10% to 15% of your income for retirement, including any employer contributions. If that sounds impossible right now, start smaller and increase your savings rate by one percentage point each year, or whenever you get a raise.
If your employer offers a 401(k) match, contributing enough to get the full match is usually the first priority, because it is effectively free money. After that, many people fill an IRA up to the annual IRA contribution limits, then go back to the 401(k) if they can save more.
The earlier you start, the more work compound growth can do. Money invested in your 20s has decades to grow, which is why even small contributions early in a career can make a big difference by retirement.
Where to open an IRA
You can open an IRA at most brokerages, many banks and credit unions, and through robo-advisers that manage your investments automatically. Opening an account usually takes less than 15 minutes online.
Look at fees before you choose. Some providers charge account fees, trading fees or high fund expenses that eat into your returns over time. Many large brokerages now offer IRAs with no account fees and access to low-cost index funds.
If you want help choosing investments, a robo-adviser or a target-date fund can do much of the work for you. If you prefer to pick your own, a brokerage account gives you more control.
What to invest in inside your IRA
An IRA is a container, not an investment. Once you contribute, you still need to choose how the money is invested. Many people forget this step and leave their contributions sitting in cash for years, missing out on growth.
A simple option for many savers is a target-date fund, which holds a mix of stocks and bonds and gradually becomes more conservative as your planned retirement date approaches. Another common approach is a small number of low-cost index funds that track the broad stock and bond markets.
Whatever you choose, diversification matters. Spreading your money across many companies and asset types reduces the risk that one bad investment will seriously damage your retirement savings.
The Saver’s Credit
If your income is low to moderate, you may qualify for the Saver’s Credit, a federal tax credit for contributing to a retirement account, including a traditional IRA or Roth IRA. It can reduce your tax bill by a percentage of what you contribute, depending on your income and filing status.
Under the SECURE 2.0 law, the Saver’s Credit is due to be replaced from 2027 by a Saver’s Match, in which the federal government makes a matching contribution directly into an eligible worker’s retirement account. Check IRS guidance for the rules that apply to your tax year, and keep an eye on the IRA contribution limits when you plan how much to put in.
Roth 401(k) vs. Roth IRA
Many employers now offer a Roth option inside their 401(k) plan. A Roth 401(k) works like a Roth IRA in one key way: you contribute after-tax money, and qualified withdrawals in retirement are tax-free.
There are important differences. A Roth 401(k) has no income limit, so high earners who cannot contribute directly to a Roth IRA can still use it. The contribution limit is also much higher than for an IRA. And since 2024, Roth 401(k) accounts no longer have required minimum distributions during the owner’s lifetime, bringing them closer to Roth IRAs.
On the other hand, a 401(k) limits you to the investment options your employer chooses, while an IRA lets you invest almost anywhere. Many savers use both: contributing to the 401(k) to get the full employer match, then opening an IRA for more investment choice.
Mistakes to avoid
A few common mistakes can cost money:
- Contributing more than the annual limit, which can trigger a 6% penalty each year the excess stays in the account
- Contributing to a Roth when your income is above the limit
- Leaving contributions in cash instead of investing them
- Taking early withdrawals of earnings without checking the penalty rules
- Forgetting to name or update your beneficiaries
If you accidentally contribute too much, you can usually fix it by withdrawing the excess and any earnings on it before the tax filing deadline.
A note for UK readers
IRAs are an American product, but the idea will be familiar to British savers. The closest UK equivalents are Individual Savings Accounts, or ISAs, which work a little like a Roth IRA, since you pay in from taxed income and withdrawals are tax-free, and self-invested personal pensions, or SIPPs, which work more like a traditional IRA, with tax relief on contributions and tax on withdrawals. The rules and allowances are different, and some are changing, so check GOV.UK or speak to a regulated adviser.
Roth IRA vs traditional IRA: common questions
What is the IRA contribution limit for 2026?
$7,500, or $8,600 if you are 50 or older. The limit is shared across all your IRAs.
Can I have both a Roth and a traditional IRA?
Yes, as long as your total contributions across both stay within the annual limit.
Which is better for young people?
A Roth IRA is often a good fit for young workers in lower tax brackets, because they pay tax now at a low rate and enjoy tax-free growth for decades.
Can I withdraw money from a Roth IRA early?
You can withdraw your contributions at any time without tax or penalty. Withdrawing earnings early may be taxed and penalized.
What is the deadline for 2026 IRA contributions?
The federal tax filing deadline in April 2027.
If you have not opened an IRA yet, pick one of the two types this week and set up a small automatic monthly contribution. For more money guides, see our business section.
This article is general information and not financial or tax advice. Limits and rules change each year, so confirm current figures with the IRS or a qualified professional.
