Traditional IRA or Roth IRA: how to tell which one fits your situation

The short answer: pay the tax now, or pay it later

A traditional IRA may give you a tax deduction now, and you pay income tax when you withdraw; a Roth IRA gives no deduction now, but qualified withdrawals later are tax-free. If you expect your tax rate in retirement to be lower than it is today, the traditional side often comes out ahead; if you expect it to be the same or higher, or you value flexibility later, the Roth often does. Two IRS rules can make the choice for you: your income may be too high to contribute to a Roth directly, or too high to deduct a traditional contribution if you or your spouse has a retirement plan at work.

I open both kinds of accounts for families, and the most common mistake I see is treating this as a question about which account is better in general. It is really a question about your bracket now, your likely bracket later, and the rules that apply to your income this year. Here is how I work through it.

How each account is taxed, side by side

Contributions to a Roth IRA are not deductible, and qualified distributions are tax-free. A traditional IRA is the mirror image: contributions may be deductible if you qualify, and deductible contributions and their earnings are taxed as ordinary income when they come out. In both, investments grow without a yearly tax bill on dividends or gains while the money stays in the account, so the difference is mostly about which end of the timeline carries the tax.

That sounds abstract until you picture a single dollar. Put a deductible dollar into a traditional IRA and you save the tax on it this year, then owe tax on that dollar and everything it earned when you withdraw it. Put an after-tax dollar into a Roth and you owe nothing more on it or its growth, provided the withdrawal is qualified.

• Traditional: possible deduction now, taxable withdrawals later
• Roth: no deduction now, tax-free qualified withdrawals later
• Both: one shared annual contribution limit
• Traditional: required minimum distributions later in life
• Roth: no required distributions for the original owner

The 2026 contribution limits, straight from the IRS

For tax year 2026, the IRS raised the IRA contribution limit to $7,500, up from $7,000 for 2025, and the catch-up contribution for people 50 and older to $1,100, according to its announcement of the 2026 limits (IR-2025-111). The IRS page on IRA contribution limits lists the 2026 total as $8,600 for those 50 or older.

That limit is shared. The same IRS page says the total you put into all of your traditional and Roth IRAs combined cannot exceed it, or your taxable compensation for the year if that is less. Splitting money between the two types is allowed, but it does not double what you can save.

The IRS also notes that for 2020 and later there is no age limit on regular contributions to either a traditional or a Roth IRA. If you keep working into your seventies and have taxable compensation, you can still contribute to either one.

When your income makes the decision for you

Roth contributions phase out at higher incomes. For 2026, the IRS lists the Roth phase-out range as $153,000 to $168,000 of modified adjusted gross income for single filers and heads of household, and $242,000 to $252,000 for married couples filing jointly. Inside the range you can make a reduced contribution; above it, none. For married people filing separately, the IRS says the range remains $0 to $10,000.

The traditional IRA has a different catch. Anyone with taxable compensation can contribute, but the deduction phases out if you or your spouse is covered by a retirement plan at work. If neither of you is covered, these income limits do not reduce the deduction. For 2026, the IRS lists these phase-out ranges for the deduction:

• Single, covered by a workplace plan: $81,000 to $91,000
• Married filing jointly, contributor covered: $129,000 to $149,000
• Married filing jointly, contributor not covered but spouse covered: $242,000 to $252,000
• Married filing separately, covered by a workplace plan: $0 to $10,000

Your bracket now versus later, made practical

Once the rules allow both, the decision comes down to when you would rather pay the tax. A deduction is worth the most when your current bracket is high; tax-free withdrawals are worth the most when your future bracket is high. Nobody knows future tax rates, so I ask families to look at things they can actually see: where their income is headed, what other income they expect in retirement, and whether the deduction is what makes saving affordable. The answer can also change from year to year: a traditional contribution in a high-income year and a Roth contribution in a lean one is a perfectly reasonable pattern.

Texas has no state income tax, which simplifies part of the comparison for families in Dallas. If you might retire to a state that taxes retirement income, though, that possibility belongs in the picture too. These patterns are where I usually start:

• Early career, income expected to rise: often leans Roth
• Peak earning years in a higher bracket: a deduction today often carries more weight
• Expecting a pension, rental income or large savings later: Roth withdrawals can help keep taxable income in check
• Needing the deduction to afford the contribution at all: the traditional side may be what makes saving possible
• Genuinely unsure: splitting contributions builds flexibility, within the one shared limit

Getting money out: where the two really differ

Withdrawal rules are where the accounts feel most different in real life. Under IRS Publication 590-B, a Roth distribution is qualified, and therefore tax-free, when it is made after the five-year period that begins with the first year you contributed to a Roth IRA and it also meets one of these conditions: you are 59½ or older, you are disabled, it goes to a beneficiary after your death, or it pays for a first home up to a $10,000 lifetime limit. The same publication sets an ordering rule: your regular contributions are treated as coming out first, and they are not included in income.

A traditional IRA withdrawal, by contrast, is generally taxable income. The IRS also charges a 10% additional tax on early distributions taken before age 59½ from traditional and Roth IRAs, applied to the taxable portion, unless an exception applies. None of this means you should plan to dip into a retirement account, only that the Roth's rules are more forgiving if life forces your hand.

Required distributions and what you leave to your family

Traditional IRAs come with required minimum distributions. The IRS says you generally must begin them at age 73, with the first one due by April 1 of the year after you reach 73, and missing one can mean a 25% excise tax on the amount not taken, or 10% if it is withdrawn within two years. Those withdrawals count as taxable income whether you need the money or not.

Roth IRAs have no required withdrawals while the original owner is alive, according to the same IRS page, although beneficiaries who inherit a Roth are subject to distribution rules. For people who do not expect to need all of their retirement savings, or who want to leave tax-free money to their children, that is a real advantage. Whichever account you choose, name a primary and a contingent beneficiary and keep them current.

Situations where the usual answer changes

A few households need a different lens. If you recognize yourself below, slow down and check the details with a tax professional before you contribute, convert or move money.

The common thread is that each of these situations involves a second decision hiding behind the first. Choosing traditional or Roth is one question; whether to move an old account, how to save as a business owner, or who manages the money are separate questions with their own rules. Answer them one at a time, in writing, and the overall plan stays easy to follow.

• One spouse earns all the income: the other may still be able to contribute, covered in IRAs for a one-income household
• You have an old 401(k): pre-tax money rolled to a traditional IRA stays tax-deferred, while moving it into a Roth is a taxable conversion, explained in what an old 401(k) rollover involves
• Your income is above the Roth range: a traditional contribution is still allowed, even if it is not deductible
• You are self-employed: a SEP or SIMPLE plan may let you save more than an IRA alone
• You have a large balance and want it professionally run: the account's tax type and how it is managed are separate choices, covered in how a managed investment account works

Making the decision with me

When we meet, I look at your income, filing status, whether either of you has a workplace plan, your current and old accounts, and what you expect retirement to look like. We check the current IRS limits against your numbers, decide which account or mix fits, and set up a monthly contribution so the decision turns into actual savings. If you would rather open the account yourself, the steps are in opening a Roth IRA on your own.

Taxes sit at the heart of this choice, so I encourage families to bring their tax professional in. A CPA such as Joe Hockaday can model how a deduction or a conversion would change your return. I am a registered representative of PFS Investments Inc., most of my clients live around Dallas, and this guide is general information, not tax or investment advice for your situation. Investments carry risk and no return is promised, so talk to a financial professional before you act.

Questions people ask me