US rules
Roth vs Traditional IRA
Educational only, not financial advice.
The same account limit, two different ways to handle tax. A worked example shows when each one comes out ahead.
The short version
A traditional IRA and a Roth IRA share one contribution limit and differ mainly in when you pay tax. With a traditional IRA you may get a deduction now and pay income tax when you withdraw. With a Roth IRA you get no deduction now, and qualified withdrawals later are tax-free. The better choice depends mostly on whether you expect your tax rate to be higher now or in retirement, which nobody knows for certain.
This page covers U.S. federal rules. Canadian readers can compare the same trade-off in TFSA vs RRSP.
How each one is taxed
The two accounts share one annual contribution limit. A dollar you put in a Roth IRA is a dollar you can't put in a traditional IRA that year, so most people pick one or split a single limit between them.
| Traditional IRA | Roth IRA | |
|---|---|---|
| Contributions | May be deductible | Not deductible |
| Growth inside the account | Not taxed each year | Not taxed each year |
| Withdrawals | Deductible contributions and earnings are taxed as income | Qualified distributions are tax-free |
| Required withdrawals | Yes, starting at an age set by law | Not required for the original owner |
| Who can contribute | Anyone with taxable compensation | Taxable compensation and income below IRS limits |
Source: IRS, Traditional and Roth IRAs. The age for required minimum distributions has changed more than once in recent years, so check the current IRS rules.
2026 contribution limit
For 2026, the IRS says the total you put into all of your traditional and Roth IRAs combined cannot be more than $7,500, or $8,600 if you are 50 or older, or your taxable compensation for the year if that is less. It is one shared limit. Putting $7,500 in a Roth IRA leaves nothing for a traditional IRA that year.
The Roth IRA has an extra test. Your ability to contribute phases out as your modified adjusted gross income rises, and the thresholds depend on your filing status. The traditional IRA has no income limit for contributing, but the deduction can be reduced if you or your spouse are covered by a retirement plan at work. Both sets of income thresholds change most years, so check IRS.gov for the current figures rather than relying on a number from an older article.
A worked example
Take $5,000 and assume it grows to $20,000 by retirement. Assume your tax rate is 22% today and also 22% in retirement. These are round numbers for illustration.
- Traditional: you deduct $5,000, saving $1,100 in tax now. At retirement you withdraw $20,000 and pay 22%, or $4,400, leaving $15,600.
- Roth: you pay tax on the $5,000 as normal income. At retirement you withdraw $20,000 tax-free. To put the same after-tax cost in, you would have contributed about $3,900 (the $5,000 less the $1,100 tax), which grows to about $15,600.
With the same tax rate at both ends, the two come out equal. The Roth wins if your rate in retirement is higher than today. The traditional IRA wins if your rate in retirement is lower. That single comparison drives most of the decision.
Real life is messier. Tax brackets change, your income in retirement depends on Social Security, pensions and other savings, and the traditional IRA's required withdrawals can push your taxable income up in later years. Many people hold some of each to spread the risk of guessing wrong.
When people often lean one way
These are common patterns, not rules:
- Roth: early-career savers with a low tax rate today, people who expect higher income later, and people who want flexibility in retirement without required withdrawals.
- Traditional: people in a high bracket now who expect a lower one in retirement, and people who want the deduction to lower this year's tax bill.
Withdrawals before 59½
For both types, taking money out before age 59½ can trigger a 10% additional tax on top of any income tax, unless an exception applies. IRA exceptions include up to $10,000 for a qualified first-time home purchase, qualified higher education expenses, disability and some medical costs. A Roth IRA withdrawal that is not a qualified distribution may be partly taxable. The IRS early distribution page lists every exception.
Roth 401(k)
Some employers offer a Roth option inside their 401(k). The tax trade-off is the same as above, but the contribution limit is the much higher 401(k) limit and there is no income test for contributing. See 401(k) vs IRA.
Compared with Canadian accounts
The traditional IRA works like an RRSP: deduction now, tax later. The Roth IRA is similar to a TFSA in that qualified withdrawals are tax-free, but the TFSA lets you withdraw at any time for any reason, while a Roth IRA has age and holding rules. A Canadian saving for a first home would look at the FHSA; the closest U.S. feature is the $10,000 first-time homebuyer exception for IRAs.
FAQs
Can I contribute to both a Roth and a traditional IRA in the same year?
Yes, as long as the total across both stays within the single annual IRA limit and you meet the Roth income test.
What happens if I put in too much?
The IRS charges a 6% tax each year on excess contributions left in the account. Withdrawing the excess and its earnings by your tax filing deadline avoids it.
Related Guides
Sources
- IRS: Traditional and Roth IRAs
- IRS: IRA contribution limits
- IRS: IRA deduction limits
- IRS: Exceptions to tax on early distributions
Reviewed by Greg Parsons. Links checked October 14, 2026. Educational only, not financial advice.