Roth vs Traditional IRA, which is right for you?

This is the question I get asked most by people in their 20s and 30s. Roth or Traditional? The financial planning industry has made this more complicated than it needs to be. It comes down to a single bet: do you think your tax rate will be higher now, or when you're withdrawing in retirement?

The core difference

Traditional IRA:

• Tax deduction now
• Pay taxes on withdrawals in retirement
• Required minimum distributions (RMDs) at age 73 if you were born 1951-1959, or 75 if you were born in 1960 or later

Roth IRA:

• No tax deduction now
• Tax-free withdrawals in retirement
• No RMDs (ever)

The math

It depends on your tax rates:

If Tax Rate Now = Tax Rate in Retirement: Traditional and Roth are mathematically equivalent.

If Tax Rate Now > Tax Rate in Retirement: Traditional wins (get deduction at high rate, pay at low rate).

If Tax Rate Now < Tax Rate in Retirement: Roth wins (pay tax at low rate now, avoid high rate later).

When to choose Roth

• You're early in your career (low income bracket)
• You expect income/tax rates to rise significantly
• You want tax diversification (have mostly pre-tax savings)
• You want to avoid RMDs
• You want to leave tax-free inheritance

When to choose Traditional

• You're in your peak earning years (high tax bracket)
• You expect to spend less in retirement
• You need the tax deduction to lower your current taxable income
• Your state has high income tax now, you'll retire in no-tax state

Income limits (2026)

Roth IRA contribution limits:

• Single: Phase-out $153,000-$168,000
• Married filing jointly: Phase-out $242,000-$252,000

Traditional IRA deductibility:

• If you (or spouse) have a 401(k), deduction phases out at lower income thresholds
• If neither has a 401(k), deduction is unlimited

The backdoor Roth

High earners can still get money into a Roth via the "backdoor":

1. Contribute to Traditional IRA (non-deductible)
2. Immediately convert to Roth IRA
3. Pay taxes on any gains during the brief holding period

This is legal and explicitly allowed by the IRS.

Can you do both?

Yes, but the $7,500 annual limit ($8,600 if you're 50 or older) is combined across Traditional and Roth IRAs. You can't contribute $7,500 to each.

You CAN have both a 401(k) ($24,500 limit) and an IRA ($7,500 limit) in the same year.

The bottom line

If you're unsure, Roth is often the safer choice for younger investors. Tax rates are historically low, and having tax-free money in retirement gives you flexibility.

For peak earners, Traditional makes more sense - take the deduction at 32-37% now, withdraw at 12-22% in retirement.

Most people benefit from having both tax-deferred (Traditional) and tax-free (Roth) buckets in retirement.