Want your tax break today? Consider a traditional IRA.
Is patience your virtue? Perhaps choose a Roth IRA.
May tap these accounts to pay for college with no early withdrawal fee.

An individual retirement account (IRA) can be a sweet way to help with long-term savings goals. Not only can you invest your money in, well, almost any asset class, but you also can get a tasty tax break if you qualify based on income limits.

 

 

These days, there are two IRA types: traditional and Roth. You can contribute to these retirement savings vehicles in addition to an employer-sponsored plan if you have one. Compared to a 401(k), IRAs offer more control, flexibility, and potentially lower fees.

Both a traditional and Roth IRA can grow (and compound) tax-deferred. But that’s where they part company. Read on for a deeper dive into Roth versus traditional IRAs and how to decide which is right for you.

How does a traditional IRA work?

A traditional IRA typically cuts your taxes up front (you can deduct contributions when you file your annual 1040).

How does a Roth IRA work?

A Roth IRA differs from a traditional IRA in that it pays off down the road (you may withdraw money tax-free if you have reached age 59½ and it's been at least five tax years after your first deposit).

For both traditional and Roth IRAs, the rules diverge on when you must start withdrawals.

 

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Differences between Roth and traditional IRAs

Comparison of Roth IRA and Traditional IRA

Differences between Roth and traditional IRAs
 Roth IRATraditional IRA
Contribution limits (2026)
  • $7,500 (under age 50)
  • $8,600 if you’ll be age 50 or older by Dec. 31
  • $7,500 (under age 50)
  • $8,600 if you’ll be age 50 or older by Dec. 31
Eligibility (2026)
  • Single tax filers with modified adjusted gross income (MAGI) phase-out range: $146,000 – $161,000 
  • Joint filers with MAGI phase-out range: $230,000 – $240,000
  • Anyone with earned income can contribute, but tax deductibility is based on income limits and whether you participate in an employer retirement plan
Taxes
  • Contributions are after tax
  • Qualifying withdrawals made after age 59½ (including any earnings) are tax-free after five tax years
  • Accounts accept rollovers from Roth IRAs, 401(k)s, 403(b)s, 457s, Traditional IRAs if amount included in income
  • Contributions are deductible for the tax year in which you make them.
  • Contributions lower your AGI (and potential taxes)
  • Withdrawals are taxable as regular income
  • Accounts accept rollovers from traditional IRAs, 401(k)s, 403(b)s, 457s
Withdrawals
  • Contributions can be withdrawn anytime, tax-free
  • Earnings tax-free if withdrawn at least five tax years after account opening and past age 59½, disabled, or deceased
  • Withdrawal of earnings after age 59½ and five years avoid 10% IRS additional tax for early distributions.
  • Withdrawals not required during your lifetime
  • Taxable as regular income.
  • Withdrawals after age 59½ avoid 10% IRS additional tax for early distributions
  • Required minimum distributions (RMDs) kick in after age 73
Beneficiaries
  • Except for spouse and certain others, must take distributions over 10 years
  • Owe tax on inherited accounts; except for spouse and certain others, must take distributions over 10 years
Bonus points!
  • May withdraw up to $10,000 penalty free to go toward first-time home purchase
  • May tap account to pay for college with no early withdrawal fee
  • May withdraw up to $10,000 penalty free (taxable as regular income) to go toward first-time home purchase
  • May convert to Roth IRA via a “back door” no matter your income level
  • May tap account to pay for college with no early withdrawal fee (taxable as regular income)

 

How do I choose between a traditional and Roth IRA?

So, which IRA is right for you? The answer largely depends on where you are today and where you think you’ll be tomorrow. As a general rule:

  • If you think your tax bracket will be higher when you withdraw than it is when you contribute—say, you’re just starting out in your career or simply want to forego a tax break now in favor of a potentially bigger one later—you could benefit from a Roth.
     
  • If you think your bracket will be lower when you withdraw—typically at retirement—than when you contribute, you might do better going the traditional route and paying taxes at that lower rate later.

(What if your crystal ball is on the fritz and you don’t have a clear view of what’s ahead? You might consider “hedging” your tax risk by investing through both types of accounts. Keep in mind that the IRS annual contribution limit is the total you can contribute to all your IRAs. For 2026, if you’re under age 50 and you’re under the phase-out limit based on income, that’s $7,500 total. If you’re age 50 or older, you can split $8,600 per year between a Roth and traditional IRA depending on your income.)

Even so, which type of IRA you can choose—and how much you can contribute—also depends on your age and adjusted gross income (AGI), an amount on your federal tax return that reflects your overall income minus certain deductions.

 

Traditional and Roth IRAs offer different tax benefits en route to a retirement nest egg (and maybe more). Which to choose depends on your current situation, future expectations of taxes, and financial goals. Because the SECURE 2.0 Act complicated certain rules, consider consulting your tax advisor before you invest.

 

This material is for informational purposes only and does not constitute tax or legal advice. For guidance specific to your situation, please consult a qualified tax or legal professional. For the most current tax forms and information, visit our Tax Center.

Written by Ira Hellman 

Ira Hellman is a senior writer at Prudential.
 

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