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Traditional IRA vs. Roth IRA: Which Is Right for You?
- A Roth IRA grows tax-free — you pay taxes now and withdraw tax-free in retirement.
- A Traditional IRA may reduce your taxable income today — you pay taxes when you withdraw.
- Both allow contributions of up to $7,000 in 2025 ($8,000 if you’re 50 or older).
- Roth IRAs have no required minimum distributions (RMDs); Traditional IRAs require withdrawals starting at age 73.
- The best IRA for you depends on whether you expect your tax rate to be higher now or in retirement.
What Is the Difference Between a Traditional IRA and a Roth IRA?
A Traditional IRA and a Roth IRA are both tax-advantaged individual retirement accounts — but they are taxed at different times. With a Traditional IRA, contributions may be tax-deductible now, and you pay income tax when you withdraw in retirement. With a Roth IRA, contributions are made with after-tax dollars, so qualifying withdrawals in retirement are completely tax-free.
Both accounts offer the same annual contribution limits, investment flexibility, and early-withdrawal exceptions. The right choice often comes down to one question: do you want your tax break now (Traditional) or later (Roth)?
| Feature | Roth IRA | Traditional IRA |
| Eligibility | Earned compensation required; MAGI must fall within IRS limits. | Earned compensation required (or a working spouse). No age restriction since 2020. |
| 2025 Contribution limit | Up to $7,000 ($8,000 if age 50+) | Up to $7,000 ($8,000 if age 50+) |
| 2026 Contribution limit | Up to $7,500 ($8,600 if age 50+) | Up to $7,500 ($8,600 if age 50+) |
| Tax deduction on contributions? | No — funded with after-tax dollars. | Possibly — depends on income and employer plan participation. |
| Tax on withdrawals? | Tax-free on qualified distributions (age 59½ + 5-year holding period). | Taxed as ordinary income when withdrawn. |
| Required minimum distributions (RMDs)? | No forced withdrawals during your lifetime. | Yes, starting at age 73. |
| Best for… | Savers who expect to be in a higher tax bracket in retirement. | Savers who want to reduce taxable income now and pay taxes later. |
IRA Contribution Limits for 2025 and 2026
The IRS sets annual contribution limits that apply to both Traditional and Roth IRAs combined. For 2025, you can contribute up to $7,000 per year (or $8,000 if you are age 50 or older). For 2026, those limits increase to $7,500 and $8,600 respectively. You cannot contribute more than your total earned compensation for the year.
Pro tip: You can split contributions between a Traditional and Roth IRA in the same year — just keep the combined total within the annual limit.
Roth IRA Income Limits (MAGI) for 2025 and 2026
To contribute to a Roth IRA, your modified adjusted gross income (MAGI) must fall within IRS limits. If your income exceeds the upper threshold, you cannot contribute directly to a Roth IRA. (You may still be able to use a “backdoor Roth IRA” conversion strategy — ask us about that.)
| Filing Status | Year | Full Contribution | Partial Contribution | No Contribution |
| Single | 2025 | $150,000 or less | $150,001–$165,000 | $165,000+ |
| 2026 | $153,000 or less | $153,001–$168,000 | $168,000+ | |
| Married, Filing Jointly | 2025 | $236,000 or less | $236,001–$246,000 | $246,000+ |
| 2026 | $242,000 or less | $242,001–$252,000 | $252,000+ |
Traditional IRA Deduction Limits (MAGI) for 2025 and 2026
Anyone with earned income can contribute to a Traditional IRA, but whether your contribution is tax-deductible depends on your MAGI and whether you (or your spouse) participate in an employer-sponsored retirement plan like a 401(k).
| IRA Owner | Plan Participation | Year | Full Deduction | Partial Deduction | No Deduction |
| Single | Active participant | 2025 | $79,000 or less | $79,001–$89,000 | $89,000+ |
| 2026 | $81,000 or less | $81,001–$91,000 | $91,000+ | ||
| Married, Filing Jointly | Active participant | 2025 | $126,000 or less | $126,001–$146,000 | $146,000+ |
| 2026 | $129,000 or less | $129,001–$149,000 | $149,000+ | ||
| Married, Filing Jointly | Non-active; spouse is active | 2025 | $236,000 or less | $236,001–$246,000 | $246,000+ |
| 2026 | $242,000 or less | $242,001–$252,000 | $252,000+ |
Even if your Traditional IRA contribution is not tax-deductible, contributing still makes sense — your earnings grow tax-deferred until retirement. Alternatively, you may be eligible to contribute to a Roth IRA instead.
When Can You Withdraw Money From an IRA?
You can withdraw money from either a Traditional or Roth IRA at any time. However, the tax treatment and potential penalties differ depending on your age, account type, and how long you have held the account.
Traditional IRA Withdrawal Rules
- Withdrawals are taxed as ordinary income in the year you take the money out
- A 10% early withdrawal penalty applies if you are under age 59½, unless an exception applies
- Required minimum distributions (RMDs) must begin at age 73
Roth IRA Withdrawal Rules
- Your contributions (not earnings) can always be withdrawn tax- and penalty-free at any time
- Qualified distributions (account open 5+ years AND age 59½+, disability, first-time home purchase, or death) are 100% tax- and penalty-free
- No required minimum distributions — you are never forced to take money out during your lifetime
10% Early Withdrawal Penalty Exceptions (Both IRA Types)
If you withdraw from a Traditional or Roth IRA before age 59½, a 10% penalty typically applies to the taxable portion. However, the IRS allows exceptions for life events and certain needs:
| 10% Early Withdrawal Penalty Exceptions |
|
| Death or terminal illness | Qualified higher education expenses |
| Total and permanent disability | Birth of a child or adoption (up to $5,000) |
| First-time homebuyer expenses (up to $10,000) | Substantially equal periodic payments (72(t)) |
| Unreimbursed medical expenses exceeding 7.5% AGI | Domestic abuse (up to $10,000) |
| Health insurance premiums while unemployed | Emergency personal expenses (up to $1,000/year) |
| IRS tax levy | Qualified military reservist distributions |
| Qualified disaster-related distributions | |
Why Starting Early Matters: The Power of Compound Growth
Regardless of which IRA you choose, the most important factor is starting as soon as possible. Compound interest — earning returns on your returns — is most powerful over long time horizons.
Frequently Asked Questions: Traditional IRA vs. Roth IRA
Can I have both a Traditional IRA and a Roth IRA at the same time?
Yes — you can contribute to both a Traditional IRA and a Roth IRA in the same tax year. However, your total combined contributions cannot exceed the annual IRS limit ($7,000 in 2025; $7,500 in 2026). Splitting contributions can be a smart tax diversification strategy.
Can I contribute to an IRA if I have a 401(k) at work?
Yes — participating in a workplace retirement plan (like a 401(k)) does not prevent you from contributing to either type of IRA. However, if you are an active 401(k) participant, your ability to deduct Traditional IRA contributions may be reduced based on your income.
What is MAGI and why does it matter for IRAs?
MAGI (modified adjusted gross income) is your adjusted gross income before certain deductions are added back. For Roth IRAs, MAGI determines how much you can contribute. For Traditional IRAs, MAGI determines whether your contributions are deductible. MAGI limits are adjusted annually for inflation.
Is a Roth IRA better than a Traditional IRA for young people?
For most younger savers who are currently in a lower tax bracket, a Roth IRA tends to be the better choice. Paying taxes now (while rates are low) and enjoying tax-free income in retirement — when earnings may be higher — is typically advantageous. That said, the best strategy depends on your individual tax situation.
We’re Here to Help You Choose the Right IRA.
Not sure which IRA is right for you? We’re here for you every step of the way. Our team at Citadel Credit Union can walk you through your options, review your financial situation, and help you open the account that puts you on the path to a brighter retirement.
Reach out to us today — because your future starts with one smart decision.
