Traditional IRA
Pre-tax contributions — taxes deferred until withdrawal
Roth IRA
After-tax contributions — tax-free growth and withdrawals forever
| Factor | Traditional IRA | Roth IRA |
|---|---|---|
| 2024 contribution limit | $7,000 ($8,000 if 50+) | $7,000 ($8,000 if 50+) — income limits apply |
| Income limit to contribute | None for contributions; deductibility phases out | Phase-out: $146K–$161K single / $230K–$240K MFJ |
| Tax on contributions | May be deductible — reduces current AGI | Not deductible — after-tax dollars only |
| Tax on growth | Deferred until withdrawal | ✓ Tax-free |
| Tax on qualified withdrawals | 100% ordinary income | ✓ 100% tax-free |
| RMDs | Age 73 or 75 — mandatory | ✓ None during owner's lifetime |
| Early withdrawal penalty | 10% on full amount if under 59½ | 10% on earnings only if under 59½ and <5 yrs |
| MAGI impact of withdrawals | Raises MAGI — affects IRMAA, SS taxation | ✓ No MAGI impact |
| Inherited by non-spouse | 10-year rule — all distributions taxable | ✓ 10-year rule — all distributions tax-free |
| Best scenario | You expect lower tax rates in retirement | You expect same or higher tax rates in retirement |
Why most retirees are over-weighted in traditional — and what to do
Decades of defaulting to traditional 401(k) and IRA contributions — because the deduction felt better now — has left most retirees approaching retirement with the vast majority of their savings in tax-deferred accounts. Every dollar withdrawn in retirement is ordinary income. Every RMD pushes them into higher brackets. And their heirs face a 10-year forced distribution at full income tax rates.
The solution is Roth conversion — systematically moving traditional IRA dollars into a Roth IRA during the years when your income is lowest and your bracket has the most headroom. The 2026 TCJA sunset makes this the most urgent Roth conversion window of a generation.
The key question — will your tax rate be higher or lower in retirement?
The traditional IRA bet is that your tax rate in retirement will be lower than your rate today. For many high earners, this assumption is wrong — RMDs, Social Security, and other income sources keep brackets high in retirement. The Roth bet is that you pay tax now at known rates, then never pay again — regardless of what Congress does to rates in the future. Given the 2026 sunset and long-term fiscal pressures, locking in today's rates via Roth conversion is increasingly compelling.
| Account type | Under age 50 | Age 50 and older | Income limit |
|---|---|---|---|
| Traditional IRA | $7,000 | $8,000 | None for contributions; deductibility phases out with workplace plan |
| Roth IRA | $7,000 | $8,000 | Phase-out begins $146K (single) / $230K (MFJ); eliminated at $161K / $240K |
| Roth conversion | No limit | No limit | No income limit — any amount can be converted regardless of income |
The 2026 conversion window — act now
TCJA tax rates are scheduled to rise in 2026 — the 24% bracket expands to 25%, and higher brackets increase across the board. Every Roth conversion completed before the sunset locks in today's lower rate permanently. For a $500,000 traditional IRA converted over 2024–2025, the difference between converting at 24% vs. 28% is $20,000 in saved taxes — on that tranche alone.