Short answer: pick the Roth IRA if you expect your tax rate to be higher in retirement than it is today, which is common early in a career. Pick the Traditional IRA if your tax rate is high now and you expect it to be lower later. If you can't decide, many beginners choose Roth for its flexibility. It's a general framework, not personal advice.
The difference in one sentence
With a Traditional IRA you may get a tax deduction now and pay tax when you withdraw; with a Roth IRA you pay tax now and withdrawals in retirement are tax-free.
Side by side (2026)
| Roth IRA | Traditional IRA | |
|---|---|---|
| 2026 limit | $7,500 combined across both (+$1,100 at 50+) | |
| Tax going in | No deduction | Often deductible; the deduction phases out at higher incomes if you or your spouse have a workplace plan |
| Tax coming out | Tax-free in retirement | Taxed as income |
| Income limit to contribute | Phases out at $153,000 to $168,000 (single) and $242,000 to $252,000 (married filing jointly) | None |
| Early access | Your contributions (not earnings) can come out any time, tax- and penalty-free | Withdrawals before 59½ are usually taxed plus a 10% penalty, with some exceptions |
| Required withdrawals | None during your lifetime | Required minimum distributions starting at 73 (75 if you were born in 1960 or later) |
| Deadline for 2026 | The April 2027 tax filing deadline | |
You need earned income (wages or self-employment income) at least equal to what you contribute. A spouse with no income can still contribute through a spousal IRA if you file jointly.
Why the tax rate is the whole decision
If your tax rate is the same now and in retirement, the two accounts end up with the same after-tax amount. Say you're in the 22% bracket both now and later, and your investments grow tenfold:
- Traditional: $7,500 goes in pre-tax and grows to $75,000. You pay 22% when you withdraw and keep $58,500.
- Roth: the same $7,500 of income is $5,850 after 22% tax. It grows to $58,500 and comes out tax-free.
Same result. The account that wins is the one that pays tax at the lower rate. That's why people early in their career, who usually earn less now than they will later, often lean Roth.
Hypothetical example for illustration only; returns aren't guaranteed and can be negative.
Example: Alex, 24
Alex earns $48,000 and is in the 12% federal tax bracket. Alex expects to earn more over time, so the tax saved today with a Traditional IRA is small compared with the tax-free withdrawals later. Alex opens a Roth IRA and sets up an automatic $300 a month into a target-date index fund. Hypothetical example for illustration only.
Common questions
Can I have both?
Yes, but the $7,500 limit is shared. You could put $4,000 in one and $3,500 in the other.
Should I do an IRA or my 401(k) first?
Usually: contribute enough to your 401(k) to get the full employer match first, then an IRA, then more in your 401(k). Our order of operations post goes through it step by step.
I earn too much for a Roth IRA. Now what?
There's a strategy called a backdoor Roth, but it has tax traps if you already have money in a Traditional IRA. It's worth talking to a tax professional first.
What should I buy inside it?
Opening the account is only step one: the money needs to be invested. Many beginners use a low-fee target-date fund or a broad index fund. Check the expense ratio, since fees compound over decades.
The full plan
The Investing Starter Guide, US Edition covers the 401(k), Roth and Traditional IRA and HSA, what to buy and how to place your first order. The US Starter Kit adds a Portfolio Tracker that keeps track of your IRA room for you.
Educational content only, not financial, tax or legal advice. Limits are 2026 figures; confirm current numbers with the IRS (irs.gov).