Retirement planning is one of the most important financial decisions our clients face, and today we’ll look at one of the first questions that we often hear: “Should I choose a Roth IRA or a traditional IRA?”
Both accounts offer tax advantages but function differently: with a Roth IRA, you pay taxes now (contributions are made with after-tax dollars), but your money grows tax-free and qualified withdrawals in retirement are tax-free, while with a traditional IRA you get a tax break now (contributions are often tax deductible), but you pay ordinary income tax when you withdraw the money in retirement.
The right choice often depends on your income, tax expectations, and long-term goals. There is no right answer for everyone! We hope that by the time you finish reading this, you will be better equipped to make the decision most suitable for you.
What is a Roth IRA?
Like we mentioned above, you contribute to a Roth IRA with after-tax dollars and qualified withdrawals in retirement are 100% tax free. Importantly, there is no Required Minimum Distribution (RMD) during the original owner’s lifetime, meaning you can withdraw as you see fit in retirement without minimums or limits. A Roth IRA represents the potential for tax-free retirement income, but there are a few considerations.
The IRS places hard income limits on who can contribute directly to a Roth IRA. In 2026, the phase-out limits say that if your Modified Adjusted Gross Income (MAGI, which for most people is just a fancy term for about how much money they make) exceeds $153,000 for a single filer or $242,000 for married filers, they cannot contribute directly to a Roth IRA. If you are eligible to contribute to a Roth IRA, 2026 limits are $7,500 annually if you are under the age of 50, and $8,600 annually (which includes a catch-up contribution) if you are over 50, as reported by Vanguard here.
These restrictions make Roth IRAs ideal for younger professionals making below the IRS’ MAGI limit and individuals expecting higher future tax rates, so that they can make after-tax payments while rates are lower.
What is a Traditional IRA?
On the other hand, a traditional IRA grants you a tax break now, but you pay income tax in retirement as you did on a regular salary when you were still working. Contributions are usually tax-deductible, investments grow tax-deferred, and withdrawals in retirement are taxed as ordinary income for a seamless transition from your salaried working life. RMDs begin later in life (at age 73), so you don’t have to withdraw from a traditional IRA right away if you don’t need it – saving you from paying more in taxes on withdrawals. However, you are required to start withdrawing at a certain point, as opposed to a Roth IRA which has no RMD as discussed above.
For 2026, the contribution limits are the exact same as a Roth IRA (see paragraph above). Even though contributions made now to a traditional IRA are tax-deductible, the IRS uses a sliding scale known as income phase-out to take away tax breaks as you earn more money. You reap the full benefits while your income is below a threshold, your deduction is prorated as your income climbs higher, and eventually your income crosses an upper limit and no longer provides you with tax breaks. Consult a First Light advisor today to discuss what these income brackets look like and what makes sense for you on your personal financial journey.
Ideal candidates for traditional IRAs are higher earners who don’t qualify to make Roth contributions, as well as people expecting lower taxes in retirement who may have surplus income to lessen the blow of taxable withdrawals.
How to Decide Which IRA is Right for You
There are several factors to consider when choosing with IRA is right for you. The first and most important barrier to entry is your current income. Before you get excited for a Roth IRA, ensure that your household income is within the limits for contributions. Once you’re clear on that front, with both options open, you can begin the decision process in earnest.
You should have an estimate for what your retirement income may look like. If you are struggling with this step, consult our series from last year on retirement savings. Take into account all income streams like investments, real estate, Social Security, company residuals etc. to paint a comprehensive picture. If you are expecting to retire comfortably, taxed withdrawals to save money right now may not be such a burden. Make sure you compare your tax bracket today vs. where you expect to be in retirement so that you can align your IRA of choice with the difference. The nice thing about choosing a traditional or Roth IRA is that they are diametrically opposite in how payments and withdrawals function, so they allow you great flexibility to match your specific circumstances.
Consider the time horizon until you are set to retire. If you are retiring next year, tax rates probably won’t have gone up all that much. However, if you’re in your 20s planning far ahead, you can reasonably assume that inflation and cost of living increases will necessitate higher tax rates by the time you retire – which can help crystallize your choice of IRA since only one of them has taxable withdrawals. The Tax Policy Center has baseline estimates here to start your research. Similarly, knowing generally how far you are from retirement will give you a good picture of how much you might have saved by then if all goes according to plan. This breakdown can help inform your decision as well.
Another consideration is early withdrawals. Roth IRAs allow tax-free and penalty-free early contribution withdrawals at any time and earnings withdrawals subject to tax and a 10% penalty, while traditional IRAs subject both early contribution and earnings withdrawals to income tax and a 10% penalty for individuals under the age of 59.5.
Finally, many folks desire tax diversification both now and in retirement. You don’t want to be paying all your taxes at the same time, so consider current debt, obligations, and expected tax payments as opposed to what that structure will look like in retirement. Staggering payments is fiscally savvy and prevents you from depleting emergency funds, other account contributions, and expendable income.
Can You Contribute to Both?
Yes, you can contribute to both a traditional and a Roth IRA, although there are shared annual contribution limits, so you aren’t doubling your tax advantage. The annual IRS contribution limit is a single bucket, so the $7,500 and $8,600 numbers we mentioned above (depending on your age) would encompass contributions made to both accounts. If you accidentally over-contribute to your IRAs, the IRS will assess you a 6% penalty tax every year on the excess amount until it is corrected and withdrawn, so make sure you are crossing your Ts and dotting your Is!
A First Light advisor can help you figure out if shared contributions make sense – and how much to assign to each account – or whether you should be focused on one approach over the other.
Common Mistakes to Avoid
Most people wait too long to start investing in an IRA, but that isn’t the only common mistake when retirement planning. Don’t ignore income limits, don’t forget about paying your taxes once you retire, and most importantly: don’t assume that one type of IRA is universally “better.” They are both highly case dependent and can be equally viable depending on your personal financial portfolio! There is very rarely a one-size-fits-all approach in the world of financial planning, and this topic is no exception.
In Conclusion
Like most financial decisions, choosing the best IRA depends on personal goals and tax strategy, and you don’t have to come to those conclusions on your own. A First Light advisor is available to speak with you today and help you choose an IRA plan while avoiding common pitfalls. Thanks for reading, and we’ll see you next month!
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Advisors associated with First Light Financial Planning may be either (1) registered representatives with, and securities offered through LPL Financial, Member FINRA/SIPC, and investment advisor representatives of Great Valley Advisor Group; or (2) solely investment advisor representatives of Great Valley Advisor Group, and not affiliated with LPL Financial. Investment advice offered through Great Valley Advisor Group, a registered investment advisor. Great Valley Advisor Group and First Light Financial Planning are separate entities from LPL Financial.
Kris Money is solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial.
Any opinions or views expressed by Kris Money are her own and not those of LPL Financial.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual
In a ROTH IRA, withdrawals of earnings prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS Penalty tax. Limitations and restrictions may apply.