Roth vs. Traditional IRA

The core question is whether your tax rate is higher now or will be higher in retirement. If you're in a lower tax bracket today and expect to be in a higher one at retirement, Roth is usually better you pay taxes at the lower current rate and withdraw tax-free later. If you're in a higher bracket now and expect a lower bracket in retirement, Traditional gives you an upfront tax break that's worth more than the taxes you'll pay on withdrawal. If you're genuinely uncertain, splitting contributions between both accounts hedges the risk.

Traditional IRA contributions may be tax-deductible in the year you make them, reducing your taxable income now. However, all withdrawals in retirement are taxed as ordinary income both your original contributions and all investment growth. Roth IRA contributions are made with after-tax dollars, so there's no upfront deduction. But qualified withdrawals in retirement both contributions and growth are completely tax-free. The total lifetime tax bill depends on which tax rate applies to more of your money.

For 2025, the IRA contribution limit is $7,000 per year for individuals under 50 and $8,000 for those 50 and older (the extra $1,000 is the catch-up contribution). This limit applies across all your IRAs combined not per account. Roth IRA eligibility phases out at higher income levels: $150,000–$165,000 for single filers and $236,000–$246,000 for married filing jointly. Traditional IRA deductibility also phases out if you're covered by a workplace plan and earn above certain thresholds.

Yes. You can contribute to both types in the same year, as long as your total contributions across both accounts don't exceed the annual limit ($7,000 for under 50 in 2025). Many people split their contributions to hedge against future tax rate uncertainty. You can also have a 401(k) at work alongside one or both IRA types workplace plan and IRA limits are separate.

If your current marginal tax rate exactly equals your retirement tax rate, the Roth and Traditional IRA produce identical after-tax wealth the math balances out perfectly. In this case, the Roth has a slight practical advantage: it has no required minimum distributions (RMDs), and tax-free income in retirement gives you more flexibility in managing your tax bracket. Traditional accounts require mandatory withdrawals starting at age 73, which can push you into higher brackets.