An individual retirement account, commonly known as an IRA, is a tax-advantaged investment account that can help you save for retirement. Whether you're just starting your career or getting close to retirement, an IRA can help you build a solid financial foundation for the future.
There are two types of IRAs: Traditional and Roth. In this post, we'll explain the differences between the two and what you should consider when deciding which is right for your goals.
Quick takeaways
Traditional and Roth IRAs are tax-advantaged accounts that can help you save for retirement.
Saving with a Traditional IRA typically gives you a tax benefit in the present, and a Roth IRA can help you save on taxes later in retirement.
You can have both a Roth and a Traditional IRA if you meet the eligibility requirements but the limits are combined.
How much can you save with an IRA?
In 2026, you can contribute $7,500 to an IRA, or $8,600 with catch-up contributions if you are over 50.² IRS rules say you can't contribute more money than you earn, but you can use your spouse's income towards your contribution if you file a joint tax return. Note that this limit includes amounts contributed to both a Traditional and a Roth IRA.
Traditional IRA
A Traditional IRA is a tax-friendly account for your retirement funds. The money you contribute to a Traditional IRA is generally pre-tax1, which means you'll pay taxes as you withdraw it in retirement. (Note, there are a few exceptions to consider.) If the contributions you make to a Traditional IRA are pre-tax, you may potentially lower your taxable income as you save for retirement.2
Benefits of saving with a Traditional IRA
There are many benefits to saving with a Traditional IRA. For example, when you contribute to a Traditional IRA with pre-tax dollars1, you may reduce your taxable income in the year the contributions are made, providing an immediate tax benefit.
Also, with tax-deferred growth, the interest your account earns won't be taxed until you withdraw it. This means your savings can grow over time without paying taxes each year. Plus, you may be in a lower tax bracket during retirement, potentially leading to even more tax savings.
Traditional IRA withdrawal rules, penalties, and flexibility
While you can take your money out of an IRA at any time, your circumstances at the time of withdrawal will determine if you will owe any penalties.
While you can take money out of your IRA at any time, withdrawals taken before age 59½ will generally have a 10% early withdrawal penalty. However, you may be able to avoid the 10% tax if you qualify for an exception under IRS guidelines, such as using withdrawal money for a first-time home purchase, higher education expenses, or qualifying medical expenses.
Traditional IRAs also have required minimum distributions (RMDs) once you reach a certain age (currently age 73), meaning you must withdraw a certain amount every year. While this requirement may limit your savings flexibility, you can still benefit long-term from the account's tax-deferred growth and potential for lower taxes in retirement.
Roth IRAs
Roth IRAs work a bit differently. Contributions you make to a Roth IRA are taxed as you save, which means your savings — including your investment return — can generally be taken out tax-free when you meet specific requirements.³ However, there are income limitations4 on the ability to make Roth IRA contributions. If your modified adjusted gross income (MAGI) is above the limit you will not be able to make a Roth IRA contribution for the year and any amount contributed will need to be removed.
Benefits of saving with a Roth IRA
Saving for retirement with a Roth IRA offers a unique set of benefits. Unlike Traditional IRAs, Roth IRAs are not subject to required minimum distributions (RMDs) so you don't have to withdraw a certain amount each year once you reach a certain age. This gives you more control over your savings in retirement.
It's also important to note that Roth IRAs can be helpful when it comes to estate planning. With a Roth IRA, your loved ones can inherit your savings and the account can keep growing tax-free, until they withdraw it5.
Roth IRA withdrawal rules, penalties, and flexibility
When it comes to withdrawals, Roth IRAs provide a lot of flexibility. You won't pay taxes on withdrawals made from a Roth IRA that consist of your annual contributions regardless of when you take it out. You also generally will not pay taxes on the earnings as long as you're at least age 59 ½, disabled, have died, or are a first time home buyer (limited to $10,000 over your lifetime) and it has been at least five years since you first contributions to a Roth IRA account. However, if you want to withdraw money sooner, you could face taxes and a 10% penalty (unless an exception applies) on your earnings.
It's worth mentioning that the five-year rule isn't based on one specific Roth IRA, so the clock starts once you've contributed to any Roth IRA.
Traditional IRA vs Roth IRA: Understanding the differences
There are some differences between Traditional and Roth IRAs, with the most significant difference being when you'll receive tax benefits. To recap:
Traditional IRA
Contributions are generally pre-tax1
Investment growth is tax-deferred
Taxes paid at time of withdrawal
Roth IRA
Contributions are post-tax
Investments grow tax-free
Withdrawals generally are tax-free, if qualified3
Can I have both a Traditional and a Roth IRA?
Yes! So long as you meet the eligibility requirements for each, you can save for retirement with both a Traditional and Roth IRA.
A key consideration here is how much you can contribute. The total annual contribution limit applies to both Traditional and Roth IRAs. Meaning, you can save up to $7,5006 in 2026 across any and all Traditional and Roth IRA accounts you may have — not $7,500 in each.
Which IRA is right for you?
At the end of the day, the Traditional vs. Roth IRA decision boils down to tax preferences. Generally speaking, Roth IRAs can be a great option if you think you'll be in a higher tax bracket during retirement than you are today, have time for the earnings to grow potentially tax-free, or are more interested in the estate planning aspect of the Roth IRA. On the other hand, Traditional IRAs may be suitable if you expect to be in the same or a lower tax bracket when you retire or want the tax-deduction now3.
That said, saving for retirement is personal. There are many factors to consider when building a successful savings strategy, including your income, expenses, where you plan to retire and how you see yourself spending your time. We recommend consulting a professional that can help you build a roadmap for your financial future.
The information provided in this blog post is accurate and up-to-date as of May 2026. IRS plans and limits are subject to change. Please consult a Financial Professional for the most current information regarding your specific financial situation.
Disclosure
1The tax deductibility of Traditional IRA contributions varies based on (1) if you are covered by an employer sponsored plan, (2) if your spouse (if applicable) is covered by an employer sponsored plan, and (3) your modified adjusted gross income (MAGI) if you or your spouse is covered. Traditional IRA contributions that are not deductible can stay in the IRA account but must be tracked by the IRA account owner on IRS Form 8606.
2 This content is for informational purposes only and is not intended to be taken as tax advice. Please contact a tax professional for further information.
³Roth contributions are always distributed tax-free. The earnings on Roth contributions will be tax-free if the following conditions are met: (a) you're either over age 59½, disabled, have died, or are making a first time home purchase AND (b) it has been 5 years since your first contributions to any Roth IRA account. Please consult a qualified financial advisor or tax professional to determine what is applicable to your financial situation.
4 For 2026 the MAGI phase out ranges for making a Roth IRA contribution are (1) single/head of household $153,000 - $168,000; (2) married filing jointly $242,000 - 252,000; (3) married filing separately less than $10,000.
5 When and how quickly a beneficiary of an IRA must take distributions is based on several factors including their relationship to the IRA owner and how old the IRA owner was when they died. If the beneficiary is not the spouse of the IRA owner they generally need to distribute the assets within 10 years, with limited exceptions for certain beneficiaries.
6 Subject to IRS cost-of-living adjustments. In 2026, individuals can contribute up to $7,500 between their traditional and Roth accounts. If you're 50 or older, you can contribute an additional $1,100 ($8,600 in total).
