Roth IRA benefits: Roth IRA vs. traditional IRA accounts

You know that putting money away for retirement is a smart financial strategy, and savvy investors maximize earnings while minimizing taxes. A Roth IRA could be an important part of your investment portfolio, especially if you expect to be in a higher bracket when you’re ready to retire.

To understand whether a Roth IRA may fit into your retirement strategy, it helps to start with the eligibility and contribution rules.

What is a Roth IRA?

A Roth IRA is a type of individual retirement account (IRA) funded with after-tax dollars that offers tax-free growth and tax-free qualified withdrawals.

While contributions are not tax-deductible, they do grow tax-free. Qualified withdrawals are also tax-free if you’ve held the account for at least five years and are age 59½ or older. You can withdraw your Roth IRA contributions at any time without paying taxes or penalties. Anyone with a qualifying income level can invest in a Roth IRA, even if you’re covered through a workplace retirement plan, like a 401(k) or 403(b). 

What is the Roth IRA contribution limit for 2026?

For the 2026 tax year, the standard Roth IRA contribution limit is $7,500, with an $8,600 limit for individuals age 50 and older.

This standard contribution limit applies to all your traditional and Roth IRAs combined. If you are age 50 and older, the catch-up contribution limit is $1,100. You typically have until the federal tax filing deadline to make IRA contributions for the prior tax year.

What are the Roth IRA income limits for 2026?

Your modified adjusted gross income (MAGI) and tax filing status determine the annual amount you can invest in a Roth IRA. 

How does a Roth IRA vs. traditional IRA compare?

The main difference between a Roth IRA and a traditional IRA lies in when you pay taxes. A Roth IRA uses after-tax dollars for tax-free withdrawals in retirement, while a traditional IRA uses pre-tax dollars that are taxed upon withdrawal. Both accounts offer tax-advantaged ways to save for retirement.

With a traditional IRA, your contributions may be tax-deductible, depending on income and if you have an employer-sponsored retirement plan. Your earnings grow tax-deferred and you pay taxes based on your current tax bracket when you withdraw money in retirement. Once you reach age 73, you must start taking required minimum distributions (RMDs). For individuals born in 1960 or later, the RMD age will increase to 75 starting in 2033, with the earliest first-year RMDs occurring in 2035.

A Roth IRA, on the other hand, is funded with after-tax dollars. Qualified distributions remain tax-free at any time, including in retirement. RMDs are not required for the original account owner.

You can contribute to both accounts as long as your total contributions don’t exceed the annual limit. Talk with your tax advisor or financial professional to determine what may be right for you.

What are the benefits of a Roth IRA?

The primary benefits of a Roth IRA include tax-free growth, tax-free withdrawals in retirement, tax diversification and the absence of required minimum distributions.

• Tax-free growth. Roth IRAs are funded with after-tax money, allowing both contributions and earnings to potentially grow tax-free.
• Tax-free withdrawals. Account holders can withdraw their contributions at any time free of tax and penalties. Withdrawals of earnings are tax-free if the account has been open for at least five years and you are at least 59 ½. However, tapping into Roth IRA earnings before age 59½ may be subject to penalties and taxes.
• Tax diversification. Used alongside taxable and tax-advantaged accounts, a Roth IRA can help diversify how your retirement income is taxed, giving you more flexibility when withdrawing funds later.
• No required minimum distributions. This flexibility can be beneficial during a down market.
• Estate planning benefits. Beneficiaries of an inherited IRA receive tax-free withdrawals if the account has been open at least five years. However, distributions are still required and the balance must be emptied within 10 years for most beneficiaries. Read more about inherited IRA rules. 

Who should consider using a Roth IRA?

A Roth IRA is ideal for young professionals early in their career, investors who expect to be in a higher tax bracket in retirement and those who want tax-free income sources later in life.

A Roth IRA may not be the best fit if you expect to be in a significantly lower tax bracket in retirement, need immediate access to investment earnings, or would benefit more from a current tax deduction.

What is a Roth conversion?

A Roth conversion involves moving money from a tax-deferred account (like a traditional IRA or pre-tax 401(k)) into a Roth account.

You pay income tax on the amount you convert in the year you convert it, but future qualified withdrawals from your Roth account are generally tax-free. State income taxes may also apply, depending on where you live.

If you earn more than the Roth IRA income limits, you can take advantage of a backdoor Roth IRA. While similar to a Roth conversion, a backdoor Roth IRA allows you to first move after-tax, non-deductible funds into an existing traditional IRA and then immediately roll the funds into a Roth IRA. This strategy may trigger additional taxes if you have other pre-tax IRA balances.

Note that Roth earnings are tax-free only if the account meets the five-year rule and age requirements. 

Why do Roth conversions matter for your long-term tax strategy?

Roth conversions help build tax-free income, reduce RMDs and give you more control over your taxes if rates change in the future.

Because Roth conversions involve paying taxes upfront, they should be evaluated as part of your broader financial plan. Converting in a large amount in a single year can raise your tax bill, so smaller, partial conversions spread over several years may help manage the tax impact. If you expect to retire in a state with lower or no state income tax, that may also factor into determining if a Roth conversion is right for you.  

Remember that Roth conversions require a new five-year holding period. Talk with a knowledgeable financial professional to determine if a Roth conversion makes sense for your goals.

How to start a Roth IRA?

You can open and fund a Roth IRA in five easy steps:

• Check your eligibility. Confirm your income falls within Roth IRA limits based on your modified adjusted gross income (MAGI) and tax filing status.
• Choose a financial institution. You can generally open a Roth IRA online or in person through a bank, brokerage firm or automated investment platform (also called a robo-advisor).
• Open the account and name beneficiaries. Completing this step helps ensure assets pass according to your wishes.
• Fund the account with after-tax dollars. Consider setting up automatic transfers to streamline your contributions.
• Select your investments and review regularly. Your investment mix should align with your goals, time horizon and risk tolerance.

Frequently asked questions

Can I have both a 401(k) and a Roth IRA?

Yes, you can contribute to both a workplace 401(k) and a Roth IRA in the same year. Your ability to contribute to the Roth IRA depends entirely on your modified adjusted gross income (MAGI) and not your participation in an employer plan. A Roth IRA calculator can help you determine how much you can contribute.

What happens if I contribute too much to my Roth IRA?

If you exceed the annual Roth IRA contribution limits, the IRS charges a penalty tax on the excess amount for each year it remains in the account. You can avoid this penalty by withdrawing the excess contributions and any earnings before your tax filing deadline.

Do I pay taxes when I withdraw my original Roth IRA contributions?

No, you don’t pay taxes or penalties when you withdraw your original contributions. Because you fund the account with after-tax dollars, you can access those specific contribution amounts at any time.

Whether you prefer investing on your own or want personalized guidance, we have options to help you get started. Learn how to open an IRA.