Traditional vs Roth IRA: How to Choose
The Traditional IRA gives you a deduction today and taxes you on the withdrawal. The Roth IRA gives you no deduction but lets the entire account grow and come out tax-free. Choosing between them comes down to one question: is your tax rate higher now or higher in retirement?
2025 contribution limits
- Annual contribution: $7,000 (Traditional and Roth combined)
- Age-50 catch-up: +$1,000
- Earned-income requirement: contribution cannot exceed taxable compensation for the year
You can split a single $7,000 between Traditional and Roth, but the combined total cannot exceed the cap.
The mathematical equivalence (and where it breaks)
If your tax rate is identical today and in retirement, Traditional and Roth produce identical after-tax outcomes. A $7,000 pre-tax contribution that grows to $50,000 and is withdrawn at 24% nets $38,000. A $5,320 Roth contribution (the after-tax equivalent of $7,000 pre-tax at 24%) that grows to $38,000 nets $38,000.
The math diverges when:
- Your future rate will be higher (e.g., you are in the 12% bracket now but expect 22%+ in retirement). Roth wins.
- Your future rate will be lower (you are in the 32%+ bracket now and expect to retire in the 12-22% range). Traditional wins.
- You can pay the Roth tax from outside money. The Roth $7,000 + outside tax payment effectively shelters more dollars. Roth wins on a tax-equivalent basis.
The deductibility rules for Traditional
If neither spouse is covered by a workplace retirement plan, the full Traditional contribution is deductible. If you are covered, the deduction phases out by AGI under IRC §219(g):
- Single, covered: $79,000–$89,000
- MFJ, both covered: $126,000–$146,000
- MFJ, you covered, spouse not: $126,000–$146,000 for you
- MFJ, spouse covered, you not: $236,000–$246,000 for you
- MFS, covered: $0–$10,000
The Roth income limits
IRC §408A(c)(3) phases out direct Roth contribution by MAGI:
- Single: $150,000–$165,000
- MFJ: $236,000–$246,000
- MFS: $0–$10,000
Above the cap, the backdoor Roth (contribute non-deductible Traditional, immediately convert to Roth) is the workaround — see our backdoor Roth article.
Why most high earners should do both
"Tax diversification" — having both Traditional and Roth dollars — gives you flexibility in retirement to manage your effective rate. In a low-income year you draw from Traditional (filling the lower brackets). In a high-income year (large capital gain, RSU vesting, Social Security plus pension) you draw from Roth to avoid pushing into a higher bracket or triggering IRMAA. The optionality is worth more than the theoretical optimum of guessing your future rate correctly.
Common mistakes
- Funding Traditional when ineligible to deduct. A non-deductible Traditional contribution creates basis you must track on Form 8606 for life. If you intend to do the backdoor Roth, the basis is purposeful; otherwise you have created an administrative burden for no gain.
- Forgetting the spousal IRA. A non-working spouse can contribute based on the working spouse's earned income under IRC §219(c) — even at $0 of personal income.
- Missing the April 15 deadline. IRA contributions for tax year 2025 must be made by April 15, 2026; no extensions.
- Treating the Roth IRA as a college-savings account. Withdrawals of contributions (not earnings) are always penalty-free under §408A(d)(4) — but using Roth as a 529 substitute sacrifices the tax-free retirement growth that is the account's purpose.
Sources
- Internal Revenue Code §408A, Roth IRAs (Cornell LII): law.cornell.edu/uscode/text/26/408A
- Internal Revenue Code §219, IRA deduction and phaseouts: law.cornell.edu/uscode/text/26/219
- IRS Publication 590-A, Contributions to IRAs: irs.gov/forms-pubs/about-publication-590-a
- IRS Notice 2024-80, 2025 IRA contribution and phaseout amounts: irs.gov/pub/irs-drop/n-24-80.pdf
- IRS Form 8606, Nondeductible IRAs: irs.gov/forms-pubs/about-form-8606
RetirementCheck101's worksheet maps your IRA eligibility and recommends the optimal split. Explore the free educational tool.