Roth IRA vs. Traditional IRA: Which One Works for Your Retirement Goals

Understanding how IRAs work

Traditional IRAs explained: Tax-deferred savings for now

A traditional IRA can defer your taxable income today so you can put it towards savings for retirement later. You won’t owe taxes on any investment gains, dividends or interest until you begin making withdrawals in retirement. Once you start withdrawing funds, distributions are taxed as ordinary income with a 10% additional tax added if you’re under age 59 and a half.

This can be especially helpful if you expect to have a lower income after you retire. Reducing your taxable income today may mean greater overall savings in the long term. Then when you retire at a lower income than when you were working and begin withdrawals, you’ll be taxed at a lower rate.

Traditional IRA Details for 2026

• Contribution limits: Up to $7,000 per year or $8,000 if you’re 50 or older.
• Eligibility: Anyone with taxable compensation can contribute, regardless of age.
• Tax deduction: Contributions may be fully or partially deductible depending on your income and whether you (or your spouse) participate in an employer-sponsored plan.
• Withdrawals: You can begin taking withdrawals at age 59½. Early withdrawals may face income tax and a 10% penalty, unless they meet specific exceptions such as first-time home purchases or qualified medical expenses.
• Required Minimum Distributions (RMDs): You must start taking RMDs by April 1 of the year after you turn 73 or 75 if you were born in 1960 or later.

A traditional IRA can be a smart choice for savers who want an immediate tax break and expect to be in a lower tax bracket once they retire, as well as provide a strong strategy for early retirement savings.

Roth IRAs explained: Tax-free growth for the future

Roth IRAs can be another effective tool to save for retirement that takes a slightly different approach than traditional IRAs. While all contributions to a Roth IRA are made from taxable money, qualified withdrawals made within retirement are not taxable.

This can make a big difference if you expect your income and tax rate to increase in the future, as well as provide greater flexibility for managing savings over time.

Because you’ve already paid tax on all your Roth IRA contributions, you can withdraw the original contributions (but not earnings) at any time without taxes or penalties. This flexibility can be useful, whether for an unexpected expense or a longer-term strategy.

Roth IRA Details for 2026

• Contribution limits: $7,000 per year or $8,000 if age 50 or older.
• Income limits: Your ability to contribute begins to phase out at higher income levels. For 2026, single filers can typically contribute if their modified adjusted gross income (MAGI) is under $170,000, and married couples filing jointly qualify below $260,000 (estimated based on annual inflation adjustments).
• Withdrawals: To be tax-free, withdrawals must meet two conditions: you’ve had the account for at least five years and are at least 59½ years old.
• No RMDs: Roth IRAs have no required minimum distributions during your lifetime, so your money can continue growing tax-free for as long as you wish.

A Roth IRA may be especially appealing if you’re younger, early in your career or want to avoid taxes on your retirement income later. Paying taxes now can provide peace of mind knowing your future withdrawals won’t reduce your income through additional tax bills.

Traditional IRA vs Roth IRA key differences

While both Roth and Traditional IRAs are designed to help you save for retirement, they differ in several key ways. Understanding these distinctions can make it easier to decide which account, or combination of accounts, best fits your financial goals.

Timing

Each IRA type offers a unique benefit depending on your current and future circumstances.

• A traditional IRA gives you the tax advantage upfront by potentially lowering your taxable income the year you contribute.
• In contrast, a Roth IRA gives you the advantage later, with tax-free income in retirement.

Eligibility

• Anyone with earned income can open a Traditional IRA.
• Roth IRAs have income limits that determine how or how much you can add each year. For higher-income earners, this may mean the ability to contribute only partially or explore other options such as a Roth conversion.

Traditional IRA vs Roth IRA withdrawals

• Traditional IRAs require you to start taking required minimum distributions (RMDs) beginning at age 73 or 75 (if you were born in 1960 or later).
• Roth IRAs, on the other hand, have no RMDs during your lifetime, giving your savings the opportunity to continue growing tax-free. This makes them especially appealing if you want to leave your funds untouched for as long as possible or pass them on to beneficiaries.

When it comes to accessing your money, Roth IRAs provide more flexibility. Because you’ve already paid taxes on your contributions, you can withdraw them at any time without penalty. Traditional IRAs are generally less flexible, with early withdrawals resulting in taxes and penalties unless you qualify for an exception.

How to choose between a Roth and Traditional IRA

Choosing between a Roth and Traditional IRA depends on your income, tax situation and long-term goals.

A traditional IRA may make sense if you want to reduce your taxable income today and expect to be in a lower tax bracket after retirement.

A Roth IRA may be a better fit if you prefer paying taxes now in exchange for tax-free withdrawals later or want flexibility to access your contributions at any time.

If you’re eligible, you can contribute to both, using each account’s benefits to balance current tax savings with future tax-free growth. Reviewing your income, tax bracket and overall financial plan each year can help ensure your IRA strategy stays aligned with your goals.

IRA contribution strategies and tips

Regardless of which IRA you choose, consistency and planning make the biggest difference in long-term growth.

• Start early. Even small contributions can grow substantially over time through compounding interest.
• Automate contributions. Setting up recurring deposits helps you stay on track.
• Use catch-up contributions. If you’re 50 or older, you can add an extra $1,000 per year.
• Coordinate with other plans. Use your IRA to complement your 401(k) or employer retirement plan.
• Review annually. Adjust your savings as your income or goals evolve.

Explore your options and find the IRA that fits your savings goals with help from the team at Associated Bank.