United States
Hong KongTraditional or Roth: the rate now against the rate later
A traditional IRA may give a deduction now with taxable withdrawals later; a Roth gives no deduction and tax-free qualified withdrawals. The decision turns on whether your rate is higher now or in retirement.
The comparison in one line: pay tax now or pay it later, at whichever rate applies.
The 2026 limits
| Item | Amount |
|---|---|
| Contribution limit | USD 7,500 |
| Catch-up from age 50 | USD 1,100 |
| Applies across | Traditional and Roth combined |
| Requires | Earned income at least equal to the contribution |
The earned income requirement catches retirees. A spousal IRA is the exception, allowing a contribution for a non-working spouse based on the working spouse's income on a joint return.
Two different phase-outs
This is where candidates get confused, because the two accounts are limited in different ways.
- Traditional IRA. Anyone with earned income may contribute. The deduction is phased out where the taxpayer or spouse is covered by a workplace plan and income exceeds a threshold.
- Roth IRA. The contribution itself is phased out above an income threshold, regardless of workplace plan coverage.
Deductibility against contribution eligibility. That distinction is the single most examined point in this topic.
Which to choose
| Points to Roth | Points to traditional |
|---|---|
| Low current marginal rate | High current marginal rate |
| Expected higher rate in retirement | Expected lower rate in retirement |
| Long time horizon | Short horizon |
| Desire to avoid required distributions | Need the deduction now |
| Estate planning - tax-free to heirs | Charitable intent for the balance |
| Young earner early in a career | Peak-earning years |
The last row is the practical rule of thumb: Roth early in a career, traditional at peak earnings, and conversions in the low-income years between retiring and claiming Social Security.
One applies to Roth contributions - the account must be open five years for earnings to be withdrawn tax free, alongside a qualifying event. A separate five-year clock applies to each conversion for penalty purposes. Questions conflate them deliberately.
The backdoor Roth
A non-deductible contribution to a traditional IRA followed by a conversion to Roth. It exists because contribution income limits apply to the Roth and not to the conversion.
The complication is the pro rata rule: the conversion is taxed proportionally across all traditional IRA balances, not just the newly contributed non-deductible amount. A client with a large existing traditional IRA gets a mostly taxable conversion.
Rolling existing IRA balances into a 401(k) first, where the plan permits, removes them from the calculation. That is the technique, and it is examined.
Ordering rules for Roth withdrawals
Contributions come out first, always tax and penalty free. Then converted amounts, oldest first. Then earnings.
Which means a Roth is more accessible than clients assume - the amount originally contributed can be withdrawn at any time without tax or penalty.
Contribution and benefit limits are indexed annually and several were changed by recent legislation. Confirm the current figure against the IRS before relying on it.
Common questions
What is the difference between a traditional and Roth IRA?
A traditional IRA may give a deduction now with taxable withdrawals later. A Roth gives no deduction and tax-free qualified withdrawals. The choice turns on your rate now against your rate in retirement.
What is the difference between the two phase-outs?
For a traditional IRA the deduction phases out where a workplace plan covers you and income is high. For a Roth, the ability to contribute at all phases out above an income threshold.
What is a backdoor Roth?
A non-deductible traditional IRA contribution followed by a conversion, using the fact that income limits apply to Roth contributions but not to conversions.
What is the pro rata rule?
A conversion is taxed proportionally across all traditional IRA balances, not only the non-deductible amount. Rolling existing balances into a 401(k) first removes them from the calculation.
Can you withdraw Roth contributions early?
Yes. Ordering rules take contributions out first, tax and penalty free at any time, then converted amounts oldest first, then earnings.