Hey, hey, hey! How are you doing? Summer is in full swing, and the temperatures are ramping up! Stay cool by the pool.
Last week, we discussed the differences between taxable, tax-deferred, and pre-tax and tax-deferred savings. This week, we will start a multiple-part series to discuss the differences between the Traditional IRA and the Roth IRA and how to understand them. (For educational purposes only. This article does not constitute personalized tax, legal, or investment advice. Please consult a qualified financial advisor or tax professional regarding your individual situation.)
What Is an IRA?
An Individual Retirement Account (IRA) is a tax-advantaged savings account designed to help individuals save for retirement. Two of the most widely used types are the Traditional IRA and the Roth IRA. While both offer meaningful tax benefits and grow your investments on a tax-advantaged basis, they differ significantly in when you receive that tax benefit — and those differences can matter a great deal depending on your circumstances.
The Core Difference: When You Pay Taxes
The most fundamental distinction between these two accounts comes down to timing:
- A Traditional IRA may allow you to deduct contributions from your taxable income today, meaning you defer taxes until withdrawal in retirement.
- A Roth IRA is funded with after-tax dollars. There is no upfront deduction, but qualified withdrawals in retirement are generally tax-free.
I say this a lot when educating people on the difference: “The IRS is going to get you on the front end or the back end.” Think of it this way: with a Traditional IRA, you get a potential tax break now and pay later. With a Roth IRA, you pay now and may enjoy a tax break later.
Key Features at a Glance (2026 Tax Year)
|
Feature |
Traditional IRA |
Roth IRA |
|---|---|---|
|
2026 Contribution Limit |
$7,500 ($8,600 if age 50+) |
$7,500 ($8,600 if age 50+) |
|
Tax Deduction on Contributions |
Potentially yes (subject to income/plan limits) |
No |
|
Tax on Qualified Withdrawals |
Yes — taxed as ordinary income |
No — withdrawals are tax-free |
|
Required Minimum Distributions (RMDs) |
Yes, beginning at age 73 |
No RMDs during the owner’s lifetime |
|
Early Withdrawal Penalty |
10% penalty before age 59½ (exceptions apply) |
10% penalty on earnings before 59½ (contributions can be withdrawn anytime) |
|
Income Limits for Contributions |
No income limit to contribute; deductibility may be limited |
Phase-out applies; high earners may not be eligible to contribute directly |
Source: IRS.gov, Publication 590-A. Limits are subject to annual cost-of-living adjustments.
Well, that’s enough for Part 1. Next week, we will dive deeper and take a closer look at the Traditional IRA.
(This article is intended for general educational purposes only and reflects tax rules for the 2026 tax year. Tax laws are subject to change. This content does not constitute personalized investment, tax, or legal advice. Individual results will vary. Please consult a qualified financial advisor, tax professional, or attorney before making retirement planning decisions.
Sources: IRS Publication 590-A, IRS Publication 590-B, IRS.gov)
I had a great time at the last Live Like Locals Social event on June 11th at Novo New Hampstead in Bloomingdale! It was great meeting some of you. I like putting a face with a name, and I always like having fun at a free event! I hope to see you at the next event.
Thought for the Week:
“You’re always one decision away from a totally different life.”
About The Author
Frederick Hogsett, Jr. is a licensed financial coach with almost 30 years of experience helping individuals, families, small businesses, and nonprofit organizations. He recently opened an office in Savannah, Georgia, and can be reached at (803) 463-2773 or by website at www.livemore.net/fhogsettjrclient.
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