By Theresa Cagle Fry, Senior Vice President and Manager IRAs, Retirement & Education Planning
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Individual Retirement Accounts (IRAs) are an essential part of a retirement savings strategy. IRAs offer tax advantages that other types of investment accounts do not. But with both a traditional IRA and Roth IRA available, how do you decide which type of IRA to invest your savings in?
Both a traditional and Roth IRA provide tax-deferral, which means you will not pay income tax on what your investments earn as you earn it. Choosing the type of IRA that is right for you can depend on when you want to experience tax benefits—on the front end or the back end. Or it may come down to whether you meet the eligibility requirements.
The first requirement you must meet to contribute to either a traditional or Roth IRA is you must have earned income. Therefore, you (or your spouse, if you are married) must be working to make contributions. Contributions are limited to the lesser of 100% of your earned income, or $7,000. If you are aged 50 or older, you can contribute an additional $1,000, bringing the total to $8,000 if you and your spouse combined have at least $8,000 in earned income.
You can contribute to both a traditional and Roth IRA, if eligible, but keep in mind that the contribution limit above is per person, not per IRA. Therefore, the annual contribution limit is shared between traditional and Roth IRAs.
If you can check earned income off your list, then here is a closer look at some additional considerations to help you decide which IRA is right for you.
Traditional IRA – Front-End Tax Benefits; Required Distributions and Taxes Paid in Retirement
With a traditional IRA, some individuals receive an income tax deduction for the contributions made. Whether or not you will receive the tax deduction depends on your tax-filing status and your modified adjusted gross income (MAGI). If you are not eligible for an income tax deduction, you can still contribute to a traditional IRA with a non-deductible contribution.
Traditional IRA Deductibility
| Tax Filing and Plan Participant Status | Year | Full Deduction If MAGI* is at or below: | Partial Deduction If MAGI is between: | No Deduction If MAGI is at or above: |
| Single or Head of Household
NOT Retirement Plan Participant |
2025 | No MAGI limit | ||
| Single or Head of Household
AND Retirement Plan Participant |
2025 | $79,000 | $79,000 – $89,000 | $89,000 |
| Married Filing Jointly
NEITHER is Retirement Plan Participant |
2025 | No MAGI limit | ||
| Married Filing Jointly
AND Retirement Plan Participant |
2025 | $126,000 | $126,000 – $146,000 | $146,000 |
| Married Filing Jointly
NOT Retirement Plan Participant BUT Spouse is |
2025 | $236,000 | $236,000 – $246,000 | $246,000 |
| Married Filing Separately
NEITHER is Retirement Plan Participant |
2025 | No MAGI limit | ||
| Married Filing Separately**
EITHER is Retirement Plan Participant |
2025 | $0 | $0 – $10,000 | $10,000 |
*Modified Adjusted Gross Income
**If married filing separately, and did not live with your spouse at any time during the year, see MAGI for Single or Head of Household
In exchange for an up-front income tax deduction and tax deferral, with a traditional IRA you will be required to take distributions once you reach age 73 (age 75 if you were born in 1960 or later). And because what you contributed and earned was not taxed prior to your withdrawals, you pay income taxes on the distributions you receive—whether you choose to take them or are required to take them[i]. Your beneficiaries, after your death, will also be required to take distributions and pay income taxes on the withdrawals paid to them.
If you do not qualify to take an up-front income tax deduction, and funded your IRA with non-deductible contributions, your distributions will be pro-rated. Income taxes (and the 10% early withdrawal penalty tax, if applicable) will apply to the portion of the distribution that represents your non-taxed earnings on your investments.
Roth IRA – Back-End Tax Benefits in Retirement Without Required Distributions; Contributions Are Not Tax Deductible
In contrast to a traditional IRA, a Roth IRA provides the income tax benefits on the back end. You receive no tax deduction for contributions you make, and some individuals cannot make annual contributions because their MAGI is too high.
ROTH IRA Income Limits
| Tax Filing Status | Year | Full Contribution If MAGI* is at or below: | Partial Contribution If MAGI is between: | No Contribution If MAGI is at or above: |
| Single or Head of Household | 2025 | $150,000 | $150,000 – $165,000 | $165,000 |
| Married, Filing Jointly | 2025 | $236,000 | $236,000 – $246,000 | $246,000 |
| Married, Filing Separately** | 2025 | $0 | $0 – $10,000 | $10,000 |
*Modified Adjusted Gross Income
**If married filing separately, and did not live with your spouse at any time during the year, see MAGI for Single or Head of Household
Roth IRAs provide several tax benefits on the back end that traditional IRAs do not.
- First, your contributions, which were made with after-tax dollars, can be distributed to you at any time and for any reason without income tax consequences. That is because contributions are distributed first, before any earnings on your investments.
- Second, you are never required to take distributions during your lifetime. You can, of course, choose to take distributions if you want to.
- Third, qualified distributions are income tax free[ii]. A qualified distribution is one that is paid to you after your Roth IRA has been funded for at least five years, and you are at least age 59½. Additional qualified distributions include those made after five years, but when you are disabled, using the withdrawal for a first-time home purchase (subject to a $10,000 limit) or are paid after your death.
- Last, because distributions paid to your beneficiaries after your death can be qualified tax-free distributions, a Roth IRA is a great way to leave a legacy for your loved ones.
Which IRA Is Right for You?
Depending on your retirement savings goals, either a Roth or traditional IRA, or possibly both, could be right for you. If you have a while before retirement and you anticipate being in the same or higher income tax bracket in retirement, a Roth IRA may make more sense. If you think you’ll be in a lower income tax bracket, the up-front income tax deduction you can receive from a traditional IRA may make more sense. If being able to choose how your retirement income is taxed is important to you, you may want to consider both. Whatever your circumstances, your financial advisor can review your goals and help you along the path to retirement.
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[i] In general, withdrawals taken before the age of 59½ are subject to an additional 10% penalty tax on the taxable portion of the withdrawal. Exceptions apply. Contact your tax professional for additional information.
[ii] When a non-qualified distribution is taken, any earnings will be taxable income and may also be subject to a 10% penalty tax if younger than age 59½ at the time of distribution. Exceptions apply. Contact your tax professional for additional information.
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IMPORTANT DISCLOSURES: The information provided is based on internal and external sources that are considered reliable; however, the accuracy of this information is not guaranteed. This piece is intended to provide accurate information regarding the subject matter discussed. It is made available with the understanding that Benjamin F. Edwards & Co. is not engaged in rendering legal, accounting or tax preparation services. Specific questions on taxes or legal matters as they relate to your individual situation should be directed to your tax or legal professional.