Roth IRA vs. Traditional IRA: How Your Choice Affects Your Retirement Plan

03.16.2026 | Category: Financial Planning

Reviewed by: Mark Zagurski, CLU®, ChFC®, CMFC® and CRPC®

Summary: Roth and Traditional IRAs both help you save for retirement, but they differ in when you pay taxes and how withdrawals are treated. Understanding those differences — and how they can work together — can help you choose the right mix for your retirement goals and overall financial plan.

Choosing between a Roth IRA and a Traditional IRA comes down to your current income, future tax expectations and how you want your retirement income to be structured. The decision isn’t just about tax timing — it’s about flexibility and how each account fits into your broader strategy.

Both accounts are widely used. In fact, a Mutual of Omaha survey found 44% of adults age 40+ own a Traditional IRA, while 38% own a Roth IRA.* That split reflects an important reality: there isn’t a universal “better” IRA. Many people choose one, or contribute to both, depending on their income, tax outlook and long-term goals.

Quick comparison

Feature	Roth IRA	Traditional IRA
How contributions are taxed	After-tax dollars	May be tax deductible (effectively pre-tax if you qualify)
How investments grow	Tax deferred	Tax deferred
How withdrawals are taxed	Qualified withdrawals generally tax free	Withdrawals generally taxed as ordinary income
Income limits	Apply to contributions	Apply to deductibility, not contributions
Contribution limits (2026)	$7,500 ($8,600 if age 50+)	$7,500 ($8,600 if age 50+)
Early withdrawal rules	Contributions can be withdrawn anytime but there are potential tax and penalties for early withdrawal of the investment growth.	Early withdrawals may trigger taxes and penalties
Required minimum distributions (RMDs)	None during original owner’s lifetime	Required starting at age 73
Often appeals to	Those who expect higher taxes later	Those who want potential tax relief now

How Roth IRAs and Traditional IRAs are taxed

The primary difference between Roth IRAs and Traditional IRAs is tax timing. In most cases, penalty-free withdrawals can begin at age 59½ under current rules.

With a Traditional IRA, contributions may be tax deductible, which can lower taxable income in the year you contribute. Your investments then grow tax deferred, and taxes are generally paid when you withdraw money in retirement.
With a Roth IRA, contributions are made with after-tax dollars, so there’s no immediate tax break. However, investment growth and qualified withdrawals in retirement are generally tax free.

This distinction matters because it affects how much flexibility you may have when managing retirement income later in life.

Among adults age 40+, 44% say they prefer paying taxes now so withdrawals can be tax free later, while 26% prefer deferring taxes until retirement. Another 24% say they have no strong preference. That divide highlights how personal this decision can be.*

As Mutual of Omaha Advisors’ Director of Strategy & Communications and host of the Make it Personal Podcast, Mark Zagurski explains, “We don’t know where taxes will be in the future, but many experts suggest that with current deficits, tax rates may have nowhere to go but up.” For some savers, that uncertainty makes paying taxes today feel like the right choice for their situation. For others, reducing taxes now while income is higher may better align with their current financial priorities.

Ultimately, the decision isn’t about which account is better, but which tax structure aligns with your income today and expectations for tomorrow. In many cases, using both can create tax diversification. As Mutual of Omaha Financial Advisor and Certified Financial Planner (CFP®) Adam Olson explains, “Tax diversification gives you the flexibility to choose where to pull income from each year based on current tax rates.” That added control can help you manage your overall tax exposure and adjust your income strategy as your needs and tax circumstances change.

IRA contribution limits and income rules (2026)

Both Roth and Traditional IRAs share the same annual contribution limits

$7,500 in total IRA contributions if you are under age 50
$8,600 if you are age 50 or older (including catch-up contributions)

However, eligibility rules differ.

Roth IRA contributions are limited or phased out at higher income levels.
Traditional IRA contributions are not income-limited, but deductibility may be reduced if you or your spouse participate in a workplace retirement plan.

Understanding these distinctions can help avoid excess contributions or missed tax opportunities.

Withdrawal rules and retirement timing

How and when you can access your money is another important distinction.

Traditional IRA

Withdrawals are generally taxed as ordinary income
Withdrawals before age 59½ may incur a 10% early withdrawal penalty, unless an IRS exception applies
Required minimum distributions (RMDs) generally begin at age 73

Roth IRA

Contributions can be withdrawn at any time without taxes or penalties
Earnings may be withdrawn tax free if age and holding requirements are met
No RMDs during the original account owner’s lifetime

Zagurski highlights the RMD difference: “A significant benefit of Roth IRAs is the lack of Required Minimum Distributions, meaning the government doesn’t force you to withdraw money at an arbitrary age.” That flexibility can matter when coordinating income sources.

Olson, CFP® adds, “A Roth IRA allows you to take out large lump sums for major goals… without spiking your income taxes or your future Medicare premiums.”

Because withdrawals affect taxable income differently, thoughtful financial planning can help create more predictable retirement income.

If you’re wondering how long your savings might last, our retirement calculator can help you model different scenarios as you plan ahead.

Is a Roth IRA better than a Traditional IRA?

There’s no universal “better” option, only what fits your situation.

A Roth IRA may make sense if:

You expect higher tax rates later in life
You want tax-free income in retirement
You value flexibility and no RMDs

A Traditional IRA may make sense if:

You want a potential tax deduction now
You expect lower taxable income later

As Olson, CFP® notes, “Personal finance is more personal than it is finance; it’s about marrying the numbers to your individual needs and how you want your money to add value to your life.”

Using Roth and Traditional IRAs together

You don’t have to choose just one. Many retirement strategies include both account types over time to create tax diversification — money that is:

Always taxable
Never taxable
Sometimes taxable

Olson, CFP® describes the benefit this way:

“Tax diversification gives you the power to play the ‘tax game’ each year, choosing exactly where to pull your money from based on current rates.”

Zagurski adds, “A balanced retirement strategy often involves splitting contributions between traditional and Roth accounts to help create maximum flexibility for future income.”

That flexibility can help manage Social Security taxation, Medicare premiums, and changing tax laws.

How real-life situations can influence the choice

While rules and limits matter, personal circumstances often shape the decision.

Research shows that household income (49%) and time until retirement (55%) are the most significant factors in choosing retirement accounts. *

For example:

If your income is higher now than you expect it to be in retirement, a Traditional IRA may be appealing because it can offer tax relief while you’re working.
If you expect your income or tax rate to rise in retirement, a Roth IRA may provide more predictability with tax-free withdrawals later.
If your income varies or you want flexibility, using both a Roth IRA and a Traditional IRA can help create options when managing taxable income in retirement.

Ultimately, the decision often depends more on timing and income trajectory than on the account label itself. A financial professional can help you evaluate how each option fits into your broader retirement plan and create a strategy that supports your goals as your income and circumstances evolve.

Ready to make a confident retirement decision?

The right choice today can influence how your retirement income is taxed for decades to come. A Mutual of Omaha financial professional can help you create a financial plan that is best for you.

Frequently asked questions about Roth vs. Traditional IRAs

What are the disadvantages of a Roth IRA?

Roth IRAs don’t offer an immediate tax deduction, and income limits may restrict who can contribute directly.

What are the disadvantages of a Traditional IRA?

Traditional IRA withdrawals are generally taxable, and required minimum distributions apply later in retirement at age 73 under current rules.

Can I lose money in a Roth or traditional IRA?

Yes. Both Roth IRAs and Traditional IRAs can lose value because their performance depends on the investments held inside the account. The accounts themselves don’t guarantee growth.

Is a Roth IRA or Traditional IRA better if you already have a 401(k)?

It depends on your goals. Some people use an IRA or Roth IRA to supplement a 401(k), especially if they want more investment choices or additional tax diversification.

Do Roth or Traditional IRAs affect Social Security taxes?

Traditional IRA withdrawals can increase taxable income and may affect how much of your Social Security is taxed, while qualified Roth IRA withdrawals generally do not increase taxable income for Social Security taxation purposes.

Reviewed by: Mark Zagurski, CLU®, ChFC®, CMFC® and CRPC®

Mark is Mutual of Omaha Advisors’ Director of Strategy & Communications. With more than 30 years of experience, he has worked extensively in advisor development, strategy, and communications, focusing on helping advisors and their clients make informed financial decisions. He is also the host of the Mutual of Omaha Advisors podcast, “Make it Personal,” which explores personal finance and strategies to help you take control of your money and future.

Source:

*Based on Mutual of Omaha proprietary survey of U.S. adults age 40+ with household income of $50,000+, conducted February 6–9, 2026.

Disclosures:

Registered Representatives offer securities through Mutual of Omaha Investor Services, Inc., Member FINRA/SIPC. Investment Advisor Representatives offer advisory services through Mutual of Omaha Investor Services, Inc. Mutual of Omaha Advisors is a division of Mutual of Omaha Insurance Company.

All investing involves risk, including the possible loss of principal, and there can be no assurance that any investment strategy will be successful.

Mutual of Omaha and its representatives do not provide tax and/or legal advice, and the information provided herein is general in nature and should not be considered tax and/or legal advice.

Not all Mutual of Omaha agents are registered representatives or financial advisors.

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