Roth vs. Traditional: Choosing the Right Retirement Account for Your Situation
- Gustaf Rounick, CFP®, ChFC®
- Aug 21
- 4 min read
Updated: Aug 22
THE BIG QUESTION
Choosing whether to funnel retirement dollars into a Roth or a Traditional account is ultimately a bet on your future tax bracket and spending flexibility. Both vehicles shelter investment growth from annual taxation, but they differ in when they let the IRS take its cut and in a few critical rules that shape how—and when—you can tap the money.
HOW EACH ACCOUNT WORKS
A Traditional IRA or 401(k) gives you an up-front tax deduction when contributions are made, lowering your taxable income today. The trade-off is that every dollar you withdraw in retirement is taxed as ordinary income. By contrast, Roth contributions are made with after-tax dollars, so there is no current deduction; however, qualified withdrawals are tax-free. In effect, the Traditional structure defers tax, while the Roth structure pre-pays it.
TAX TIMING: PAY NOW OR LATER?
If you expect to be in a lower marginal bracket after you stop working, the Traditional route can create lifetime tax savings because the deduction today is worth more than the tax bill down the road. If you believe your future bracket will be the same or higher—or you simply want the certainty of tax-free income—the Roth often wins. Remember that federal brackets, state taxes, and your own earnings trajectory can all change; diversifying between both types can hedge that uncertainty.
2025 Contribution Limits — How Much Can You Really Put In?
Think of retirement contributions as water you’re pouring into two big buckets: one bucket labeled “IRA” and one labeled “Workplace Plan.” For 2025, the IRA bucket—whether Roth, Traditional, or a mix—tops out at $7,000 for anyone under 50. If you turn 50 any time during the calendar year, you get to pour in an extra $1,000, bringing your personal IRA total to $8,000 [1].
The workplace-plan bucket is far larger. If your employer offers a 401(k), 403(b), or most 457 plans, you may defer up to $23,500 of your own salary into that plan in 2025. Those age 50 or older get a second spigot that adds another $7,500, for a possible total of $31,000 [1].
Here’s the part many people miss: in most plans, you must check a specific box—or click a specific radio button—to send any of those dollars to the Roth side of the plan. If you skip that election, every cent you contribute defaults to the pre-tax (“Traditional”) side. Your employer match, if one is offered, always lands in the pre-tax side, so plan for that when you think about future taxable income.
Income Phase-Out Rules — Start With One Simple Question
Before you look at any dollar figure, ask: “Am I covered by an employer retirement plan this year?” If the answer is “no,” you can claim a full tax deduction for a Traditional IRA contribution no matter how high your income is. The income limits only kick in if you (or, for married couples filing jointly, your spouse) are covered by a plan at work.
Assuming you are covered, the deduction for a 2025 Traditional IRA contribution starts to shrink once your modified adjusted gross income (MAGI) passes $79,000 if you file single, or $126,000 if you file jointly. It disappears entirely at $89,000 (single) and $146,000 (joint) [2].
Roth IRAs flip the script. They never offer a deduction up front, so plan coverage does not matter—but income still does. In 2025 your ability to make any direct Roth IRA contribution begins to phase out at $150,000 (single) or $236,000 (joint) and is gone after $165,000 (single) or $246,000 (joint) [2]. Remember, these phase-outs affect only new Roth contributions. Money already sitting in a Roth can stay put and keep growing tax-free, and you can still convert pre-tax dollars to a Roth at any income level—you’ll just owe tax on the amount converted the year you move it.
REQUIRED MINIMUM DISTRIBUTIONS
Beginning the year you turn 73, Traditional IRAs and 401(k)s require you to take annual required minimum distributions (RMDs), which are taxed as ordinary income [3]IRS. Roth IRAs impose no RMDs for the original owner during their lifetime, allowing the account to grow untouched for as long as you wish [3] IRS. This difference can make a Roth especially attractive if you value flexibility, anticipate leaving assets to heirs, or wish to manage taxable income in later retirement.
THINKING BEYOND CONTRIBUTIONS
Even if your current income is too high for direct Roth contributions, you may still access Roth benefits through a “backdoor” strategy—contributing to a Traditional IRA and then converting it to Roth, or by moving money from a Traditional 401(k) or IRA to a Roth account. Conversions trigger income tax on the amount moved, so timing them in lower-income years or pairing them with other deductions can help mitigate the impact.
A SIMPLE DECISION FLOW
First, capture any employer match in a workplace plan—whether pretax or Roth—as this is essentially free money. Next, estimate whether your marginal tax rate today is likely lower, higher, or similar to the rate you expect in retirement. If lower today, favor Roth; if higher today, favor Traditional; if uncertain, diversify. Revisit the choice each year as income, tax law, and personal goals evolve.
FINAL THOUGHTS
Both Roth and Traditional accounts are powerful, and the “right” answer often changes with life events, such as career progression, marriage, business ownership, or relocation. The most costly mistake is failing to save at all; selecting the account type is a close second. Reviewing your tax return and retirement projections annually with a professional helps ensure each new dollar lands in the account that maximizes its future value.
Ready to find out which path—Roth or Traditional—will help you keep more of your hard-earned money? Schedule a complimentary 30-minute strategy call with Westlight Wealth today and get personalized guidance you can act on right away.
DISCLOSURE
Westlight Wealth, LLC (“Westlight”) is a registered investment adviser. This material is for informational purposes only and does not constitute tax, legal, or investment advice. Investing involves risk, including possible loss of principal. Past performance is no guarantee of future results. Consult your tax or legal adviser regarding your specific situation before acting on any information herein.
WORKS CITED
