Roth vs. Traditional: Choosing the Right Retirement Account for Your Situation

Figures reflect rules in effect as of October 2026.

A traditional account gives you a tax deduction now and taxes withdrawals later; a Roth gives no deduction now and tax-free qualified withdrawals. The choice turns mostly on whether your tax rate today is higher or lower than it will be when you withdraw. When that is unclear, holding both is a reasonable answer.

You make this choice more often than it seems: in your 401(k) election each year, in each IRA contribution, and in any conversion. It is a question of when you pay the tax, not of which account is better in general.

Below are the 2026 limits, the SECURE 2.0 changes that matter, and how California treats each account.

How is each account taxed?

A traditional 401(k) deferral or deductible IRA contribution lowers your taxable income this year. The money grows without annual tax, and what you withdraw is taxed as ordinary income.

A Roth contribution is made with money that has already been taxed. The growth is never taxed if the withdrawal is qualified, which generally means after age 59½ and after a five-year holding period.¹˒²

Should I pay the tax now or later?

If your tax rate is higher now than it will be when you withdraw, traditional usually comes out ahead: you deduct at the higher rate and pay at the lower one. If your rate later will be the same or higher, Roth usually does. Both answers rest on guesses about future income, tax law and where you will live.

• Lean traditional when your marginal rate now is clearly higher than you expect in retirement, as it often is in peak earning years.
• Lean Roth when your rate now is low compared with later: early in a career, in a sabbatical or a year between jobs, or, through conversions, in the years between retiring and your first required distribution.
• Split when you can’t tell, or when most of your savings are already pre-tax.

These cues are a starting point, not sufficient on their own. State tax and the required distributions a large pre-tax balance will produce later matter as much.

How much can I contribute in 2026?

For 2026, the IRA limit is $7,500, plus a $1,100 catch-up at age 50 or older, for $8,600 in all.³ That is one limit for all your traditional and Roth IRAs combined.⁴

Workplace plans allow more. For 2026, you can defer $24,500 to a 401(k), 403(b) or governmental 457 plan, plus $8,000 at age 50 or older, or $11,250 instead of $8,000 in the years you turn 60 through 63.³ If the plan offers both, you choose how much goes to the Roth side and how much to the pre-tax side.

When does the IRA deduction phase out?

If neither you nor your spouse is covered by a workplace plan, a traditional IRA contribution is deductible at any income.³ If you are covered, the 2026 deduction phases out between $81,000 and $91,000 of modified AGI for a single filer and between $129,000 and $149,000 on a joint return. If only your spouse is covered, the range is $242,000 to $252,000.³

A Roth IRA has its own income test. For 2026, direct contributions phase out between $153,000 and $168,000 for single filers and between $242,000 and $252,000 for joint filers.³ The test applies only to new contributions: the income limit on conversions was repealed from 2010, so anyone can convert a traditional IRA to a Roth IRA, and the taxable part is income for that year.⁵

A required distribution can’t be converted.⁴ Above the Roth income limit, a nondeductible IRA contribution followed by a conversion, often called a backdoor Roth, is one way in. I cover it, and the pro rata rule that can make it taxable, in what to do after maxing out a 401(k).

Can employer contributions go to Roth?

Employer matching and profit-sharing contributions have traditionally gone to the pre-tax side. Under the SECURE 2.0 Act, a plan may let you designate them as Roth if you are fully vested in them; they are then taxable income to you in the year they reach your account.⁶ Plans don’t have to offer this, so check your plan’s summary or ask the administrator.

What changes for catch-ups in 2026?

From 2026, if your Social Security (FICA) wages from your employer were more than $150,000 in 2025, any catch-up contributions you make to that employer’s plan must be Roth.⁷˒⁸ Your regular $24,500 can still go to either side.

Final regulations apply from 2027. For 2026, plans may follow a reasonable, good-faith reading of the law, so the mechanics can differ from plan to plan.⁸

When do required distributions start?

Traditional IRAs and 401(k)s require minimum distributions each year, taxed as ordinary income.⁹ The starting age depends on your birth year: 73 if you were born from 1951 through 1959, and 75 if you were born in 1960 or later.¹⁰

Roth IRAs have no required distributions while the owner is alive, and the same now applies to Roth 401(k) and 403(b) accounts.⁹ Beneficiaries who inherit either kind of account do have distribution rules. The years between retiring and the first required distribution can be a window for conversions, which I cover in the decade-out tune-up for people turning 60.

How does California treat these accounts?

California generally follows the federal rules here. The IRA deduction carries over to your California return, and the taxable part of a Roth conversion is ordinary income in California for the year you convert.¹¹ At the top, that income is taxed at 13.3%: a 12.3% bracket rate plus a 1% tax on taxable income over $1 million.¹²˒¹³

California adds its own 2.5% tax on the taxable part of an early distribution, on top of the federal 10%.¹⁴ And federal law bars a state from taxing the retirement-plan and IRA income of someone who no longer lives there,¹⁵ so if you retire outside California, a pre-tax deduction taken at California rates now may never be taxed by the state.

For business owners, the plan itself is a choice too; see Solo 401(k) or SEP IRA and the mega-backdoor Roth in a solo 401(k). This decision is one part of how I approach retirement planning.

The Bottom Line

Traditional accounts defer the tax and Roth accounts pay it up front. Which is better depends on your rate now against your rate later, and for Californians, on where you expect to live in retirement. In 2026, employer contributions can be Roth if your plan allows it, and higher earners’ catch-ups must be. When the answer is unclear, holding both keeps your choices open.

If you would like to work out which side your contributions should go to this year, book a complimentary 15-minute call.