Roth IRA vs Traditional IRA
Same €7,000 limit, opposite tax treatments - which builds more retirement wealth?
TLDR
Roth IRA: after-tax money in, tax-free forever. Traditional IRA: pre-tax money in (if income qualifies), tax at withdrawal. Both have the same €7,000 (+€1,000 catch-up) 2026 limit. Roth wins on flexibility (no RMDs, contributions withdrawable anytime, easier estate planning). Traditional only wins when you're confident your future bracket is lower than today's.
Side-by-side comparison
| Criterion | Roth IRA | Traditional IRA | Winner |
|---|---|---|---|
| Tax on contributions | After-tax (no deduction) | Pre-tax (deductible if income qualifies) | varies |
| Tax on growth | Tax-free | Tax-deferred | Roth IRA |
| Tax on withdrawal | 100% tax-free at 59.5+ | 100% taxable at ordinary income rates | Roth IRA |
| 2026 limit | €7,000 (+€1,000 catch-up if 50+) | Same | Tie |
| Income limit (single) | Phase-out €146K-€161K | Deduction phase-out €77K-€87K (with workplace plan) | Roth IRA |
| Income limit (MFJ) | Phase-out €230K-€240K | Deduction phase-out €123K-€143K | Roth IRA |
| Required Minimum Distributions | None ever (huge flexibility) | Yes, starting age 73 | Roth IRA |
| Withdraw contributions early | Anytime, no tax/penalty | 10% penalty + tax before 59.5 | Roth IRA |
| First-home / education exception | Use earnings up to €10K for first home | Same exemption | Tie |
| Estate planning | Tax-free to heirs (10-year rule) | Taxable RMDs to heirs | Roth IRA |
Run your own numbers
Plug in your numbers - the calculator updates instantly. Same math, your inputs.
Estimates only. Returns are not guaranteed. Tax rules and rates current as of 2026-05-16.
When each one wins
When IRA Roth wins
- You're in 12-24% bracket today (low historic taxes)
- You're under 40 - more compounding years to use tax-free growth
- You want flexibility (withdraw contributions, no RMDs)
- You're optimising for heirs (10-year tax-free distribution rule)
- You're worried tax rates will rise in retirement
When IRA Tradicional wins
- You're in 32-37% bracket today (peak earnings)
- You're confident retirement bracket will be 22% or lower
- You want the upfront tax deduction to free up cash now
- You're nearing retirement (less compounding benefit; immediate deduction matters more)
- Backdoor Roth route exists when income exceeds direct Roth limit
The math (typical scenario)
€7,000/year for 30 years at 7% growth, 24% bracket today, 22% bracket in retirement:
Roth IRA (€7,000 after-tax, equivalent to €9,210 pre-tax) 30yr corpus at 7%: €660,773 Tax at withdrawal: €0 Net: €660,773 tax-free Traditional IRA (€7,000 pre-tax, saves €1,680 in tax today) 30yr corpus at 7%: €660,773 Tax at withdrawal (22%): -€145,370 Net: €515,403 Plus: €1,680/year in tax savings invested at 7% over 30 years: €158,587 (if invested in a TAXABLE account - itself taxable) Equal-cost comparison: Roth wins by ~€110K because tax-free compounding compounds faster than taxable side-investment.
The hidden value of no-RMDs
RMDs erode IRA Tradicional wealth
Starting age 73, Traditional IRA holders must withdraw a minimum amount per year (RMD), based on IRS life-expectancy tables. The forced withdrawal becomes taxable income, often pushing retirees into higher brackets and triggering IRMAA Medicare surcharges. Roth has NO RMDs ever - the money can grow tax-free your entire life.
Backdoor Roth strategy
If your income exceeds the Roth IRA limit (€161K single / €240K MFJ in 2026), you can still get Roth treatment: contribute €7,000 to a Traditional IRA (non-deductible since income too high), then convert to Roth IRA. The conversion is taxable on any growth between contribution and conversion - keep it brief. Subject to pro-rata rule if you have other pre-tax IRA balances.
Mega-backdoor Roth
Advanced: if your 401(k) allows after-tax contributions + in-service withdrawals, you can put up to €46,500 extra per year into Roth via this route. Saves massive amounts of tax-free space for high earners.
Preguntas frecuentes
Can I have both Roth IRA and Traditional IRA?
Yes, but the €7,000 combined limit applies across both. Split however you want (e.g., €5,000 Roth + €2,000 Traditional).
What if I'm not sure what bracket I'll be in retirement?
Split contributions 50/50 Roth/Traditional for tax diversification. You retire with both buckets and can pull from whichever is more tax-efficient each year.
Is the Traditional IRA contribution always deductible?
No. If you (or your spouse) is covered by a workplace retirement plan, deductibility phases out at income €77K-€87K single / €123K-€143K MFJ in 2026.
Why does the Roth conversion ladder work?
In low-income years (early retirement, sabbatical), convert chunks of Traditional IRA to Roth. You pay tax at the lower bracket, then it grows tax-free. Plan over 5+ years to spread the conversions.
What's the 5-year rule on Roth IRA?
Earnings withdrawn within 5 years of FIRST Roth contribution are taxable + 10% penalty. Contributions themselves are always withdrawable. The clock starts on Jan 1 of the year of first contribution.
Can I convert a 401(k) to a Roth IRA?
Yes - either when you leave the employer (rollover then convert) or via in-plan Roth conversion if your plan allows. The conversion is taxable but the future growth is tax-free.
Are inherited IRAs treated differently?
Yes - under SECURE Act, non-spouse heirs must drain inherited IRAs within 10 years. Inherited Roth IRAs also have the 10-year rule but withdrawals are tax-free.
Is the contribution deadline April 15 of the next year?
Yes - you can contribute for tax year 2026 up until the April 15, 2027 tax deadline. Don't miss this - many people only fund their IRA in January-April for the prior year.
Should I prioritize Roth IRA over my 401(k)?
After capturing your employer match in 401(k), yes - Roth IRA's no-RMD, after-tax flexibility usually wins for most savers.
Are Roth IRAs included in FAFSA?
Roth IRA balances are NOT counted as parent assets on FAFSA. This makes Roth a better college-savings shelter than Traditional IRA for some families.