Planning for retirement isn’t one-size-fits-all, and choosing the right IRA can make a meaningful difference in how you save for the future. Both Roth and traditional IRAs offer valuable tax advantages, but the right option depends on your income, retirement goals, and long-term financial plans. To help simplify the decision, our team at Legacy Bank is explaining the key differences between each account type and how they may benefit different savers.

Understanding IRAs

An IRA (Individual Retirement Arrangement) is a tax-advantaged investment account designed to help individuals save for retirement over time. These accounts were created by the IRS to encourage long-term retirement savings and are available in two common forms: traditional IRAs and Roth IRAs. Each year, the IRS sets contribution limits for IRAs. For 2026, individuals under age 50 can contribute up to $7,500, while individuals age 50 and older can contribute up to $8,600 through catch-up contributions. *These limits apply to your combined contributions across both Roth and traditional IRAs.

Can I Contribute to Both a Roth and a Traditional IRA?
Yes, you can contribute to both a Roth IRA and a traditional IRA, provided your total contributions stay within annual IRS contribution limits. For some savers, contributing to both account types can provide additional flexibility and tax diversification during retirement.

How Roth IRAs Work

Roth IRAs allow individuals to make contributions using after-tax income. Because taxes are paid upfront, qualified withdrawals during retirement are generally tax-free. These account types are often appealing to individuals who expect to be in a higher tax bracket later in life. By paying taxes on contributions now, investors may be able to avoid paying higher taxes on withdrawals during retirement. Another advantage of Roth IRAs is that investments grow tax-free over time. Generally, account holders can begin taking qualified distributions without taxes or penalties once they reach age 59½ and have held the account for at least five years.

How Traditional IRAs Work

Traditional IRAs allow individuals to make pre-tax or tax-deductible contributions, depending on income and eligibility requirements. This means some savers may be able to reduce their taxable income in the year they contribute. Investments within a traditional IRA grow tax-deferred, meaning you won’t pay taxes on earnings until withdrawals begin in retirement. Traditional IRAs are often a good fit for individuals who expect to be in the same or a lower tax bracket during retirement. Once withdrawals begin, distributions are taxed as ordinary income, and in some cases, retirees may pay less in taxes later if they are in a lower tax bracket than they were during their working years.

Which Is Right for You?

Both Roth and traditional IRAs can be effective retirement savings tools, but the right choice depends on your current financial situation and long-term goals. In general, Roth IRAs may benefit individuals who expect their tax rate to increase over time, while traditional IRAs may benefit individuals who want potential tax deductions now and expect a lower tax rate in retirement.

Review the comparison table below for a side-by-side look at the differences between Roth and traditional IRAs. If you have questions about your retirement savings strategy, we encourage you to contact our team at Legacy Bank to speak with a financial specialist!