Pay tax now, or pay tax later?
Both accounts grow the same pile of money. The only real difference is when the tax bill comes due. Enter your numbers and see which one leaves more in your pocket at retirement, and the exact tax rate where the two break even.
Your plan
The Traditional side assumes you invest the up-front tax savings each year in a side account, so the comparison is dollar for dollar out of pocket.
Which IRA wins for you?
After-tax value at retirement
What you actually keep
How your after-tax value grows
Decision scorecard
Year-by-year projection
Contributions are made every year until retirement and grow at your expected return. Traditional after-tax includes the account taxed at your retirement rate plus the invested tax savings.
| Age | Contributed | Pre-tax balance | Roth after-tax | Traditional after-tax |
|---|
IRAs, explained
Traditional IRA Tax Benefits Explained
A Traditional IRA provides an immediate tax benefit by allowing you to deduct contributions from your taxable income in the year they are made. If you contribute $7,000 and are in the 24% federal tax bracket, you save $1,680 on your current tax bill. Your investments then grow tax-deferred, meaning you pay no taxes on dividends, interest, or capital gains until you withdraw the money in retirement. This tax deferral allows your full balance to compound without annual tax drag, which can result in significantly more growth over a 30- or 40-year investment horizon compared to a taxable brokerage account.
IRA Contribution Limits and Eligibility
For 2024, the IRA contribution limit is $7,000 per year, or $8,000 if you are age 50 or older, and these limits apply across all your IRA accounts combined. Anyone with earned income can contribute to a Traditional IRA, but the tax deductibility of contributions depends on whether you or your spouse are covered by a workplace retirement plan. If you have a 401(k) at work, the deduction phases out between $77,000 and $87,000 MAGI for single filers and $123,000 to $143,000 for married filing jointly. Even if your contribution is not deductible, you still benefit from tax-deferred growth inside the account.
IRA vs 401(k): Which Should You Prioritize
Financial advisors generally recommend a prioritization strategy that captures the maximum benefit from both accounts. First, contribute enough to your 401(k) to get the full employer match, since that is essentially free money with an instant 50% to 100% return. Next, max out your IRA for the year, because IRAs typically offer a wider selection of low-cost investment options than most 401(k) plans. If you still have money to invest after maxing your IRA, return to the 401(k) and contribute up to the $23,000 annual limit. This approach balances the employer match benefit of a 401(k) with the flexibility and investment variety of an IRA.
IRA Withdrawal Rules and Required Minimum Distributions
Traditional IRA withdrawals before age 59½ are generally subject to a 10% early withdrawal penalty plus ordinary income taxes, though exceptions exist for first-time home purchases, higher education expenses, and certain medical costs. After age 59½, you can withdraw freely but still owe income tax on every dollar withdrawn. Starting at age 73, the IRS requires you to take Required Minimum Distributions (RMDs) each year, calculated by dividing your account balance by a life expectancy factor from the IRS Uniform Lifetime Table. Failing to take your full RMD results in a steep 25% penalty on the amount not withdrawn, reduced to 10% if corrected within two years.
Common questions
What is the IRA contribution limit for 2024?
The 2024 IRA contribution limit is $7,000 per year ($8,000 if you are age 50 or older). This limit applies to the total of all your traditional and Roth IRA contributions combined.
Are IRA contributions tax deductible?
Traditional IRA contributions may be fully or partially deductible depending on your income and whether you or your spouse have a workplace retirement plan. For 2024, the full deduction phases out between $77,000-$87,000 (single) or $123,000-$143,000 (married filing jointly) if covered by a workplace plan.
Should I contribute to an IRA or a 401(k) first?
If your employer offers a 401(k) match, contribute enough to get the full match first, it is free money. After that, consider a Roth IRA for tax-free growth, then maximize your 401(k). The IRA gives you more investment choices than most 401(k) plans.
When do IRA required minimum distributions start?
For traditional IRAs, RMDs begin at age 73 (as of 2023, increasing to 75 in 2033). You must withdraw a minimum amount each year based on your balance and IRS life expectancy tables. Failure to take RMDs results in a 25% penalty on the amount not withdrawn.
Can I have both a traditional IRA and a Roth IRA?
Yes, you can contribute to both, but your total combined contributions cannot exceed the annual limit ($7,000 or $8,000 if 50+). Many advisors recommend having both types for tax diversification in retirement.
Estimates for planning only. This model assumes level contributions, a single steady return and flat tax rates. Real outcomes depend on future tax law, market returns, contribution limits, income phase-outs and when you actually withdraw. Confirm your own eligibility and limits before you invest.