One question comes up in nearly every first meeting we have with clients here in Charlotte: should I be putting money into a Roth IRA or a Traditional IRA?
It seems like a simple question. It isn’t but the answer is more manageable than most people expect once you understand the core difference between the two accounts.
This guide walks through exactly how each account works, who each one favours, and how to think about the decision in the context of your own financial picture.
The Core Difference: When You Pay Tax
Both Roth and Traditional IRAs are individual retirement accounts that let your investments grow tax-advantaged. The difference is when the IRS takes its cut. With a Traditional IRA, your contributions may be tax-deductible now, which reduces your taxable income in the year you contribute. You pay income tax when you take withdrawals in retirement. With a Roth IRA, you contribute with after-tax dollars no upfront deduction. But qualified withdrawals in retirement, including all the growth, are completely tax-free. That one difference pay taxes now vs. pay taxes later is the entire decision.2026 Contribution Limits
For 2026, the IRA contribution limit is $7,000 per year. If you’re age 50 or older, you can contribute an additional $1,000 catch-up contribution, bringing your total to $8,000. These limits apply to your combined contributions across all IRAs. You cannot contribute $7,000 to a Roth and $7,000 to a Traditional in the same year the limit is $7,000 total. IRS Publication 590-A IRA Contribution Limits → https://www.irs.gov/publications/p590a authority source for contribution and income limits. Link in the article on the income limits figure.When a Traditional IRA Usually Makes More Sense
A Traditional IRA tends to be the better choice when:- You’re in a high tax bracket today and expect to be in a lower bracket in retirement
- You want to reduce your taxable income this year (e.g., you’re close to a bracket threshold)
- You’re a high earner who is over the Roth income limits and the backdoor Roth isn’t a suitable strategy for your situation
- You expect your overall financial needs in retirement to be significantly lower than your working years
When a Roth IRA Usually Makes More Sense
A Roth IRA tends to be the stronger choice when:- You’re earlier in your career and currently in a lower tax bracket
- You expect your income and tax rate to increase significantly over your career
- You want flexibility: Roth IRAs have no required minimum distributions (RMDs) during your lifetime
- You want to pass tax-free wealth to heirs (Roth is one of the most powerful estate planning tools available)
- You’re in a state with no income tax (though North Carolina does tax income at a flat 4.5% rate in 2026)
What About Roth vs. Traditional 401(k)?
Many employers now offer a Roth 401(k) option alongside a traditional 401(k). The same logic applies Roth now vs. Traditional later but the 401(k) has no income limits on contributions. This means high earners who can’t contribute directly to a Roth IRA can still get Roth treatment inside their 401(k). If your employer offers this option and you’re in a moderate tax bracket, it’s worth a serious look. Explore 401(k) plan services for business owners in Charlotte → https://totemwealthmanagement.com/location/401k-plan-creation-charlotte/The Roth Conversion Strategy
A Roth conversion allows you to move money from a Traditional IRA (or 401(k)) into a Roth IRA, paying income tax on the converted amount now in exchange for tax-free growth going forward. Roth conversions are particularly powerful during:- Years when your income is temporarily lower (career transition, sabbatical, early retirement)
- Years before Social Security and RMDs begin, when your taxable income may be at its lowest
- Years when tax rates are historically lower (converting before potential future rate increases)
A Simple Framework for Deciding
If you’re unsure which account to prioritise, this framework works well for most people:- If you’re in the 22% bracket or below → lean Roth IRA
- If you’re in the 32% bracket or above → lean Traditional IRA
- If you’re in the 24% or 28% bracket → consider splitting contributions, or model the Roth conversion strategy
- If you’re over the Roth income limits → consider a backdoor Roth or Roth 401(k) if available
- If you’re unsure where you’ll be in retirement → build optionality with both account types
The Bottom Line
The Roth vs. Traditional IRA debate doesn’t have a universal right answer. It has a right answer for your income, your tax situation, your timeline, and your goals. What matters most is that you’re contributing consistently to one or both and that the choice you’re making is deliberate rather than accidental. If you’d like to model which account structure makes the most sense for your specific situation, our Charlotte-based CFP® advisors are here to help. Book a free consultation with Totem Wealth Management → https://totemwealthmanagement.com/contact-us/ Related reading: What Are Long-Term Tax Strategies? | Tax-Deferred Investments: Maximising Returns| About the Author Salvador Perez, CFP® is the founder and CEO of Totem Wealth Management in Charlotte, NC. Sal graduated from Winthrop University’s Financial Planning Program in 2018 with a Bachelor’s degree in Finance and holds his Certified Financial Planner® certification. He specialises in comprehensive wealth management, tax strategy, and retirement planning for individuals and families across Charlotte, Greensboro, Raleigh, and beyond. |
Frequently Asked Questions
Is a Roth IRA better than a Traditional IRA?
Neither is universally better. A Roth IRA is generally better if you expect your tax rate to be higher in retirement. A Traditional IRA is generally better if you expect your tax rate to be lower in retirement. Your income, bracket, and retirement timeline all factor into the decision.
Can I have both a Roth IRA and a Traditional IRA?
Yes. You can contribute to both in the same year, but your combined contributions cannot exceed the annual limit ($7,000 in 2025, or $8,000 if you’re 50 or older).Neither is universally better. A Roth IRA is generally better if you expect your tax rate to be higher in retirement. A Traditional IRA is generally better if you expect your tax rate to be lower in retirement. Your income, bracket, and retirement timeline all factor into the decision.
What is the income limit for a Roth IRA in 2025?
For 2025, single filers can make full Roth IRA contributions up to a MAGI of $150,000, with a phase-out between $150,000 and $165,000. For married couples filing jointly, the full contribution limit applies up to $236,000, phasing out between $236,000 and $246,000.
What happens when I withdraw from a Roth IRA in retirement?
Qualified Roth IRA withdrawals in retirement — including all growth — are completely tax-free and penalty-free, provided the account has been open for at least five years and you are age 59½ or older.
Does North Carolina tax IRA withdrawals?
North Carolina does tax Traditional IRA withdrawals as ordinary income at the state’s flat income tax rate (4.5% in 2025). Qualified Roth IRA withdrawals are generally not taxable at the state level. Social Security benefits are taxable in North Carolina.
