Exploring IRA Options and What Fits Best for You

The “traditional” individual retirement account (IRA) and Roth IRA are powerful tools for saving for retirement that can grow your money over time. While many are familiar with these accounts, understanding the key differences in the two IRA types—particularly in the different tax rules and the contributions limits—can affect the outcome of your retirement in a big way.‍

Structure and Taxes

One of the biggest differences between the two different account types is how taxes are treated. Traditional IRAs are tax-deferred, meaning contributions are made with pre-tax dollars, and investments compound tax-free until withdrawals occur. When the account holder reaches retirement age, they can withdraw funds which will be subject to income tax at that time.

Roth IRAs on the other hand, are funded with after-tax contributions. Investments compound tax-free similar to traditional IRAs, and at retirement age, as long as the account holder fulfills various IRS rules relating to these accounts, Roth withdrawals are not taxed. The gains made on contributions are yours to keep.

Eligibility

The government sets limits on IRA eligibility, contribution limits, and other aspects. At the highest level, anyone with earned income may be eligible to contribute to an IRA (traditional or Roth). However, a non-working spouse can open an IRA if one spouse has earned income and they file a joint tax return.

Roth IRAs have phase-out limits, meaning if you earn over a certain amount, you cannot contribute directly. Traditional IRAs have phase-out limits on tax deductibility of contributions. Phaseouts depend on your tax filing status and are updated periodically. For 2025, if your modified adjusted gross income (MAGI) is over $165,000 as an individual, or $246,000 filing jointly, you cannot contribute to a Roth IRA.

Contribution Limits

In 2025, individuals who meet the necessary criteria can contribute a total of $7,000 into traditional or Roth IRAs. The contribution limits are adjusted each year and apply to all IRAs a person has. For example, an eligible individual could make one $7,000 contribution into a single IRA, or seven $1,000 contributions into seven IRAs. You only have one IRA in the eyes of the IRS. The catch-up contribution rule, allows people  age 50 or older to contribute an extra $1,000 annually to both IRAs and Roths, providing an extra “boost” to retirement savings in these later years.

Backdoor Roth IRA Strategy

The Backdoor Roth strategy can be beneficial for high-net worth clients who otherwise would not be eligible to contribute directly to a Roth IRA. With the Backdoor Roth Strategy, you essentially contribute to a traditional IRA then convert the funds to a Roth. While it sounds simple, there are many considerations and rules that can apply, particularly around taxes. Working with an experienced advisor can help ensure that necessary steps are taken, and funds are transferred in a tax-optimized manner.

Withdrawal and Distribution Rules

Traditional IRAs have RMDs, or required minimum distributions, which is a certain amount you must withdrawal from your accounts every year after reaching age. Roth IRAs are not subject to RMDs however—although inherited Roths are. For both account types, there are also several withdrawal rules to consider. Early withdrawals, such as those taken before age of 59 and a half, are penalized with a 10% federal tax, although there are certain exceptions. Roths also have special withdrawal rules, especially for conversions, even if you are over 59 and a half.

Invest in Your Future

Navigating IRA strategy, contributions, withdrawals and the potential tax consequences that come along with them can be confusing. At Quotient Wealth Partners, we help clients develop long-term financial plans for a brighter future. Our team brings years of qualified experience to the table, and can help develop a retirement savings and distribution plan that’s right for your unique needs and goals. If you’d like help navigating your IRA strategy, please contact us here or call us at (888) 895-4797.