Let’s consider the following scenario. You have $7,000 for an IRA contribution. Should you put the money in a traditional IRA or a Roth IRA? With a traditional IRA, you may be able to receive a tax deduction on your contribution, but the distributions will be taxable when you withdraw funds in retirement.. In contrast, a Roth IRA does not provide a tax deduction initially, but all qualified distributions during retirement are potentially tax-free.
The advantage of the tax deduction is that it makes contributions more affordable when budgets are limited. The deduction can save $1,540 in federal income taxes for someone in the 22% bracket. Taxpayers over 50 may make an additional $1,000 “catch-up” contribution, which would bring their tax savings to $1,760.
But are you eligible to take a deduction for your IRA contribution? Not if your income is too high—the table below shows the phase-out income range.
If you don’t qualify for the deduction, the Roth IRA is most likely a better choice—but it also has income limits, as shown in the table. Those limits are about twice as high.
Are there situations in which you might prefer the Roth IRA even though you are eligible for the contribution deduction? That is a possibility.
Imagine you are in the 15% tax bracket today, but your income grows such that you hit the 25% tax bracket in retirement. The deduction for the traditional IRA deposit would be $1,050. The tax when the $7,000 comes back to you in retirement would be $1,750. In addition, all the accumulated earnings from that $7,000 contribution would be fully taxable. A common goal is to take the deduction in high income, high tax years and take distributions when you are in a lower tax rate in retirement. If you are confident that your tax rate will be going up, the Roth IRA can be a good option to consider..
An often overlooked factor is the Required Minimum Distribution (RMD) mandate from traditional IRAs and employer plans, such as 401(k) plans, a requirement that does not apply to Roth IRAs. RMDs must begin the year you turn 73, in most cases. Some retirees have found that the RMD triggers income tax on their Social Security benefits, and may even push them into a higher tax bracket. Once more, the advantage goes to the Roth IRA.
Whichever approach you choose, it’s important to start saving early. You have until tax filing time to make a contribution for the 2024 tax year, if you haven’t already done so, and you can contribute for the 2025 tax year right now.
There’s also the question of how to invest those IRA contributions. A local Arvest Wealth Management client advisor can help you meet your financial goals by developing an investment strategy that optimizes risk and reward, protecting your investment while building your retirement capital.
Key IRA boundaries to keep in mind
| 2024 | 2025 | ||
| Contribution limit | $7,000 | $7,000 | |
| MAGI phase-out range for IRA deduction for those covered by an employer plan | Single | $77,000 – $87,000 | $79,000 – $89,000 |
| Married filing joint | $123,000 – $143,000 | $126,000 – $146,000 | |
| Married filing separately | $0 – $10,000 | $0 – $10,000 | |
| MAGI phase-out range if only spouse has employer coverage | Married filing joint | $230,000 – $240,000 | $236,000 – $246,000 |
| Married filing separately | $0 – $10,000 | $0 – $10,000
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| MAGI phase-out range for allowable Roth IRA contributions | Single | $146,000 – $161,000 | $150,000 – $165,000 |
| Married filing joint | $230,000 – $240,000 | $236,000 – $246,000 | |
| Married filing separately | $0 – $10,000 | $0 – $10,000 |
Source: IRS Notice 2024-80; M.A. Co.
This content has been prepared by The Merrill Anderson Company and is intended as a general guideline.
© 2025 M.A. Co. All rights reserved.
Arvest and its associates do not provide tax or legal advice. The information presented here is not intended as, and should not be considered, tax or legal advice. Consult your tax and legal advisors accordingly.