With a Gusto IRA, you have the flexibility to contribute to a traditional IRA, a Roth IRA, or both. Each type offers tax advantages, but they differ in when and how your contributions and withdrawals are taxed. This article compares traditional and Roth IRA contributions, explains the income limits, and helps you decide which option may work best for your retirement goals.
The main difference between a traditional IRA and a Roth IRA is when you may get the tax benefit.
With a traditional IRA, your contribution may be tax-deductible in the year you make it, which can reduce your taxable income.
However, this deductibility may be limited based on:
Whether you or your spouse is covered by a retirement plan at work
When the contribution is tax-deductible, you pay income tax on both the contributions and earnings when you withdraw them. If the contribution was not deductible, only the earnings are taxed upon distribution.
With a Roth IRA, you contribute with after-tax dollars, so you do not get a tax deduction when you contribute. Instead, the tax benefit comes later when you withdraw — qualified distributions from a Roth IRA are tax-free.
Your ability to contribute depends on your tax filing status and MAGI, and a qualified distribution generally requires both a 5-year waiting period and a qualified distribution event.
Here is a summary of the key differences and similarities:
Traditional IRA
Roth IRA
Tax treatment of contributions
May be tax-deductible
Not tax-deductible
Tax treatment of withdrawals
Deductible contributions and all earnings are taxed as ordinary income when withdrawn
Contributions are not taxed. Earnings are tax-free if the distribution is a qualified withdrawal.¹
Income limits
Deductibility may be limited by income if you or your spouse is covered by a retirement plan at work
Contribution eligibility is limited by income
Contribution limits (across all traditional and Roth IRAs)
The contribution limit is $7,500 for 2026 and an additional $1,100 if you are age 50 or older. Income requirements apply to deduct the contribution.
The contribution limit is $7,500 for 2026 and an additional $1,100 if you are age 50 or older. Income requirements apply to make a contribution.
Required minimum distributions (RMDs)
Yes. Learn more about RMDs from traditional IRAs.
No. Roth IRA accounts are not subject to RMDs.
Both Roth IRA eligibility and traditional IRA deductibility are affected by your income. The Internal Revenue Service (IRS) sets MAGI limits each year.
Whether you can contribute to a Roth IRA depends on your tax filing status and MAGI.
The maximum allowable contribution is $7,500 for 2026. If you are age 50 or older, you can make an additional catch-up contribution of $1,100 for 2026. You or your spouse need taxable compensation¹ to support the contribution.
The following are the MAGI limits and corresponding allowed contributions:
Tax filing status
2026 MAGI
Allowed contribution
Single or head of household*
Less than $153,000
Full contribution
$153,000 – $168,000
Pro-rated (partial) contribution
$168,000 or more
No contribution
Married filing jointly or qualifying surviving spouse
Less than $242,000
Full contribution
$242,000 – $252,000
Pro-rated (partial) contribution
$252,000 or more
No contribution
Married filing separately
Less than $10,000
Pro-rated (partial) contribution
$10,000 or more
No contribution
*If you are married filing separately and did not live with your spouse at any time during the year, your limit is determined under the "Single" status.
Note: If your MAGI falls into the pro-rated range, a special calculation determines how much you can contribute. Visit the IRS website for guidance on calculating partial contributions to a Roth IRA.
You can always make a traditional IRA contribution as long as you have enough earned income. However, if you or your spouse gets contributions or benefits under an employer retirement plan, your eligibility to deduct contributions depends on your MAGI and tax filing status.
If you contribute more than the deductible amount, you do not have to remove the excess. You will need to track the after-tax basis on Form 8606. We are not able to track this for you.
The following are the MAGI limits that apply to each tax filing status:
Tax filing status
2026 MAGI
Deduction
Single or head of household and NOT covered by a retirement plan at work
Any amount
Full deduction
Single or head of household, and covered by a retirement plan at work
Up to $81,000
Full deduction
$81,000 – $91,000
Pro-rated (partial) deduction
$91,000 or more
No deduction
Married filing jointly or qualifying surviving spouse, and NOT covered by a retirement plan at work
Any amount
Full deduction
Married filing jointly or qualifying surviving spouse, and covered by a retirement plan at work
Up to $129,000
Full deduction
$129,000 – $149,000
Pro-rated (partial) deduction
$149,000 or more
No deduction
Married filing jointly, and you are NOT covered by a retirement plan at work but your spouse is
Up to $242,000
Full deduction
$242,000 – $252,000
Pro-rated (partial) deduction
$252,000 or more
No deduction
Married, filing separately*
Less than $10,000
Pro-rated (partial) deduction
$10,000 or more
No deduction
Note: If your MAGI falls into the pro-rated deduction range, a special calculation determines how much you can deduct. Consult your accountant or tax advisor, or see the IRS deduction limits for more information about contributions to traditional IRAs.
*If you are married filing separately and did not live with your spouse at any time during the year, your limit is determined under the "Single" status.
If you or your spouse does not get contributions or benefits under an employer retirement plan, you can claim a tax deduction for 100% of the allowable contributions you make to a traditional IRA.
The IRS defines an employer retirement plan to include:
Simplified Employee Pension (SEP) IRA
Savings Incentive Match Plan for Employees (SIMPLE) IRA
401(k)
403(b)
Profit sharing
Pension plan
The rules differ by plan type. For example, SEP IRA contributions affect your deduction eligibility for the year they are actually credited to your SEP IRA (regardless of the year your employer takes the deduction). Pension plans affect deductibility for the year the contributions were intended.
Pro tip: If you are not sure whether you are covered under an employer retirement plan, check your Form W-2, Wage and Tax Statement status for any given year.
When choosing between a traditional or Roth IRA, consider these factors:
Current versus future tax rates — If you expect to be in a higher tax bracket during retirement, a Roth IRA may be beneficial because of tax-free withdrawals. If you expect a lower bracket in retirement, a traditional IRA may be advantageous because of the potential for tax-deductible contributions now.
Income limits — Both traditional and Roth IRAs have income limitations that can affect contribution deductibility or eligibility. If your income exceeds the Roth IRA limits, you may not be eligible to contribute. Similarly, traditional IRA deductibility may be limited based on your income and whether you or your spouse is covered by a plan at work.
RMDs — Traditional IRAs require you to take RMDs starting at a certain age. Roth IRAs are not subject to RMDs during the account owner's lifetime. This matters if you plan to leave tax-free retirement savings to beneficiaries or want more flexibility with withdrawals in retirement.
Immediate tax benefits — If you qualify for a tax deduction on traditional IRA contributions, it can reduce your current tax liability. Roth IRA contributions do not offer this immediate benefit.
When you open an IRA with Gusto Retirement, you automatically gain access to contribute to both traditional and Roth IRAs. This flexibility allows you to choose the type that best fits your current financial situation and retirement goals.
Note: New Gusto IRAs can only be established for Gusto 401(k) participants.
For informational purposes only. This should not be considered financial, tax, or legal advice. Contact a financial professional to evaluate what retirement plan is best suited for your situation.
¹ Roth distributions are tax-free if the following conditions are met: (a) you are over age 59½ AND (b) it has been five years since your first deposit. To contribute to a traditional or Roth IRA, you or your spouse, if you file a joint return, must have taxable compensation, like wages, salaries, commissions, tips, bonuses, or net income from self-employment. See IRS Publication 590-A for more information on eligible compensation for IRA purposes. Please consult a qualified financial advisor or tax professional to determine what is applicable to your financial situation.