Key Takeaways
- Traditional IRA gives you a tax break today and taxable withdrawals later.
- Roth IRA means tax-free growth and withdrawals later.
- 401(k) has larger limits with employer-based tax benefits.
- A Roth conversion adds income to your 2025 return, which you must plan for before pulling the trigger.
- You should only convert before 2026 if your current tax rate is likely lower than your future one.
It’s close to year-end. Are you feeling the pressure of financial decisions you “should” make before December 31, but aren’t totally sure how to make them?
Retirement accounts fall squarely into that category, and navigating IRA choices or thinking about a possible Roth conversion certainly isn’t easy.
But the next few weeks are when the math really needs to be reviewed (a Roth conversion has a hard December 31 deadline).
So today, as my Oklahoma City client (or soon-to-be), I want to give you the clearest possible rundown of the IRA v Roth IRA v 401(k) conversation, traditional IRAs, Roth IRAs, and 401(k)s… and then help you decide if you should convert before 2026.
What are the main differences: IRA v Roth IRA v 401(k)?
In each account, your money grows in different ways and under different rules.
Traditional IRA: Allows you to contribute pre-tax dollars (when eligible). Meaning you may get a deduction today. Your money grows tax-deferred, and you’ll pay income tax later when you withdraw it in retirement.
It also comes with required minimum distributions beginning at age 73, which means you can’t let it sit untouched forever.
Traditional IRAs don’t have income limits for contributing. The limits apply only to whether your contribution is deductible.
Roth IRA: You contribute after-tax dollars (no upfront deduction). But once the money is inside the account, it grows tax-free. And later, if your withdrawals meet the requirements, they’re completely tax-free.
There are no lifetime RMDs, but the catch is that Roth IRAs have income limits. So not everyone can contribute directly.
Roth IRAs have strict income thresholds: for 2025, eligibility for singles begins phasing out at $150,000 of modified adjusted gross income (MAGI) and disappears at $165,000. Married couples filing jointly phase out between $236,000 and $246,000
401(k): A 401(k), offered through employers, is also funded with pre-tax dollars but allows much larger annual contributions than IRAs. It reduces your taxable income today, grows tax-deferred, and is taxed upon withdrawal.
Your Central Oklahoma employer may also match part of your contribution (which is as close to “free money” as it gets). Like traditional IRAs, 401(k)s require RMDs starting at age 73.
401(k)s don’t have income limits at all, which is one reason they’re so helpful for higher earners or anyone with a strong employer match. And because contribution limits are so much higher than IRAs, you can make meaningful progress quickly.
IRA v Roth IRA v 401(k): Which retirement account is best for taxes?
That depends on your income today and where you expect it to be later.
If lowering your taxable income now is helpful (it keeps you in a lower bracket, or qualifies you for a credit, perhaps?), then a traditional IRA or 401(k) contribution may create immediate savings.
On the other hand, if you expect income (or tax rates in general) to rise in your later years, Roth contributions offer long-term relief because qualified withdrawals are tax-free.
Many people benefit from a blended strategy — having both tax-deferred accounts (traditional) and tax-free accounts (Roth). This gives you flexibility in retirement to pull from whichever “tax bucket” makes the most sense year by year.
A simple way to frame it: pre-tax for now, Roth for later. (But your actual mix should follow your personal tax trajectory, not a standard rule.)
Should you convert to a Roth before 2026?
A Roth conversion moves money from the tax-deferred bucket to the tax-free bucket. But the moment you convert, that amount is added to your 2025 taxable income.
So, if your current tax rate is lower than your expected future rate, converting now can be wise.
But if your current rate is already high relative to what retirement might look like, a conversion can be costly.
Our planning strategy mostly comes down to “filling up” your existing tax bracket without spilling into the next one. If you already sit near the top of your bracket, even a modest conversion could push your income into a higher marginal rate, reducing (or even eliminating) the tax benefit.
What should I be aware of before converting to a Roth IRA?
Conversions ripple through your tax return in ways many people don’t expect. So, before converting, we’ll need to model…
- Medicare IRMAA surcharges: A large 2025 conversion increases your 2027 premiums.
- Required Minimum Distributions: Converting reduces future RMDs (a happy thing) but timing matters.
- Your estate strategy: Roth IRAs create tax-free inheritances.
- The Pro-Rata rule: If you have nondeductible IRA contributions, part of the conversion will be tax-free and part taxable. You can’t choose which dollars to convert.
- The 5-Year rule: Converted amounts must stay in the Roth for five years or until you’re 59½ (whichever is later) to avoid penalties.
- New MAGI-sensitive deductions: A large conversion could reduce or eliminate the new Senior Deduction or the newly adjusted SALT deduction cap for high-income filers.
Where should I start if I’m considering a Roth conversion?
Before converting anything, we should run a precise projection for 2025. That includes estimating your taxable income for the year and calculating how much room you have left in your current tax bracket.
Once we know your bracket “headroom,” we can model the exact tax cost of converting various amounts and determine whether the benefit of securing future tax-free growth outweighs the cost of paying tax now.
Final thoughts
The right move when it comes to the IRA v Roth IRA v 401(k) conversation isn’t always obvious from the outside. So, if you’re weighing a conversion before 2026, our safest next step is to run a detailed projection.
I’m here to help you walk through the math and see whether a conversion fits your situation. Or, whether it makes more sense to hold tight for now.
FAQs
“Is a Roth conversion all-or-nothing?”
Not at all. Many people convert gradually over several years to stay in their preferred tax bracket.
“If I’m retired, does converting to a Roth IRA still help me?”
Often yes. Reducing future RMDs can significantly stabilize your taxable income in your 70s and beyond.
“Do I need to wait until year-end to convert to a Roth IRA?”
No. Conversions can happen anytime during the year, but must be completed by December 31 to count for that year.
“Is a Roth IRA really tax-free forever?”
Yes, for qualified withdrawals. But you must meet the age requirements and the five-year rule.
“Should I convert my 401(k)?”
Sometimes, but you may need to roll it to an IRA first. And we would need to check the employer plan rules.