Quick Answer
Traditional IRAs let contributions grow tax-deferred, with contributions that may be deductible depending on income and workplace-plan coverage, and distributions taxed as ordinary income. Roth IRAs use after-tax dollars in exchange for completely tax-free qualified distributions and no Required Minimum Distributions (RMDs) for the original owner. Both share the same 2026 contribution limits.
IRAs remain the backbone of personal retirement savings, and Series 66 questions regularly test how contribution limits, tax treatment, and income phase-outs interact. Use the current-year thresholds below; 2026 data reflects Notice 2025-67 (IRS, Nov. 13, 2025).
How Much Can You Contribute to an IRA in 2026?
- Under age 50: $7,500 combined across all Traditional + Roth IRAs
- Age 50 or older: $8,600 (includes the $1,100 catch-up now indexed under SECURE 2.0)
- Contributions cannot exceed the taxpayer’s earned income for the year
- Spousal IRAs are permitted when filing jointly as long as combined earned income covers both contributions
How Is a Traditional IRA Taxed?
Key traits:
- Contributions may be tax-deductible depending on income and employer plan coverage
- Earnings compound tax-deferred; distributions are taxed as ordinary income to the extent they represent deductible contributions and growth. Already-taxed, non-deductible contributions (basis) are not taxed again on withdrawal.
- Anyone with earned income can contribute, but deductibility phases out for higher earners covered by workplace plans
- RMDs begin at age 73 (moves to 75 for those born in 1960 or later per SECURE 2.0, effective 2033); RMDs cannot be rolled over to another IRA or qualified plan
- 10% penalty applies to pre-59.5 distributions unless an IRA-specific exception applies (death, disability, first-time home purchase up to $10k, qualified education, SEPP/72(t), etc.)
- SEPP/72(t) payments must continue for 5 years or until age 59.5, whichever is later. Modifying the schedule early recaptures the 10% penalty retroactively on every distribution already taken, plus interest, not just on distributions going forward
2026 deductibility phase-out ranges (Modified Adjusted Gross Income):
| Filing Status | Covered by Employer Plan? | Full Deduction | Phaseout Range | No Deduction |
|---|---|---|---|---|
| Single / Head of Household | Yes | $81,000 or less | $81,000 - $91,000 | Above $91,000 |
| Married Filing Jointly | Contributor covered | $129,000 or less | $129,000 - $149,000 | Above $149,000 |
| Married Filing Jointly | Contributor not covered, spouse is | $242,000 or less | $242,000 - $252,000 | Above $252,000 |
| Married Filing Jointly or Separately | Neither spouse covered | Full deduction at any income | N/A | N/A |
| Married Filing Separately (MFS)* | Contributor covered | Full at $0 MAGI only | Above $0 - $10,000 | Above $10,000 |
- If neither spouse is covered by a workplace plan, the contribution stays fully deductible regardless of income, and this holds for every filing status, including MFS.
- Above the phase-out ceiling a taxpayer can still make a non-deductible contribution (Form 8606 tracks basis).
- MFS taxpayers who lived apart from their spouse the entire year use the Single / HOH thresholds instead of the $0 - $10,000 band.
Exam Tip: Gotchas
Deductibility, not contribution eligibility, is what phases out for Traditional IRAs. This distinction is a favorite Series 66 trick question.
How Is a Roth IRA Taxed?
Key traits:
- Contributions are made with after-tax dollars (never deductible)
- Qualified distributions (5-year clock + age 59.5/death/disability/first-time home purchase up to $10,000) are completely tax-free
- No RMDs for the original owner, making Roth IRAs a core estate-planning tool
- Contributions (principal) can be withdrawn anytime tax- and penalty-free under ordering rules
2026 Roth contribution eligibility (MAGI):
| Filing Status | Full Contribution | Phaseout Range | No Contribution |
|---|---|---|---|
| Single / Head of Household | Below $153,000 | $153,000 - $168,000 | $168,000 or more |
| Married Filing Jointly | Below $242,000 | $242,000 - $252,000 | $252,000 or more |
| Married Filing Separately (MFS)* | Full at $0 MAGI only | Above $0 - $10,000 | Above $10,000 |
- MFS taxpayers who lived apart from their spouse the entire tax year follow the Single / HOH thresholds.
Exam tip: Roth contributions have income limits; Roth conversions do not. Watch for questions mixing the two.
How Do Traditional and Roth IRAs Compare Side by Side?
| Feature | Traditional IRA | Roth IRA |
|---|---|---|
| Contribution limit | $7,500 ($8,600 age 50+) combined across all IRAs | $7,500 ($8,600 age 50+) combined across all IRAs |
| Tax treatment on contribution | Deductible if within limits | Never deductible |
| Tax on growth | Tax-deferred | Tax-free |
| Tax on qualified distribution | Ordinary income | Tax-free |
| Income limits to contribute | None (deductibility phases out) | Yes (see table) |
| RMDs during owner’s lifetime | Yes (age 73/75) | No |
| Early withdrawal penalty | 10% before 59.5 (unless exception) | On earnings only before 59.5 |
How Does a Roth Conversion ("Backdoor Roth") Work?
- Any taxpayer can convert Traditional IRA dollars to a Roth IRA regardless of income level.
- The taxable portion of the converted amount (pre-tax contributions and growth) is taxed as ordinary income in the conversion year; any basis from non-deductible contributions converts tax-free (pro-rata across all Traditional IRAs). The conversion itself does not trigger the 10% early-withdrawal penalty. However, a separate 5-year recapture rule applies: if the converted (taxable) funds are withdrawn from the Roth before age 59 1/2 and before 5 years have passed since that conversion, the 10% penalty can apply to the withdrawal.
- Conversions restart the 5-year clock for the taxable portion of that conversion; basis converts penalty-free immediately since it involves no gain.
- Strategically helpful for clients expecting higher future tax brackets or seeking to remove future RMDs.
Exam Tip: Gotchas
The pro-rata rule applies. If a client owns pre-tax and after-tax IRA dollars, each conversion or distribution is treated as proportional slices of both.
What Should You Check on Exam Day?
- 2026 contribution limit: $7,500 under age 50, $8,600 age 50+, combined across all Traditional and Roth IRAs
- Deductibility, not the right to contribute, phases out for Traditional IRAs based on income and workplace-plan coverage
- Traditional IRA RMDs begin at age 73 (moving to 75 for those born in 1960 or later, effective 2033); Roth IRAs have no RMDs for the original owner
- 10% early withdrawal penalty applies before age 59 1/2, with exceptions (death, disability, first-time home purchase up to $10,000, qualified education, SEPP/72(t), etc.)
- Roth IRA contributions phase out by income; Roth conversions have no income limit
- The pro-rata rule applies to conversions and distributions when a client holds both pre-tax and after-tax IRA dollars