Retirement Account Tax Rules
Know the tax difference between traditional and Roth accounts, the 2026 limits, RMDs, and early-withdrawal rules.
TL;DR
- Deduct
traditionalcontributions now; takerothwithdrawals tax-free later. - Save up to
$24,500in a 401(k) and$7,500in an IRA for 2026. - Start
RMDsfrom traditional accounts at age 73, or face a penalty.
Traditional vs Roth
TraditionalDeduct now, then pay ordinary tax on withdrawals later.
Tax break now, taxed in retirementRothNo deduction now, but growth and withdrawals are tax-free.
Pay tax now, none laterIt's a Rate BetPick based on whether your tax rate rises or falls later.
Higher rate later? Choose RothRoth AccessRoth contributions can come out anytime, tax and penalty free.
Contributions out anytime2026 Contribution Limits
401(k)Workplace plan limit, with more room at 50 and older.
$24,500 (+$8,000 at 50+)IRATraditional or Roth IRA, funded until next tax day.
$7,500 (+$1,100 at 50+)Ages 60-63A larger 401(k) catch-up applies for these four years.
About $11,250 extraSelf-EmployedA SEP-IRA or solo 401(k) shelters much more.
Up to $72,000Required Distributions
Starts at 73Traditional accounts must begin paying out at this age.
Born 1960+? Starts at 75Roth IRA ExemptYou never have to take RMDs from your own Roth IRA.
Roth IRA = no lifetime RMDThe PenaltySkipping an RMD is one of the tax code's steepest hits.
25%, or 10% if fixed fastGive It to CharityFrom 70 1/2, a direct IRA gift counts toward your RMD tax-free.
QCD up to $111,000 in 2026Early Withdrawals
The 10% PenaltyTaking money before 59 1/2 usually costs an extra 10%.
Penalty + income taxFirst HomeAn IRA lets you pull a limited amount penalty-free to buy.
Up to $10,000 lifetime (IRA)Rule of 55Leave a job at 55+ and tap that 401(k) without the penalty.
Age 55 job exit (401k only)Other ExceptionsDisability, big medical bills, and more waive the penalty.
Disability, education, medicalTips
- Contribute at least enough to grab the full employer
401kMatchbefore anything else; the match is an instant 50% to 100% return. - Choose
rothwhile young or in a low bracket, since decades of tax-free growth usually beat a deduction taken at a low rate.
Warnings
- Missing a required distribution costs a 25%
RMDpenalty, cut to 10% if you fix it within two years, so calendar the deadline. - Withdrawing before age 59 1/2 usually adds a 10%
earlyPenaltyon top of income tax unless a specific exception applies.
In Practice
See why the employer match beats almost any other use of the same dollars.
You earn $60,000 and your 401(k) matches 50% of what you put in, up to 6% of your pay.
- Contribute 6%: $60,000 x 6% = $3,600 of your own money.
- Employer match: 50% x $3,600 = $1,800 added for free.
- That is an instant 50% return before any market growth.
- Contribute less than 6% and you forfeit part of the $1,800.
A 6% contribution captures the full $1,800 match every year.
Grab the entire employer match before any other investing.
FAQ
A traditional account gives you a tax deduction now and taxes your withdrawals in retirement. A Roth takes after-tax money now but grows and pays out completely tax-free. The choice is really a bet on your future tax rate: roth wins if your rate will be higher later, traditional if it will be lower.
You can put up to $24,500 in a 401(k), 403(b), or 457(b), plus an $8,000 catch-up at age 50. The IRA limit is $7,500, or $8,600 at 50 and older. Savers aged 60 to 63 get a larger 401(k) catch-up of about $11,250 under SECURE 2.0.
RMDs begin at age 73 if you were born from 1951 to 1959, and age 75 if born in 1960 or later. They apply to traditional IRAs and 401(k)s, but Roth IRAs have no RMDs during your lifetime. The penalty for missing one is 25% of the amount you should have taken, reduced to 10% if corrected quickly.
Yes. Direct Roth IRA contributions phase out between $153,000 and $168,000 of income for single filers, and $242,000 to $252,000 for joint filers in 2026. Above those limits, a backdoor Roth, contributing to a traditional IRA and converting it, still works. Report it on Form 8606.