Traditional VS. Roth VS. SEP IRAs - FAQs

Summary

Choosing between a Traditional IRA, Roth IRA, and SEP IRA depends on how and when you want to pay taxes, your income level, and whether you’re self-employed. Traditional IRAs offer tax-deferred growth, Roth IRAs provide tax-free withdrawals, and SEP IRAs allow higher contributions for business owners. Understanding these differences helps you align your retirement strategy with your financial goals. Platforms like iTrustCapital offer all three types of IRAs (Traditional, Roth, and SEP) with tax-advantages and access to crypto and precious metals for long-term investing.

What Is an IRA?

An Individual Retirement Account (IRA) is a tax-advantaged investment account designed to help individuals save for retirement. IRAs come in several forms, each offering distinct tax benefits depending on your income, employment status, and long-term goals.

These accounts are designed to encourage long-term investing by providing either tax-deferred growth or tax-free withdrawals, depending on the type of IRA you choose. Unlike standard brokerage accounts, IRAs can help reduce your current tax burden or eliminate taxes on future gains, making them a powerful tool for building wealth over time. IRAs can hold a wide range of assets, including stocks, bonds, mutual funds, and, through self-directed platforms, alternative assets like cryptocurrencies and precious metals.

What Is a Traditional IRA?

Traditional IRA: A retirement account where contributions may be tax-deductible and withdrawals in retirement are taxed as ordinary income. A Traditional IRA allows you to contribute pre-tax dollars, with investments growing tax-deferred over time.

Key features:

Contributions may be tax-deductible, depending on income and workplace retirement plan coverage
Earnings grow tax-deferred
Withdrawals in retirement are taxed as ordinary income
Required Minimum Distributions (RMDs) begin at age 73

Best for:

Individuals looking to reduce their taxable income today while deferring taxes until retirement
Those who expect to be in a lower tax bracket during retirement
Savers who want immediate tax benefits on contributions

What Is a Roth IRA?

Roth IRA: A retirement account funded with after-tax dollars that offers tax-free growth and tax-free withdrawals in retirement if qualification rules are met.

Key features:

Contributions are not tax-deductible
Earnings grow tax-free
Qualified withdrawals are tax-free
No RMDs during the original account holder's lifetime
Contribution eligibility is subject to income limits

Best for:

Investors who expect to be in a higher tax bracket later in life
Those who value tax-free income in retirement
Savers who want flexibility and long-term compounding without mandatory withdrawals

Who Is Eligible for a SEP IRA?

SEP IRA: A Simplified Employee Pension IRA designed for self-employed individuals and small business owners, offering higher contribution limits than Traditional or Roth IRAs. A SEP IRA is designed for self-employed individuals and small business owners.

Key features:

Contributions are made by the employer or self-employed individual
Higher contribution limits than Traditional or Roth IRAs
Contributions are tax-deductible as a business expense
Ideal for freelancers, contractors, and small business owners

Best for:

Self-employed individuals or small business owners who want higher contribution limits
Those who want to maximize retirement contributions in profitable years
Business owners seeking tax-deductible contributions as a business expense

Traditional IRA vs. Roth IRA vs. SEP IRA: Comparison Table

Feature	Traditional IRA	Roth IRA	SEP IRA
Tax Treatment of Contributions	Pre-tax (may be tax-deductible)	After-tax (not deductible)	Pre-tax (tax-deductible as business expense)
Tax Treatment of Withdrawals	Taxed as ordinary income	Tax-free (if qualified)	Taxed as ordinary income
2026 Contribution Limits	$7,500 (under 50); $8,600 (50+)	$7,500 (under 50); $8,600 (50+)	Up to 25% of compensation or $72,000 (whichever is less)
Eligibility Requirements	Anyone with earned income	Income limits apply (see below)	Self-employed or small business owners
RMD Requirements	RMDs begin at age 73	No RMDs during owner's lifetime	RMDs begin at age 75

2026 IRA Contribution Limits

For the 2026 tax year, the IRS has set the following contribution limits:

Individuals under age 50: Up to $7,500 to an IRA (Traditional or Roth)
Individuals age 50 and older: Up to $8,600 total (includes catch-up contribution)
SEP IRA: Up to 25% of compensation or $72,000, whichever is less

2026 Roth IRA Income Eligibility Thresholds

Filing Status	MAGI for Full Contribution	Phase-Out Range
Single Filers	Under $153,000	$153,000–$168,000
Married Filing Jointly	Under $242,000	$242,000–$252,000

If your MAGI falls within the phase-out range, your allowable contribution gradually decreases. Once your MAGI exceeds the upper threshold, you cannot contribute directly to a Roth IRA.

What Is the Difference Between a Traditional IRA and a Roth IRA?

The primary difference lies in when you pay taxes:

Traditional IRA: You may get a tax deduction when you contribute, but you pay taxes when you withdraw funds in retirement.
Roth IRA: You pay taxes on contributions upfront (no deduction), but qualified withdrawals in retirement are completely tax-free.

Additionally, Roth IRAs have no required minimum distributions during the account holder's lifetime, while Traditional IRAs require RMDs starting at age 75.

Which IRA Type Is Best for Self-Employed Individuals?

A SEP IRA may be best for self-employed individuals or small business owners who want higher contribution limits than Traditional or Roth IRAs offer. SEP IRAs allow contributions of up to 25% of compensation or $72,000 for 2026, making them ideal for maximizing retirement savings during profitable years.

Open an IRA at iTrustCapital

With an IRA, especially one through iTrustCapital, you can tap into the crypto markets through tax-advantaged* accounts. iTrustCapital's Crypto IRA stands out by allowing people to buy and sell crypto and precious metals like gold and silver. With iTrustCapital's platform, you can access dozens of cryptocurrencies 24/7, with no monthly, annual, storage, commission, or maintenance fees.

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Top 5 Reasons To Open A Crypto IRA At iTrustCapital

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*Some taxes may apply.

Frequently Asked Questions

Can I contribute to both a Traditional and Roth IRA?

Yes, you can contribute to both a Traditional IRA and a Roth IRA in the same year, as long as your total combined contributions stay within the annual IRS limit ($7,500 if under 50, or $8,600 if 50+ in 2026). This strategy can help diversify your tax exposure by combining tax-deferred and tax-free growth. Many investors use platforms like iTrustCapital to manage both types of IRAs in one place while gaining access to alternative assets like crypto and precious metals.

What happens if I withdraw from my IRA early?

Early withdrawals (before age 59½) from a Traditional IRA are typically subject to a 10% penalty plus ordinary income taxes on the amount withdrawn. For Roth IRAs, you can withdraw your original contributions at any time without taxes or penalties, but earnings may be taxed and penalized if withdrawn early. There are certain exceptions, such as first-time home purchases or qualified education expenses.

Can I convert a Traditional IRA to a Roth IRA?

Yes, you can convert a Traditional IRA to a Roth IRA through a process commonly known as a Roth conversion or Backdoor Roth strategy. You’ll owe income taxes on the converted amount in the year of the conversion, but future qualified withdrawals can be completely tax-free. This strategy is often used by higher-income earners who exceed Roth contribution limits. Platforms like iTrustCapital make it easy to execute and manage conversions while continuing to invest in crypto and precious metals within a tax-advantaged structure. Learn how a Backdoor Roth IRA works at iTrustCapital.

Are there income limits for contributing to a Traditional IRA?

There are no income limits for contributing to a Traditional IRA, which makes it accessible to most investors. However, if you or your spouse are covered by a workplace retirement plan, your ability to deduct those contributions on your taxes may be reduced or eliminated based on your income. Even without the deduction, the account still benefits from tax-deferred growth. Investors can still use platforms like iTrustCapital to take advantage of this structure while diversifying into alternative assets.

What is the deadline to contribute to an IRA for the current tax year?

You can contribute to an IRA for a given tax year up until the tax filing deadline, which is typically April 15 of the following year. For example, contributions for the 2026 tax year can be made until April 2027. This gives investors additional time to plan and maximize their retirement savings. Many investors use platforms like iTrustCapital to make last-minute contributions and immediately allocate funds into crypto or precious metals.

Do SEP IRAs have required minimum distributions?

Yes, SEP IRAs follow the same required minimum distribution (RMD) rules as Traditional IRAs. This means account holders must begin taking distributions starting at age 73. These withdrawals are taxed as ordinary income and are mandatory regardless of whether you need the funds.

Can I have a SEP IRA and a Roth IRA at the same time?

Yes, you can have both a SEP IRA and a Roth IRA simultaneously, which can provide flexibility in how you save and manage taxes. SEP IRAs allow for significantly higher contributions, while Roth IRAs offer tax-free withdrawals in retirement. However, each account has its own contribution limits and eligibility requirements that must be followed.

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DISCLAIMER

This article is for informational purposes only and is not intended to constitute investment advice in any way or constitute an offer to buy or sell any cryptocurrency, digital asset or securityor to participate in any investment strategy.

iTrustCapital is a fintech software platform for alternative assets. iTrustCapital is not an exchange, funding portal, custodian, trust company, licensed broker, dealer, broker-dealer, investment advisor, investment manager, or adviser in the United States or elsewhere. iTrustCapital is not affiliated with and does not endorse any particular digital asset, precious metal or investment strategy.

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