What Is a FIRE Number and How Do You Calculate Yours?
Your FIRE number is the exact amount you need invested to retire early and live off returns forever. Here's the formula, real examples, and how to reach it faster.
Roth IRA vs Traditional IRA: Which Is Better for Your Specific Situation?
Roth or Traditional IRA? The right answer depends on your current vs. future tax rates — and getting it wrong can cost tens of thousands of dollars over 30 years. Here's how to decide.
The core difference: when you pay taxes
Both Roth and Traditional IRAs offer tax-advantaged retirement savings. The fundamental difference is timing:
Traditional IRA: - Contribute pre-tax dollars (deductible from income, reducing your tax bill now) - Money grows tax-deferred (no taxes on gains while invested) - Pay ordinary income taxes when you withdraw in retirement
Roth IRA: - Contribute after-tax dollars (no deduction now) - Money grows completely tax-free - Pay no taxes on withdrawals in retirement (including all investment gains)
Everything else — contribution limits, investment options, fund selection — is essentially the same. The choice is about when you want to pay taxes.
The deciding question: will your tax rate be higher now or in retirement?
The mathematically correct answer depends entirely on tax rate comparison:
Traditional IRA is better if: Your current tax rate is higher than your expected retirement tax rate. You save more on taxes now than you'll pay later.
Roth IRA is better if: Your current tax rate is lower than your expected retirement tax rate. You pay taxes now while rates are low, avoiding higher rates later.
They're roughly equivalent if: Your marginal tax rate stays the same from now to retirement.
The complexity: Future tax rates are uncertain. Tax laws change. Your income in retirement depends on decisions you haven't made yet.
Who benefits most from a Roth IRA
Young earners in low tax brackets: If you're in the 10% or 12% bracket (single under ~$47,000 or married under ~$94,000 in 2026), Roth is almost always better. You're paying taxes at historically low rates on the seed — the harvest (all that tax-free growth) is enormous over 30-40 years.
FIRE investors: Most FIRE practitioners plan to have low reported income in early retirement — drawing from investments, not W-2 income. This makes their effective retirement tax rate potentially very low. Paying taxes now at a moderate rate (22-24%) to avoid taxes later when you might be at 10-15% is mathematically questionable — but the flexibility and RMD advantages of Roth often tip the balance.
People who want flexibility: Roth IRA contributions (not earnings) can be withdrawn at any time without taxes or penalties. This provides an emergency fund of last resort and flexibility that Traditional IRAs don't offer.
People avoiding Required Minimum Distributions: Traditional IRAs force withdrawals starting at age 73 (Required Minimum Distributions), which can push you into higher tax brackets in retirement even if you don't need the money. Roth IRAs have no RMDs.
Who benefits most from a Traditional IRA
High earners in peak earning years: If you're in the 32%, 35%, or 37% bracket now and expect to be in 22-24% in retirement, the math clearly favors Traditional. You're saving 10-15% on taxes today by deferring.
People expecting significantly lower retirement income: If you expect Social Security + investment income to total well below $80,000/year (married), your effective retirement tax rate might be 12-15%. Traditional deductions at 24-32% current rates are worth significantly more.
State tax considerations: If you live in a high-income-tax state now but plan to retire in a no-income-tax state (Florida, Texas, Nevada, etc.), Traditional becomes more attractive — you avoid state taxes now and pay no state taxes in retirement.
2026 contribution limits and income restrictions
Contribution limits (2026)
- Under 50: $7,000/year (combined Traditional + Roth, not $7,000 each)
- 50 and older: $8,000/year (catch-up contribution)
Roth IRA income limits (2026)
| Filing Status | Full Contribution | Partial Contribution | No Contribution |
|---|---|---|---|
| Single | Under $150,000 | $150,000-$165,000 | Above $165,000 |
| Married filing jointly | Under $236,000 | $236,000-$246,000 | Above $246,000 |
Traditional IRA deductibility limits (2026)
Traditional IRA contributions are always allowed, but the deduction phases out at higher incomes if you (or your spouse) have a workplace retirement plan:
- Single with 401k: deduction phases out $79,000-$89,000
- Married (contributor has 401k): phases out $126,000-$146,000
- Married (spouse has 401k, contributor doesn't): phases out $236,000-$246,000
Above these limits, Traditional IRA contributions are non-deductible — making them significantly less valuable (though the Backdoor Roth strategy addresses this).
The Backdoor Roth IRA: for high earners above income limits
If your income exceeds the Roth IRA limits, you can still access Roth tax advantages through the Backdoor Roth:
Step 1: Contribute $7,000 to a Traditional IRA (non-deductible) Step 2: Convert the Traditional IRA to a Roth IRA
The conversion is taxable on any earnings between contribution and conversion. If you convert immediately after contributing (same day or next day), growth is essentially zero and the conversion is effectively tax-free.
Pro-rata rule warning: If you have existing pre-tax Traditional IRA balances, the pro-rata rule applies — you can't cherry-pick non-deductible contributions for conversion. The conversion is taxed proportionally based on total IRA balances. Many FIRE investors roll pre-tax Traditional IRA money into their 401k before executing a Backdoor Roth to avoid this complication.
The Roth Conversion Ladder: FIRE's most powerful tax strategy
For FIRE investors planning to retire early (before 59½), the Roth conversion ladder is the primary strategy for accessing retirement funds without penalty.
The problem: 401k and Traditional IRA withdrawals before 59½ face a 10% early withdrawal penalty (plus ordinary income taxes).
The solution:
- Accumulate a large Traditional 401k balance during working years (tax deductions now)
- Retire early and convert $X from Traditional to Roth each year
- Pay income tax on the conversion amount (at low rates, since early retirement income is low)
- Wait 5 years — converted amounts can then be withdrawn penalty-free
- Live on taxable brokerage accounts and previous Roth contributions during the 5-year waiting period
Example: You retire at 42 with $800,000 in a 401k and $100,000 in a taxable brokerage.
- Year 1 of retirement: Convert $60,000 from 401k to Roth. Pay taxes (~$5,000-8,000 at low income). Live on $60,000 from brokerage.
- Years 2-5: Repeat. Brokerage funds the living expenses.
- Year 6: The year-1 conversion is now accessible penalty-free. You have a continuous pipeline of accessible Roth funds going forward.
This strategy effectively turns a Traditional 401k into a tax-efficient retirement income source for early retirees — avoiding both the 10% penalty and high tax rates.
Side-by-side comparison: Roth vs Traditional
| Feature | Roth IRA | Traditional IRA |
|---|---|---|
| Tax deduction on contribution | No | Yes (if eligible) |
| Tax on growth | None | Deferred until withdrawal |
| Tax on withdrawals | None | Ordinary income rates |
| Contribution limits (2026) | $7,000/$8,000 | $7,000/$8,000 |
| Income limits | Yes (see above) | No (for contribution), Yes (for deduction) |
| Required Minimum Distributions | None | Starting at age 73 |
| Early withdrawal of contributions | Penalty-free | 10% penalty + taxes |
| 5-year rule on conversions | Yes | N/A |
| Best for early retirees | Yes (conversion ladder) | Yes (if using conversion ladder) |
The simple decision framework
Default to Roth if you: - Are in the 22% bracket or below - Are in your 20s or 30s with decades of compounding ahead - Expect your income (and tax rate) to increase over your career - Want flexibility to access contributions without penalty - Want to avoid RMDs
Default to Traditional if you: - Are in the 32% bracket or above - Expect your retirement income to be significantly lower than current income - Will move to a no-income-tax state in retirement - Are maximizing your 401k first and want additional tax-deferred space
Consider a split if you: - Are uncertain about future tax rates (valid concern — many people contribute to both) - Want diversification across tax treatments (tax-deferred, tax-free, and taxable accounts) - Expect tax laws to change significantly
Frequently asked questions
Can I contribute to both a Roth and Traditional IRA in the same year? Yes, but the combined contribution cannot exceed $7,000/year ($8,000 if 50+). You might contribute $4,000 to Roth and $3,000 to Traditional, for example.
What if I'm not sure which is better? Default to Roth in lower tax brackets (22% and below). The flexibility, RMD-free growth, and tax-free compound growth over decades make it the better choice for most people who are uncertain.
Should I roll my old 401k into an IRA? Often yes — a rollover IRA typically offers better fund selection and lower fees than workplace 401ks. Roll into a Traditional IRA to preserve tax deferral. If you're planning a Backdoor Roth, consider rolling into your current employer's 401k instead to avoid pro-rata rule complications.
Does a Roth IRA affect financial aid calculations? Roth IRA balances are reported as parental assets on the FAFSA for college financial aid purposes. However, Roth IRA withdrawals (including conversions) count as income in the year taken. Plan large conversions carefully around college financial aid years.
What's the best Roth IRA investment strategy? Same as any long-term investment account: low-cost total market index funds. The tax-free nature of Roth IRAs makes them ideal for high-growth assets — every dollar of gains is permanently tax-free. Consider placing highest-expected-return assets (equities) in Roth accounts and lower-return assets (bonds) in Traditional accounts.