Dave Ramsey, Vanguard warn Americans on taxes for traditional IRAs, Roth IRAs

Americans who are saving for retirement have a number of decisions to make about the tools they can use to enable their money to grow over the course of their careers so they can enjoy the retirement lifestyle they dream of.

And many people struggle to sift through the advice they get from influential sources about 401(k)s and IRAs (Individual Retirement Accounts).

As I wrote on June 7, bestselling personal finance author and radio host Dave Ramsey offers different advice around paying off debt while planning retirement savings than financial services companies such as Fidelity Investments and Vanguard.

"You should only start saving for retirement once you're completely out of debt and have a fully funded emergency fund in place," Ramsey wrote. "If you still have consumer debt lying around, pause all your investing until you pay it off."

Fidelity suggests a different approach: paying off high-interest debt first, while investing for retirement and carrying some debt to avoid missing upside growth opportunities.

"For many people, it generally makes sense to first pay down any debt with an interest rate of 6% or greater," Fidelity wrote.

Another question people saving for retirement often have involves the difference between contributing to a traditional IRA and a Roth IRA.

Ramsey has a warning for Americans about the importance of making a smart decision regarding these accounts.

"The biggest difference between a Roth IRA and a traditional IRA is how they're taxed," Ramsey wrote. "And trust us - how Uncle Sam takes his slice of your investing pie can make a huge difference in your retirement savings."

Traditional IRAs, Roth IRAs

"IRAs allow you to make tax-deferred investments to provide financial security when you retire," wrote the Internal Revenue Service (IRS). "A traditional IRA is a tax-advantaged personal savings plan where contributions may be tax deductible. A Roth IRA is a tax-advantaged personal savings plan where contributions are not deductible but qualified distributions may be tax free."

Ramsey has a warning regarding traditional IRAs.

"Here's the thing with traditional IRAs," Ramsey wrote. "Since you're not paying taxes on your contributions this year, you'll have to pay taxes on that money and its growth when you take the money out in retirement (that's why it's called tax-deferred growth)."

"And who knows what the tax rate will be when you retire?"

With a Roth IRA, contributions are made with money that has already been taxed, meaning the individual pays taxes before the funds are deposited into the account.

"Sweet!" he wrote. "Now you can watch your money grow tax-free - and when you retire, you won't have to pay taxes on your withdrawals."

Vanguard explains IRA eligibility requirements

Traditional and Roth IRAs have different qualification rules, mainly tied to a person's income and tax‑filing situation.

Traditional IRAs typically accept contributions from anyone who earns income, though the ability to deduct those contributions on taxes decreases at higher income levels when the individual or their spouse is covered by an employer retirement plan.

Roth IRAs, on the other hand, impose income limits that completely prevent higher‑earning individuals from contributing.

More on personal finance:

• AARP raises red flag on major 401(k) problem
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• Fidelity sounds alarm on 401(k)s, IRAs, Social Security

"Determining eligibility is crucial before choosing which IRA to open because it ensures that contributors select the type that maximizes their tax advantages and aligns with their financial situation and retirement goals," wrote investment giant Vanguard.

"In 2026, single filers must make less than $153,000 to contribute to a Roth IRA and married couples filing jointly must make less than $242,000," according to Vanguard. "Anyone with earned income can contribute to a traditional IRA."

You can contribute to a Roth IRA at any age, and since the SECURE Act took effect in 2020, traditional IRAs also allow contributions regardless of how old you are.

Dave Ramsey clarifies real-world IRA example

On The Ramsey Show, a caller asked about the difference between a Roth IRA and a traditional IRA.

Ramsey gave the caller a real-world example, imagining a scenario involving an account that started with no money at all.

"We're going to start with nothing in there," Ramsey said. "You're 33, and we'll do this: Until age 63, which would be 30 years, so if you put $500 a month away, for 30 years in a decent growth stock mutual fund, you'd have about $1,700,000."

"In a traditional, you'd have paid taxes on none of the money," he continued. "So you'll pay taxes on the entire $1.7 million. Taxes on that would probably be $400,000. In a Roth, you will have already paid your taxes because it's an after-taxes investment. And the growth ... is 100% tax free."

"So when you get to retirement, you're either going to pay taxes on $1.7 million or you're going to have $1.7 million tax free. The difference in the discussion is probably somewhere around $400,000."

My IRA calculations

Based on this math assuming a 10% annual return, which it appears Ramsey used in his example, I ran some calculations and put together a few other scenarios for comparison and context.

For simplicity, the scenarios assume Roth taxes are paid during one's working years and are not included in the growth calculations. The tax percentages used in these examples reflect typical U.S. federal tax brackets and are meant only as reasonable assumptions for illustration.

• Scenario A - A 32‑year‑old investing $450 per month for 30 years at an assumed 10% return ends up with roughly $1.53 million. With an estimated 24% tax rate, a traditional IRA would owe about $367,000, while a Roth IRA would keep the full amount tax‑free.
• Scenario B - Starting at age 35 and contributing $525 per month for 28 years at a 10% return produces about $1.48 million. At a 22% tax rate, a traditional IRA withdrawal would trigger around $326,000 in taxes, whereas a Roth IRA avoids that entirely.
• Scenario C - A 34‑year‑old putting in $550 per month for 30 years at a 10% return would accumulate roughly $1.87 million. With a 25% tax rate, a traditional IRA would owe about $467,000, while a Roth IRA delivers the full balance tax‑free.
• Scenario D - Beginning at age 33 and investing $475 per month for 27 years at a 10% return results in approximately $1.26 million. At a 22% tax rate, a traditional IRA would owe around $277,000, compared with zero taxes in a Roth IRA.
• Scenario E - A 31‑year‑old contributing $600 per month for 30 years at a 10% return ends up with about $2.04 million. With a 24% tax rate, a traditional IRA would owe roughly $490,000, while a Roth IRA keeps the entire amount untouched by taxes.
  
  (Source: Jeffrey Quiggle, TheStreet)

Related: Charles Schwab, Fidelity sound alarm on Roth IRA rule

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This story was originally published June 14, 2026 at 11:54 AM.