Traditional IRA vs Roth IRA: EA Exam Part 1 (2026)

The 2025 IRA contribution limit is $7,000 ($8,000 if you are 50 or older), and that cap is shared across all of your traditional and Roth accounts. A traditional IRA contribution may be tax-deductible now but is taxed on withdrawal. A Roth IRA contribution is never deductible, but qualified distributions come out tax-free.

Part 1 of the Special Enrollment Examination (SEE) tests IRA rules across two domains: above-the-line deductions (the traditional IRA deduction) and retirement income (distributions and conversions). This guide from VantageEA, an Enrolled Agent (EA) exam practice platform, walks through contribution limits, deduction phase-outs, Roth eligibility, conversions, the 10% penalty, and required minimum distributions for the 2025 tax year.

What are the 2025 IRA contribution limits?

For 2025, the maximum contribution to all of your traditional and Roth IRAs combined is $7,000, or $8,000 if you are age 50 or older by December 31. The extra $1,000 is the catch-up contribution. These limits apply per person: a married couple filing jointly can contribute up to $14,000 ($16,000 with both spouses 50 or older) across their separate accounts.

A few ground rules apply to every IRA contribution:

• Compensation required: you must have taxable compensation (wages, salary, self-employment income, alimony received under a pre-2019 agreement) at least equal to your contribution. Investment income does not count.
• Spousal IRA: a spouse with little or no compensation can contribute up to the full limit, provided the couple files jointly and the working spouse has enough compensation for both contributions.
• Age limit: there is no age restriction. Since 2020, anyone with compensation can contribute to a traditional or Roth IRA at any age.
• Deadline: contributions for 2025 can be made until April 15, 2026. An extension of time to file does not extend this deadline.

According to IRS Publication 590-A, Contributions to Individual Retirement Arrangements, the contribution limit is reduced dollar-for-dollar by the amount contributed to other IRAs. Contributing $4,000 to a traditional IRA leaves $3,000 of room for a Roth ($4,000 with the catch-up).

When is a traditional IRA contribution deductible?

The answer depends on whether you or your spouse is covered by an employer retirement plan (a 401(k), 403(b), SEP, SIMPLE, or defined benefit pension) at any point during the year. If neither of you is covered, your full contribution is deductible regardless of income. If one or both of you is covered, the deduction phases out across a modified adjusted gross income (MAGI) range.

MAGI below the bottom of the range means a full deduction. MAGI above the top means no deduction. In between, the deduction is prorated and rounded up to the next $10. A single filer covered by a 401(k) with $84,000 of MAGI loses half the deduction: ($89,000 minus $84,000) divided by $10,000, times $7,000, equals $3,500.

Even when the deduction is zero, the contribution itself is still allowed. A nondeductible traditional IRA contribution adds after-tax basis to your account, tracked on Form 8606, Nondeductible IRAs. That basis comes out tax-free later, but each distribution is split between taxable and nontaxable portions under the pro-rata rule. The above-the-line deductions topic page drills the deduction calculation step by step.

Who can contribute to a Roth IRA in 2025?

Roth IRA contributions have their own income phase-out, which limits who can contribute directly. You still need compensation, and your MAGI must fall below the cutoff for your filing status:

Below the floor, the full $7,000 (or $8,000) goes in. Above the ceiling, no direct Roth contribution is permitted. The reduced amount is prorated the same way as the traditional deduction and also rounded up to the next $10, and any result between $0 and $200 becomes $200. Whether an employer plan covers you does not matter for Roth eligibility.

Here is where it gets interesting: a taxpayer above the Roth phase-out can still get money into a Roth through a backdoor Roth conversion. Make a nondeductible traditional IRA contribution (no income limit blocks that), then convert it to a Roth. The conversion is taxable, but if the traditional IRA held only the nondeductible amount, almost nothing is taxable. The pro-rata rule, described below, decides the taxable share.

How does a Roth conversion work?

A Roth conversion moves money from a traditional IRA (or a SEP or SIMPLE IRA) into a Roth IRA. The converted amount is included in gross income for the year, taxed as ordinary income, but there is no 10% early withdrawal penalty on the conversion itself.

• No income limit: anyone can convert, regardless of MAGI.
• No dollar limit: you can convert any amount in a single year.
• Pro-rata rule: if you hold both deductible and nondeductible amounts across all your traditional, SEP, and SIMPLE IRAs, each conversion is partly taxable. The taxable fraction equals total pre-tax balances divided by total balances across every traditional IRA you own. You cannot convert only the nondeductible slice.
• 5-year holding period: each conversion starts its own 5-year clock. Withdraw the taxable part of a conversion before 5 years and before age 59 and a half, and the 10% penalty applies to that withdrawal.

Suppose a taxpayer has $80,000 in a rollover IRA (all pre-tax) and makes a $7,000 nondeductible contribution to a new traditional IRA, then converts the $7,000 to a Roth. The total traditional IRA balance is $87,000, and the pre-tax share is $80,000 out of $87,000, or about 92%. So 92% of the $7,000 conversion ($6,440) is taxable. This is the trap the exam sets: converting a small nondeductible contribution when large pre-tax balances exist elsewhere triggers a bigger tax bill than expected.

What are the rules for traditional IRA distributions?

Distributions from a traditional IRA are taxed as ordinary income in the year received, except for the portion that represents nondeductible contributions (which come out tax-free under the pro-rata rule). The tax treatment depends on whether contributions were deductible:

• Fully deductible contributions: the entire distribution is ordinary income.
• Mix of deductible and nondeductible: each distribution is split. The nontaxable fraction equals total nondeductible contributions (basis) divided by the account balance at year end plus distributions taken during the year. Report on Form 8606.

Before age 59 and a half, distributions generally carry a 10% additional tax (the early withdrawal penalty), on top of ordinary income tax. Exceptions to the penalty include disability, death, a series of substantially equal periodic payments (Section 72(t)), up to $10,000 for a first home, qualified higher education expenses, certain medical expenses, and health insurance premiums while unemployed. The IRA and pension distributions topic page lists every exception.

When are Roth IRA distributions tax-free?

A Roth IRA distribution is qualified (entirely tax-free and penalty-free) when two conditions are met: the account has been open for at least 5 tax years, and the distribution happens after one of these events: you reach age 59 and a half, you become disabled, you die (beneficiary takes the distribution), or you use up to $10,000 for a first home.

The 5-year clock starts on January 1 of the tax year for which you made your first Roth IRA contribution or conversion. A 2025 contribution starts the clock on January 1, 2025, and it ends after December 31, 2029.

Roth IRA withdrawals follow an ordering rule, which determines what comes out first:

1. Regular contributions: always tax-free and penalty-free, since you already paid tax on the money.
2. Conversions and rollovers: come out in the order converted, with the taxable portion of each conversion first. That taxable portion owes the 10% penalty if withdrawn within its own 5-year period and before age 59 and a half. The nontaxable portion (if any) comes out next and is penalty-free.
3. Earnings: taxable and subject to the 10% penalty unless the distribution is qualified.

Because contributions come out first, a Roth IRA owner can withdraw up to the total of all regular contributions at any time, at any age, with no tax or penalty. This ordering rule makes the Roth more flexible than many candidates expect.

How do required minimum distributions differ between IRA types?

Traditional IRA owners must begin taking required minimum distributions (RMDs) by April 1 of the year after they turn 73. The SECURE 2.0 Act raised this from 72 to 73 starting in 2023, and it will rise to 75 for individuals born in 1960 or later, starting in 2033. Missing an RMD triggers a 25% excise tax on the shortfall (reduced to 10% if corrected within 2 years).

A Roth IRA has no required minimum distributions for the original owner. The account can grow tax-free for a lifetime. Once inherited, beneficiaries follow the same distribution rules as inherited traditional IRAs (the 10-year rule for most non-spouse beneficiaries under SECURE Act provisions). The exam commonly tests the first-year trap: taking two RMDs in one year. If a traditional IRA owner delays the first RMD to April 1, the second RMD for that same calendar year is still due by December 31, stacking both distributions into one tax year.

What is the 10% early withdrawal penalty, and what are the exceptions?

Distributions from a traditional IRA before age 59 and a half generally owe a 10% additional tax under IRC Section 72(t), on top of regular income tax. Roth IRA earnings withdrawn before a qualified distribution also face the penalty. IRS Publication 590-B, Distributions from Individual Retirement Arrangements, lists the exceptions:

• Death or disability: distributions to a beneficiary after the owner's death, or to a disabled owner.
• Substantially equal periodic payments (SEPPs): a series under Section 72(t)(2)(A)(iv), calculated by one of three IRS-approved methods, that must continue for at least 5 years or until age 59 and a half (whichever is later).
• First home: up to $10,000 lifetime for buying, building, or rebuilding a first home for yourself, your spouse, your child, grandchild, or parent.
• Higher education expenses: tuition, fees, books, supplies, and room and board (if at least a half-time student) at an eligible institution, for you, your spouse, children, or grandchildren.
• Unreimbursed medical expenses: amounts exceeding 7.5% of AGI.
• Health insurance while unemployed: premiums paid while receiving unemployment compensation for at least 12 consecutive weeks.
• IRS levy: distributions taken to satisfy an IRS levy on the IRA.
• Qualified reservist: distributions to a military reservist called to active duty for 180 or more days.

The penalty is reported on Form 5329, Additional Taxes on Qualified Plans. SEPP questions appear regularly on Part 1: if you modify the payment schedule before the 5-year or age 59 and a half requirement is met, the penalty applies retroactively to every distribution in the series. A 52-year-old who starts SEPPs must continue them until at least age 59 and a half (7.5 years, since that is later than 5 years).

How does the EA exam test IRA rules across Part 1 domains?

IRA questions span at least three Part 1 domains. The IRS Part 1 exam outline places them under Income and Assets, Deductions and Credits, and Taxation:

• Domain 2 (Income and Assets): taxability of traditional IRA distributions, Roth ordering rules, the pro-rata rule on Form 8606, and rollovers.
• Domain 3 (Deductions and Credits): the traditional IRA deduction, phase-out calculations, and the dollar thresholds you need to memorize.
• Domain 4 (Taxation): the 10% early withdrawal penalty, excess contribution penalty, and RMD failure penalty.

Part 1 (Individuals) has the lowest pass rate of the three parts: 58% in the 2024-2025 testing year, according to figures compiled from Prometric score data (the IRS does not publish official pass rates). IRA problems are calculation-heavy, and the exam rewards candidates who can work through phase-out math quickly. The week-by-week EA exam study schedule places IRA rules in the retirement income and deductions blocks.

Which IRA mistakes cost the most points on Part 1?

These errors appear often on the exam and in practice questions:

• Forgetting the shared limit: treating the $7,000 as separate limits for traditional and Roth, when it is one cap across all IRAs.
• Ignoring the pro-rata rule: converting only a nondeductible portion while pre-tax balances sit in another IRA. The exam gives a fact pattern with a rollover IRA and a new nondeductible contribution, then asks for the taxable amount on conversion.
• Mixing up phase-outs: applying the traditional IRA deduction phase-out to Roth eligibility, or using the wrong range for a spouse who is not covered by an employer plan.
• Applying the 10% penalty to a Roth conversion: the conversion itself is penalty-free, and Roth contributions always come out first.
• Missing the first-year RMD trap: not seeing that delaying the first distribution to April 1 forces two RMDs in one calendar year.

Try this one. A 45-year-old single filer earns $82,000 in wages, is covered by a 401(k), and contributes $7,000 to a traditional IRA. How much is deductible? The phase-out runs from $79,000 to $89,000. The deductible portion is ($89,000 minus $82,000) divided by $10,000, times $7,000, which is $4,900. The remaining $2,100 is nondeductible. Read why Part 1 is the hardest EA exam part for more on where candidates lose points.

How should you study IRA rules for the 2026 EA exam?

Each part of the SEE has 100 questions (85 scored and 15 experimental) in 3.5 hours, and you need a scaled score of 500 on the 200 to 800 scale to pass. According to the IRS Enrolled Agents FAQ, the US window runs July 1, 2026 to February 28, 2027 at PSI test centers or through PSI online proctoring, and the fee is $317 per part.

1. Build a comparison chart of traditional vs Roth across contributions, deductions, distributions, and RMDs.
2. Memorize the phase-out ranges: traditional deduction (by filing status and plan coverage), Roth eligibility (by filing status), and the $7,000/$8,000 shared limit.
3. Practice the pro-rata calculation on Form 8606 with at least three fact patterns that mix deductible and nondeductible balances.
4. Answer timed questions and tag each miss with the specific rule it tested.

VantageEA EA mock tests report your number correct out of 100, with 70 correct as the pass mark, plus an estimated PSI score range. The IRA and pension distributions topic and the above-the-line deductions topic drill these rules with practice questions. Start with a free EA practice test.

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