In the world of financial planning, we often treat retirement accounts as static buckets. But for the savvy investor, an IRA has a life cycle that must evolve as they do. From a teen’s first summer job to a retiree’s final legacy bequest, the optimal way to use these accounts changes based on tax bracket and life stage.
By viewing retirement savings as a five-stage life cycle, investors can minimize the IRS’ take and maximize what stays in their pocket.
- The seedling stage: The working advantage
The most powerful tool in the tax code is time. If a child has earned income—perhaps from a family business or a summer job—they are eligible to jump-start their future immediately.
The Strategy: Parents should encourage their teens to find a job or even employ them on their own for legitimate work. In 2026, the standard deduction is $16,100. Most teens likely will earn less than that, so they’ll pay 0% in income tax. Furthermore, if they are working for a parent’s unincorporated business, they are typically exempt from Social Security and Medicare taxes until age 18.
The Benefit: The child can contribute up to the amount of their earned income or $7,500, whichever is less, into a Roth IRA. Because they are in a 0% bracket, the “cost” of the Roth is zero, but the reward is massive: decades of compounding where both the principal and the interest are tax-free forever. - The early career: Roth renaissance
When a young adult first enters the professional workforce, their tax bracket is usually at its lifetime low. This is the optimal time to prioritize Roth contributions over current tax deductions.
The Strategy: Early-career workers should contribute to a Roth IRA or a Roth 401(k). At a minimum, they should contribute enough to their company’s plan to capture the full employer match—that’s free money!
The Benefit: Paying a 10% or 12% tax rate now (which, for a married couple in 2026, covers taxable income up to $100,800) to secure tax-free withdrawals 40 years from now is a bargain. Investors are effectively “buying” a tax-free future while their “tax price” is at a discount. - The peak earnings years: pivot to deduction
As workers hit their 40s and 50s, they typically enter their highest-earning years. Now, the math flips. Their goal shifts from paying taxes now to deferring taxes while they are in a top-tier bracket.
The Strategy: Highly paid workers should shift their focus to traditional IRAs and deductible 401(k)s. In 2026, investors can defer up to $24,500 ($32,500 if over 50) into a 401(k). Every dollar contributed reduces their taxable income today at what is likely their highest marginal rate.
The Benefit: Earners are betting that their tax bracket in retirement—when they no longer have a salary—will be lower than it is today. They save 37 cents on the dollar now and aim to pay it back at a much lower rate down the road. - The ‘gap years’: The Roth conversion window
The period between retirement and the start of required minimum distributions, which now begin at age 73 for most, is the golden age of tax planning. Often, investors’ income drops significantly, putting them in an artificially low tax bracket.
The Strategy: Retirees should use this low-income window to enact Roth conversions and move money from their traditional IRA to their Roth IRA, paying the tax at today’s low rates.
The Benefit: This strategy “shrinks” the size of future forced RMDs and builds two distinct pools of capital: one taxable and one tax-free. This flexibility is retirees’ greatest defense against future tax law changes. - Late retirement: The legacy and distribution phase
In the final stage, the goal is to maintain the lowest possible average tax bracket while fulfilling charitable and familial goals.
The Strategy: Retirees should draw strategically between their two pools, using the traditional IRA for their taxable floor and the Roth for a spike in expenses (such as a new car or a big trip) to avoid being pushed into a higher bracket.
There’s also a charitable/legacy play retirees can use: Qualified charitable distributions satisfy RMDs tax-free once retirees hit age 70½.
The Benefit: For their heirs, retirees can leave their Roth IRA to their kids (giving them 10 years of tax-free growth) and leave the traditional IRA to charity, which pays zero tax on the distribution.
The bottom line
Retirement planning is a living life cycle. By matching your account type to your current tax reality, you aren’t just saving for the future, you’re outmaneuvering the IRS at every stage of the game.
This article was provided to The Associated Press by Morningstar. For more personal finance content, go to https://www.morningstar.com/personal-finance.
Sheryl Rowling, CPA, is an editorial director, financial adviser for Morningstar.
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—Sheryl Rowling of Morningstar