Roth vs. Traditional: The Choice That Decides
Whether You Keep Your Benefits

If you've started looking into retirement accounts, you've probably run into two names that keep showing up everywhere: Roth IRA and Traditional IRA. Most articles about them focus on one question — which one saves you more money on taxes over your lifetime?

That's a fine question if you're not on public assistance. But if you are, there's a much more urgent question buried underneath it, and almost nobody talks about it: which one of these accounts actually lowers the income number that Medi-Cal checks?

The answer is not "both." The answer is not "it depends." The answer is one specific account type — and picking the wrong one could mean you do everything right, contribute faithfully every month, and still lose your benefits.

The basic difference: pay taxes now, or pay taxes later

Strip away the jargon and the difference comes down to timing — specifically, when the government takes its cut.

With a Traditional IRA, you put money in before the IRS takes its cut. The IRS effectively pretends you earned less this year — which lowers your reported income now, and you pay tax on the money later, when you withdraw it in retirement (often at a lower tax rate).

With a Roth IRA, you pay taxes on the money first, then put what's left into the account. The IRS already got its cut — your reported income for this year doesn't change at all. In exchange, the money grows completely tax-free and you owe nothing when you withdraw it in retirement.

For someone with no benefits to worry about, both are genuinely good choices — the "right" one often depends on whether you expect to be in a higher or lower tax bracket in retirement. That's the conversation most personal finance articles have with you.

But that conversation skips the part that matters most for our purposes.

The part that matters: MAGI

If you've read our explainer on the benefits cliff, you know that California's assistance programs don't look at your raw paycheck. They look at a specific number called MAGI — Modified Adjusted Gross Income.

Here's the key fact this entire article is built around:

Let's see this side by side with real numbers. Imagine someone earning $34,000/year, with a Medi-Cal threshold of $33,000/year for their household size. They decide to contribute $3,000 to an IRA this year. Watch what happens to their MAGI depending on which account they choose.

Same person. Same income. Same $3,000 contributed to a retirement account. One choice keeps their Medi-Cal. The other one — despite being a perfectly good retirement account in every other way — does nothing to protect it.

Why does the IRS even make this distinction?

It's not arbitrary — it's about when the government collects tax revenue. A Traditional IRA contribution means the government collects less tax this year (because your reported income is lower) but more later (when you withdraw). A Roth IRA means the government collects the same amount this year but nothing later.

Because MAGI is fundamentally a measure of your current year's taxable income, and Traditional contributions directly reduce current-year taxable income while Roth contributions don't — the MAGI effect follows naturally from how each account is taxed.

Quick comparison table

Feature	Traditional IRA	Roth IRA
2026 contribution limit	$7,500 ($8,600 if 50+)	$7,500 ($8,600 if 50+)
Reduces this year's MAGI?	Yes — dollar for dollar	No effect
Helps protect Medi-Cal?	Yes	No
Tax on withdrawals in retirement?	Yes, as ordinary income	No — tax-free
Income limits to contribute?	None for contributions*	Phases out at higher incomes
Best for the cliff strategy?	✓ This is the one	—

*Deductibility of Traditional IRA contributions can be limited if you or a spouse have a workplace retirement plan and income is above certain levels — but the MAGI-reducing effect for benefits purposes generally still applies to the contribution itself. Always verify your specific situation.

So is Roth ever the right choice?

For people not navigating a benefits cliff, Roth is often a genuinely excellent choice — especially for younger workers who expect to be in a higher tax bracket later in life. Tax-free growth and tax-free withdrawals are powerful.

But for the specific audience this site serves — working families whose MAGI determines access to Medi-Cal — the calculus changes. The immediate, tangible value of keeping your family's health coverage today generally outweighs a theoretical tax advantage decades from now. And the good news is you're not actually giving up much: a Traditional IRA still grows tax-deferred, still goes into the same index funds, still benefits from the same compound growth we talked about in Part 2.

What if I already have a Roth IRA?

If you've already contributed to a Roth IRA this year and you're now realizing it doesn't help your MAGI situation, don't panic — and don't assume the money is stuck where it is. There's a lesser-known IRS process that can let you "undo" a Roth contribution and convert it to Traditional before you file your taxes. We cover exactly how this works, and the deadlines involved, in a later article in this series.

What to do with this information

If you haven't opened a retirement account yet: open a Traditional IRA, not a Roth, if benefits protection matters to your household. Most brokerages let you choose the account type during signup — look for "Traditional IRA" specifically, not just "IRA" or "Retirement Account," since some platforms default to Roth.

If you already have a Roth IRA and no Traditional IRA: you can open a separate Traditional IRA alongside it. You don't need to close the Roth — future contributions just need to go to the Traditional account to get the MAGI benefit.

Either way, the next step is the same: use the calculator to see exactly how much of a Traditional IRA contribution would protect your specific benefits.