Skip To Content

Unlocking the power of Roth IRAs

When it comes to your financial life, there aren’t a lot of shortcuts. But under the right circumstances, Roth IRAs may help you realize your retirement goals faster.

 

Key takeaways:

  • As part of a comprehensive retirement plan, a Roth IRA can be a powerful tool for maximizing your retirement savings.
  • Roth IRAs offer federally tax-free growth and tax-free retirement income if certain conditions are met.
  • Compared to a traditional IRA, Roth IRAs offer flexibility in contributions and withdrawals.
  • Roth IRA contributions are subject to income limits, but conversion opportunities could allow higher earners to benefit.

 

 

Get to know the Roth IRA

The key benefit of the Roth IRA is its unique tax treatment. With a Roth IRA, you pay taxes on your contributions before the money goes into the account, but then your contributions may grow tax-free. Withdrawals in retirement may be taken federal income tax-free if taken in a qualified distribution.1

 

Roth IRAs can be particularly helpful earlier in your career, when you may be earning less and thus are in a lower tax bracket. By paying taxes now, you could improve your after-tax gains if you wind up in a higher tax bracket when you start taking distributions. Roth IRAs may also offer benefits for savers who think tax rates will rise, are looking for more flexibility regarding withdrawals, or want federally tax-free income in retirement.

 

The 2025 Roth IRA contribution limit is $7,000, though savers age 50 or over may put away up to $8,000. To be eligible to contribute to a Roth IRA, your modified adjusted gross income (MAGI) must be below certain limits. For 2025, single filers can make full contributions if their MAGI is less than $150,000, while married couples filing jointly can contribute fully if their MAGI is less than $236,000. Higher incomes may qualify for partial contributions. If your MAGI is too high to contribute to a Roth IRA, you still may be able to take advantage of these accounts by converting traditional accounts to a Roth IRA. (See “Higher earners can potentially benefit too” below.)

 

A Roth IRA may be attractive if you are younger and expect your income to rise. Investing now while in a lower tax bracket may seed potential growth in the future. And you can take out 100% of what you've contributed at any time for any reason without taxes or early withdrawal additional taxes.

 

 

Did you know?

Effective January 2024, SECURE 2.0 allows funds from an established 529 account to be transferred tax-free to a Roth IRA for the same beneficiary. This allows educational funds to serve as a starting point for a beneficiary's Roth IRA savings. There are certain limitations, detailed here.

 

 

3 potential benefits of Roth IRAs

1. Tax-free growth and withdrawals. One of the most compelling features of a Roth IRA is the potential for federally tax-free growth. The money in your Roth IRA can grow without being taxed, and you can withdraw it tax-free in retirement, provided you meet certain conditions. This can be particularly advantageous if you expect your tax rate to be higher in retirement than it is when you contribute.

 

2. No required minimum distributions (RMDs). Unlike traditional IRAs, Roth IRAs do not mandate that the original account owner take RMDs during their lifetime. This means your money can maintain potential tax-free growth for as long as you want, providing more flexibility in your retirement planning.

 

3. Flexibility in contributions and withdrawals. Roth IRAs offer greater flexibility than traditional IRAs. You can withdraw your contributions (but not the earnings) at any time without additional tax. This can be useful if you need access to your funds before retirement for emergencies or other financial needs.

 

Comparison of Roth IRAs and traditional IRAs

  Roth IRA Traditional IRA
Tax treatment Contributions are made with after-tax dollars Contributions may be tax-deductible or after tax
Potential growth Tax-free Tax-deferred2
Withdrawals Federally (and possibly state) tax-free in retirement Taxed as ordinary income in retirement
Required minimum distributions No RMDs during the original account holder’s lifetime RMDs required starting at age 733
Contribution flexibility Contributions can be withdrawn anytime without additional tax Withdrawals before age 59½ may incur additional taxes, unless an exception applies.
Income limits MAGI limits apply No income limits for contributions

 

Higher earners can potentially benefit, too

For higher earners, Roth IRA conversions may be a strategic move to maximize retirement savings. When you convert assets from a traditional IRA to a Roth IRA, you pay income taxes on the converted amount in the year of the conversion. While this can result in a tax bill, the long-term benefits include federal (and possibly state) income tax-free potential growth and withdrawals — and no RMDs. This strategy can be beneficial if you expect to be in a higher tax bracket in the future or want to leave a tax-efficient legacy for your heirs. You should consult your tax advisor to help you determine if a Roth IRA conversion may be appropriate for your situation.

 

Choose your advisor in a more personalized way

All our advisors are committed to putting your needs and priorities first. Find some who match your personal preferences too.

Loading...

Try Advisor Match

Want us to contact you?

1Any earnings on Roth IRA contributions can generally be withdrawn federal income tax-free if you meet the two requirements for a “qualified distribution”: 1) At least five years must have elapsed from the first day of the year of your initial contribution or conversion, if earlier, and 2) You must have reached age 59½ or become disabled or deceased. If you take a non-qualified withdrawal of your Roth IRA contributions, any Roth IRA investment returns are subject to regular income taxes, plus a possible 10% additional federal tax if withdrawn before age 59½, unless an exception applies. State income tax laws vary; consult a tax professional to determine how your state treats Roth IRA distributions.

2State tax laws vary. Consult your legal and/or tax advisor before making any financial decisions.

3Effective January 1, 2023, a tax law change increased the applicable age for RMDs to 73 for individuals who turn age 72 on or after January 1, 2023, and who turn age 73 before January 1, 2033. If you were age 72 or older as of December 31, 2022, you are subject to the RMD rules in effect prior to January 1, 2023. If you turn age 74 on or after January 1, 2033, the applicable age is 75.

X

You need to answer some questions first

Then we can provide you with relevant answers.

Get started