Roth IRA
Key Features
A Roth IRA (Individual Retirement Account) is a type of retirement savings account in the U.S. that allows your money to grow tax-free. A Roth IRA is especially great if you expect to be in a higher tax bracket in retirement than you are now.
What Is a Roth IRA?
- Contributions are made with after-tax dollars: You pay taxes on the money before you put it in.
- Tax-free growth and withdrawals: Your investments grow tax-free, and qualified withdrawals in retirement are also tax-free.
- No required minimum distributions (RMDs): Unlike traditional IRAs, you’re not forced to withdraw money at a certain age.
- Income limits: High earners may not be eligible to contribute directly (but there’s a workaround called a Backdoor Roth IRA).
Contribution Limits (for 2025):
- Up to $7,000 per year ($8,000 if you’re age 50 or older).
- Income phase-out starts at $146,000 for single filers and $230,000 for married couples filing jointly.
When can you withdraw tax-free?
- You must be 59½ , or
- Your account must be at least 5 years old, whichever is later, otherwise may result in a 10% IRS penalty tax.
A Roth IRA conversion—sometimes called a backdoor Roth strategy—is a way to contribute to a Roth IRA when income exceeds standard limits. The converted amount is treated as taxable income and may affect your tax bracket. Federal, state, and local taxes may apply. If you’re required to take a minimum distribution in the year of conversion, it must be completed before converting.
To qualify for tax-free withdrawals, you must generally be age 59½ and hold the converted funds in the Roth IRA for at least five years. Each conversion has its own five-year period, and early withdrawals may be subject to a 10% penalty unless an exception applies. Income limits still apply for future direct Roth IRA contributions.
This material is for informational purposes only and does not constitute tax, legal, or investment advice. Please consult a qualified tax professional regarding your individual circumstances.