All About Roth IRAs
Roth IRAs have been around since 1998, so you’ve surely heard about them. But you may not know whether or not a Roth IRA is a smart option for you. There are several reasons to consider a Roth IRA as a tax-advantaged vehicle for your retirement savings. Here are a few.
Unlike a traditional IRA, there is no tax deduction for Roth IRA contributions, but withdrawals of earnings are tax-free.
If you are willing to pay taxes on your retirement plan contributions now, a Roth IRA offers an opportunity to earn money that will not be taxed upon future withdrawal. Neither your Roth IRA contributions nor earnings will be taxed. However, taxation on earnings is subject to two eligibility criteria: 1) the account must have been active for five or more years, and 2) you are 59 ½ years or older when you make the withdrawal.
If you expect your tax rate to be higher in retirement, you could benefit by paying less tax on the funds now versus paying higher taxes on future withdrawals. Withdrawals on inherited Roth IRA funds are also not taxable to your beneficiaries. This is especially useful since beneficiaries must now take all distributions within a 10-year period.
Contributions to a Roth IRA are permitted regardless of age.
This means it’s never too early or too late to start contributing to a Roth IRA. You could start contributing to a Roth IRA as a teen or not until you’re in your 50s, 60s or beyond, provided that you or your spouse receive an equivalent amount of earned income during the tax year in which you make the contributions.
Like traditional IRAs, there are annual limits on the amount of contributions you can make to a Roth IRA. For 2026, the Roth IRA limit is $7,500, or $8,600 if you are age 50 or older (due to the IRS catch-up contribution allowance). This annual total applies to both traditional and Roth IRAs combined.
There are also income limits for making Roth IRA contributions (not to be confused with Roth 401(k) which has no income limit). For 2026, the modified adjusted gross income (MAGI) limits begin phasing out at the bottom of the range until they reach $0 at the top of the range:
Single Head of Household or Married Filing Separately (and you did not live with your spouse at any time during the year): $153,000 – $168,000
Married Filing Jointly or Qualifying Widow(er): $242,000 – $252,000
Married Filing Separately (and you lived with your spouse at any time during the year): $0 – $10,000
RMDs are not required on Roth IRAs.
If you like the idea of not having to take required minimum distributions (RMDs) in retirement, you will like this feature of Roth IRAs. Your money can stay in a Roth IRA as long as you need it to or until you decide to make a withdrawal.
You can convert all or part of traditional IRA funds to a Roth IRA.
Even if you’ve spent years saving in a traditional IRA, you still have the opportunity to convert those funds to a Roth IRA, regardless of your age or income level. However, keep in mind that you will have to pay taxes on any untaxed traditional IRA funds that you convert for the tax year in which the conversion took place. This may bump up your tax liability for that year by raising your taxable income and tax bracket.
If you’re not sure if a Roth IRA is right for you or you’re interested in learning more about Roth IRA conversions, we recommend consulting with a qualified tax or financial advisor.
Roth IRA withdrawals of earnings prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Limitations and restrictions may apply. If you are required to take a required minimum distribution (RMD) on a traditional IRA in the year you convert, you must do so before converting to a Roth IRA. Because Roth IRA conversions may not be appropriate for all investors and individual situations vary, we suggest that you discuss tax issues with a qualified tax advisor. Neither LPL Financial, nor its registered representatives, offer tax or legal advice.
