- Tax free growth and tax free withdrawals
- No Required Minimum Distributions (RMDs)
- Available to non-working spouses and minors
This type of Individual Retirement Account offers several distinct advantages that can help you maximize your savings and minimize your taxes. In this article, we’ll break down the key tax benefits of Roth IRAs, how withdrawals work (and why they can be tax-free), and how you can make the most of this investment option—whether you’re already saving or just getting started.
Let’s review what you need to know about eligibility, contribution limits, income restrictions, as well as strategies for even high-income earners to take advantage of a Roth IRA.
What is a Roth IRA?
A Roth IRA (Individual Retirement Account) is a retirement savings account that allows your investments to grow tax-free. While contributions to a Roth IRA are made with after-tax dollars (meaning you don’t get a tax break when you contribute), the major benefit is that once you’re ready to start withdrawing money in retirement, your withdrawals—both your original contributions and any earnings—are completely tax-free.
This is a major advantage if you anticipate being in a higher tax bracket during retirement or if you simply want to ensure that you don’t face a large tax burden when you start using your retirement funds.
Why a Roth IRA is Worth Considering
- Tax-Free Growth and Withdrawals
One of the most appealing features of a Roth IRA is the ability to grow your money tax-free. This means that you won’t pay taxes on any interest, dividends, or capital gains generated within the account. The biggest benefit, however, is when it comes time to take your money out.
Once you’ve reached the age of 59½ and your Roth IRA has been open for at least five years, your withdrawals are completely tax-free—this includes both your contributions and any earnings you’ve accumulated. For anyone looking to minimize taxes in retirement, this can be a welcome opportunity.
- No Required Minimum Distributions (RMDs)
With most retirement accounts, such as a Traditional IRA or 401(k), you’re required to start withdrawing a minimum amount at age 73 (as of 2025). These withdrawals are called Required Minimum Distributions (RMDs), and they’re taxable. However, Roth IRAs don’t require RMDs during your lifetime. This means that you can leave your funds untouched for as long as you want, allowing them to continue growing tax-free. This can be particularly helpful if you don’t need the money right away and want to keep your account growing for future use or to pass it on to heirs.
- Flexibility for Younger Investors
A Roth IRA isn’t just for retirees—it’s a great tool for younger individuals as well. Since there are no taxes on qualified withdrawals, the younger you are when you start contributing, the more you can benefit from years or even decades of tax-free growth. In fact, starting a Roth IRA early in your career can be one of the best financial moves you make.
Eligibility for Roth IRA Contributions
While Roth IRAs have many advantages, they do have some eligibility requirements that are important to understand. You must have earned income for the year and can contribute dollar for dollar of earned income up to the maximum as set by the IRS each year.
There are income limits that may impact how much you can contribute to a Roth IRA each year. Here’s a quick breakdown of these limits for 2025:
- Income Limits for Roth IRA Contributions
Your ability to contribute to a Roth IRA depends on your Modified Adjusted Gross Income (MAGI). Here are the income limits for 2025:
Single filers:
- Full contribution allowed if your MAGI is below $150,000.
- The contribution phases out between $150,000 and $165,000.
- No contribution allowed if your MAGI exceeds $165,000.
Married couples filing jointly:
- Full contribution allowed if your MAGI is below $236,000.
- The contribution phases out between $236,000 and $246,000.
- No contribution allowed if your MAGI exceeds $246,000.
Married couples filing separately:
- The phase-out range is $0 to $10,000, so if your MAGI is above $10,000, you won’t be able to contribute to a Roth IRA.
- Eligibility for Non-Working Spouses
If you’re married and one spouse isn’t working, the non-working spouse may still contribute to a Roth IRA. This is called a spousal IRA, and it’s a great way for households to maximize retirement savings, even if only one spouse has earned income. As long as the household’s taxable income falls below the contribution limits, both spouses can contribute to their own Roth IRAs.
- Eligibility for Minors
If you have children or grandchildren who earn income from a job, they can open a Roth IRA as well. There’s no minimum age for opening a Roth IRA, but the minor must have taxable earned income (such as wages from a job or self-employment income). A Roth IRA for minors can be a great way to teach the value of saving and investing early—and the earlier they start, the more they can benefit from tax-free growth over the years.
Contribution Limits for Roth IRAs
The IRS sets annual contribution limits for Roth IRAs. As of 2025, the contribution limits are:
- $7,000 per year for individuals under age 50.
- $8,000 per year for individuals age 50 or older (thanks to the catch-up contribution).
These limits apply to each person, so if both you and your spouse are eligible, you can each contribute the maximum amount to your own Roth IRA—effectively doubling the total amount you can save each year.
If you think you could benefit from a Roth IRA, please contact us for more information!
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