Benefits of a Roth IRA

When thinking about your financial priorities, retirement may not be top of mind–especially if you’re in your early or mid-career and focused on shorter term goals like buying a home, managing student debt, or saving for your kids’ education. While retirement may seem a long way off, your early career is actually the ideal time to start saving into a Roth IRA so you can take advantage of a lower tax bracket, a long investment horizon, and years of compound interest.

How It Works

A Roth IRA is an individual retirement account funded with after-tax income. Since the money has been taxed before contribution, you’ll never be taxed on those funds again and your investments will grow tax-free, and withdrawals in retirement are also tax-free. 

Unlike workplace retirement plans like a 401(k), a Roth IRA is also owned personally, giving you greater flexibility when it comes to managing your account. This also means you have the ability to contribute the maximum into both your employer 401k and Roth IRA. 

Key Benefits of a Roth IRA

• Tax-Free Growth & Withdrawals: Contributions are made with after-tax dollars, so you won’t pay taxes on your investment gains or qualified withdrawals (and neither will your beneficiaries).

• Penalty-Free Contribution Withdrawals: You can withdraw the amount you’ve contributed at any time without tax or penalties, but withdrawing earnings before retirement (or age 59.5) may have restrictions.

• No Required Minimum Distributions (RMDs): Unlike traditional retirement accounts, you’re not required to withdraw funds at a certain age, allowing your savings to continue growing tax-free.

Roth IRA vs. Traditional IRA 

Both Roth and traditional IRAs help you save for retirement, but they differ in tax treatment: 

• Traditional IRA: Contributions are tax-deductible now, but withdrawals in retirement are taxed as income.

• Roth IRA: Contributions are taxed upfront, but withdrawals in retirement are tax-free.

Contribution & Withdrawal Rules

• Income Limits: Contribution eligibility depends on income. In 2025, individuals earning under $150,000 or married couples earning under $236,000 can contribute up to $7,000 annually (or $8,000 if age 50+).

• Withdrawal Rules: Contributions can be withdrawn anytime without penalty, but withdrawing earnings before age 59.5 may result in taxes or penalties unless certain conditions are met.

• Backdoor Roth IRA: High earners above the income limits may still contribute through a strategy called a Backdoor Roth IRA.

• Inherited Rules: Congress has passed a law requiring inherited Traditional and Roth IRAs be emptied in 10 years. When you pass down a Roth IRA, your heirs will be able to make tax-free withdrawals (instead of the taxed withdrawals they would be making from a Traditional IRA), saving them significant taxes—and effectively providing them a larger inheritance!

When to Start a Roth IRA 

The best time to start is as soon as possible! As long as you have earned income, you can contribute to a Roth IRA now so you can reap the benefits later. Additionally, contributions for the previous year can be made until the tax filing deadline (April 15).

How to Open a Roth IRA in Four Steps 

1. Choose a Provider: Select a trusted financial institution and review any fees.

2. Complete the Setup: Provide your Social Security number, banking details, and beneficiary information.

3. Select Investments: Align your portfolio with your risk tolerance and time horizon.

4. Set Up Contributions: Choose a lump sum or automatic monthly contributions.

Is a Roth IRA Right for You? 

Want to build wealth long-term, but don’t have the spare time or mental resources to dedicate to investigating all of your options, building out a plan, and reorganizing your finances? We can help.