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9 compelling Roth IRA benefits

Key takeaways

  • Contributions to a Roth IRA are made on an after-tax basis. You can withdraw your contributions at any time and any potential earnings can be withdrawn tax-free1 in retirement.
  • You aren't required to take distributions from a Roth IRA as you are with a traditional IRA.2
  • Contributing to a Roth IRA gives you tax flexibility in retirement.

Do you want to help lower your taxes in retirement? A Roth IRA, with its tax-free growth potential and tax-free withdrawals for you and your heirs, is a way you may be able to do just that (as long as certain requirements are met).1 And those are just a couple of the benefits of a Roth IRA.

One important note: Not everyone can contribute to a Roth IRA, because of IRS income limits. If your income is over the limits, you still may be able to have a Roth IRA by converting existing money in a traditional IRA or other retirement savings accounts. (See the section "If you earn too much to contribute to a Roth IRA," at the end of this article.)

1. Money can grow tax-free; withdrawals are tax-free too

You contribute money that has already been taxed (after-tax dollars) to a Roth IRA. There's no tax deduction as there can be with a traditional IRA. But, any growth or earnings from the investments in the account—and any distributions you take out in retirement—are free from federal taxes (and may also be free from state and local taxes too), with a few conditions.1

2. There are no required minimum distributions

Roth IRAs do not have required minimum distributions (RMDs) for the original owner. Generally, traditional IRAs, 403(b)s, Roth accounts and traditional 401(k)s, and other employer-sponsored retirement savings plans do.3 If you don't need your distributions for essential expenses, RMDs may be hard to keep track of. The RMDs have to be calculated and withdrawn each year, and may result in taxable income. Because a Roth IRA eliminates the need to take RMDs, it may also enable you to pass on more of your retirement savings to your heirs (see below).

3. Leave tax-free money to heirs

In many cases, a Roth IRA has legacy and estate planning benefits, but you need to consider the pros and cons—which can be subtle and complex. Be sure to consult an attorney or estate planning expert before attempting to use Roth IRAs as part of an estate plan. While RMDs are required for inherited Roth IRAs, as they are for inherited traditional IRAs, distributions from inherited Roth IRAs generally remain tax-free.

4. Tax flexibility in retirement

You've already paid the taxes on the contributions to a Roth IRA, so as long as you follow the rules, you get to take out your money tax-free. Mixing how you take withdrawals between your traditional IRAs and 401(k)s, or other qualified accounts, and Roth IRAs may enable you to better manage your overall income tax liability in retirement. You could, for example, take withdrawals from a traditional IRA until your taxable income reaches the top of a tax bracket, and then take additional money you need from a Roth IRA.

5. Help reduce or even avoid the Medicare surtax

A Roth IRA may potentially help limit your exposure to the Medicare surtax on net investment income. This is because qualified withdrawals from a Roth IRA don't count toward the modified adjusted gross income (MAGI) threshold that determines the surtax. RMDs from traditional (i.e., pre-tax) accounts such as a workplace retirement plan—like a traditional 401(k)—or a traditional IRA, are included in MAGI and do count toward the MAGI threshold for the surtax. So depending on your income in retirement, RMDs could expose you to the Medicare surtax, and using Roth accounts might help you avoid it.

6. Hedge against future tax hikes

Will tax rates rise in the future? There's no way to know for certain, but the top federal income tax rate remains far below its historical highs, and if you think it might go up again, a Roth IRA may make sense.

7. Use your contributions at any time

A Roth IRA enables you to take out 100% of what you have contributed at any time and for any reason, with no taxes or penalties. Only earnings and converted balances in the Roth IRA are subject to restrictions on withdrawals. Generally, withdrawals from a Roth IRA are considered to come from contributions first. Distributions from converted balances and earnings—which can be taxable and/or subject to penalties if the conditions are not met—begin only when all contributions have been withdrawn.

8. If you're older, you can continue to contribute as long as you work

As long as you have earned compensation, whether it is a regular paycheck or 1099 income for contract work, you can contribute to a Roth IRA—no matter how old you are. There is no age requirement for contributions, but you must be within the income limits in order to contribute to a Roth IRA.

Learn more on IRA contribution limits

9. If you're young, your income is likely to rise

Generally speaking, the younger you are, the greater the chance that your income will be higher when you retire than it is now. For instance, if you're under age 30, it's possible that your income and spending during retirement will be significantly higher than they are now, at the beginning of your career. And the greater the difference between your income now and your income in retirement, the more advantageous a Roth account can be.

If you earn too much to contribute to a Roth IRA

In order to contribute to a Roth IRA, you must have employment compensation, and there are also income limits. If your income (as measured by MAGI) is over the IRS limits, the only way you can take advantage of a Roth IRA is by converting money from an existing retirement account, such as a traditional IRA.4 There is a cost, though. You'll generally need to pay taxes on what you convert, but any after-tax contributions to a traditional account will not be taxable. The rules are complex, so if you have made after-tax contributions to a traditional account and you're interested in conversion, be sure to consult with a tax advisor.

To learn more, read Viewpoints on Do you earn too much for a Roth IRA?

Picking a Roth IRA comes down to taxes

A Roth IRA may improve your tax picture—no matter how old you are. So it makes sense to take the time to see whether you would benefit from one.

Tax-free retirement income? Sounds good.

A Roth IRA can be a powerful way to save for retirement since potential earnings grow tax-free.

More to explore

This information is intended to be educational and is not tailored to the investment needs of any specific investor.

Recently enacted legislation made a number of changes to the rules regarding defined contribution, defined benefit, and/or individual retirement plans and 529 plans. Information herein may refer to or be based on certain rules in effect prior to this legislation and current rules may differ. As always, before making any decisions about your retirement planning or withdrawals, you should consult with your personal tax advisor.


For a distribution to be considered qualified, the 5-year aging requirement has to be satisfied, and you must be age 59½ or older or meet one of several exemptions (disability, qualified first-time home purchase, or death among them).

2. Inherited Roth IRAs may require distributions. 3. Starting in 2024, RMDs will no longer be required from Roth accounts in employer plans. 4. Eligible assets include those from IRAs (traditional, rollover, SEP, and SIMPLE), and 401(k) with a former employer or other workplace savings plans with former employers. Unless the plan sponsor offers a Roth 401(k), or other workplace plan, you cannot convert to a Roth from a 401(k) while in service unless there is a distributable event to allow conversion to a Roth IRA. RMDs are not eligible assets for conversion.

Fidelity does not provide legal or tax advice. The information herein is general and educational in nature and should not be considered legal or tax advice. Tax laws and regulations are complex and subject to change, which can materially impact investment results. Fidelity cannot guarantee that the information herein is accurate, complete, or timely. Fidelity makes no warranties with regard to such information or results obtained by its use, and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information. Consult an attorney or tax professional regarding your specific situation.

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