You may be wondering:
- What even is a Roth IRA?
- Is it something I need?
- How do I get started?
If these questions sound familiar, you’re in the right place. Whether you’re just starting your financial journey or reassessing your retirement strategy, a Roth IRA can serve as a useful tool to help you build long-term wealth and plan for a more secure retirement.
What Is a Roth IRA?
Starting with the basics, IRA stands for Individual Retirement Account or Arrangement. Unlike traditional IRAs, contributions to a Roth IRA are made with after-tax dollars. This means you don’t get a tax deduction for the money you put in, but your investment earnings and withdrawals after age 59 ½ are generally tax-free (as long as certain rules are met).
How Does a Roth IRA Work?
Once you’ve put money into your Roth IRA, you choose how to invest it, whether that be in stocks, exchange-traded funds (ETFs), mutual funds, bonds, or another permitted investment vehicle. When you reach age 59½, and your account has been open for at least five years, you can withdraw your contributions and earnings completely tax-free.
Take the following hypothetical example:
In 2026, you contribute $7,500 into your Roth IRA and invest the contribution in a mix of stocks and ETFs. After 30 years, your account has grown to $25,000. If you follow the withdrawal rules (over age 59 ½ and the Roth IRA has been open for at least five years), you can take out all $25,000 tax-free.
Ways to Contribute to a Roth IRA
There are several ways to get money into a Roth IRA:
1. Direct Contributions
This is the most common method. You simply transfer money from your bank account into your Roth IRA. You can do this in a lump sum or small amounts throughout the year. However, this method requires that you have earned income, such as money earned through a job, and are under the income limits (determined by the IRS annually).
2. Spousal Roth IRA
If you’re married and only one of you has income, the working spouse can contribute to a Roth IRA on behalf of the non-working spouse.
3. Backdoor Roth IRA
If your income is too high to qualify for a direct contribution, you can use the “backdoor” method. This involves contributing to a traditional IRA and then converting it to a Roth IRA. There are tax implications, so we would advise consulting a tax professional and/or financial advisor prior to making any decisions.
4. Roth IRA Conversions
You can convert pre-tax funds from a traditional IRA or a 401(k) into a Roth IRA. You’ll owe taxes on the converted amount, but future growth and withdrawals will be tax-free. Like the backdoor method, Roth conversions carry tax implications, and we would advise consulting a tax professional and/or financial advisor prior to making any decisions.
Eligibility for Direct Contributions to a Roth IRA
As noted above, not everyone can contribute directly to a Roth IRA. Here are the basic eligibility requirements as of 2026:
1. You Must Have Earned Income
To contribute to a Roth IRA, you must earn money from a job or self-employment.
2. Income Limits Apply
If you earn too much, the IRS limits or prevents Roth IRA contributions.
As of 2026, the income limits are:
- Single filers: Full contribution if modified adjusted gross income (MAGI) is under $153,000; phased out up to $168,000.
- Married filing jointly: Full contribution if MAGI is under $242,000; phased out up to $252,000.
- Married Filing Separately: Phase out contribution amount if MAGI is between $0-$10,000.
How Much Can You Contribute?
The IRS dictates not only who is eligible to contribute to a Roth IRA but also how much you can contribute. For 2026, the contribution limits are as follows:
- $7,500 per year if you’re under 50
- $8,600 per year if you’re 50 or older (this includes a $1,100 “catch-up” contribution)
Of import, this limit applies to all of your IRAs combined (Roth and Traditional). Roth IRA contributions can be made until the deadline for filing your tax return (typically April 15th of the following year).
Withdrawal Rules: When and How You Can Take Money Out
Withdrawals from a Roth IRA are flexible but come with some conditions. One advantage of a Roth IRA is that you can take your contributions out at any time, tax- and penalty-free. This is because the money you originally put into the Roth IRA came from after-tax dollars. However, the rules for withdrawing earnings are stricter.
Qualified Distributions (Tax-Free and Penalty-Free Withdrawals):
To withdraw both your contributions and earnings without taxes or penalties:
- You must be 59½ or older
- Your Roth IRA must have been open for at least 5 years (beginning on January 1st of the year in which you made your first contribution)
Non-Qualified Distributions:
If you withdraw earnings (investment growth) before age 59½ or before the account has been open for five years, you may have to pay:
- Income tax on the earnings
- A 10% penalty
Pros and Cons of a Roth IRA
As with all investment decisions, there are several factors to weigh depending on your specific circumstances. Some pros and cons of Roth IRAs are as follows:
Pros:
- Tax-free withdrawals of contributions and earnings (if over age 59 ½ and the account has been open for more than 5 years)
- No required minimum distributions (RMDs)
- Flexibility: withdraw contributions anytime
- Great for young investors with time to grow
- More favorable for estate planning purposes: Due to the enactment of the SECURE Act, retirement assets including both traditional and Roth IRAs are subject to the new rule stating that the entire balance of the inherited asset must be distributed within 10 years. For traditional IRA assets, this potentially creates a significant tax burden for heirs if they receive these assets in their peak earning years. Roth IRAs, however, are tax free in nature and would not cause their heirs to incur any tax liability.
Cons:
- No upfront tax deduction
- Income limits may restrict who can contribute
- Contribution limits are relatively low
A Roth IRA can be a versatile tool for retirement planning. While it may not offer immediate tax deductions, the long-term benefits—especially for younger savers or those in lower tax brackets—can be substantial.
As with any financial decision, it’s smart to assess your current and expected future income, tax situation, and retirement goals. For personalized advice, consider consulting a financial planner or tax professional.
Sources:
401(k) Limit Increases to $24,500 for 2026, IRA limit increases to $7,500
Understanding the SECURE Act Inherited IRA Rules
Street$marts: Tax Saving Tips Beyond the Obvious: Backdoor Roth IRA
Navigating the Roth Conversion Window
Roth IRA contribution limits for 2025 and 2026
Roth IRA: What it is & how it works
Roth IRA: What It Is and How to Open One
What is a Roth IRA?
Individual retirement arrangements (IRAs)
Disclosures: This material is provided for informational and educational purposes only and is not intended to be, and should not be construed as, personalized investment, tax, or legal advice. The information contained herein is general in nature and does not take into account your individual financial circumstances, objectives, or needs. Howe & Rusling, Inc. is an SEC-registered investment adviser. Registration does not imply a certain level of skill or training. Advisory services are only provided pursuant to a written advisory agreement and to clients in jurisdictions where Howe & Rusling, Inc. is properly registered or exempt from registration. Investing involves risk, including the possible loss of principal. There is no guarantee that any investment strategy, including those discussed herein, will be successful or achieve desired results. Past performance is not indicative of future results. Any examples provided are hypothetical illustrations used for educational purposes only. Hypothetical results do not reflect actual investment performance and do not account for factors such as market volatility, fees, expenses, or taxes, which may significantly impact results. Actual outcomes may differ materially. Tax laws and IRS contribution limits are subject to change, may vary by taxpayer, and depend on individual circumstances. Roth IRA eligibility, contribution limits, conversion strategies (including “backdoor” Roth IRAs), and withdrawal rules can be complex and may have significant tax implications. Howe & Rusling, Inc. does not provide tax or legal advice. You should consult with a qualified tax professional or accountant regarding your specific situation before implementing any tax-related strategy. Investment options within an IRA, including stocks, mutual funds, ETFs, and bonds, carry varying degrees of risk. Asset allocation and investment selection should be based on an individual’s financial goals, time horizon, and risk tolerance. Statements regarding potential benefits of Roth IRAs or retirement strategies are forward-looking in nature and subject to uncertainty. Actual outcomes may differ due to changes in tax law, market conditions, or individual circumstances.
