Exploring benefits of a Roth IRA

Key Insights

Here's what you need to know. Roth IRAs offer:

• Tax-free growth and withdrawals in retirement.
• No required minimum distributions during your lifetime.
• Tax-free inheritance for your beneficiaries.
• Wide range of low-cost investment options.

Planning for retirement means making smart choices today that will pay off for years to come. A Roth IRA could be one of those choices—a retirement savings account that lets you contribute after-tax dollars now in exchange for tax-free growth and withdrawals later.

Why open a Roth IRA? If you're looking for flexibility, control, and the potential for tax-free retirement income, a Roth IRA offers advantages that may not be available with traditional retirement accounts. Whether you’re just starting your career or supplementing an existing retirement strategy, understanding the benefits of a Roth IRA can help you make informed decisions about your financial future.

1. You get tax-free growth

The money you invest in a Roth IRA grows tax-free, so you don't have to report investment earnings—the money your money makes—when you file your taxes. By comparison, if you invest in a nonretirement account, you'll owe federal, state, and local taxes on dividends, interest, and capital gains when you sell investments for a profit.

2. You can take tax-free withdrawals in retirement

If you're age 59½ or older and have owned your account for at least 5 years,¹ you can withdraw contributions plus earnings from your Roth IRA without paying any penalties or taxes.

And even if you take a lump-sum withdrawal in retirement, it won't be considered retirement income for related tax and entitlement issues. This is a valuable benefit because your income affects how much you pay in taxes—including taxes on Social Security benefits—as well as Medicare Parts B and D premiums.

3. You decide when, if, and how to take withdrawals

Unlike a traditional IRA, a Roth IRA has no required minimum distributions during your lifetime. This flexibility means you can let your money grow tax-free for as long as you want—or access it when you need to.

You're eligible for tax-free and penalty-free withdrawals of the money you’ve contributed to your account at any time. However, there are rules around withdrawing your earnings. If you're under age 59½ and the account has been open for less than 5 years, you may be subject to taxes and penalties on any earnings you withdraw. But once you reach age 59½ and meet the 5-year holding requirement, you can withdraw both contributions and earnings completely tax-free and penalty-free.¹

If you can afford to, it's smart to contribute to your Roth IRA and let compounding—when your contributions generate returns—work its magic to help you build long-term retirement security. But if you need to take distributions from your Roth IRA along the way, that's allowed too.

Even if you withdraw your contributions, that money may have generated earnings while it was invested in your account. Those earnings can continue to grow and will be yours to withdraw (also free and clear) when you're retired.

4. You may qualify for additional tax credits

Contributing to a Roth IRA may help you qualify for certain retirement savings incentives depending on your income level and other factors. Check with your tax advisor about programs you may be eligible for.

5. You may be eligible for a “backdoor Roth IRA” conversion

If your income is too high to contribute to a Roth IRA, you could get into a Roth through “a back door Roth IRA. This is accomplished by contributing to a traditional IRA and then converting it to a Roth IRA.”

To learn more about this strategy, including important considerations about existing IRA balances and potential tax implications, visit our guide on how to set up a backdoor Roth IRA. You may want to consult your financial advisor and tax professional to understand the tax consequences before making a move because a Roth conversion is permanent.

6. Estate planning advantages

When you pass a Roth IRA to your beneficiaries, they can generally receive distributions free from federal income taxes as long as the account's been open for at least 5 years. This is a significant advantage over traditional retirement accounts, where withdrawals by heirs may be taxable.

With some exceptions, non-spouse beneficiaries generally need to withdraw the full balance within 10 years under current rules. Spousal heirs have additional options for how they treat the inherited IRA. Roth IRAs also offer flexibility in how you pass on your legacy. You can name anyone as a beneficiary, change beneficiaries as your circumstances evolve, and even split the account among multiple heirs.

Learn more about estate planning topics like beneficiary designations, trusts, and coordinating your retirement accounts with other estate planning documents in our Estate Planning Checklist.

7. Required minimum distribution benefits

Unlike traditional IRAs and 401(k)s that require withdrawals starting at age 73, Roth IRAs have no required minimum distributions during your lifetime. This means you can let your investments continue growing tax-free for as long as you want.

For complete details on withdrawal rules, timing requirements, penalty exceptions, and strategies for both account owners and beneficiaries, visit IRA withdrawal rules.