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What Is a Roth IRA? Benefits, Rules & Contribution Limits
What Is a Roth IRA?
A Roth IRA is a tax-advantaged individual retirement account funded with after-tax contributions. Unlike a Traditional IRA, contributions are not tax-deductible — but qualified withdrawals (please see below for qualifying information) in retirement are 100% tax-free, including all earnings. You are also never required to take money out during your lifetime, making the Roth IRA one of the most flexible retirement accounts available.
With a Roth IRA, you pay taxes on your money now — then never again (on qualifying withdrawals). That means decades of compound growth that you get to keep entirely. For younger savers or anyone who expects to be in a higher tax bracket in retirement, a Roth IRA can be one of the most powerful long-term savings tools available.
Roth IRA Benefits: Why Choose a Roth?
- Tax-free retirement income: Qualified withdrawals — including all investment growth — are completely tax-free
- No required minimum distributions (RMDs): You’re never forced to take money out during your lifetime
- Flexible access to contributions: You can withdraw your original contributions (not earnings) at any time, tax- and penalty-free
- No age limit on contributions: As long as you have earned income and your MAGI is within limits, you can contribute at any age
- Potential $1,000 tax credit: You may qualify for the Saver’s Credit just for contributing
- Great estate planning tool: Roth IRA assets can pass to beneficiaries tax-free after five years
Roth IRA Eligibility: Who Can Contribute?
To contribute to a Roth IRA, you must meet both of the following requirements:
- Earned income: You (or your spouse, if filing jointly) must have earned compensation from employment, self-employment, or alimony
- MAGI within IRS limits: Your modified adjusted gross income must fall below the phase-out thresholds for your filing status (see table below)
| Filing Status | Year | Full Contribution | Partial Contribution | No Contribution |
| Single | 2025 | $150,000 or less | $150,001–$165,000 | $165,000+ |
| 2026 | $153,000 or less | $153,001–$168,000 | $168,000+ | |
| Married, Filing Jointly | 2025 | $236,000 or less | $236,001–$246,000 | $246,000+ |
| 2026 | $242,000 or less | $242,001–$252,000 | $252,000+ |
Roth IRA Contribution Limits for 2025 and 2026
Roth IRA contribution limits are the same as Traditional IRA limits and are shared across all your IRA accounts combined.
| Tax Year | Standard Limit | Age 50+ Catch-Up Limit |
| 2025 | $7,000 | $8,000 |
| 2026 | $7,500 | $8,600 |
If your MAGI falls within the phase-out range, your contribution limit is reduced proportionally using an IRS formula. Your contribution deadline is April 15 of the following year.
Roth IRA Withdrawal Rules: When Are Distributions Tax-Free?
Not all Roth IRA withdrawals are tax-free. The rules differ based on whether you are withdrawing contributions or earnings, and whether the distribution qualifies.
Withdrawing Contributions
Your original Roth IRA contributions (the money you put in, not the growth) can always be withdrawn at any time, for any reason, completely tax- and penalty-free. This makes the Roth IRA uniquely flexible compared to other retirement accounts.
Withdrawing Earnings: Qualified vs. Non-Qualified Distributions
To withdraw your earnings (investment growth) tax- and penalty-free, your distribution must be “qualified.” A qualified distribution requires:
- Your Roth IRA has been open for at least five tax years (the five-year clock starts January 1 of the first year you contributed), AND
- You meet at least one of the following conditions:
- You are age 59½ or older
- You are totally and permanently disabled
- You are a first-time homebuyer (lifetime limit of $10,000)
- The distribution is made to your beneficiary after your death
If your withdrawal does not meet both requirements, the earnings portion may be subject to ordinary income tax and a 10% early withdrawal penalty — though the same penalty exceptions that apply to Traditional IRAs also apply here.
Can I withdraw from my Roth IRA early without penalty?
Yes — you can always withdraw your original contributions (not earnings) tax- and penalty-free at any time. For early withdrawal of earnings before age 59½, a 10% penalty applies unless you qualify for an exception (disability, first-time home purchase, death, and others).
Roth IRA Rollovers & Conversions
Can I roll over a 401(k) into a Roth IRA?
Yes — you can roll over eligible assets from most employer-sponsored plans (401(k), 403(b), 457(b)) directly into a Roth IRA. This is called a Roth conversion rollover. The converted amount is included in your taxable income for the year, so consider doing this in a lower-income year or spreading conversions over multiple years.
Can I convert a Traditional IRA to a Roth IRA?
Yes — anyone can convert a Traditional IRA to a Roth IRA, regardless of income. The converted amount is treated as ordinary income in the year of conversion. Strategic Roth conversions during lower-income years — such as early retirement before Social Security begins — can be a powerful tax planning tool.
Can I roll my Roth IRA into an employer retirement plan?
No — unlike a Traditional IRA, Roth IRA assets cannot be rolled into an employer-sponsored retirement plan. However, you can roll Roth 401(k) assets into your Roth IRA.
What Happens to a Roth IRA After You Pass Away?
Your named beneficiaries inherit your Roth IRA assets after you pass. The tax treatment for beneficiaries depends on when distributions are taken relative to the five-year holding period:
- If your Roth IRA has been open for five or more tax years: all distributions to beneficiaries are completely tax-free
- If the five-year period has not been satisfied: distributions of earnings may be taxable to beneficiaries
- Beneficiaries may take a lump sum or spread payments over a number of years, depending on their relationship to you and the year of your death
- A spouse beneficiary has the additional option of treating your Roth IRA as their own account, allowing continued tax-free growth and maintaining flexible withdrawal terms
Open a Roth IRA With Citadel Today
We’re proud to help our members make smart, confident decisions about their retirement futures. Whether you’re opening your first Roth IRA, thinking about a conversion, or trying to figure out how a Roth fits into your bigger financial picture — we’re here for you.
Visit CitadelBanking.com or stop into any branch. We’d love to help you build a brighter financial future.
Frequently Asked Questions: Roth IRA
The five-year rule requires that your Roth IRA be open for at least five tax years before you can withdraw earnings tax-free. The clock starts January 1 of the first tax year for which you made a Roth IRA contribution. Each conversion from a Traditional IRA to a Roth has its own separate five-year clock for the 10% penalty. Opening a Roth IRA as early as possible — even with a small initial contribution — starts the clock running.
You can contribute to your Roth IRA up until the federal income tax return filing deadline for that tax year — generally April 15. This means you can make your 2025 Roth IRA contribution as late as April 15, 2026. Tax extensions do not extend the IRA contribution deadline.
Yes — as long as you (or your spouse, if filing jointly) have earned income from employment. Passive income sources such as Social Security, pensions, or investment income do not qualify as earned compensation for IRA contribution purposes. If you work part-time in retirement, those wages count.
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