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 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)

Earn too much to contribute directly to a Roth IRA? A “backdoor Roth IRA” strategy — making a nondeductible Traditional IRA contribution then converting it — may be an option. Ask us or a tax advisor whether this approach is right for you.

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.

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:

1. 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
2. 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 & 529 Plan Transfers

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 over a 529 college savings plan into a Roth IRA?

Yes — thanks to the SECURE 2.0 Act of 2022, 529 plan beneficiaries can roll over unused funds into a Roth IRA starting in 2024. Conditions apply: the 529 account must have been open for at least 15 years, the Roth IRA must be in the beneficiary’s name, and annual rollover amounts count toward the IRA contribution limit (lifetime maximum of $35,000). This is a valuable option for families with overfunded college savings plans.

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

Frequently Asked Questions: Traditional IRA

Is a Roth IRA worth it if I’m in a high tax bracket now?

It depends on your long-term tax outlook. If you expect your tax rate in retirement to be equal to or higher than today’s rate, a Roth IRA almost always wins. If you expect a significantly lower tax rate in retirement, a Traditional IRA’s upfront deduction may deliver more value. Many savers hedge by contributing to both. A tax advisor can help you model the scenarios.

What is the five-year rule for Roth IRAs?

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.

Does a Roth IRA affect Social Security or Medicare?

Roth IRA distributions are not included in your taxable income, which can be advantageous when it comes to Social Security taxation and Medicare IRMAA surcharges. Because Roth withdrawals are tax-free, they do not count toward the income thresholds that trigger additional taxes on Social Security benefits or higher Medicare premiums. This makes the Roth IRA a powerful tax-planning tool in retirement.

When is the deadline to contribute to a Roth IRA?

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.

Can I contribute to a Roth IRA if I’m retired?

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.

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.