Making the most of a Roth IRA

Consider the benefits and limits associated with making post-tax contributions to an individual retirement account.

Thinking about opening or contributing to a Roth IRA? Learn more about the benefits of this type of retirement account and your possible eligibility to contribute.

Consider the positives

The key benefits of Roth IRAs include:

All distributions from the account can be tax free. Although contributions to a Roth IRA are not tax deductible, earnings grow free of taxes. When you reach age 59 1/2, if the Roth IRA has been in place for at least 5 years, any withdrawal from the contributions and earnings is tax free. Avoiding the tax bite at the time of withdrawal in retirement can be attractive – particularly for investors who anticipate having a higher marginal income tax rate at the time of withdrawal than they do at the time of contribution.

No required minimum distributions. While traditional IRAs have a required beginning date for which required minimum distributions (RMDs) must be taken, there is no similar requirement for Roth IRA owners.  

No age limit on contributions. You can continue contributing to your IRA – Roth or traditional – as long as you have earned income.

Withdrawals may be made without penalty for a first-time home purchase. As with a traditional IRA, you can withdraw funds from your Roth IRA (up to a lifetime maximum of $10,000) to make a down payment on a first-time home purchase. A first-time homebuyer is defined as someone who has not owned a home for 2 years prior to the purchase of the new home.

Learn your Roth limits

In 2023, an individual may contribute up to $6,500 to their IRAs – $7,500 if they are 50 years of age or older. Keep in mind that modified adjusted growth income (MAGI) phase-out limits apply.

Single filer or head of household: The full Roth contribution limit is available to individuals filing as single or head of household with a MAGI of less than $138,000. The amount is phased out for MAGIs between $138,000 and $153,000.

Married filing jointly: The full Roth contribution limit is available to married individuals filing joint returns with MAGIs of less than $218,000. The amount is phased out for MAGIs between $218,000 and $228,000.

Married filing separately: If you have not lived with your spouse at any point during the year and file separately, MAGI limits mirror those for single filers and heads of household. If you lived with your spouse at any time during the year and file separately, no Roth contribution is allowed unless MAGI is less than $10,000.

Your financial advisor can answer any questions you may have about the features and benefits of IRAs and help determine which type may be appropriate for addressing your retirement needs.

Please note that changes in tax laws or regulations may occur at any time and could substantially impact your situation. While familiar with the tax provisions of the issues presented herein, Raymond James financial advisors are not qualified to render advice on tax or legal matters. You should discuss any tax or legal matters with the appropriate professional. Material created by Raymond James for use by its advisors.