Imagine a simpler path to your future. A Roth IRA can be a straightforward way to save for your retirement. Whether you’re just starting or looking to increase your retirement savings, understanding the basics of Roth IRA can bring clarity and balance to your long-term financial goals. Explore the potential benefits and drawbacks, as well as the key details of a Roth IRA for 2025.
Learning Points
What is an Individual Retirement Account (IRA)
An Individual Retirement Account (IRA) is a tax-advantaged personal savings account generally used for setting money aside for retirement.
Depending on the type of IRA and your personal circumstances, these tax advantages can include tax-deductible contributions for traditional IRAs and tax-free withdrawals for Roth IRAs.
IRAs can sometimes feel familiar from afar – it’s all right there in the name “Individual Retirement Account” – and then, after a closer review, it can seem entirely foreign.
You’re likely familiar your 401(k) account, how your paycheck is used to contribute to your 401(k), and regularly receive communications about your 401(k) from your employer/plan sponsor. It can sometimes feel like there is more structure and educational resources built around your 401(k) experience than the average IRA.
Consider this. For most investors, IRAs generally complement, but do not fully replace employer-sponsored plans, like a 401(k) or a 403(b), for your retirement savings goals.
A Roth IRA offers unique benefits and considerations for investors like you.
Let’s break down how Roth IRAs work, provide some educational information, and make Roth IRAs more approachable.
Roth IRA: Key Details for 2025
Contribution Limitations
You can open and contribute to a Roth IRA if you – or, if you file a joint return, your spouse – received taxable compensation during the year.
Your Roth IRA contributions consist of after-tax dollars – money you’ve already paid income tax on. In 2025, you can contribute up to the following amounts into a Roth IRA[i]:
- $7,000 per person.
- Up to $8,000 per person if you are age 50 or older.
There are no age limits on making regular contributions to traditional IRAs or Roth IRAs.
Keep in mind, IRA contribution limits are per taxpayer (not per account). If you have both a Roth IRA and a traditional IRA, you aggregate your contributions across both accounts up to the applicable limit.
Income Limitations
In 2025, there are modified adjusted gross income (MAGI) phase-out ranges for taxpayers making contributions to a Roth IRA. Those phase-out ranges are as follows:
- For single and head of household taxpayers, the income phase out is between $150,000 and $165,000.
- For married couples filing jointly, the income phase-out range is between $236,000 and $246,000.
IRA contributions can only be made with earned income. If only you or your spouse earned income in a particular tax year, you might still be able to contribute to your IRA. Be sure to read the Spousal IRA piece for additional details.
Because topics like IRAs, like so many others in financial planning, intersect with the world of tax, make sure you coordinate with your qualified tax professional.
Tax Deductibility
In 2025, there is no tax deduction available for Roth IRA contributions.
The Potential for Tax-Free Growth
Unlike a traditional IRA, your Roth IRA contributions consist of after-tax dollars – money you’ve already paid income tax on. This allows your Roth IRA contributions to grow tax-free when you follow the IRS’ Roth IRA rules.
Roth IRA Withdrawal Sequence
Roth IRA withdrawal rules are relatively more flexible than those for traditional IRA or 401(k) plans. For example, there are no required minimum distributions for a Roth IRA while the original account holder is alive.
When you need to access your Roth IRA funds, the order of withdrawals is as follows:
- Contributions (1st)
- Conversions (2nd)
- Earnings (3rd)
If you experience an unexpected expense that fully depletes your emergency fund, you can distribute some or all your principal contributions from your Roth IRA at any age for any reason without taxes or penalties.
Roth IRA Qualified Distribution
Specifically, a qualified distribution is any payment or distribution from your Roth IRA that meets the following requirements:
- It is made after the 5-year period, beginning with the first tax year for which a contribution was made to a Roth IRA set up for your benefit.
- The payment or distribution is:
- Made on or after the date you reach age 59½;
- Made because you are disabled;
- Made to a beneficiary or to your estate after your death; or
- One that meets the requirements listed for first-time home buyers (up to a $10,000 lifetime limit).
So, if you’re over 59½ and have held your Roth IRA for at least five years, you can withdraw earnings with no tax or penalty. This is in addition to the contributions you can withdraw with no taxes or penalties.
If you’re under the age 59½ and take a Roth IRA distribution within five years of the conversion, you’ll pay a 10% penalty unless you qualify for an exception.
Required Minimum Distributions
Required minimum distributions (RMDs) are the minimum amounts you must withdraw from your retirement accounts, which include traditional IRAs, SIMPLE IRAs, and SEP IRAs, each year.
There are no required minimum distributions (RMDs) for a Roth IRA while the original account holder is alive.
However, if you intend to leave your Roth IRA assets to heirs after your death, they should plan on navigating the required minimum distribution rules. These include rules added by the current iteration of Setting Every Community Up for Retirement Enhancement Act, or SECURE 2.0.
Beneficiary Designations
We understand how hard it can be to think about what happens after you are gone.
If you would like your loved ones to benefit from your Roth IRA assets after your death, we’re here to help coordinate your wishes.
Beneficiary designations are a key element of your estate plan. Your beneficiary designations ensure your assets are passed along according to your wishes. It can be easy to overlook beneficiary designations on your accounts.
When you die, the assets you’ve carefully saved in your IRA go to those you’ve specified in each IRA’s beneficiary designation form.
Most folks tend to choose individuals as beneficiaries. Maybe they leave everything to their spouse or divide it equally among their children (i.e. per stirpes). Some even choose to leave their assets to charities, making one last act of kindness.
Alternatively, you can also name a trust as your IRA beneficiary.
With that in mind, the beneficiary of your Roth IRA can be anyone you designate.
The Next Step: It’s important to review your account beneficiaries regularly, especially if key aspects of your personal or financial life have changed.
Investment Options
Like a workplace retirement account, a Roth IRA can provide you with investments that support your retirement or savings goals.
IRA investment options are broader relative to a typical 401(k) plan. With a Roth IRA, you can select what you invest in, as well as how much and when you invest.
Remember to stay within the contribution limits, though.
Mutual Funds, exchange traded funds (ETFs), and bonds are all potential investment options for IRA owners. IRAs cannot invest in life insurance or collectibles, such as art, antiques, gems, coins, or alcoholic beverages.
IRAs can invest in certain precious metals only if they meet specific requirements.
Roth IRAs are tax-free accounts, and long-term investors generally see better tax-efficiency by holding equities – like mutual funds and exchange traded funds (ETFs) – in these types of accounts. Asset location is a broader lens that you can apply to all your investment accounts. It’s something that needs to be personalized to fit your specific facts and circumstances.
The Next Step
Hopefully you found this overview of the Roth IRA details for 2025 helpful and educational. What works well for one person might not be the perfect fit for another.
When evaluating what type(s) of IRAs best align with your goals, you’ll want to fully incorporate all the moving parts of your financial life into your decision.
Taking a Strategic View of Your Finances
Are you on track for your short-term goals, like making memories with your family by going on vacations together? How confidently are you approaching saving and investing for your long-term aspirations, like retiring or pursuing a meaningful second career?
We help busy parents and individual professionals like you develop financial plans to address questions like:
- How can we save for a fulfilling retirement beyond our 401(k) plans?
- What does it take to save for the kids’ education and make a lifetime of memories along the way?
- These causes are close to our hearts – what are our options to give even more meaningful support?
As your financial planner in Saint Louis, we can help you get organized and start feeling more confident that you are making progress towards your savings priorities.
Working with your financial planner can provide you with the right mix of accountability, collaboration, and long-term thinking.
When you know who and what are truly important, we can help you create incredible clarity about your spending and savings priorities. Clarity to confidently save for and spend on what matters.
If you’re ready to take the next step together, let’s talk.
Disclosure
This commentary is provided for educational and informational purposes only and should not be construed as investment, tax, or legal advice. The information contained herein has been obtained from sources deemed reliable but is not guaranteed and may become outdated or otherwise superseded without notice. Investors are advised to consult with their investment professional about their specific financial needs and goals before making any investment decision.
[i] IRS, “IRM PROCEDURAL UPDATE,” November 13, 2024, https://www.irs.gov/pub/foia/ig/spder/ts-21-1124-1129.pdf.