Individual retirement accounts, commonly known as IRAs, are a tax-friendly way to build retirement savings. A Roth IRA has unique benefits, especially compared to a traditional IRA. Understanding IRA contribution limits, tax implications, and withdrawal rules will help you understand how this financial tool can support you in retirement.<\/p>\n Read more: <\/em>Retirement planning: A step-by-step guide<\/em><\/p>\n A Roth IRA is a retirement savings account offered by brokerage firms, banks, credit unions, and insurance companies. You fund the account with earned income that\u2019s invested in the market. It grows and compounds over time, and you can then make withdrawals to provide retirement income.<\/p>\n A key benefit of a Roth IRA is the potential tax savings, particularly on investment earnings and distributions.<\/p>\n Roth IRA contributions are not tax deductible because you fund the account with money that has already been taxed \u2014 so you don\u2019t get the up-front benefit of lowering your taxable income like you do when making pretax contributions to a traditional 401(k) or 403(b) employer-sponsored retirement plan. With a Roth, the tax benefits come later.<\/p>\n Generally, you can open a Roth IRA and make contributions at any time up until the deadline for filing your income tax return. For example, you could contribute to your Roth IRA for the tax year 2024 until April 15, 2026. There are limits to how much money you can put in your Roth each year, so it\u2019s important to stay on top of your contributions.<\/p>\n Read more: <\/em>IRA vs. 401(k): What’s the difference?<\/em><\/p>\n Money in an IRA can sit and earn interest without being subject to a capital gains tax. This is different from mutual funds, exchange-traded funds, or money market funds, where you\u2019re taxed on capital gains even if you didn\u2019t sell shares.<\/p>\n Long-term capital gains tax is usually 15% of the earnings but could be more or less based on your taxable income. This cost can eat into your retirement savings, especially over the long term. Maximizing your Roth IRA contributions can lower your tax liability because of its tax-free growth.<\/p>\n When you withdraw money from your Roth IRA, it\u2019s not deductible. But \u2014 and this is key \u2014 you won\u2019t pay income taxes on it in retirement, subject to certain rules.<\/p>\n You can access your Roth IRA contributions at any time, tax-free. But withdrawals of earnings must be qualified to avoid taxes or penalties. Qualified distributions are made when you are at least 59 \u00bd and have had the Roth account for at least five years.<\/p>\n You may still qualify for a tax-free withdrawals before turning 59 \u00bd in certain situations, like if you’re a person with disabilities or you\u2019re using the funds toward a first-time home purchase. Otherwise, nonqualified payments from a Roth IRA may be subject to a federal income tax and a 10% early withdrawal penalty.<\/p>\n Put simply, if you contribute to a Roth IRA during your working years, when you retire you can withdraw the money as tax-free income.<\/p>\n For tax year 2025, you can contribute up to $7,000 to an IRA \u2014 up to $8,000 if you\u2019re 50 or older making catch-up contributions.<\/p>\n However, not everyone can contribute the maximum due to the Roth IRA income limits. The maximum contribution for your household could be lower than the annual limit, depending on your modified adjusted gross income (MAGI) and filing status. Here are the 2025 income limits for a Roth IRA.<\/p>\n Source: IRS.gov<\/p>\n<\/div>\n<\/div>\n<\/figure>\n
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\n Tax Filing Status <\/span> <\/th>\n Modified Adjusted Gross Income and Roth IRA Contribution <\/span> <\/th>\n<\/tr>\n<\/thead>\n\n \n Single or head of household or married filing separately (do not live with spouse) <\/span> <\/td>\n Less than $150,000: Eligible for maximum contribution <\/span> <br>$150,000 to less than $165,000: Eligible for reduced contribution <\/span> <br>$165,000 or more: Ineligible <\/span> <\/td>\n<\/tr>\n \n Married filing separately (lives with spouse) <\/span> <\/td>\n $0: Eligible for maximum contribution <\/span> <br>More than zero to less than $10,000: Eligible for reduced contribution <\/span> <br>$10,000 or more: Ineligible <\/span> <\/td>\n<\/tr>\n \n Married filing jointly <\/span> <\/td>\n Less than $236,000: Eligible for maximum contribution <\/span> <br>$236,000 to less than $246,000: Eligible for reduced contribution <\/span> <br>$246,000 or more: Ineligible <\/span> <\/td>\n<\/tr>\n<\/tbody>\n<\/table><\/div>\n