Roth Individual Retirement Accounts (IRAs) have become increasingly popular, and widely discussed over the past two decades for all the right reasons. A Roth IRA provides the opportunity for tax-free growth and tax-free withdrawals in retirement, making it a powerful tool for future tax planning and estate considerations. Contributions to a Roth IRA are made with after-tax dollars, meaning there’s no upfront tax deduction (like there is with a 401(k) or deductible Traditional IRA), but the tradeoff is well worth it for many investors: withdrawals of earnings and contributions are entirely tax-free.
While Roth IRAs are commonly used for annual contributions, they also serve as popular vehicles for “backdoor” Roth conversions—an advanced planning strategy we’ll revisit later. For now, it’s important to understand the mechanisms of the Roth IRA and how it differs from the Traditional IRA.
Contributions & Income Eligibility
In 2025, the direct contribution limits for Roth IRAs remain the same as Traditional IRAs—$7,000 for those under age 50, and $8,000 for those 50 and older (including the $1,000 “catch-up” amount). However, not everyone is eligible to contribute directly to a Roth IRA. The ability to make direct contributions phases out at higher income levels. For single filers, the phase-out range begins at a Modified Adjusted Gross Income (MAGI) of $146,000 and ends at $161,000. For married couples filing jointly, the phase-out begins at $230,000 and ends at $240,000.
If your income exceeds these thresholds, you may still be able to fund a Roth IRA indirectly through a backdoor Roth strategy—by making a non-deductible contribution to a Traditional IRA and then converting those funds into a Roth IRA. This method carries its own rules and tax considerations, including the “pro-rata rule,” which we discussed in the Traditional IRA section.
Taxation
The defining feature of Roth IRAs is their tax treatment. Because contributions are made with after-tax dollars, you don’t get a tax deduction in the year you contribute. However, qualified withdrawals—including both contributions and investment earnings—are completely tax-free. To be considered qualified, the account must be open for at least five years and the withdrawal must occur after age 59½, or meet other exceptions (such as for a first-time home purchase up to $10,000, or qualified education expenses).
One of the most attractive features of Roth IRAs is that they are not subject to Required Minimum Distributions (RMDs) during the original account holder’s lifetime. This makes them an excellent tool for long-term tax planning and estate planning, as assets can continue to grow tax-free for a surviving spouse or heirs. We will delve into this further in the article.
Why Consider a Roth IRA?
The Roth IRA can be a strategic retirement vehicle for individuals early in their careers, those temporarily in a lower tax bracket, or anyone looking to diversify the tax treatment of their retirement savings. It can also serve as a flexible savings account, since contributions (but not earnings) can be withdrawn at any time without taxes or penalties.
At RSS, we generally recommend Roth IRAs to clients who value flexibility, want to hedge against future tax increases, or are building a long-term legacy for their heirs. Whether contributing directly or via a backdoor Roth strategy, the Roth IRA remains a pillar of many well-balanced financial plans.
Part II.1 – Roth 401(k)s
While Roth IRAs get most of the attention, Roth 401(k)s are another powerful tax-advantaged savings option. Introduced in 2006, Roth 401(k)s combine the high contribution limits of a traditional 401(k) with the after-tax, tax-free-growth benefits of a Roth account. Many employer-sponsored retirement plans now offer a Roth 401(k) component. RSS advises our clients to see if their employers offer this benefit.
Unlike Roth IRAs, Roth 401(k)s are not subject to income limits. That means even high earners who are otherwise ineligible to contribute to a Roth IRA can take advantage of Roth savings within their employer plan. In 2025, participants can contribute up to $23,000 to a all types of 401(k) if they’re under 50, or $30,500 if they’re 50 or older (including the $7,500 catch-up).
Keep in mind, employer contributions are always made on a pre-tax basis and are allocated to a traditional 401(k) bucket. That means your plan may end up with both pre-tax and Roth dollars, growing under different tax rules.
Another key difference: Roth 401(k)s are subject to Required Minimum Distributions (RMDs) starting at age 73 (or age 75 for those born in 1960 or later). However, you can avoid RMDs on Roth 401(k) balances by rolling them into a Roth IRA before your RMD age.
The Roth 401(k) is especially useful for younger savers, high earners in low tax states, and anyone looking to build tax diversification into their retirement income strategy. For those who can afford to pay the taxes upfront, it can be a smart hedge against future tax increases and a valuable source of tax-free income later in life.
Part II.2 – Roth Conversions
A Roth conversion occurs when you transfer money from a Traditional IRA (or other pre-tax retirement account) into a Roth IRA. But there is a catch: you’ll pay ordinary income tax on the amount converted in the year of the transfer. The reward: once converted, those funds grow tax-free and will never be taxed again.
Conversions can be done at any income level, and there are no limits on the amount you can convert. But just because you can convert doesn’t always mean you should. The key is to be strategic—converting when your tax rate is temporarily lower than in the future.
That brings us to one of our favorite Roth conversion planning windows: the “donut years.”
These are the years after retirement but before Required Minimum Distributions (RMDs) kick in. During this window, many retirees find themselves in a lower tax bracket than during their working years or once RMDs begin. It’s an ideal time to “fill up” lower tax brackets with Roth conversions and pre-pay taxes at a discount.
Within our financial plans, we often model conversions up to the top of the 12% or 22% federal tax bracket to properly display the impact of this strategy. This keeps the tax bite manageable while still capturing long-term tax-free growth. Tactically, well-planned conversions can also reduce future RMDs and minimize the impact of income on Medicare premiums and Social Security taxation.
It’s important to coordinate Roth conversions carefully with other income sources, deductions, and timing considerations. In some years, it may make sense to convert aggressively; in others, to hold off. But for many retirees, especially those who’ve saved heavily in pre-tax accounts, the donut years represent one of the best tax planning opportunities available.
Part II.3 – Roths as a Legacy Planning Tool
Beyond their benefits during retirement, Roth IRAs and Roth 401(k)s also play a unique role in estate and legacy planning. Unlike traditional retirement accounts, Roth IRAs offer tax-free distributions for beneficiaries, making them a highly efficient asset to pass on to your heirs.
Under the SECURE Act, most non-spouse beneficiaries must now withdraw the entire balance of an inherited IRA within 10 years. This “10-year rule” applies to both Traditional and Roth IRAs. The key difference? Withdrawals from inherited Roth IRAs are tax-free, while distributions from different inherited Traditional IRAs are taxed as ordinary income, which would most likely bump beneficiaries into higher tax brackets.
This gives another reason to ensure Roths are integrated within your plan. By converting traditional retirement assets into Roths during your lifetime—especially during lower-income years—you can effectively “pre-pay” the taxes at a known rate, leaving your heirs with a more valuable and flexible asset.
We often help clients think about their Roth accounts not just as retirement income sources, but as multi-generational planning tools. For those who may not need to tap into their Roth savings during retirement, preserving these assets and designating younger beneficiaries can extend the power of tax-free compounding across decades.
Whether you’re thinking about supporting children, grandchildren, or charitable causes, Roth accounts offer flexibility, control, and tax efficiency, all key ingredients in a thoughtful legacy plan.
