As retirement planning continues to evolve, the Roth IRA remains a cornerstone of tax-advantaged savings. With its unique combination of tax-free growth, flexible withdrawal rules, and estate planning benefits, the Roth IRA is a powerful tool for individuals seeking long-term financial security.
What Is a Roth IRA?
A Roth IRA is an individual retirement account funded with after-tax dollars. Unlike Traditional IRAs, contributions to a Roth IRA are not tax-deductible. However, the trade-off is significant: qualified withdrawals are entirely tax-free, including both contributions and investment earnings.
Key Benefits
- Tax-Free Growth: Earnings grow tax-free and can be withdrawn tax-free in retirement.
- No RMDs: Roth IRAs are not subject to required minimum distributions (RMDs) during the account holder’s lifetime.
- Flexible Access: Contributions (but not earnings) can be withdrawn at any time without taxes or penalties.
- Estate Planning Advantages: Roth IRAs can be passed to heirs with continued tax-free growth potential.
2025 Contribution Limits
For the 2025 tax year, the IRS has increased the contribution limits:
- Standard Contribution: $7,000 for those under age 50
- Catch-Up Contribution (Age 50+): Additional $1,000, for a total of $8,000
To contribute, you must have earned income at least equal to your contribution amount. Investment income does not qualify.
2025 Income Limits for Contributions
Eligibility to contribute to a Roth IRA phases out based on your Modified Adjusted Gross Income (MAGI):
- Single filers: If your MAGI is under $150,000, you can contribute the full amount. If your MAGI is between $150,000 and $165,000, you can contribute a reduced amount. If your MAGI is $165,000 or more, you cannot contribute to a Roth IRA.
- Married filing jointly: If your MAGI is under $236,000, you can contribute the full amount. If your MAGI is between $236,000 and $246,000, you can contribute a reduced amount. If your MAGI is $246,000 or more, you cannot contribute to a Roth IRA.
- Married filing separately: If your MAGI is under $10,000, you can contribute a reduced amount. If your MAGI is $10,000 or more, you cannot contribute to a Roth IRA.
Roth IRA Conversions
A Roth conversion allows you to move funds from a Traditional IRA or eligible employer-sponsored plan (like a 401(k)) into a Roth IRA. This strategy is especially valuable for high-income earners who are ineligible to contribute directly to a Roth IRA.
Key Considerations
- Taxable Event: The amount converted is added to your taxable income for the year.
- No Income Limits: Anyone can convert, regardless of income or filing status.
- RMDs First: If you're age 73 or older, you must take your RMD before converting.
- Pro-Rata Rule: If you have both pre-tax and after-tax IRA funds, the IRS requires you to calculate the taxable portion of your conversion proportionally.
Deadlines
- Contribution Deadline: April 15, 2026 (for 2025 tax year)
- Conversion Deadline: December 31, 2025 (for 2025 tax year)
No More Recharacterizations
Since 2018, Roth conversions are irrevocable. Once you convert, you cannot undo the transaction, so careful planning is essential.
Estate Planning Benefits
Roth IRAs offer significant advantages for legacy planning:
- Tax-Free Inheritance: Beneficiaries can receive distributions tax-free if the account meets the qualified distribution rules.
- Spousal Rollover Options: A surviving spouse can treat the Roth IRA as their own.
- 10-Year Rule for Non-Spouse Beneficiaries: Most non-spouse heirs must fully distribute the account within 10 years, though the funds can continue to grow tax-free during that period.
Ready to Maximize Your Retirement Strategy?
Whether you're considering your first Roth IRA contribution or evaluating a conversion strategy, now is the time to act. With 2025 limits and rules in effect, aligning your retirement plan with your long-term goals is more important than ever.
Contact your Comerica relationship manager or one of our many retirement specialists.
Source: IRS Roth IRA page.
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