According to the Article, Who Should Invest in a Roth Retirement Account?

Saving for retirement is essential, and choosing the right account can significantly impact long-term financial security. Roth retirement accounts, such as Roth IRAs and Roth 401(k)s, offer unique tax advantages that may be beneficial depending on an individual’s financial situation and goals.

Determining whether a Roth account is a good fit depends on factors like income, age, and tax filing status.

Income Thresholds

Roth IRA eligibility is based on modified adjusted gross income (MAGI), with the IRS setting annual limits. In 2024, single filers earning under $146,000 can contribute the full amount, while those between $146,000 and $161,000 have reduced limits. Contributions are not allowed if income exceeds $161,000. For married couples filing jointly, full contributions are allowed with a MAGI below $230,000, phasing out completely at $240,000. These limits adjust annually for inflation.

For those exceeding the income cap, a backdoor Roth IRA allows contributions through a traditional IRA conversion. Taxes must be paid on any pre-tax contributions and earnings at the time of conversion. The pro-rata rule applies, meaning the taxable portion is based on the ratio of pre-tax to total IRA balances.

Roth 401(k)s, available through employers, have no income limits, making them attractive for high earners seeking tax-free withdrawals. Contributions follow the overall 401(k) limit—$23,000 in 2024, with an additional $7,500 catch-up contribution for those 50 and older.

Age Considerations

Younger investors often benefit the most from Roth accounts due to their long investment horizon. Since contributions are made with after-tax dollars, all qualified withdrawals—including earnings—are tax-free. A 25-year-old who contributes consistently could see significant tax-free growth over decades, especially when invested in assets like index funds or growth stocks.

For those closer to retirement, Roth accounts help with tax planning. Unlike traditional IRAs and 401(k)s, Roth IRAs do not have required minimum distributions (RMDs), allowing retirees to leave funds untouched indefinitely. This can be useful for estate planning or managing taxable income later in life. Roth 401(k)s, however, do have RMDs, but rolling the balance into a Roth IRA before age 73 eliminates this requirement under the SECURE 2.0 Act.

Filing Status Variation

Filing status affects Roth IRA eligibility, tax liability, and long-term planning. Married couples filing jointly have higher income thresholds for contributions compared to single filers, allowing more households to benefit from tax-free growth. However, married individuals filing separately face stricter limits. If they lived with their spouse at any point during the year, their Roth IRA phase-out range is significantly lower, making direct contributions difficult unless their income is minimal.

Filing status also impacts Roth conversions. A married couple filing jointly can convert traditional retirement funds strategically during lower-income years, staying within a lower tax bracket to reduce taxes on the conversion. For divorced or widowed individuals, a change in filing status can shift tax brackets, making conversions more or less advantageous. Widows and widowers may benefit from filing as a qualifying surviving spouse for up to two years after a spouse’s death, retaining joint filer tax brackets and allowing for larger Roth conversions at lower rates before transitioning to single filer brackets.