Can You Put a Lump Sum Into a Roth IRA?

The Roth Individual Retirement Arrangement (IRA) is known for its tax-free qualified withdrawals during retirement. A frequent question is whether it is possible to deposit a single, large sum of money into a Roth IRA. While regulations prevent this through standard contributions, the ability to move a lump sum into a Roth IRA is possible through other specific methods.

Annual Roth IRA Contribution Limits

The most common way to fund a Roth IRA is through direct annual contributions, which are subject to Internal Revenue Service (IRS) limitations. For the 2025 tax year, an individual can contribute a maximum of $7,000. Those age 50 or older can make an additional $1,000 “catch-up” contribution, bringing their total to $8,000.

Direct contributions are also restricted by your Modified Adjusted Gross Income (MAGI). For 2025, a single tax filer’s ability to contribute begins to phase out with a MAGI between $150,000 and $165,000, and they are ineligible at $165,000 or more. For married couples filing jointly, the phase-out range is a MAGI between $236,000 and $246,000.

The amount you can contribute is also limited to your earned income for the year if it is less than the annual limit. For example, if your taxable compensation for the year was only $4,000, your maximum IRA contribution would be $4,000. The deadline for making contributions for a tax year is the federal tax filing deadline of the following year, around April 15.

Moving Funds via Rollovers and Conversions

While annual contribution limits are restrictive, there are methods for moving significant sums from other retirement accounts into a Roth IRA. These transactions, known as rollovers and conversions, are not subject to the annual contribution or income restrictions. This is the primary way a large “lump sum” can be placed into a Roth IRA. A rollover refers to moving funds between similar account types, like from a Roth 401(k) to a Roth IRA, and is non-taxable.

A conversion involves moving pre-tax retirement funds into a post-tax Roth IRA. Common examples include converting assets from a Traditional IRA, a traditional 401(k), or a SEP IRA. This process has a tax consequence: the entire amount of pre-tax money being converted is treated as taxable income in the year the conversion takes place. For instance, converting a $200,000 Traditional IRA would add $200,000 to your taxable income for that year.

These conversion rules enable strategies for high-income earners prohibited from making direct Roth IRA contributions. The “Backdoor Roth IRA” is a process where an individual makes a non-deductible contribution to a Traditional IRA and then converts it to a Roth IRA. Since the contribution was after-tax, only any earnings that accrued before the conversion would be taxable. This is reported to the IRS using Form 8606.

Another strategy is the “Mega Backdoor Roth IRA.” This requires an employer-sponsored 401(k) plan that allows for both after-tax contributions and in-service withdrawals or conversions. In 2025, the total 401(k) contributions from all sources cannot exceed $70,000 for those under 50. This allows an individual who has maxed out their standard deferrals to contribute a substantial additional amount in after-tax dollars, which can then be moved to a Roth IRA.

The Five-Year Rules for Withdrawals

After moving funds into a Roth IRA, it is important to understand the waiting periods that govern access to that money. Two distinct five-year rules apply to Roth IRA withdrawals and function independently. Misunderstanding these rules can lead to unexpected taxes and penalties.

The first rule applies to the withdrawal of investment earnings. For earnings to be withdrawn tax-free and penalty-free, the account holder must be at least age 59½ and have met a five-year holding period. This clock starts on January 1 of the tax year for which the first contribution was made to any Roth IRA. For example, a contribution made in April 2025 for the 2024 tax year starts the clock on January 1, 2024. Once this period is satisfied, it is satisfied for all Roth IRAs the individual owns.

A separate five-year rule applies to each Roth conversion. This rule determines if the 10% early withdrawal penalty applies to the converted principal for an account holder under age 59½. Each conversion starts its own five-year clock on January 1 of the conversion year. If you convert funds in 2025 and 2026, each amount has its own five-year waiting period. This rule prevents using a conversion as a loophole to access pre-tax retirement funds early without penalty.