5 Roth IRA Rules You Should Know by Heart

The Roth IRA is one of the most valuable tools you can use to save for retirement. Even though they don’t offer the upfront tax deduction that traditional IRAs give you, what you get in return is tax-free treatment of withdrawals after you retire. Given all the potential tax savings, it’s important to make sure you follow the rules for Roth IRAs. Below, we’ll look at five Roth IRA rules you should commit to memory as you plan out your retirement investing strategy.

Rule 1: There are limits to whether and how much you can contribute to a Roth IRA.

Roth IRAs have the same contribution limits as regular IRAs. For 2016, those limits are $5,500 for those younger than age 50, and $6,500 for those 50 or older. You need to have earned income in order to contribute to a Roth, however, so once you retire, you won’t be able to continue to make Roth IRA contributions. Those who have smaller amounts of earnings from wages, salaries, tips, or other compensation can only set aside up to what they make. So an 18-year-old earning $2,500 can contribute only $2,500 to a Roth, but one making $6,000 can contribute the $5,500 maximum.

In addition, those who make too much income have further limitations on contributing to a Roth. One income limit begins a phase-out of your ability to make Roth contributions, with the maximum amount being reduced from the limits above. Above a higher income limit, you can’t contribute at all. The table below has the limitations based on filing status.

Filing Status Phase-Out Begins No Roth Contribution Allowed Above
Single or head of household $117,000 $132,000
Married filing jointly or qualifying widow(er) $184,000 $194,000
Married filing separately $0 $10,000


Rule 2: You can always take back your Roth IRA contributions without tax or penalty.

One of the downsides of traditional IRAs is once you make contributions, your money is generally locked in. Withdrawals are taxable, and unless you qualify for an exception, a 10% penalty applies for early withdrawals before age 59 1/2. That can deter younger savers from using IRAs for retirement saving.

Roth IRAs are more flexible about getting access to your money. Because you funded the Roth with after-tax money, you can withdraw those contributions tax-free, and the IRS is kind enough to treat withdrawals as coming first from your contributions. Ideally, you’ll be able to keep money in a Roth until retirement to have it work as hard as possible for you. But knowing you can get at it if you need it is a powerful incentive to use Roth IRAs for retirement saving.

Rule 3: Roth IRAs don’t make you take distributions in retirement.

Roth IRAs are also more flexible than their traditional counterparts once you retire. Regular IRAs force you to take minimum distributions beginning at age 70 1/2, whether you need the money or not. Because those withdrawals are taxable, they can create an unexpected tax burden that retirees are ill-prepared to handle.

By contrast, Roth IRAs don’t force you to take required minimum distributions at any age. You therefore have the flexibility to keep money in a Roth until you truly need it. That can simplify finances greatly for those in retirement.

Rule 4: There’s a tricky way to get into a Roth IRA.

High-income taxpayers used to be locked out of Roth IRAs because of the income limits described above. But in 2010, a workaround became available when lawmakers repealed former income limits on Roth conversions.

Roth Gettyimages


Therefore, if you have money in a traditional IRA or 401(k) account, you can do a Roth conversion to move money into a Roth IRA. You’ll pay income tax on the converted amount just as you would on any other regular retirement account withdrawal. However, from there on out, the Roth IRA will grow tax-free, and withdrawals won’t be taxed as long as you comply with some detailed rules about Roth distributions and conversions.

Rule 5: If you goof up, you can undo Roth IRA contributions or conversions.

Some people get scared to use Roth IRAs because they’re afraid they’ll run afoul of the rules. In particular, income limits can make it tricky if you’re not sure whether your earnings will be below or above the applicable thresholds. Similarly, Roth conversions can have dramatic tax impacts that can affect the rest of your tax return in an undesirable way.

To accommodate these concerns, the IRS allows retirement savers to undo Roth contributions or conversions within a certain time period. If you find out that you’re not allowed to make a Roth contribution, you have until the tax filing deadline for the tax year for which you made the contribution to withdraw the money along with any earnings. Similarly, you can undo a Roth conversion in a process known as recharacterization, putting the converted amount and any earnings back to its original traditional IRA source. In either event, the IRS will treat the transaction as if it had never happened.

Roth IRAs have benefits that no other retirement account can match. By knowing these rules and committing them to memory, you’ll be better prepared to use Roth IRAs in your own retirement planning to put yourself in a more financially secure position.

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Drew Limsky

Drew Limsky



Drew Limsky joined Lifestyle Media Group in August 2020 as Editor-in-Chief of South Florida Business & Wealth. His first issue of SFBW, October 2020, heralded a reimagined structure, with new content categories and a slew of fresh visual themes. “As sort of a cross between Forbes and Robb Report, with a dash of GQ and Vogue,” Limsky says, “SFBW reflects South Florida’s increasingly sophisticated and dynamic business and cultural landscape.”

Limsky, an avid traveler, swimmer and film buff who holds a law degree and Ph.D. from New York University, likes to say, “I’m a doctor, but I can’t operate—except on your brand.” He wrote his dissertation on the nonfiction work of Joan Didion. Prior to that, Limsky received his B.A. in English, summa cum laude, from Emory University and earned his M.A. in literature at American University in connection with a Masters Scholar Award fellowship.

Limsky came to SFBW at the apex of a storied career in journalism and publishing that includes six previous lead editorial roles, including for some of the world’s best-known brands. He served as global editor-in-chief of Lexus magazine, founding editor-in-chief of custom lifestyle magazines for Cadillac and Holland America Line, and was the founding editor-in-chief of Modern Luxury Interiors South Florida. He also was the executive editor for B2B magazines for Acura and Honda Financial Services, and he served as travel editor for Conde Nast. Magazines under Limsky’s editorship have garnered more than 75 industry awards.

He has also written for many of the country’s top newspapers and magazines, including The New York Times, Washington Post, Los Angeles Times, Miami Herald, Boston Globe, USA Today, Worth, Robb Report, Afar, Time Out New York, National Geographic Traveler, Men’s Journal, Ritz-Carlton, Elite Traveler, Florida Design, Metropolis and Architectural Digest Mexico. His other clients have included Four Seasons, Acqualina Resort & Residences, Yahoo!, American Airlines, Wynn, Douglas Elliman and Corcoran. As an adjunct assistant professor, Limsky has taught journalism, film and creative writing at the City University of New York, Pace University, American University and other colleges.