Is a Roth IRA Worth It: Pros and Cons

Weigh the drawbacks and benefits before you open one

A Roth individual retirement account (IRA) is a retirement savings account that a person can contribute to each year. Withdrawals of contributions and investment earnings are not taxed in retirement and they don't require minimum distributions. But they're not for everyone. For instance, you cannot withdraw earnings for at least five years, and you can't take a tax deduction on contributions in the years you contribute.

Key Takeaways

  • Roth individual retirement accounts (IRAs) offer several key benefits, including tax-free growth, tax-free withdrawals in retirement, and no required minimum distributions (RMDs).
  • One key disadvantage: Roth IRA contributions are made with after-tax money, meaning there’s no tax deduction in the years you contribute.
  • Another drawback: Withdrawals of account earnings must not be made until at least five years have passed since the first contribution, making a Roth less beneficial to open if you're in late middle age.
  • Roth IRAs’ tax-free distributions may not be advantageous if you’re in a lower income tax bracket when you are retired.

What Is a Roth IRA?

A Roth IRA is an excellent way to stash money away for retirement. Like traditional IRAs, Roth IRAs have annual contribution limits. Individuals can contribute a maximum of $7,000 in 2024 ($6,500 in 2023), and the limit for those 50 and older is $8,000 ($7,500 in 2023).

To contribute to a Roth, you must have earned income, which is money earned from working or owning a business. Also, you cannot deposit more than you've earned in a given year. Contributions to a Roth IRA are made with after-tax money, meaning that the contributions are made after income taxes have been paid on the income used for the contributions. The money saved in a Roth IRA can be invested in financial instruments, such as equities, bonds, or savings accounts.

Pros and Cons of Roth IRAs
Pros of Roth IRAs Cons of Roth IRAs
Tax-free savings growth No up-front tax break
No penalty for withdrawal of contributions Contribution limits
No required minimum distributions (RMDs) Incom limits
No taxes on distributions in retirement Cannot withdraw earnings for 5 years

Pros of Roth IRAs

There are a number of advantages of having a Roth IRA. Here are the primary ones.

Enjoy Tax-Free Growth on Savings

If you make withdrawals from a Roth IRA after you retire, you won't have to pay taxes on them, and that covers both the contributions and the earnings on those contributions. This effectively gives your savings a boost and can be an advantage if you are in a higher tax bracket in retirement.

There's No Penalty if You Withdraw Contributions

If you have a sudden need for money, you can withdraw contributions (but not earnings) without incurring a penalty. In this way your Roth can serve as a backup emergency fund. Just be sure you don't make dipping into it a regular habit.

There Are No Required Minimum Distributions (RMDs)

With a traditional IRA you must begin to withdraw money when you reach age 72 (or 73, if you reached 72 in 2023 or later), thanks to required minimum distributions. But Roth IRAs don't have RMDs. You needn't make any withdrawals during your lifetime, which makes a Roth a great account to pass on to your heirs. (Note, however, that your beneficiaries must take RMDs after your death.)

Cons of Roth IRAs

There are also disadvantages to Roth IRAs that are important to understand before you decide to open one.

There's No Up-Front Tax Break

A traditional IRA deducts your contributions in the year when you earn them, providing an immediate tax break that leaves you with more money in your pocket. But Roth IRAs work the opposite way. You don’t get an up-front tax break with your contributions (but you may be eligible for a saver's tax credit). When you plan to use your money, withdrawals in retirement are generally tax-free, whereas for traditional IRAs, income taxes are due on withdrawals made during retirement.

However, no up-front tax break means that you’ll get less money in your paycheck to spend, save, and invest. And tax-free withdrawals in retirement are something to look forward to—unless you’ll be in a lower tax bracket in the future than you are now.

Depending on your situation and whether you qualify for a saver's tax credit, you could benefit more from a traditional IRA’s up-front tax break and then pay taxes at your lower rate in retirement. It’s worth crunching the numbers before you make any decisions since there’s potentially a lot of money at stake.

You make Roth IRA contributions with after-tax dollars, so you don’t get the up-front tax break traditional IRAs offer.

There Are Limits to the Amount You Can Contribute

As noted above, the contribution limit for a Roth (or traditional) IRA is $7,000 in 2024 (or $8,000 if you're age 50 or older). That's the total amount you can contribute to all of your IRAs, if you have more than one. By contrast, the annual contribution limit for a 401(k) is $23,000 in 2024 (or $30,500 for those age 50 or older). To save enough for retirement, you'll probably want to have additional retirement accounts beyond a Roth IRA.

There Are Income Limits

One disadvantage of the Roth IRA is that you can’t contribute to one if you make too much money. The limits are based on your modified adjusted gross income (MAGI) and tax filing status. To find your MAGI, start with your adjusted gross income (AGI)—you can find this on your tax return—and add back certain deductions.

In general:

  • You can contribute the full amount if your MAGI is below a certain amount.
  • You can make a partial contribution if your MAGI is in the phaseout range.
  • If your MAGI is too high, then you can’t contribute at all.

Below is a rundown of the Roth IRA income and contribution limits for 2023 and 2024.

2023 and 2024 Roth IRA Income and Contribution Limits
Filing Status  MAGI 2023 Contribution Limit 2023 MAGI 2024 Contribution Limit 2024
Married Filing Jointly or Qualifying Widow(er)
  Less than $218,000  $6,500 ($7,500 if age 50+) Less than $230,000 $7,000 ($8,000 if age 50+)
  $218,000 to $228,000 Phase out range $230,000 to $240,000 Phase out range
  More than $228,000 Ineligible for direct Roth IRA More than $240,000 Ineligible for direct Roth IRA
Married Filing Separately    
  Less than $10,000 Phase out range Less than $10,000 Phase out range
  $10,000 or more Ineligible for direct Roth IRA $10,000 or more Ineligible for direct Roth IRA
Single or Head of Household    
  Less than $138,000 $6,500 ($7,500 if age 50+) Less than $146,000 $7,000 ($8,000 if age 50+)
  $138,000 to $153,000 Phase out range $146,000 to $161,000 Phase out range
More than $153,000 Ineligible for direct Roth IRA More than $161,000 Ineligible for direct Roth IRA

However, there’s a tricky but perfectly legal way for high-income earners to contribute to a Roth IRA even if their income exceeds the limits. This is called a backdoor Roth IRA, which entails contributing to a traditional IRA and immediately rolling over the money into a Roth account.

This transaction must be done strictly by Internal Revenue Service rules.

What Are the Roth IRA Withdrawal Rules?

With a Roth IRA, you can withdraw your contributions at any time, for any reason, without tax or penalty. In addition, qualified withdrawals (which include contributions and account earnings) in retirement are also tax and penalty-free. To be qualified, the withdrawals must occur when you’re at least 59½ years old and it’s been at least five years since you first contributed to a Roth IRA—also known as the five-year rule.

If you don’t meet the five-year rule, then any earnings that you withdraw could be subject to taxes or a 10% penalty—or both, depending on your age:

  • Ages 59 and younger: Withdrawals of earnings are subject to taxes and a 10% penalty. You may be able to avoid the penalty (but not the taxes) if you use the money for either a first-time home purchase or certain other exemptions.
  • Ages 59½ and older: Withdrawals of earnings are subject to taxes but not penalties.

Can I Withdraw Roth IRA Contributions Without Triggering the Five-Year Rule?

Yes. Your contributions to a Roth IRA can be withdrawn at any time without penalty or taxes. Only earnings are subject to the five-year rule.

What Is My Modified Adjusted Gross Income (MAGI)?

Your modified adjusted gross income (MAGI) is your adjusted gross income (AGI) with a few deductions added back. Deductions reapplied include half of the self-employment tax, deductions for student loan interest, rental losses, and more.

Do Roth and Traditional Individual Retirement Accounts (IRAs) Have the Same Income Limits?

No. There are no income limits to contribute to a traditional individual retirement account (IRA). Roth IRAs base your ability to contribute the maximum of $6,500 for 2023 or $7,000 in 2024 on your MAGI. People over age 50 can contribute an additional $1,000 catch-up contribution. However, the deduction for your contributions to a traditional IRA may be limited if you or your spouse is covered by a retirement plan at work and your income exceeds certain levels.

The Bottom Line

Roth IRAs offer many benefits; tax-free growth, tax-free withdrawals in retirement, and no required minimum distributions (RMDs) while the owner of the IRA is alive. However, there are potential drawbacks.

Typically, individuals benefit from saving for retirement in an IRA. However, whether a traditional or Roth IRA is better depends on several factors, including your income, age, and when you expect to be in a lower tax bracket—now or during retirement.

The five-year rule, for example, should be carefully considered if you start a Roth later in life. If you first contributed to a Roth at age 58, you must wait until you’re 63 to make tax-free withdrawals of earnings—although you may still be able to withdraw contributions within this five-year window. For those who need the earnings to be accessible tax-free in less than five years, the five-year rule is a hinderance. For those who are saving for retirement on a longer timeline, the rule may be insignificant.

Consult a tax expert, financial planner, or financial advisor to help you make a more informed decision so that your retirement plan is customized for your specific financial situation.

Correction—May 28, 2023: This article has been edited to clarify that the five-year rule applies to Roth IRA earnings, not contributions.

Article Sources
Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.
  1. Internal Revenue Service. "401(k) Limit Increases to $23,000 for 2024, IRA Limit Rises to $7,000."

  2. Internal Revenue Service. "Publication 590-A (2022), Contributions to Individual Retirement Arrangements (IRAs)."

  3. Internal Revenue Service. “Retirement Topics — IRA Contribution Limits.”

  4. Internal Revenue Service. "Roth Comparison Chart."

  5. Internal Revenue Service. "IRS Reminds Those Aged 73 and Old to Make Required Withdrawals From IRAs and Retirement Plans by Dec. 31; Notes Changes in the Law for 2023."

  6. Internal Revenue Service. "Traditional IRAs."

  7. Internal Revenue Service. "Roth IRAs."

  8. Internal Revenue Service. "401(k) Limit Increases to $23,000 for 2024, IRA Limit Rises to $7,000."

  9. Internal Revenue Service. “Amount of Roth IRA Contributions That You Can Make for 2023."

  10. Internal Revenue Service. “Publication 590-B (2022), Distributions From Individual Retirement Arrangements (IRAs)."

  11. Internal Revenue Service. “Retirement Topics — Exceptions to Tax on Early Distributions.”

Take the Next Step to Invest
×
The offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace.
Take the Next Step to Invest
×
The offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace.