To Roth or not to Roth? That is a question every investor eventually stumbles upon. And if you are asking it later in life, the doubt may feel even more pressing. After all, is it not too late to start a Roth IRA now?
Short answer - Absolutely not. Even if you are arriving fashionably late to the retirement planning party, a Roth IRA can still work in your favor. From tax-free withdrawals to no Required Minimum Distributions (RMDs), the benefits remain the same even if you are starting at 50 or beyond.
If you have been unsure about whether you can have a Roth IRA this late in the game, keep reading. By the end of this article, you will likely feel confident about putting this powerful tool to work for your future. And, of course, you can also consult with a financial advisor to learn more.
But before we go further, let's explain what a Roth IRA is for the unacquainted.
A Roth IRA (Individual Retirement Account) is a retirement savings tool that offers unique tax advantages. The key feature of a Roth IRA is that you contribute after-tax money, so you have already paid income tax on the amount you are investing.
Once your money is in the account, it can be invested in various assets, such as stocks, bonds, Exchange-Traded Funds (ETFs), or mutual funds. The real magic happens down the line. Your investments grow tax-free, and when you retire, you can withdraw the money, including all the gains, without paying any taxes.
That is right! No taxes on withdrawals in retirement. No surprises from the Internal Revenue Service (IRS). It is just tax-free income at your disposal.
In 2025, you are allowed to contribute up to $7,000 per year to a Roth IRA. And if you are 50 or older, you qualify for an additional $1,000 catch-up contribution, bringing your total annual limit to $8,000.
Let's say you are 50 years old and contribute this full amount each year for the next 10 years until age 60. Over that period, your total contributions would add up to $80,000. Assuming an average annual return of 7%, your Roth IRA could grow to about $110,000 by the time you turn 60. All of this is tax-free growth, which you can withdraw in retirement without owing a cent in taxes.
Now, let's consider the same scenario, but this time, both you and your spouse, aged 50, are contributing to separate Roth IRAs. If each of you contributes $8,000 annually for 10 years, your combined investment would be $160,000. Assuming the same 7% return, your joint Roth IRA balance could grow to around $220,000 by age 60. Again, this money will be yours completely tax-free and not subject to any deductions, giving you far more flexibility and peace of mind in retirement.
What are the tax benefits of a Roth IRA if you start late?
Benefit #1: You get to earn tax-free earnings
One of the most significant advantages of a Roth IRA is that your investments earn tax-free returns. Unlike traditional investment accounts, where your earnings are subject to capital gains taxes or taxes on dividends and interest, a Roth IRA does not tax your profits.
When you contribute to a Roth IRA, you are using money you have already paid income tax on. But from that point forward, everything your money earns inside the account grows tax-free. This includes capital gains, dividends, and any interest income generated by your investments. When you eventually withdraw that money in retirement, you will not owe a single penny in taxes.
This type of tax-free growth can accumulate significantly over time. Let's say you invest $50,000 in your Roth IRA. Over time, your account grows to $70,000. In a regular taxable account, the $20,000 in gains might be subject to capital gains tax. This could be a lot. But with a Roth IRA, that entire $70,000 is yours to keep.
The longer your money stays invested, the more powerful this can be. Compounding, combined with tax-free growth, enables your investments to grow faster without being taxed year after year. So, you potentially increase your overall wealth. Even if you are starting late, the Roth IRA's tax-free growth can still be beneficial for your long-term financial plan.
Benefit #2: You do not pay any tax on your withdrawals
A Roth IRA allows you to make completely tax-free withdrawals in retirement. This feature can make a significant difference, especially since you will be living on a fixed or limited income in retirement. Unlike traditional retirement accounts, where your withdrawals are taxable, a Roth IRA allows you to take money out without paying a dime in taxes, as long as you meet a few basic conditions.
As long as you meet these requirements, your withdrawals, including your original contributions and all your investment earnings, are yours, tax-free. Not only does this result in lower taxes, but it also means less stress about tax rules. You do not have to worry about calculating how much to withdraw to avoid jumping into a higher tax bracket. You do not have to track capital gains or dividend income. You are also free from mandatory distributions, unlike with traditional IRAs or 401(k)s, where RMDs kick in after age 73. There is no federal or capital gains tax, no need to file extra tax forms, and life just gets simpler.
This can be a blessing during retirement as it allows you to focus on enjoying life rather than trying to make sense of complex tax laws.
Benefit #3: You can benefit more if you expect to be in a high tax bracket in retirement
Starting a Roth IRA late in life can be a beneficial move if you anticipate being in a higher tax bracket during retirement. While many people assume their income will go down after they stop working, if that is not the case with you, you should consider using a Roth IRA. You may have a wide range of income streams in retirement, including pension plans, Social Security benefits, RMDs from traditional IRAs or 401(k) s, rental income, and dividends. All of these can push your taxable income higher than you expected. However, if you contribute to a Roth IRA now, you can enjoy tax-free withdrawals later when your tax rate could be significantly higher.
This strategy is beneficial if you are currently in your 50s or early 60s and are in a relatively moderate or low tax bracket today. You can lock in your current tax rate and protect yourself from future tax increases.
Benefit #4: You do not have to worry about RMDs
You do not have to worry about RMDs with a Roth IRA. Unlike traditional IRAs and 401(k)s, which require you to start taking RMDs at age 73, Roth IRAs have no such rule for the account owner. With traditional retirement accounts, you must calculate and withdraw a specific minimum amount each year, starting at age 73. Failing to do so can result in penalties and taxes. This rule is implemented by the government because the money in traditional accounts has not been taxed yet, and the IRS wants to ensure that it eventually collects taxes on that income.
But with a Roth IRA, your contributions are made with after-tax dollars. Since the government has already collected taxes upfront, it does not require you to withdraw the money at any particular age. You can let your money sit and grow tax-free for as long as you like. If you do not need the funds, you can let them be in the account. Even if you do not contribute more, your investments will continue to grow potentially. You can even leave your Roth IRA for your heirs if you want. This provides you with greater flexibility in retirement.
These points may have convinced you to start a Roth IRA. However, before you do, you need to be aware of some rules. Let's find out what these are:
a. Roth IRA income limit
The IRS sets income limits to determine your eligibility to contribute to a Roth IRA. These are based on your annual Modified Adjusted Gross Income (MAGI) and your tax filing status. Here's how it breaks down for 2025:
- For single filers
- Full contribution eligibility: You can contribute up to the full amount to a Roth IRA if your MAGI is less than $150,000.
- Partial contribution eligibility: If your MAGI is between $150,000 and $165,000, you're eligible to contribute a reduced amount.
- Ineligible to contribute: If your MAGI is $165,000 or more, you are not eligible to contribute to a Roth IRA.
- For married couples filing jointly
- Full contribution eligibility: You can contribute the full amount if your combined MAGI is less than $236,000.
- Partial contribution eligibility: If your MAGI is between $236,000 and $246,000, you can contribute up to a reduced amount.
- Ineligible to contribute: If your MAGI is $246,000 or more, you cannot contribute to a Roth IRA.
b. Roth IRA 5-year rule
The 5-year rule is a key IRS guideline that determines when you can withdraw earnings or convert funds from your Roth IRA without incurring taxes or penalties. It applies in two main scenarios:
- Withdrawals of earnings: If you withdraw earnings from your Roth IRA before five years have passed since your first contribution, you may owe a 10% penalty and income taxes on the amount. Please note that this does not apply to your contributions.
To qualify for tax-free and penalty-free withdrawals, the account must be at least five years old, and you must meet a qualified distribution condition.
- Conversions from a Traditional IRA: If you convert funds from a traditional IRA to a Roth IRA, those converted funds must also stay in your Roth IRA for at least five years before you can withdraw them without a 10% early withdrawal penalty. This rule applies even if you are over age 59½. Also, keep in mind that each conversion has its own 5-year clock.
c. Roth IRA early withdrawal rule
With a Roth IRA, you are allowed to withdraw your contributions at any time. However, in the case of early withdrawals, only your contributions are secure from penalties. You can withdraw the money you contributed to your Roth IRA for any reason without facing taxes or penalties. But if you withdraw earnings from your Roth IRA before age 59½, you may have to pay a 10% penalty for making an early withdrawal and income taxes on the withdrawn earnings at your regular tax rate.
Even though not a deal breaker, there can be some disadvantages of starting a Roth IRA late, such as:
1. Late growth and potentially lower savings due to contribution caps
If you are 50 or older, you can contribute up to $8,000 annually if you are over 50 and $7,000 if you are under 50. While this is helpful, it may not be enough. You may also not be able to invest more, even if you have a larger sum you would like to invest. In such a case, you will need to consider other options, such as traditional IRAs or 401(k)s, to invest the remaining funds.
2. Limited time for growth, resulting in lower gains
Starting late gives your investments less time to grow and compound. While a Roth IRA still offers tax-free growth and withdrawals if you start investing late, you may not see the kind of growth you would have if you invested in it for 20 to 30 years. Starting at 50 or 55 enables your funds to grow for only 10 to 15 years before you might begin drawing them down.
3. It can be stressful since you do not have enough time before retirement
You may also feel pressured to save aggressively in a short window before retirement. The urgency to catch up can be stressful. Moreover, at this stage, you may have other financial responsibilities, such as funding your children's college education or paying off your debt before retirement. Starting earlier gives you time. It also offers the flexibility to invest smaller amounts over time with less stress.
While it is always ideal to open a Roth IRA as early as possible, starting late should not deter you. Just because you are behind doesn't mean you can't still take control of your financial future. A Roth IRA offers tax-free income in retirement, even if you begin in your 50s or later. What matters most is taking action now and understanding the rules.
Understand the pros and cons of starting a Roth IRA late, so you can make an informed decision that suits your specific situation. If you are uncertain, consulting a financial advisor can help clarify things. You may use our free advisor match tool to match with 2 to 3 seasoned advisors who can guide you through the process.