Roth IRAs provide more time for ‘tax-free investing,’ advisor says

When saving for retirement, more time in the market can be beneficial depending on your goals and risk tolerance. Generally, the longer your investing timeline, the greater the opportunity to save and the bigger risk you can afford to take.

But your investing timeline can be shortened due to required minimum distributions, or RMDs, which apply to pretax 401(k) plans and individual retirement accounts starting at age 73.

However, RMDs aren’t required for Roth IRAs during the original owner’s lifetime. Surviving spouses can also avoid RMDs if they roll the funds into their own Roth IRAs. 

Therefore, a Roth IRA provides a “much longer runway for tax-free investing,” said certified financial planner Thomas Scanlon at Raymond James in Manchester, Connecticut.

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Roth IRA contributions are made with after-tax dollars — meaning that you pay taxes on the contributions upfront — and any future withdrawals you make in retirement aren’t taxed as income.

For 2025, the Roth IRA contribution limit is $7,000, or $8,000 if you’re 50 and older, which is unchanged from the previous year. However, you or your spouse must have at least as much “earned income,” such as wages or self-employed earnings, as the amount of your contribution. 

While there are income limits for direct Roth IRA contributions, there are ways to bypass the earnings thresholds, including Roth conversions, which move pretax or nondeductible IRA funds to a Roth IRA.   

Anyone with a pretax IRA should “strongly consider” a yearly partial Roth conversion, said Scanlon, who is also a certified public accountant.

But it’s important to run tax projections before completing a Roth conversion to avoid unexpected consequences, experts say.

Roth IRAs can also be a powerful tool for estate planning when the original owner and his or her spouse leave the assets to their children, experts say.

Without RMDs during the owner’s lifetime, there can be more “tax-free compounding” — or growth on growth — for heirs who eventually inherit the account, according to CFP Edward Jastrem, chief planning officer at Heritage Financial Services in Westwood, Massachusetts.

Since 2020, certain inherited accounts are subject to the “10-year rule,” meaning heirs must deplete inherited IRAs by the 10th year after the original account owner’s death. However, heirs won’t owe taxes on withdrawals. 

If the adult child leaves the inherited funds in the account for the full 10 years post-death, that’s “another decade of tax-free growth,” Jastrem said.  

“That’s a big gift to the heir,” he added.