What Baby Boomers Need to Know About Roth IRAs

When is it worth opening a Roth IRA or converting a traditional IRA into one?

Fact checked by Kirsten Rohrs SchmittReviewed by David KindnessFact checked by Kirsten Rohrs SchmittReviewed by David Kindness

If you’re a baby boomer, born in 1946–1964, chances are that you’ve been saving for retirement for several decades. Per The 2022 Investopedia Financial Literacy Survey, baby boomers are the generation least likely to worry about managing their finances. Several of those surveyed cited their long experience of managing finances over several decades as the source of their confidence. Even so, almost a third of surveyed boomers admitted to having a beginner-level understanding of retirement topics.

If any of your accounts are Roth individual retirement accounts (Roth IRAs)—or if you’ve thought of adding a Roth IRA to the mix—here is what you need to know.

Key Takeaways

• A Roth individual retirement account (Roth IRA) can be a source of tax-free income in retirement.
• If you convert a traditional IRA into a Roth IRA, you’ll have to pay income tax on that money right away.
• Unlike traditional IRAs, Roth IRAs have no required minimum distributions (RMDs) during your lifetime, making them useful for estate planning.

What Is a Roth IRA?

Roth IRAs, which first became available in 1998, work much like traditional IRAs, except for when you get a tax break. With a traditional IRA, you can take a tax deduction for the money that you contribute, but you’ll be taxed on that money and its earnings when you eventually withdraw it.

With a Roth IRA, on the other hand, you don’t receive any tax break up front, but your withdrawals, including both your original contributions and the account’s earnings, will be tax-free if you follow the rules.

Advantages of Roth IRAs

Roth IRAs have some advantages over their traditional counterparts that some people may find especially attractive. For one, you can withdraw your contributions to a Roth IRA (but not their earnings) at any time without taxes or penalties. With a traditional IRA, you’ll generally owe income tax on the money, plus a 10% penalty if you’re under age 59½. That makes the Roth a ready source of funds if you ever need the cash for a financial emergency or another purpose.

Also, unlike their traditional counterparts, Roth IRAs are not subject to required minimum distributions (RMDs) during your lifetime. So, if you don’t need the money for living expenses after you retire, you can just allow it to continue to grow, tax-free, and eventually, leave it to your heirs. They will, however, have to withdraw it at some point—typically within five or 10 years, depending on their relationship with you.

Roth IRA Withdrawal Rules

If you have a Roth IRA, you’ll need to heed a couple of rules to reap the full benefits of its tax-advantaged status. Specifically, you must have had a Roth IRA (any Roth account) open for at least five years, and you must be at least 59½ years old to withdraw your account’s earnings tax-free. There are some exceptions, including one for disability.

Starting a Roth IRA

If you don’t already have a Roth IRA but would like to start one, you have three options: Open a new account, convert a traditional IRA into a Roth IRA, or roll over a 401(k) plan into a Roth IRA. Here’s a look at each.

1. Opening a New Roth IRA

To contribute to a Roth IRA, you’ll need earned income, so if you work either full-time or part-time, you may be eligible. The maximum IRA contribution for 2024 is $7,000 ($8,000 if you’re 50 or older).

However, whether you can contribute to a Roth or how much you can contribute is determined by your income and tax filing status.

As the table above shows, for those who file their taxes as single or head of household in 2024, you can make a full Roth IRA contribution if your MAGI is under $146,000, but you cannot contribute if your income exceeds $161,000.

For 2024, married couples who file a joint tax return can make a full Roth IRA contribution if their MAGI is under $230,000 and cannot contribute if it exceeds $240,000.

2. Converting a Traditional IRA Into a Roth IRA

If you have a traditional IRA, you can roll all or part of it into a Roth through a Roth IRA conversion. Aside from any inheritance considerations, whether a conversion makes sense for you is basically a matter of whether you would prefer to take a tax hit now and avoid taxes in the future (by converting to a Roth IRA) or continue to postpone the tax hit and deal with it later (by staying with your traditional IRA). Of course, it doesn’t have to be an all-or-nothing choice; you can convert a portion of your traditional IRA and leave the rest where it is.

You’ll owe income tax on the money that you take out of your traditional IRA to put into your Roth, just as if you were withdrawing it to spend. If you’re planning to convert a sizable amount, you’ll want to look closely at your current highest marginal tax bracket and possibly spread the withdrawal over several years. Below are examples of a Roth IRA conversion using the 2024 and 2025 marginal tax brackets.

2024 Tax Bracket

In 2024, a single taxpayer falls in the 24% tax bracket for income of $100,525 to $191,950 and in the 32% bracket for income that exceeds $191,950 to $243,725.

As a result, a single taxpayer who earns $110,000 per year could convert up to $81,950 and remain in the 24% tax bracket. Anything more than that would be taxed at a rate of 32% or higher.

2025 Tax Bracket

In 2025, a single taxpayer falls in the 24% tax bracket for income of $103,350 to $197,300 and in the 32% bracket for income that exceeds $197,350 to $250,525.

As a result, a single taxpayer who earns $110,000 per year could convert up to $87,300 and remain in the 24% tax bracket. Anything more than that would be taxed at a rate of 32% or higher.

Timing a Roth Conversion

Timing is important when converting a Roth IRA. Suppose, for example, that our single taxpayer is about to retire from their $100,000 job and expects to have a retirement income from all sources of $50,000, which falls in the 22% marginal tax rate (pre-IRA conversion), using 2024 tax rates.

They could convert as much as $50,525 and remain in the 22% tax bracket. Convert anymore, and that portion would be in the 24% bracket or higher since income would exceed $100,525.

Similarly, if your income is lower in any particular year for another reason, such as a job loss, that could be a good opportunity to do a conversion if you wish to do so. Also, you might have a few years of reduced income if you retire at, say, age 66, but delay taking Social Security benefits until they max out at age 70.

Remember that if you were born between 1951 and 1959 or in 1960 and after, you’ll have to begin taking required minimum distributions (RMDs) from any non-Roth retirement accounts at age 73 or 75, respectively, which could put you back into a higher marginal tax bracket.

Converted Roth Withdrawal Penalties

Note that there can be a 10% penalty if you withdraw the converted funds within the first five years of opening a Roth account. However, there’s an exception for anyone over age 59½—as virtually every baby boomer already is or soon will be. 

Also, you will have to wait five years before withdrawing any of the new Roth account’s earnings unless you already had another Roth IRA for at least five years before you made the conversion. That could be a deal breaker for some older baby boomers or anyone who expects to need the money before those five years.

3. Rolling Over a 401(k) Into a Roth IRA

If you’re leaving your job, or if you left behind an old 401(k), 403(b), or 457(b) plan account at a previous employer, you can roll that money over into an IRA, either Roth or traditional. If you go the Roth route, you’ll owe taxes on the money just as you would if you converted from a traditional IRA to a Roth. You can also roll a portion of the money into a Roth and the rest into a traditional IRA for the time being, which may ease your tax burden if a lot of money is involved.

If your 401(k) or similar plan is a designated Roth account, you can roll it over into a Roth IRA with no tax consequences. However, you may have to pay tax on your employer’s matching contributions, which are held in a separate account. One advantage of a Roth IRA over a designated Roth 401(k) is that it is not subject to RMDs during the original owner’s lifetime, unlike the 401(k).

Typically, you have until April 15 to contribute to an IRA for the current tax year unless the 15th falls on a holiday or weekend.

Can I Convert a Simplified Employee Pension Individual Retirement Account (SEP IRA) Into a Roth IRA?

Yes. Any money that you have in a Simplified Employee Pension individual retirement account (SEP IRA) is also eligible for rolling over into a Roth IRA. As with a traditional IRA, you’ll have to pay income tax on the money that you convert.

What Is a Backdoor Roth IRA?

A backdoor Roth IRA refers to a strategy employed by some taxpayers whose incomes are too high for them to qualify for a Roth IRA in the usual way. Basically, they open a traditional IRA and roll over that money into a Roth. Traditional IRAs have no income limits, although the extent to which contributions are deductible depends on the person’s income and whether they have a retirement plan at work.

Are Backdoor Roth IRAs Legal?

Backdoor Roth IRAs are legal, although there have been some moves in Washington to curtail their use, including provisions in the Biden administration’s Build Back Better plan; however, that legislation appears to be in limbo.

The Bottom Line

Baby boomers, like other generations, can benefit from having a Roth IRA in retirement, but there are tradeoffs. There’s no up-front tax break for contributions to a Roth account, and converting a traditional IRA into a Roth can mean a big tax bill. The major question is whether you would rather pay taxes now in return for tax-free income after you retire.

Another consideration for some people is whether they hope to leave the money to their heirs. Because Roth IRAs aren’t subject to RMDs, they can be better than traditional IRAs for that purpose.

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