The Roth feature can help investors of all ages build retirement savings

Whether you're just starting your career or approaching retirement, the Roth feature in a retirement account offers unique attributes to help future financial planning. Unlike traditional pre-tax retirement accounts, Roth contributions are made with after-tax dollars, allowing principal and investment earnings to be withdrawn tax-free when a qualifying event occurs. This flexibility makes the Roth option appealing across generations.

Benefits of the Roth feature

• Tax-free earnings growth: Rather than taking a tax deduction now, contributions are made with money that has already been taxed. This allows for tax-free withdrawal of principal and potential earnings when eligibility requirements are met.¹
• Strategic tax planning: Roth accounts provide tax diversification, helping manage taxable income in retirement. If you're contributing to an employer-sponsored retirement plan where your employer makes matching or other contributions, those contributions are typically made on a pre-tax basis. This means, when withdrawals are made from those funds in retirement, they will be subject to income tax also — potentially increasing your taxable income during those years.
• No mandatory distributions: Unlike traditional pre-tax contributions, required minimum distributions (RMDs) are not required at age 73 in Roth accounts, allowing individuals more control over the timing of those withdrawals.
• Estate planning advantages: Roth accounts can be passed on with minimal tax impact. Rules vary depending on the type of Roth account and the relationship of the beneficiary to the decedent.
• For all ages: Anyone with earned income can defer all or a portion of their retirement contributions as Roth. Younger investors benefit from decades of tax-free growth; older investors can use Roth conversions to manage RMDs. Refer to the chart for contribution maximums.

Expanded savings potential with Roth contributions in employer plans 

Unlike Roth IRAs, Roth contributions within employer-sponsored plans are not subject to income limitations and allow for significantly higher annual contribution limits.

Distribution highlights

• No RMDs: No mandatory distributions required at age 73.
• Tax-free distribution: Any earnings accumulated are eligible for tax-free distribution if the first contribution was made at least five years prior to distribution and the account owner is either age 59½ or older, disabled, or the distribution is due to death.
• Early withdrawals: Generally subject to a 10% penalty if taken before age 59½, unless exceptions apply (e.g., disability, first-time home purchase for Roth IRA). Withdrawals from a SIMPLE IRA may incur a 25% penalties if the account is less than two years old, whereas principal contributions to a Roth IRA can be withdrawn at any time without penalty.