Roth IRA
Roth IRA
An individual retirement account funded with after-tax contributions, offering tax-free qualified withdrawals in retirement. No required minimum distributions (RMDs) during the owner's lifetime. Subject to income eligibility limits ($153,000-$168,000 for single filers, $242,000-$252,000 for married filing jointly in 2026). Contributions limited to $7,500 annually (or $8,600 if age 50 or older) for 2026. Qualified distributions require account to be open for 5 years and owner to be age 59½, disabled, deceased, or using up to $10,000 for first-time home purchase.
A 35-year-old teacher earning $80,000 annually contributes $7,500 to a Roth IRA. She receives no tax deduction now, but when she retires at 67, all withdrawals (contributions plus 32 years of growth) will be completely tax-free. Unlike a Traditional IRA, she will never be required to take minimum distributions, allowing the account to continue growing tax-free for her entire life.
Students often confuse the 5-year rule (which applies to earnings and conversions) with contribution withdrawals. Roth IRA contributions (not earnings) can be withdrawn tax-free and penalty-free at any time since taxes were already paid. The 5-year rule and age 59½ requirement only apply to earnings withdrawals. Another common error: assuming high earners cannot use Roth IRAs at all, when "backdoor Roth" conversions are available for those above income limits.
How This Is Tested
- Comparing tax treatment between Traditional IRA (deductible contributions, taxable distributions) and Roth IRA (after-tax contributions, tax-free qualified distributions)
- Determining Roth IRA contribution eligibility based on modified adjusted gross income (MAGI) phase-out ranges
- Identifying when Roth IRA distributions are qualified (5-year rule + age 59½ or other exception)
- Understanding that Roth IRAs have no RMDs during owner's lifetime, unlike Traditional IRAs
- Calculating contribution limits for clients age 50+ with catch-up contributions
- Distinguishing between withdrawal rules for contributions (always tax-free and penalty-free) versus earnings (subject to 5-year rule and age requirements)
Regulatory Limits
| Description | Limit | Notes |
|---|---|---|
| 2026 contribution limit (under age 50) | $7,500 annually | Combined total for all Traditional and Roth IRA contributions |
| 2026 contribution limit (age 50+) | $8,600 annually | Includes $1,100 catch-up contribution |
| 2026 MAGI phase-out (single filers) | $153,000-$168,000 | Partial contribution allowed in range; no contribution above upper limit |
| 2026 MAGI phase-out (married filing jointly) | $242,000-$252,000 | Partial contribution allowed in range; no contribution above upper limit |
| Qualified distribution age requirement | Age 59½ | Plus 5-year rule for earnings; exceptions include disability, death, first-time home purchase ($10,000 lifetime limit) |
| 5-year holding period | 5 tax years | Clock starts January 1 of year first Roth IRA contribution or conversion is made |
| Early withdrawal penalty (on earnings) | 10% penalty | Applies to earnings withdrawn before age 59½ without qualifying exception; contributions always penalty-free |
| Required minimum distributions (RMDs) | None during owner lifetime | SECURE 2.0 eliminated RMDs from Roth 401(k)s as well; beneficiaries still subject to distribution rules |
Example Exam Questions
Test your understanding with these practice questions. Select an answer to see the explanation.
Jennifer, age 42, earns $95,000 annually as a marketing manager and is currently in the 24% tax bracket. She expects to be in the 32% tax bracket when she retires at age 67. She is deciding between contributing $7,500 to a Traditional IRA (which would be fully deductible) or a Roth IRA. Her employer does not offer a retirement plan. Which recommendation is most appropriate for Jennifer's situation?
B is correct. Jennifer expects to be in a higher tax bracket in retirement (32%) than she is currently (24%). Paying taxes now at 24% on Roth contributions and receiving tax-free distributions later when her rate would be 32% provides significant long-term tax savings. With 25 years until retirement, tax-free compounding on earnings will be substantial.
A is incorrect because while the Traditional IRA provides an immediate $1,800 deduction ($7,500 × 24%), she would pay much more in taxes on distributions in retirement at the 32% rate. The upfront savings of $1,800 is less valuable than avoiding the higher tax rate on a much larger amount (original contribution plus decades of growth). C is completely false: Roth IRAs have NO required minimum distributions during the owner's lifetime, making them valuable for estate planning. Traditional IRAs require RMDs starting at age 73. D is incorrect because Roth IRA contributions are NOT tax-deductible; they are made with after-tax dollars.
The Series 65 exam frequently tests Traditional versus Roth suitability based on current versus expected future tax brackets. This is the #1 most important factor in choosing between the two account types. Understanding this concept is critical for making appropriate client recommendations. The exam will present scenarios where you must evaluate tax bracket changes, time horizon, and distribution rules to determine which IRA type best serves the client.
What is the 2026 modified adjusted gross income (MAGI) phase-out range for Roth IRA contributions for a married couple filing jointly?
C is correct. For 2026, married couples filing jointly have a Roth IRA contribution phase-out range of $242,000-$252,000 in MAGI. Partial contributions are allowed within this range, and no contributions are permitted above $252,000.
A ($153,000-$168,000) is incorrect because this is the 2026 phase-out range for single filers and heads of household, not married filing jointly. B ($218,000-$228,000) is incorrect because these were the 2024 limits for married filing jointly, not the current 2026 limits. D ($236,000-$246,000) is incorrect because these were the 2025 limits for married filing jointly, not the current 2026 limits.
The Series 65 exam tests knowledge of Roth IRA income eligibility limits, which change annually based on inflation adjustments. You must know both the single filer and married filing jointly ranges, as questions often present client scenarios requiring you to determine contribution eligibility. These limits are critical for advising high-income clients who may need to consider backdoor Roth conversions or Traditional IRAs instead.
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Access Free BetaMarcus opened his first Roth IRA on June 15, 2024, with a $7,000 contribution. He made additional contributions of $7,500 in 2025 and $7,500 in 2026. On March 1, 2027, Marcus (now age 45) withdraws $15,000 from the account, which has a total value of $25,000 ($22,000 in contributions and $3,000 in earnings). What are the tax consequences of this withdrawal?
A is correct. Roth IRA withdrawals follow a specific ordering rule: contributions always come out first, tax-free and penalty-free, regardless of age or how long the account has been open. Marcus has contributed $22,000 total ($7,000 + $7,500 + $7,500), so his $15,000 withdrawal is treated entirely as a return of contributions. No taxes and no penalties apply because he already paid taxes on these contributions when he earned the income.
B is incorrect because it treats the withdrawal like a Traditional IRA distribution, ignoring the contribution ordering rule. C is incorrect because it assumes earnings come out proportionally with contributions, but Roth IRA withdrawals are always treated as coming from contributions first, then conversions, then earnings (ordering rules). Only after all $22,000 in contributions are withdrawn would any earnings be distributed. D is incorrect because there is no penalty on contribution withdrawals, even before age 59½.
The Series 65 exam tests understanding of Roth IRA withdrawal ordering rules, which differ significantly from Traditional IRA rules. This is a critical concept for advising clients on whether Roth IRAs can serve as emergency funds or provide liquidity before retirement. The contribution ordering rule (contributions first, always tax-free and penalty-free) is frequently tested and commonly misunderstood. Questions often try to confuse you by mixing up the 5-year rule (which applies to earnings, not contributions) with contribution withdrawal rules.
All of the following statements about Roth IRAs are accurate EXCEPT
C is correct (the EXCEPT answer). Roth IRAs do NOT require minimum distributions during the owner's lifetime. This is one of the most significant advantages of Roth IRAs for estate planning and wealth transfer. The account can continue growing tax-free indefinitely during the owner's life. Traditional IRAs, by contrast, require RMDs beginning at age 73.
A is accurate: Roth contributions are made with after-tax dollars (you've already paid income tax on the money) and provide no current tax deduction. This is the opposite of Traditional IRA contributions, which are typically tax-deductible. B is accurate: Qualified distributions (meeting the 5-year rule and age 59½ or another exception) are completely tax-free, including decades of accumulated earnings. This is the primary benefit of Roth IRAs. D is accurate: High earners face MAGI phase-out ranges. In 2026, single filers phase out between $150,000-$165,000 and married filing jointly between $236,000-$246,000. Above these limits, direct Roth IRA contributions are not permitted.
The Series 65 exam tests your ability to distinguish between Traditional and Roth IRA rules, particularly regarding RMDs. Many candidates incorrectly assume all retirement accounts have RMD requirements. Understanding that Roth IRAs have NO lifetime RMDs is critical for estate planning questions and for advising clients who want to leave tax-free assets to beneficiaries. This distinction appears frequently in comparison questions and negative stem (EXCEPT) format.
A 62-year-old client with a MAGI of $140,000 (single filer) is considering making a 2026 Roth IRA contribution. The client has never had a Roth IRA before. Which of the following statements are accurate regarding this situation?
1. The client can contribute up to $8,600 for 2026 due to catch-up contributions
2. The client is ineligible to contribute because MAGI exceeds $100,000
3. If the client contributes in 2026 and withdraws earnings in 2028 at age 64, the earnings will be tax-free
4. The client will never be required to take RMDs from this Roth IRA
A is correct. Only statements 1 and 4 are accurate.
Statement 1 is TRUE: The client is 62 years old (age 50 or older), so they qualify for the catch-up contribution. The 2026 Roth IRA contribution limit for those age 50+ is $8,600 ($7,500 base + $1,100 catch-up).
Statement 2 is FALSE: The 2026 MAGI phase-out range for single filers is $150,000-$165,000. The client's MAGI of $140,000 is below the phase-out range, so they are fully eligible to make the maximum contribution. There is no $100,000 limit.
Statement 3 is FALSE: For earnings to be withdrawn tax-free, the distribution must be "qualified," meaning the account must be open for 5 tax years AND the owner must be age 59½ (or meet another exception like disability or death). If the client contributes in 2026, the 5-year clock starts January 1, 2026, and ends January 1, 2031. A withdrawal in 2028 (only 2 years later) would not meet the 5-year rule, even though the client is over 59½. The earnings portion would be taxable (though not subject to the 10% penalty since the client is over 59½).
Statement 4 is TRUE: Roth IRA owners are never required to take RMDs during their lifetime. This is a significant advantage over Traditional IRAs, which require RMDs starting at age 73.
The Series 65 exam tests comprehensive understanding of Roth IRA rules in integrated scenarios. You must evaluate multiple factors: contribution eligibility based on income and age, the 5-year rule for qualified distributions (which is separate from the age 59½ requirement), catch-up contributions, and RMD requirements. Questions often combine these elements to test whether you truly understand how the rules interact. The 5-year rule is particularly tricky: many candidates assume being over 59½ is sufficient for tax-free earnings withdrawals, forgetting the 5-year holding period requirement.
💡 Memory Aid
Think of a Roth IRA as "Pay Now, Play Later": You pay taxes NOW on contributions (no deduction), but you get to PLAY tax-free in retirement (qualified distributions completely tax-free). No RMDs = No Required Money Demands during your lifetime. Remember the "Five and Fifty-Nine-and-a-Half" rule for earnings: 5 years AND age 59½ for tax-free earnings withdrawals (contributions are always accessible).
Related Concepts
This term is part of this cluster:
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Where This Appears on the Exam
This term is tested in the following Series 65 exam topics: