Retirement Retirement Planning

5 Reasons Roth IRAs Just Don’t Work for Everyone

Be smart about planning for retirement — know if a Roth IRA isn't right for you.

By Adam Palasciano

Edited by Lauren Wellbank

Updated Jan. 22, 2025

Roth IRAs are often heralded as one of the best retirement savings options, thanks to their opportunities for tax-free growth and withdrawals. However, as attractive as they seem, Roth IRAs aren't ideal for everyone.

Whether it's due to income thresholds, tax implications, or short-term needs, there are legitimate reasons why a Roth IRA might not be the best fit for your financial strategy.

Before you open an account, it's worth exploring whether a Roth IRA aligns with your personal goals as you set yourself up for retirement.

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What is a Roth IRA?

A Roth IRA is a type of retirement savings account that allows your investments to grow tax-free. Contributions are made with after-tax dollars, meaning you don't get a tax deduction now, but qualified withdrawals in retirement — including earnings — are tax-free.

This structure makes Roth IRAs appealing to those who anticipate being in a higher tax bracket in retirement. However, they come with strict eligibility rules, contribution limits, and time constraints that may not work for everyone.

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You have no earned income

To contribute to a Roth IRA, you must have earned income, which includes wages, salaries, commissions, or self-employment income. Passive income, like Social Security benefits, interest, dividends, or pensions, do not qualify.

Without eligible compensation, you can't make contributions to a Roth IRA. If most of your income comes from sources like investments or retirement benefits, you may need to explore alternative savings options.

Your income exceeds the contribution limits

The amount you can contribute to a Roth IRA is tied directly to your modified adjusted gross income (MAGI). In 2024, single filers with a MAGI of $146,000 or less can contribute the full annual amount of $7,000 (or $8,000 for those who are 50 or older). For married couples filing jointly, the limit is $230,000.

In 2025, the MAGI limits increase slightly to $150,000 for single filers and $236,000 for joint filers. If your income exceeds these thresholds, your contribution amount is reduced or eliminated altogether.

If your earnings surpass $161,000 (single) or $240,000 (joint) in 2024, or $165,000 (single) or $246,000 (joint) in 2025, you won't be able to contribute at all.

For higher earners, other retirement accounts, such as a backdoor Roth IRA or traditional 401(k), may be more practical.

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If you'll be in a lower tax bracket in retirement

One of the main advantages of a Roth IRA is its tax-free withdrawals, which are particularly beneficial if you expect your tax rate to increase in retirement. However, if you anticipate being in a lower tax bracket later in life, the upfront tax benefits of a traditional IRA or 401(k) might make more sense.

Contributing pre-tax dollars to a traditional retirement account allows you to lower your taxable income today and pay less in taxes during your retirement years when withdrawals are taxed at a potentially lower rate.

If your timeline is short

Roth IRAs are most effective when you have a long investment horizon. If you withdraw earnings before the account has been open for five years, you may face taxes and penalties. This five-year rule applies even if you're already 59 ½ or older.

For those with a shorter timeline, the benefits of a Roth IRA may not outweigh the tax savings of other accounts, especially if immediate access to funds is a priority.

You need access to your capital gains before age 59 ½

While Roth IRAs allow you to withdraw your contributions (but not earnings) penalty-free at any time, accessing any capital before age 59 ½ typically incurs taxes and penalties. This restriction makes Roth IRAs less suitable for those who anticipate needing both contributions and gains before retirement age.

If flexibility is a priority, consider taxable brokerage accounts or alternative savings options that allow greater access to your funds.

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Bottom line

Roth IRAs offer unique tax benefits, but they're not the perfect solution for everyone. Depending on your income, retirement timeline, or tax bracket, other accounts — such as traditional IRAs or 401(k)s — may align better with your financial goals.

When evaluating your retirement options, take time to check up on your retirement readiness and explore accounts that meet your specific needs. Are you saving in a way that maximizes your tax advantages and long-term growth potential? The right choice could help you create a more secure financial future.

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