What Is a Roth IRA?
A Roth IRA is an individual retirement account funded with after-tax dollars. Contributions are not tax-deductible, but qualified withdrawals — including all investment growth — are completely tax-free in retirement. For 2026, the contribution limit is $7,000 ($8,000 if age 50 or older), subject to income eligibility limits.
Why It Matters
Roth IRAs are one of the most powerful retirement savings tools available because they provide tax-free income in retirement. Unlike traditional IRAs and 401(k)s, Roth IRAs are not subject to Required Minimum Distributions (RMDs) during the owner's lifetime, making them excellent vehicles for wealth transfer and tax planning flexibility.
For Arizona retirees, Roth IRA withdrawals are not counted as taxable income at either the federal or state level. Since Arizona already offers a favorable 2.5% flat income tax rate, combining Roth income with Arizona's tax advantages can significantly reduce your overall tax burden in retirement.
How It Works
Contributions: You contribute after-tax dollars (no upfront tax deduction). For 2026, the limit is $7,000 per person, or $8,000 if you're 50 or older.
Income limits: Single filers with modified adjusted gross income (MAGI) above $161,000 (2026) begin to phase out of eligibility. Married filing jointly, the phase-out begins at $240,000. Above these thresholds, you may still be able to contribute via a "backdoor Roth IRA" strategy.
Withdrawals: Contributions can be withdrawn at any time without tax or penalty. Earnings can be withdrawn tax-free after age 59½ if the account has been open for at least 5 years (the "5-year rule").
No RMDs: Unlike traditional IRAs, Roth IRAs have no Required Minimum Distributions during the account owner's lifetime. This makes them ideal for leaving tax-free assets to heirs.
Roth conversions: You can convert traditional IRA or 401(k) funds to a Roth IRA, paying taxes on the converted amount now in exchange for tax-free growth and withdrawals later. This strategy is particularly valuable during lower-income years or in the gap between retirement and Social Security/RMD start dates.
Example
A 55-year-old Scottsdale couple contributes $8,000 each ($16,000 total) to their Roth IRAs annually. Assuming 7% average annual growth, their combined Roth IRAs could grow to approximately $450,000 by age 70 — all of which can be withdrawn completely tax-free. Unlike their traditional IRA, they won't be forced to take distributions at age 73, giving them flexibility to let the money continue growing or pass it to heirs tax-free.
Roth IRA in Arizona
Arizona's 2.5% flat income tax rate makes Roth conversions particularly attractive. If you're converting traditional IRA funds to a Roth in Arizona, you'll pay only 2.5% in state tax on the conversion amount (plus federal taxes). Retirees who relocated from high-tax states like California (up to 13.3%) or New York (up to 10.9%) can save significantly by timing Roth conversions after establishing Arizona residency.
Common Questions About Roth IRA
What is the difference between a Roth IRA and a traditional IRA?
Can I contribute to a Roth IRA if I make too much money?
Should I do a Roth conversion in Arizona?
Related Terms
Traditional IRA
A traditional IRA is an individual retirement account where contributions may be tax-deductible in the year they're made...
Roth Conversion
A Roth conversion is the process of moving funds from a traditional IRA, 401(k), or other pre-tax retirement account int...
Required Minimum Distribution (RMD)
A Required Minimum Distribution (RMD) is the minimum amount you must withdraw annually from tax-deferred retirement acco...
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