How to Manage a Roth IRA: Limits, Conversions, and Withdrawals

Managing a Roth IRA is a small set of recurring tasks: contribute within the annual limits, keep your income under the phase-out ceilings, invest the money and rebalance occasionally, handle any rollovers or conversions by the rules, and know which withdrawals trigger tax and which don’t. For 2026, the base contribution limit rose to $7,500 and the income thresholds shifted, so the numbers below are the ones to work from this year.¹

Know Your 2026 Contribution Limit

If you’re under 50, you can put up to $7,500 into your Roth and traditional IRAs combined for 2026. At 50 or older, the catch-up contribution adds $1,100, for a ceiling of $8,600.² The enhanced SECURE 2.0 catch-up for ages 60 through 63 applies only to employer plans like 401(k)s, not to IRAs.¹

Your ability to contribute directly depends on modified adjusted gross income. Single filers get the full contribution below $153,000, a reduced amount between $153,000 and $168,000, and nothing above. For married couples filing jointly, the phase-out runs from $242,000 to $252,000.¹

You have until the tax-filing deadline, typically April 15 of the following year, to make a contribution for a given tax year. So 2026 contributions can go in any time before April 15, 2027. If you don’t have earned income but your spouse does and you file jointly, you can still contribute up to the full limit based on their compensation.²

Fix an Excess Contribution Before It Costs You

If you contribute more than you’re allowed, either because your income landed higher than expected or you simply miscounted, the IRS imposes a 6 percent excise tax on the excess for every year it sits in the account.³ The penalty repeats annually until you fix it.

To avoid the tax, withdraw the excess plus any earnings it generated before your tax-filing deadline. An extension buys you until the extended deadline, typically October 15. The earnings pulled out are taxed as ordinary income, and if you’re under 59½, they may face the 10 percent early withdrawal penalty. If you contributed to both a traditional and Roth IRA and exceeded the combined limit, remove the excess from the Roth first.

If Your Income Is Too High: The Backdoor Roth

Earning above the phase-out ceiling shuts you out of direct contributions, but not out of a Roth entirely. The backdoor Roth is a two-step process: make a nondeductible contribution to a traditional IRA (which has no income limit for contributions), then convert that balance to a Roth. Because you took no deduction going in, the conversion itself creates little or no additional tax.

The complication is the pro-rata rule. The IRS treats all your traditional, SEP, and SIMPLE IRA balances as a single pool and taxes any conversion proportionally. If you have $93,000 in pre-tax IRA money and add a $7,500 nondeductible contribution, only about 7.5 percent of a conversion comes out tax-free; the rest is taxed as ordinary income. The calculation uses your total IRA balances as of December 31 of the conversion year.⁴ One workaround is rolling pre-tax IRA money into a 401(k) that accepts incoming rollovers before doing the conversion, which removes it from the pro-rata math. Report the nondeductible contribution on Form 8606 to establish your after-tax basis and avoid being taxed twice.⁵

Invest the Money and Rebalance

The Roth IRA is a container. What you put inside determines whether the balance grows. Most people build a mix of stock index funds and bond funds, weighted toward stocks when retirement is decades away and shifting toward bonds as it gets closer. Low-cost index funds and target-date funds do most of the work, because fees compound the same way returns do, and every dollar lost to expense ratios is a dollar that won’t grow tax-free.

Buying and selling inside the Roth doesn’t trigger capital gains taxes. You can rebalance, swap funds, or take profits without any tax consequence, because the IRS doesn’t treat internal trades as taxable events. That makes the Roth a good home for investments that would generate heavy taxable income in a regular brokerage account, like REITs or high-yield bonds.

Rebalancing once or twice a year keeps your allocation from drifting. If a strong stock market pushes your equity share from 70 percent to 80 percent, selling some stock holdings and buying bonds returns you to target. Nothing inside the account triggers a tax bill, so rebalancing costs you nothing beyond any trading fees your custodian charges.

What You Can’t Hold, and What You Can’t Do

Federal law bars IRAs from holding life insurance contracts. Collectibles are also off-limits, including artwork, rugs, antiques, gems, stamps, coins (with narrow exceptions for certain U.S.-minted coins), and alcoholic beverages. If your IRA acquires a collectible, the IRS treats the purchase price as a taxable distribution the moment it happens.⁶

Self-dealing is separately prohibited. You can’t borrow from the account, use it as loan collateral, or buy property from a family member through it. If you or a disqualified person (a spouse, parent, child, or certain business entities you control) engages in a prohibited transaction, the entire account loses its IRA status as of January 1 of that year. The full balance gets treated as a distribution, meaning income tax on all the earnings and potentially the 10 percent early withdrawal penalty.⁶ This shows up most often with self-directed IRAs that hold real estate or alternative assets.

Move Money In: Rollovers and Conversions

A rollover typically means transferring funds from a former employer’s 401(k) or 403(b) into your Roth IRA. A Roth conversion means shifting pre-tax money from a traditional IRA into a Roth, which triggers income tax on the converted amount in the year you do it.⁷ Neither action counts against your annual contribution limit.

Always opt for a direct (trustee-to-trustee) transfer when possible. With an indirect rollover, the old custodian sends you a check and you have exactly 60 days to deposit the funds into the new Roth IRA. Miss that window and the entire amount is treated as a taxable distribution, potentially with a 10 percent early withdrawal penalty on top.⁸

You’re also limited to one indirect IRA-to-IRA rollover in any 12-month period across all your IRAs combined. Violate that and the second rollover gets treated as an excess contribution, triggering the 6 percent annual penalty. The limit doesn’t apply to direct trustee-to-trustee transfers, conversions from a traditional IRA to a Roth, or rollovers between an employer plan and an IRA.⁸ Using direct transfers avoids the problem entirely.

Take Money Out Without Getting Taxed

The Roth has a built-in ordering rule that most people don’t realize is there. Money comes out in this order: your direct contributions first, then conversion amounts, then earnings. Each layer has different tax treatment.

Contributions Are Always Available

You already paid tax on every dollar you contributed, so you can withdraw your contributions at any time, at any age, for any reason, with no tax and no penalty. No five-year wait, no age requirement. If you’ve put in $50,000 over the years, you can pull out up to $50,000 without consequences.

Earnings and the Five-Year Rule

Once you’re past your contribution and conversion balances, you’re into earnings. Earnings come out completely tax-free only through a qualified distribution, which requires two things: you must be at least 59½, and your Roth must have been open for at least five tax years, counted from January 1 of the year you made your first Roth contribution.⁹ If you opened and funded your first Roth in December 2026, the five-year clock started January 1, 2026, and the earliest your earnings qualify is January 1, 2031. Disability and death also satisfy the qualified distribution requirements.

When an Early Withdrawal Skips the 10 Percent Penalty

Withdraw earnings before meeting both the age and five-year requirements and you’ll owe income tax on the earnings plus a 10 percent additional tax. Several exceptions waive that 10 percent penalty, including:

First-time home purchase, up to $10,000 in earnings, lifetime limit.
Higher education expenses, including tuition, fees, books, and supplies for you, your spouse, or dependents.
Unreimbursed medical expenses exceeding 7.5 percent of your adjusted gross income.
Total and permanent disability, with a written statement from a physician confirming the condition is terminal or indefinite.
Substantially equal periodic payments, a series of scheduled withdrawals calculated using IRS-approved methods.

Even when an exception eliminates the 10 percent penalty, you still owe ordinary income tax on the earnings portion of a non-qualified withdrawal.¹⁰ Report distributions from a Roth IRA on Form 8606 to track which dollars are contributions, conversions, and earnings.⁵

No Required Minimum Distributions in Your Lifetime

Unlike a traditional IRA or 401(k), a Roth IRA has no required minimum distributions while you’re alive.¹¹ You never have to touch the money. The balance can keep compounding tax-free for as long as you like, which also gives you room to manage taxable income year by year, drawing from other accounts in some years and leaving the Roth untouched.

Keep Beneficiaries Current

Name at least one primary beneficiary and one contingent beneficiary with your custodian. The beneficiary form overrides your will for IRA purposes, so keeping it current matters. Marriage, divorce, or the birth of a child should trigger a review. Skip this step and the account may pass through your estate, which can delay access for heirs and force less favorable distribution timelines.

When a non-spouse beneficiary inherits a Roth from someone who died in 2020 or later, they generally must empty the account by the end of the tenth year following the year of death.¹² The withdrawals are still tax-free as long as the original owner met the five-year holding requirement, but the money can’t stay sheltered indefinitely.

A narrow group of eligible designated beneficiaries can stretch distributions over their own life expectancy: a surviving spouse, a minor child of the deceased owner (until reaching the age of majority), someone disabled or chronically ill, and anyone not more than 10 years younger than the original owner.¹² A surviving spouse has the most flexibility and can treat the inherited Roth as their own, which restarts the no-RMD advantage and lets the account keep growing.

1
Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026; IRA Limit Increases to $7,500
2
Internal Revenue Service. Retirement Topics – IRA Contribution Limits
3
Office of the Law Revision Counsel. 26 USC 4973 – Tax on Excess Contributions to Certain Tax-Favored Accounts and Annuities
4
Internal Revenue Service. Instructions for Form 8606
5
Internal Revenue Service. About Form 8606 – Nondeductible IRAs
6
Office of the Law Revision Counsel. 26 USC 408 – Individual Retirement Accounts
7
Office of the Law Revision Counsel. 26 USC 408A – Roth IRAs
8
Internal Revenue Service. Rollovers of Retirement Plan and IRA Distributions
9
Office of the Law Revision Counsel. 26 US Code 408A – Roth IRAs
10
Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions
11
Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs
12
Internal Revenue Service. Retirement Topics – Beneficiary