What Should I Do With My Roth IRA Once I Retire?

Retirement doesn’t mean your financial planning is over, in many ways, it’s entering a new phase. If you’ve saved in a Roth IRA, you have access to one of the most tax-efficient retirement accounts available, but deciding when and how to use those funds still requires careful planning. Understanding the rules that apply to Roth IRAs after retirement can help you make the most of your savings while preserving flexibility for the years ahead.

To learn about all the options for handling your Roth IRA in retirement, consider talking to a financial advisor.

Roth IRA Rules

You can contribute to a Roth IRA only if you have earned income and your income falls within the IRS eligibility limits for the year. Once you retire and no longer have earned income, you generally cannot make new contributions unless you have qualifying earned income from another source, such as part-time work or self-employment.

One of the biggest advantages of a Roth IRA is that qualified withdrawals are generally tax-free. To make a qualified withdrawal, you must be at least age 59½ and have held at least one Roth IRA for five years. If these requirements are met, both contributions and investment earnings can typically be withdrawn without federal income taxes or penalties.

Unlike traditional IRAs, Roth IRAs are not subject to required minimum distributions (RMDs) during the original account owner’s lifetime. This allows retirees to leave the money invested for as long as they choose, potentially giving the account more time to grow tax-free. It also provides greater flexibility when deciding how and when to draw retirement income.

Roth IRA in Retirement

Since RMD rules don’t apply to Roth accounts, you won’t have to start taking scheduled withdrawals when you hit age 73 (or 75 for people who turn 74 after Dec. 31, 2032). As a result, you won’t have to worry about RMDs adding to your tax bill and potentially pushing you into a higher income tax bracket.

If you don’t have other sources of income, you will have to fund your retirement with Roth IRA withdrawals. The good news here is that your withdrawals won’t be taxed, as long as you are 59 ½ or older and five years have passed since your first contribution to any Roth IRA.

It’s a good idea to check your asset allocation periodically during the accumulation phase, and the same is true once you retire. Many retirees change their asset allocations to emphasize low-risk assets such as bonds or other fixed-income investments. If you are more interested in long-term growth, you may allocate a higher percentage to stocks. Generally speaking, diversifying your portfolio with a mix of stocks and bonds can help it weather market downturns more effectively while still allowing you to take partial advantage of rising markets.

You also may consider moving your Roth IRA to a different bank, brokerage or other institution that has lower fees or more investment options. Investment fees can add up over time, inhibiting the growth of your Roth IRA. And more investment choices may allow you to tailor your portfolio to get better returns or manage risk.

It’s permissible to keep making contributions to your Roth IRA. However, you can only do this if you have earned income, like wages from a part-time job. You can’t put more money into your Roth if all you have is income from investments, Social Security benefits or payments from a pension or annuity.

Sometimes it can make sense to transfer funds into your Roth IRA from pre-tax retirement accounts such as traditional IRAs, although this triggers an immediate tax bill. For example, a deathbed Roth IRA conversion can make sense for someone who doesn’t have long to live and wants to leave assets to heirs who are in a higher tax bracket than them. By converting the account into a Roth IRA while they’re still alive, the person who’s nearing the end of their life assumes the tax liability while their heir will inherit tax-free Roth assets.

If you need help rolling assets over from a pre-tax account to a Roth IRA or planning your estate, consider working with a financial advisor.

Roth IRA Spending Strategies

A woman looks over her Roth IRA balance and investments.

A general strategy for spending down retirement assets is to first spend funds from your bank or brokerage accounts, starting with the lowest-earning taxable assets and then moving to the higher-earning taxable assets. After that, retirees are often advised to tap their tax-deferred accounts such as traditional IRAs and traditional 401(k) plans.

After-tax retirement accounts, including Roth IRAs, are likely the last sources of withdrawals to pay retirement living expenses. Preserving these tax-advantaged assets gives them more time to grow untaxed. Once you do start taking withdrawals from your Roth IRA, however, the income won’t affect taxation of your Social Security benefits.

You may also choose to limit your Roth withdrawals so you can have more tax-free assets to pass on to your heirs. This will likely be of secondary importance to providing you with enough income for a secure retirement. However, bequeathing Roth IRA assets can be tax-efficient because heirs will receive them tax-free. And if you need help building an estate plan, consider connecting with an estate planning financial advisor.

Bottom Line

A Roth IRA remains one of the most flexible retirement savings accounts even after you stop working. Because qualified withdrawals are tax-free and there are no required minimum distributions during your lifetime, you can tailor your withdrawal strategy to fit your income needs and long-term financial goals. Understanding the rules governing contributions, distributions and inherited accounts can help you maximize the benefits of your Roth IRA throughout retirement.

Retirement Planning Tips

If you’re contemplating the best way to tap your various sources of retirement income, consider discussing it with a financial advisor. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
How much income will you need to afford the lifestyle that you desire in retirement? SmartAsset’s retirement calculator can help you estimate how much your savings could be worth by the time you retire, as well as how much income you’ll need to generate to meet your expected level of spending.