Wealth management
Why Roth IRAs work for every generation
Roth IRAs offer more than tax-free retirement growth—learn why they’ve become essential wealth-building vehicles for families planning across multiple generations.
Summary
- Unlike traditional IRAs, Roth accounts offer tax-free growth and no required minimum distributions. You pay taxes now on contributions and never pay taxes again on withdrawals or investment gains.
- Estate planning advantages—including tax-free inheritances and no required distributions—make Roth IRAs valuable tools for families planning on transferring wealth to heirs.
- Multiple conversion pathways exist to build Roth savings even if you exceed traditional contribution limits or have substantial tax-deferred retirement accounts.
A generational advantage
TIAA Executive Wealth Management Advisor Evan Potash recently witnessed something unprecedented in his 17-year career: three generations of the same family, all focused on a single financial strategy—the Roth IRA. The grandparents had established Roth IRAs for estate planning. The parents were considering converting tax-deferred savings for better tax diversification. And everyone wanted to jumpstart the recent college graduate’s retirement savings with an account they could help fund.
“It was remarkable to see how the grandparents’ experience with Roth IRAs could extend to the entire family’s approach to retirement planning,” Potash recalls. “They understood something that’s becoming increasingly clear—Roth IRAs aren’t just retirement accounts, they’re multigenerational wealth-building tools.”
This family’s story reflects a broader shift in retirement planning. Americans across generations are discovering that Roth IRAs offer strategic advantages that traditional tax-deferred retirement accounts cannot match. The data supports this trend. According to the Investment Company Institute, nearly 35 million households now own a Roth IRA, with an even distribution across generations.1
The Roth benefit: Tax-free growth in uncertain times
A Roth IRA operates from a compelling premise: Pay taxes now, and never pay them again. Unlike traditional IRAs that offer upfront tax deductions but require taxes on withdrawals, Roth accounts use after-tax contributions that grow tax-free and can be withdrawn completely tax-free in retirement.
For 2026, anyone with earned income can contribute up to $7,500 annually ($8,600 if age 50 or older), provided their income is less than $168,000 for single filers (with a phaseout beginning at $153,000) or less than $252,000 for joint filers (with a phaseout beginning at $242,000).
What makes them particularly attractive is that Roth IRAs serve as a hedge against future tax uncertainty—whether from career advancement or potential federal tax rate increases.
Because Roth contributions are made with after-tax dollars, they can be withdrawn at any time without taxes or penalties—offering financial flexibility that traditional accounts can’t provide. (Most advisors, however, would counsel against using the retirement vehicle as a checking account for big-ticket items but rather take advantage of its long-term tax-free growth.) Earnings withdrawals for Roth IRAs become tax-free after age 59½, provided the account has been open for at least five years.
Another advantage: Roth IRAs are exempt from required minimum distributions (RMDs) that begin at age 73 for traditional retirement accounts. This exemption allows continued tax-free growth and provides retirees with greater control over their taxable income. RMD distributions can unexpectedly push you into higher tax brackets, potentially creating a cascade of unintended consequences with
“Roth IRAs give you the power to control your tax bill in retirement,” explains Benny Goodman, vice president at TIAA Institute. “You can withdraw what you need without pushing yourself into higher tax brackets, helping to avoid higher taxes on Social Security benefits, or triggering higher Medicare surcharges.”
Consider a New York City retiree with $1 million in traditional retirement savings. After federal, state, and local taxes, that nest egg might provide access to little more than half its nominal value. With Roth savings, retirees can strategically manage withdrawals to minimize their overall tax burden while preserving more wealth for their retirement needs and estate beneficiaries.
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Other paths to Roth savings: Timing is everything
For those who exceed Roth contribution limits or have substantial tax-deferred retirement savings, three strategies offer alternative pathways. For two of them—conversion strategies—the key lies in identifying optimal timing—periods of lower income when conversion taxes are minimized.
One path to Roth savings is likely already in place at work. Workplace Roth options through 401(k) or 403(b) plans provide an avenue, with higher contribution limits ($24,500 in 2026) that can accelerate tax-free wealth accumulation. More than 90% of plans have Roth options today.2
High earners can also use the “backdoor Roth” strategy, contributing to tax-deferred IRAs and immediately converting to Roth accounts. While it’s widely used, the backdoor Roth can be tricky to implement. Read more about
You can also convert an existing tax-deferred traditional IRA into a Roth IRA, but keep in mind that money converted will be taxed at your income tax rate in the year of conversion.
Also, the math can get complicated. If you’re rolling over all or a portion of a retirement fund or funds, you’ll pay a pro-rata income tax based on the proportion of your tax-deferred IRA savings that were contributed pretax. That’s to say, you don’t choose either pretax or after-tax funds to convert, only the dollar amount, to which the pro-rata formula applies. Note that if you have multiple IRAs, the IRS treats them as one fund for determining the pro-rata formula.
How does it work? Let’s say your retirement plan has a balance of $100,000, with $75,000 in pretax and $25,000 in after-tax funds. If you want to roll $80,000 into a Roth IRA, you have to do it in the ratio of pretax to after-tax funds, in this case 75,000:25,000 or 3:1. For an $80,000 rollover, your pro-rata disbursement therefore would be $60,000 in pretax and $20,000 in after-tax funds. Accordingly, you’ll pay income tax on the $60,000 pretax funds in the pro-rata formula of Roth rollover. For more information on how the pro-rata rule works, talk to your tax advisor or your
When possible, take advantage of common conversion opportunities, which include career transitions (your tax bracket may fall if you’re between jobs), a move to a state with lower income tax, or tax years before significant income increases. Experts agree that paying conversion taxes with cash rather than retirement funds—avoiding early withdrawal penalties and preserving the account’s growth potential—is the best practice.
Another kind of conversion comes from recent legislation that allows families to roll unused funds from 529 college savings plans into a Roth IRA for the beneficiary
Estate planning applications drive multigenerational appeal
The estate planning advantages of Roth IRAs also explain their cross-generational appeal. Inherited Roth accounts provide tax-free distributions regardless of timing, though non-spouse beneficiaries must empty accounts within 10 years. Spouses face no such restriction, allowing continued tax-free growth. Additionally, parents and grandparents can fund a
This tax-free inheritance feature makes Roth IRAs particularly valuable for families seeking to transfer wealth efficiently. Unlike traditional IRAs that create immediate tax burdens for heirs, Roth accounts keep their full value across generations. Federal estate tax doesn’t kick in until a $13.99 million threshold in 2025 ($27.98 million for couples), increasing in 2026 to $15 million for single filers and $30 million for married filers.
“The beauty of Roth IRAs is their flexibility,” notes Potash. "Whether you’re 22 or 72, there’s likely a Roth strategy that enhances your overall financial plan.”
TIAA’s Roth solution for retirement income
TIAA’s Roth IRA offering includes access to TIAA Traditional, a fixed annuity option that can later be converted to guaranteed lifetime income payments. When converted, or annuitized, these payments remain tax-free for life—combining the tax advantages of Roth savings with the security of guaranteed income. To learn more about Roth IRAs and their benefits, visit TIAA’s
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1 Investment Company Institute, "The Role of IRAs in US Households’ Saving for Retirement, 2024," March 2025.
2 Hattie Greenan, "PSCA Survey Finds Good News on 401(k) Savings and Participation Rates," December 23, 2024.
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