How The Roth IRA Can Help You Retire Early

When it comes to FIRE, no US citizen should underestimate the power of the Roth IRA. It’s one of the three most useful tools in achieving financial independence (the other two being the 401k and HSA). That’s why the topic for today’s blog post is the Roth IRA, and how you can use it to pursue financial independence and retire early.

Tax Advantages of the Roth IRA

The Roth IRA has some really significant tax advantages, so let’s start off with how your money is taxed when you put it into your Roth IRA account. The money you put into your Roth IRA has already been taxed, which means that when you withdraw that money when you’re 59 and a half, that money has grown tax-free and can be withdrawn tax-free! That means that all of your dividends and capital gains also grow tax-free, making it a hugely advantageous account to have in retirement.

Roth IRA Contributions

Believe it or not, you can pull your Roth IRA contributions at any point tax-free and penalty-free, which is an incredible benefit for early retirees. But wait, there’s more. If you also have a traditional IRA or 401k, you can roll that money into your Roth IRA and withdraw it penalty-free as well.

This process is called the Roth Conversion Ladder, and you can check out more about it here. It’s an absolute godsend for people who want to retire early but have a lot of money tied up in their 401k! It shows that just because you have money in traditional savings accounts, it doesn’t mean you have to wait until your late-50s to access it. Just make sure to plan properly before you do it.

I want to note one other way that you can withdraw your money penalty-free before 59 (and a half), and that is through the 2020 CARES act. This act allows people to withdraw up to $100,000 from their Roth or traditional IRA for Covid-related reasons. It’s more restrictive of course, but still good to keep in mind if you ever need it.

A Tool For Building Generational Wealth

With the traditional IRA and 401K there is a minimum distribution requirement, where you have to begin pulling out money by age 72 at the latest. With the Roth IRA, there is no such minimum distribution requirement. That means that if you don’t need the money in your account, you can leave it to grow before passing it on to your heirs. It’s an incredible tool for growing generational wealth.

No Minimum Age Requirement

The only requirement for opening a Roth IRA is having taxable income, meaning even a six-year-old with taxable income could open one! So if you have a kid or teen at home who earns money through washing cars or mowing lawns, they can open their own account and watch their money grow. Honestly, I’m a little jealous I didn’t know about this as a kid.

We love that there is no age requirement because it means that young people who are thinking about financial independence, or people who want to teach their children about it, have access to a powerful investing tool early on. More than 50% of US employers require their employees to be at least 21 years old before they can invest in a 401k. So if you’re able to start investing in a Roth IRA, you should open one ASAP! You have a much longer period to grow your investments than you would otherwise.

One thing to keep in mind is that under-18s who want to open up an account have to open a custodial Roth IRA, and their parent will have to open a custodian account alongside it.

You Can Have a Roth IRA For an Unemployed Spouse

If one spouse works and the other doesn’t, the working spouse can still contribute to their spouse's Roth IRA account if they have one. They are able to contribute the maximum amount, meaning a couple can hold two fully maxed out Roth IRA accounts even if only one is gainfully employed.

When I started law school this came in extremely handy for Amon and me, as it meant we could continue pursuing our investments as usual. It also meant we could take advantage of every single year that we were eligible to contribute.

It’s Not Tied To An Employers Investment Account

Unlike a 401k, the Roth IRA is not tied to your employer. This means you can invest in things like individual stocks, or even bitcoin, that you otherwise couldn’t with a 401k! I wouldn’t necessarily recommend that, but it just shows why people really struggle to choose between a Roth IRA and 401k. As I’ve mentioned in the past you usually do have to prioritize one of your three accounts (401k, Roth, HSA), and for some people, this is a good reason to go with the Roth IRA.

One thing to keep in mind is that if you have a modified adjusted gross income (MAGI) above a certain threshold, you won’t be able to contribute directly to a Roth IRA. For 2025, single filers with a MAGI above $161,000 and married couples filing jointly with a MAGI above $240,000 are not eligible to contribute directly. But there are workarounds—like using a Backdoor Roth IRA, where you contribute to a traditional IRA and then convert it to a Roth. It’s a more complex process and comes with tax considerations, but it’s a legal way to get money into a Roth IRA even if your income is too high for direct contributions.

If you’re pursuing FIRE and you don’t have a Roth IRA account, you should seriously consider opening one! And when you do, make sure to maximize its use as much as you can. I promise it will be a great help on your journey to financial independence. To find more ways to use investing accounts while pursuing FIRE, check out more of our blogs and videos at OurRich Journey.