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Retirement · 8 min read
Roth IRA basics: rules, limits, and where IUL fits
Tax-free growth for retirement, explained simply.
Short answer: a Roth IRA is a retirement account funded with after-tax money that grows tax-free; qualified withdrawals in retirement are tax-free. For 2026 you can contribute up to $7,500, or $8,600 if you are 50 or older, if your income is under the IRS limits.
How a Roth IRA works
- You contribute money you have already paid tax on.
- Investments inside the account grow without yearly tax.
- After age 59½, and once the account has been open five years, withdrawals are tax-free.
- There are no required minimum distributions for the original owner.
2026 limits
| Rule | 2026 |
|---|---|
| Contribution limit | $7,500 |
| Extra catch-up at 50+ | $1,100 (total $8,600) |
| Phase-out, single | $153,000–$168,000 income |
| Phase-out, married filing jointly | $242,000–$252,000 income |
The limit is shared across all your IRAs, Roth and traditional combined.
Withdrawal rules
- Your contributions can be withdrawn any time, tax- and penalty-free
- Earnings are tax-free only for qualified withdrawals: age 59½ and the five-year rule
- Early earnings withdrawals may face tax and a 10% penalty, with exceptions
Roth vs. traditional vs. IUL
| Roth IRA | Traditional IRA | IUL | |
|---|---|---|---|
| Tax on money in | Paid now | Often deductible | Paid now |
| Growth | Tax-free | Tax-deferred | Tax-deferred |
| Retirement access | Tax-free if qualified | Taxed as income | Tax-free loans if structured well* |
| Annual limit | $7,500 (2026) | $7,500 (2026) | No IRS dollar cap; MEC limits apply |
| Income limit | Yes | Deduction may phase out | None |
| Market losses | Possible | Possible | 0% floor on credited interest |
| Death benefit | Account value | Account value | Life insurance benefit |
* Policy loans reduce cash value and death benefit and must be managed so the policy does not lapse.
If your income is too high
Some high earners make a nondeductible traditional IRA contribution and then convert it to Roth, often called a backdoor Roth. Tax rules such as the pro-rata rule apply, so work with a tax professional. Others add an IUL for tax-advantaged savings beyond IRA limits.
Agent tip: Many families use both: max the Roth first, then consider IUL for lifelong coverage and additional tax-advantaged savings.
Our role
TrueFin Services does not sell IRAs or investments. We help with life insurance and annuities, and are happy to explain how an IUL or annuity can work alongside the Roth IRA you hold elsewhere. This is general education, not tax or investment advice.
Sources
Questions
Can I have a Roth IRA and a 401(k)?
Yes. Workplace plans and IRAs have separate limits. Income limits still apply to direct Roth IRA contributions.
Is IUL better than a Roth IRA?
They do different jobs. A Roth IRA is a low-cost retirement account with contribution limits. IUL is life insurance with cash value and no IRS dollar cap, but higher costs. Many people use both.
What is the five-year rule?
Earnings are tax-free only if the Roth account has been open at least five tax years and you are 59½ or older, with limited exceptions.
Sources and further reading
- National Association of Insurance Commissioners (NAIC): consumer guides to life insurance and annuities
- Virginia State Corporation Commission, Bureau of Insurance: verify an agent's license
- AM Best: insurer financial strength ratings
- IRS: tax rules for life insurance and annuities
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