Since the Roth IRA was introduced in 1997, it has become one of the most popular ways to save money for retirement.
Workers love stuffing money into a Roth because they know that — unlike with a traditional IRA — they will never owe taxes on the investment gains.
With a traditional IRA, you don’t pay taxes on money in the account until after you withdraw it, so both the principal and gains are taxable income at that point. With a Roth, taxes are essentially paid on the principal upfront, so you don’t owe taxes on the principal or gains after withdrawing them.
Not only does that mean you’ll never pay taxes on investment gains from a Roth IRA, it means withdrawals from a Roth won’t increase your taxes in retirement.
But although the Roth IRA’s main virtues are well known, there are some overlooked ways that a Roth can save you money — especially in retirement.
Roth IRA withdrawals aren’t considered taxable income by the IRS. Having a lower taxable income in retirement can potentially spare you from paying various types of taxes. It may also enable you to qualify for other types of savings.
Here are some ways a Roth IRA can quietly help retirees keep more cash in their pockets.
It can help working retirees qualify for a tax credit
The retirement savings contributions credit, or saver’s credit, is one of the most overlooked income tax breaks. As we explain in “This Overlooked Retirement Tax Credit Gets Better in 2026,” people with modest incomes can use the credit to knock as much as $1,000 or $2,000 off their federal income tax bill.
For the 2025 tax year, you might be eligible for the saver’s credit if you are still contributing to a retirement account and your adjusted gross income (AGI) is:
- $79,000 or less, and your tax-filing status is married filing jointly
- $59,250 or less, and your tax-filing status is head of household
- $39,500 or less, and your tax-filing status is single, married filing separately or surviving spouse
Traditional IRA withdrawals count toward your AGI, but Roth withdrawals don’t. That means only Roth withdrawals can help retirees minimize their AGI — and thereby potentially help them qualify for the saver’s credit.
It could help early retirees qualify for health insurance subsidies
Millions of Americans purchase health insurance through the federal and state exchanges created by the Affordable Care Act of 2010, also known as “Obamacare.” This includes many early retirees who no longer get their coverage through an employer but have not reached the age of 65, when they will qualify for Medicare.
If you are among those who purchase coverage through an exchange, you may qualify for subsidies from the federal government that can lower your health insurance costs. However, to be eligible for the subsidies, known as advance premium tax credits, your modified adjusted gross income (MAGI) must fall below a specific threshold.
This MAGI is primarily based on your adjusted gross income. As we already have noted, Roth IRA withdrawals are not included in your AGI. That means tapping into your Roth IRA strategically might help you qualify for these health insurance subsidies.
It could keep Medicare premiums from soaring
Many wealthier retirees are surprised to find that their Medicare premiums can rise along with their income.
As we explain in “6 Medicare Costs That Are Even Higher Than Inflation in 2025” an Income-Related Monthly Adjustment Amount, or IRMAA, can be added to your Medicare Part B and Part D premiums if your income exceeds a specific threshold. (Part B covers things such as doctor visits and outpatient services, while Part D covers drugs.)
About 8% of Medicare recipients pay these costs, which can push your premium as high as $628.90 per month in 2025.
IRMAAs are based on a modified adjusted gross income formula that includes AGI. Once again, Roth IRA withdrawals don’t count toward your AGI. So, tapping this type of account in retirement could keep your AGI lower, which could in turn help rein in the cost of your Medicare premiums.
It can shield Social Security benefits from taxation
About 40% of seniors pay taxes on their Social Security benefit. The IRS decides whether or to what extent to tax your benefit based on what it calls your “combined income.” As we explain in “7 Ways to Avoid Paying Taxes on Your Social Security Income,” combined income is defined as the sum of:
- Your adjusted gross income
- Your nontaxable interest (such as interest you earn on municipal bonds)
- One-half of your Social Security benefits
If your combined income is between $25,000 and $34,000 (or between $32,000 and $44,000 for married couples filing a joint tax return), you may owe taxes on up to 50% of your Social Security benefits. Earn more than that, and up to 85% of your benefits could be taxable.
Once again, AGI is the foundation of combined income. So, using Roth IRA distributions to keep your AGI lower can also help reduce the taxes you pay on your Social Security benefit — or help you avoid owning taxes on your benefits entirely.
It lets you avoid RMDs
When you save for retirement in a traditional retirement account, you can defer taxes — often for decades. But eventually, Uncle Sam wants his cut.
For that reason, retirees are required to make what are known as required minimum distributions (RMDs) when they reach a certain age. Once you make these mandatory retirement account withdrawals, you will likely owe taxes on your withdrawals.
However, RMDs do not apply to Roth accounts.
That means you can let the money in your Roth IRA continue to grow indefinitely. Leaving the money alone can give you years or even decades of extra time for your gains to compound. This can potentially make you — or your heirs — much richer.
Early retirees can tap Roth principal for emergency expenses
Retirees who face a financial emergency don’t have to go into debt to pay the bill. Instead, they can tap into their Roth IRA.
This is even true of those who retire before the age of 59.5, which typically results in an early-withdrawal penalty, as we detail in “4 Tax Penalties That Could Cost Your Retirement Account Thousands — and How to Avoid Them.”
Roth IRA holders typically can dip into their principal at any age. (Remember, they paid taxes on that money on the front end.) It is only the investment gains that cannot be touched penalty-free before the age of 59.5.
It’s worth noting that a 2022 federal law changed the rules so that anyone can withdraw up to $1,000 from any type of IRA — traditional or Roth — each year for financial emergencies without incurring a penalty. (See “8 Groups Who Can Make Early Retirement Withdrawals Without Penalty.”)
So, early retirees don’t need a Roth IRA to take advantage of that early-withdrawal exception as long as they only need $1,000 or less to cover the emergency.
But a Roth IRA maintains a big advantage over a traditional IRA for early retirees who want the peace of mind of knowing that there is no limit to how much principal they can withdraw for an emergency penalty-free.
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