Roth IRA Contributions

Lisa, age 35, is a high-income earner with a modified adjusted gross income (MAGI) of $165,000 in 2025. She wants to contribute to a Roth IRA. She is not covered by a retirement plan at work. Lisa also wants to use the funds for a first-time home purchase in 3 years. Based on current IRS rules for Roth IRAs, which of the following statements is most accurate?

Lisa can contribute directly to a Roth IRA and will be able to withdraw both contributions and earnings tax- and penalty-free in 3 years.
Lisa cannot contribute to a Roth IRA due to her income, but can make a non-deductible traditional IRA contribution and later convert it to a Roth IRA.
Lisa is not eligible for any type of IRA contribution due to her income level.
Lisa can contribute to a Roth IRA and withdraw earnings tax-free after 3 years as long as she uses the funds for a qualified first-time home purchase.

CLICK TO REVEAL ANSWER

B is the answer. In 2025, the income phase-out range for Roth IRA contributions for single filers begins at $146,000 and ends at $161,000. Lisa's MAGI of $165,000 exceeds the threshold, so she cannot contribute directly to a Roth IRA.

A is incorrect because she cannot contribute directly, and earnings would not be tax-free unless she met the 5-year rule and was at least age 59½ or met an exception.

C is incorrect because there is no income limit for traditional IRA contributions (only deductibility is impacted).

D is partially correct in that the first-time homebuyer exception allows up to $10,000 in earnings to be withdrawn penalty-free, but the withdrawal still may be taxed if the Roth account is less than 5 years old.

Posted in CFP® Practice Question

About Dan Madden, CFP®

View all posts by Dan Madden, CFP® →