A Roth IRA is a retirement savings account that allows your investments to grow tax-free. Unlike traditional retirement accounts where you get a tax break now and pay taxes later, a Roth IRA flips this: you contribute after-tax money today, but all future withdrawals—including decades of investment growth—are completely tax-free in retirement.
This guide covers everything you need to know about Roth IRAs, from eligibility and contribution limits to whether this account type fits your financial situation.
How a Roth IRA Works
The Roth IRA mechanics are straightforward:
- Contribute after-tax money—no tax deduction this year
- Invest in stocks, bonds, or funds—your choice
- Watch it grow tax-free—no taxes on gains
- Withdraw tax-free in retirement—no taxes on qualified distributions
Simple Example
You contribute $7,000 to a Roth IRA at age 30. Over 35 years, with a 7% average return, that $7,000 grows to approximately $75,000.
With a Roth IRA: You withdraw $75,000 in retirement and pay $0 in taxes.
With a traditional IRA: You’d owe income tax on the entire $75,000 withdrawal—potentially $15,000-$25,000 depending on your tax bracket.
The tax-free growth is the Roth IRA’s superpower. When you understand how compound interest works, you’ll see why decades of tax-free growth can mean hundreds of thousands of dollars saved.
Roth IRA vs Traditional IRA
| Feature | Roth IRA | Traditional IRA |
|---|---|---|
| Tax benefit timing | Retirement | Contribution year |
| Contributions | After-tax | Pre-tax (usually deductible) |
| Withdrawals | Tax-free (if qualified) | Taxed as income |
| Required minimum distributions | None | Starting at age 73 |
| Early withdrawal of contributions | Penalty-free anytime | Penalties before 59½ |
| Best if | You expect higher taxes later | You expect lower taxes later |
When to Choose Roth IRA
- You’re early in your career with lower income
- You expect your income (and tax bracket) to rise
- You believe tax rates will increase in the future
- You want flexibility to withdraw contributions penalty-free
- You don’t want required minimum distributions
When to Choose Traditional IRA
- You’re in a high tax bracket now
- You need the tax deduction this year
- You expect to be in a lower bracket in retirement
- You want to reduce your current taxable income
Many people benefit from having both types—diversifying their tax exposure. For a complete comparison, see our guide on Traditional vs Roth IRA.
2026 Roth IRA Contribution Limits
For 2026, you can contribute up to:
| Age | Maximum Contribution |
|---|---|
| Under 50 | $7,000 |
| 50 and older | $8,000 (includes $1,000 catch-up) |
These limits apply to all IRA contributions combined. If you have both Roth and Traditional IRAs, the total across all accounts cannot exceed the annual limit.
Contribution Deadline
You have until the tax filing deadline (typically April 15) to make contributions for the previous year. For example, you can make 2025 contributions until April 15, 2026.
Roth IRA Income Limits
Unlike 401(k)s, Roth IRAs have income limits that determine whether you can contribute directly.
2026 Income Limits
| Filing Status | Full Contribution | Reduced Contribution | No Direct Contribution |
|---|---|---|---|
| Single | Under $150,000 | $150,000-$165,000 | Over $165,000 |
| Married Filing Jointly | Under $236,000 | $236,000-$246,000 | Over $246,000 |
If your income exceeds these limits, you may still be able to contribute through a “backdoor Roth IRA” strategy (discussed below).
What Counts as Income?
The IRS uses Modified Adjusted Gross Income (MAGI), which includes:
- Wages and salary
- Self-employment income
- Investment income
- Rental income
- Most other taxable income
It excludes certain items like foreign earned income exclusions.
Opening a Roth IRA
Step 1: Choose a Provider
You can open a Roth IRA at most:
- Online brokerages (Fidelity, Vanguard, Charles Schwab)
- Traditional banks (though with fewer investment options)
- Robo-advisors (Betterment, Wealthfront)
Look for:
- No account fees
- No minimum balance requirements
- Low-cost investment options
- User-friendly interface
Step 2: Complete the Application
You’ll need:
- Social Security number
- Bank account for funding
- Beneficiary information
- Employment information
Most applications take 15-30 minutes online.
Step 3: Fund Your Account
Transfer money from your bank account. You can:
- Make a lump sum contribution
- Set up automatic monthly contributions
- Contribute throughout the year
Step 4: Choose Investments
A Roth IRA is just a container—you must select investments inside it. Good starting options:
- Target-date retirement funds
- Total stock market index funds
- S&P 500 index funds
Don’t let the money sit in cash (money market) earning minimal returns. Set up automatic monthly contributions using dollar-cost averaging to build wealth consistently.
Roth IRA Withdrawal Rules
Understanding withdrawal rules prevents costly mistakes.
Contributions vs Earnings
- Contributions: Money you put in
- Earnings: Investment gains
The distinction matters for withdrawals.
Withdrawing Contributions
You can withdraw your contributions (not earnings) at any time, for any reason, with no taxes or penalties. You already paid taxes on this money.
Example: You’ve contributed $30,000 over the years and it’s grown to $45,000. You can withdraw up to $30,000 anytime without consequence.
Withdrawing Earnings
To withdraw earnings tax-free and penalty-free, you need:
- To be at least 59½ years old, AND
- The account to be open for at least 5 years (the “5-year rule”)
Early Withdrawal Exceptions
Even before 59½, you can withdraw earnings penalty-free (but still taxed) for:
- First-time home purchase (up to $10,000 lifetime)
- Higher education expenses
- Disability
- Unreimbursed medical expenses
- Health insurance during unemployment
The Backdoor Roth IRA
If your income exceeds the direct contribution limits, the backdoor Roth IRA provides a workaround:
- Contribute to a Traditional IRA (non-deductible)
- Convert that Traditional IRA to a Roth IRA
- Pay taxes on any gains (minimal if converted quickly)
This is legal and widely used by high earners. However, it’s complicated if you have existing Traditional IRA balances due to the “pro-rata rule.” Consult a tax professional.
Roth IRA Investment Strategies
For Beginners: Target-Date Funds
Target-date funds automatically adjust allocation as you approach retirement. Choose a fund with your expected retirement year (e.g., “Target 2055” if you’ll retire around 2055).
One fund, fully diversified, automatically rebalanced. Simple and effective. If you prefer more control, consider building a portfolio with low-cost index funds.
For More Control: Three-Fund Portfolio
Combine:
- US total stock market index fund (60-80%)
- International stock index fund (10-20%)
- US bond index fund (10-20%)
Adjust percentages based on your age and risk tolerance.
What to Hold in a Roth IRA
Since Roth growth is tax-free, prioritize investments with the highest expected growth:
- Stocks and stock funds
- REITs (real estate investment trusts)
- High-growth investments
Keep lower-growth investments (bonds) in taxable accounts where their lower returns mean less tax impact.
Roth IRA Frequently Asked Questions
Can I have both a Roth IRA and a 401(k)?
Yes. The contribution limits are separate. You can max out both in the same year.
What happens to my Roth IRA if I die?
Your beneficiary inherits the account. Spouses have the most flexibility (can treat it as their own). Non-spouse beneficiaries must generally withdraw within 10 years under current rules.
Can I contribute to a Roth IRA without earned income?
Generally, no. You need earned income (wages, self-employment) to contribute. Exception: a working spouse can contribute to a “spousal IRA” for a non-working partner.
Should I max out my Roth IRA or 401(k) first?
If your employer offers a 401(k) match, contribute enough to get the full match first (it’s free money). After that, many people prioritize the Roth IRA for its flexibility and tax-free growth. See our complete guide on 401(k) vs Roth IRA for a detailed comparison.
Can I convert my Traditional IRA to a Roth IRA?
Yes, through a Roth conversion. You’ll owe taxes on the converted amount, but future growth becomes tax-free. This can be strategic in low-income years.
What if I contribute too much to my Roth IRA?
Remove the excess contribution (plus any earnings on it) before the tax filing deadline to avoid a 6% annual penalty on the excess amount.
Key Takeaways
Roth IRAs offer unique advantages for retirement savings:
- Tax-free growth and withdrawals in retirement
- Contribute up to $7,000 ($8,000 if 50+) for 2026
- Income limits apply—use backdoor Roth if over limits
- No required minimum distributions during your lifetime
- Withdraw contributions anytime penalty-free
- Best for younger workers expecting higher future tax rates
- Choose investments carefully—don’t let cash sit idle
Your Next Steps
- Check if your income qualifies for direct Roth IRA contributions
- Choose a low-cost brokerage (Fidelity, Vanguard, or Schwab)
- Open your Roth IRA account online
- Set up automatic monthly contributions
- Select a target-date fund or simple index fund portfolio
- Increase contributions with each raise until you reach the annual max
The Roth IRA is one of the most powerful wealth-building tools available. If you’re eligible, not having one is leaving tax-free growth on the table.
Written by Usman Saadat. Fact-checked by Maira Azhar.