A Roth IRA is an individual retirement account where you contribute money you have already paid tax on. In exchange, the investments grow without tax, and qualified withdrawals in retirement are tax-free, including all the gains.
Key rules (2026 tax year)
- Contribution limit: $7,500 a year, or $8,600 if you are 50 or older. The limit is shared across all your IRAs, Roth and traditional.
- You need earned income at least equal to what you contribute (wages, self-employment). A non-working spouse can contribute based on the working spouse’s income.
- Income limits: the ability to contribute phases out at modified adjusted gross income between about $153,000 and $168,000 for single filers and $242,000 to $252,000 for married couples filing jointly.
- Deadline: you can contribute for a given year until the tax filing deadline the following April.
Limits change most years, so confirm the current numbers on the IRS Roth IRA page.
Withdrawals
- Your contributions can come out at any time, without tax or penalty.
- Earnings come out tax-free if you are at least 59½ and the account has been open for at least five years (the five-year rule). Otherwise, earnings may be taxed and hit with a 10% penalty, with some exceptions such as a first-home purchase (up to $10,000), disability or death.
- No required minimum distributions for the original owner, unlike a traditional IRA.
Roth or traditional IRA?
The question comes down to timing: would you rather pay the tax now or later?
- Roth makes sense if you expect your tax rate to be the same or higher in retirement: early career, lower income now, or you value tax-free flexibility later.
- Traditional may be better if you are in a high bracket now and expect a lower one in retirement, and you qualify for the deduction.
Many people hold both kinds over a lifetime for tax diversification. Types of investment accounts compares them with 401(k)s and taxable accounts.
Opening and investing
- Open a Roth IRA at a broker or robo-advisor; most have no minimum.
- Transfer money and invest it. A common mistake is leaving contributions in cash inside the account for years.
- Choose something diversified: a target-date fund or a few index funds.
Too much income?
High earners sometimes use a “backdoor Roth”: a non-deductible traditional IRA contribution converted to Roth. It is legal but has tax traps (the pro-rata rule if you hold other pre-tax IRA money), so check with a tax professional first. For the bigger picture, see how to invest for retirement.
