What is a Roth IRA?

What is a Roth IRA?

A Roth IRA is a retirement account you fund with after-tax dollars. The growth is tax-free, and qualified withdrawals come out tax-free in retirement. You trade a tax break now for never paying tax on the gains again.

Named for Senator William Roth, it is the standard answer for people who want tax freedom in old age. Once the money is in and the rules are met, the government does not touch a cent of what you withdraw.

The flip side is the trade against a traditional IRA, where contributions are deductible today and taxed later. In a Roth, contributions are not tax-deductible because you already paid tax on the money, the price of tax-free withdrawals later.

How is a Roth IRA taxed?

You pay income tax on the money before it goes in, then it grows without being taxed year to year. That is the payoff for paying taxes upfront, and that untaxed compounding is exactly what sets a Roth apart.

Withdrawals after age 59 and a half, once the five-year rule is met, come out tax-free, growth included. Contributions never face that penalty and come out at any time. Miss the rules and earnings bring income tax plus a 10% penalty, though exceptions cover a first home and disability.

Qualified withdrawals are excluded from modified adjusted gross income, so they never raise the taxable share of your Social Security benefits or trigger a Medicare IRMAA surcharge. Roth contributions never lower adjusted gross income the way a traditional IRA deduction does.

A conversion moves pre-tax money, from a traditional IRA or a 401(k), into your Roth, and you owe income tax on the amount converted. Each conversion runs on its own separate five-year clock, so money converted in different years reaches tax-free status on different dates.

Why would you choose a Roth IRA?

Choose it if you expect to pay higher taxes in retirement than today, or if you value the flexibility. You can withdraw your contributions at any time without tax or penalty, which makes a Roth a stronger emergency backstop than most retirement accounts.

Many young workers with light current tax burdens find a Roth especially attractive, because they pay a low rate now and reap tax-free growth for five decades. The longer the horizon, the more the tax-free compounding is worth.

The decision logic is a tax-rate bet. If your bracket climbs over your career, locking in today's lower rate with a Roth wins. If you expect to fall into a lower bracket later, the tax-deductible traditional IRA pulls ahead.

What are the rules and limits?

Your contributions share one annual contribution limit across all your IRAs. For 2026 it is $7,500 under 50, $8,600 after, capped by your earned income. Exceed it and the excess draws a 6% excise tax each year it stays, unless recharacterized into a traditional IRA.

Your modified adjusted gross income sets your income limits. For 2026, a single filer contributes fully below $153,000, phases out to $168,000, and nothing above. Married couples filing jointly phase out between $242,000 and $252,000, past which you cannot fund a Roth directly.

High earners may lean on a backdoor Roth IRA, a conversion move that works while the direct route is closed. If you already hold pre-tax money in a traditional, SEP, or SIMPLE IRA, that conversion is only partly tax-free, because the taxable share is figured pro-rata across all your IRAs.

You can make contributions for a tax year up to the filing deadline of the following April, extensions not counted. There is no age limit either, and a Roth 401(k) at work carries no income limit. A self-employed saver past the Roth ceiling may still use a SEP IRA.

A child with earned income can hold a Roth IRA, opened and managed by a parent until the child turns 18. A spousal Roth IRA lets a married saver with little or no earned income contribute on the working spouse's income.

How do you open a Roth IRA?

Open a Roth IRA through a broker or custodian, then invest in stocks, bonds, mutual funds, ETFs, or a target-date fund. Providers set their own fees and minimums. A rollover of Roth 401(k) assets into a Roth IRA is tax-free, unlike a conversion of pre-tax money, which is taxed.

What are no RMDs and inherited Roth IRAs?

A Roth IRA has no required minimum distributions, called RMDs. Traditional IRAs and 401(k)s force you to start withdrawing a set amount at age 73 even if you do not need it. A Roth lets your money keep compounding untaxed for as long as you live.

That makes the Roth the better account to spend last in retirement. Because nothing forces a withdrawal, you control the timing of every dollar you take out, which keeps more growth working for you across more years.

A Roth also passes on tax-free. Your beneficiaries can inherit the account and generally take withdrawals without paying income tax on them, a rare gift that a traditional IRA cannot match because its withdrawals are taxed.

For an heir, an inherited Roth can stretch the tax-free growth over their own lifetime. That turns a retirement account into a multi-generation asset, one more reason savers who plan to leave a legacy lean on the Roth.