What is a Roth IRA?
A Roth IRA is a powerful retirement account where you contribute after-tax dollars, your investments grow tax-free, and qualified withdrawals in retirement are completely tax-free. It's one of the best tax-advantaged accounts available to most Americans.
Named after Senator William Roth, who championed its creation in 1997, the Roth IRA has become a cornerstone of smart retirement planning.
2026 Contribution Limits
| Age Group | Maximum Contribution |
|---|---|
| Under 50 | $7,500 |
| 50 and older | $8,500 (includes $1,000 catch-up) |
2026 IRS contribution limits
Contribution Deadline
2026 Income Limits (MAGI)
Single Filers
| Income Range | Contribution Allowed |
|---|---|
| Under $161,000 | Full contribution |
| $161,000 - $176,000 | Reduced (phase-out) |
| Over $176,000 | Not eligible (directly) |
Married Filing Jointly
| Income Range | Contribution Allowed |
|---|---|
| Under $240,000 | Full contribution |
| $240,000 - $250,000 | Reduced (phase-out) |
| Over $250,000 | Not eligible (directly) |
Income Exceeds Limits?
Roth IRA Benefits
Tax-Free Growth
All investment gains — dividends, interest, capital gains — grow 100% tax-free. This is incredibly powerful over decades of compounding.
Example: The Power of Tax-Free Growth
Tax-Free Withdrawals
Qualified withdrawals in retirement are completely tax-free. This means:
- No income tax on withdrawals
- No impact on Social Security taxation
- No Medicare premium surcharges
- More flexibility in managing retirement income
No Required Minimum Distributions
Unlike Traditional IRAs and 401(k)s, Roth IRAs have no RMDs during your lifetime. You can let the money grow tax-free indefinitely and pass it to heirs.
Flexible Access
You can withdraw your contributions (not earnings) at any time, for any reason, without taxes or penalties. This provides an emergency backup while still saving for retirement.
Roth vs Traditional IRA
| Feature | Roth IRA | Traditional IRA |
|---|---|---|
| Contributions | After-tax (no deduction) | Pre-tax (tax deduction) |
| Growth | Tax-free | Tax-deferred |
| Withdrawals | Tax-free | Taxed as ordinary income |
| RMDs | None during lifetime | Required at age 73/75 |
| Early Withdrawal | Contributions anytime | 10% penalty + taxes |
| Income Limits | Yes | No (but deduction may be limited) |
| Best If | Expect higher taxes later | Need tax break now |
The Roth Decision Rule
Investment Options
A Roth IRA isn't an investment itself — it's a container that can hold various investments:
- Stock mutual funds and ETFs
- Bond funds
- Target-date retirement funds
- Individual stocks
- REITs (Real Estate Investment Trusts)
- CDs (within an IRA)
Roth IRA Investment Strategy
The Backdoor Roth Strategy
For high earners who exceed income limits, the Backdoor Roth provides a legal workaround:
- Contribute to a Traditional IRA (non-deductible contribution)
- Wait a few days for the contribution to settle
- Convert the entire Traditional IRA to Roth
- Pay minimal tax on any gains during the brief holding period
- Future growth is now tax-free in the Roth
Pro-Rata Rule
Withdrawal Rules
Qualified Withdrawals (Tax & Penalty Free)
Must meet both conditions:
- Account has been open for at least 5 years
- You are age 59½ or older, OR disabled, OR buying first home ($10,000 lifetime limit)
Withdrawal Order
Roth IRA withdrawals come out in this order:
- Contributions (always tax and penalty free)
- Conversions (tax-free after 5 years each)
- Earnings (tax-free only if qualified)
Frequently Asked Questions
Q: Can I have both a Roth IRA and Traditional IRA?
A: Yes! But your combined contributions to ALL IRAs cannot exceed the annual limit ($7,500 or $8,500 if 50+).
Q: Can I contribute to a Roth IRA if I have a 401(k)?
A: Absolutely! The Roth IRA limit is separate from 401(k) limits. Max out both if possible.
Q: What if my income varies year to year?
A: If you're unsure about income, wait until year-end to contribute, or use the recharacterization option if you exceed limits.
Q: Can I contribute for my spouse?
A: Yes! If you file jointly, even a non-working spouse can have a Roth IRA funded with the working spouse's income (Spousal IRA).
Q: Where should I open a Roth IRA?
A: Low-cost brokerages like Fidelity, Schwab, or Vanguard are excellent choices. Look for no account minimums, no fees, and broad investment options.
Q: Is it too late to start a Roth IRA?
A: It's never too late! Even 10-15 years of contributions can build significant tax-free wealth. The best time to start is now.
Getting Started
- Check your income against the eligibility limits
- Open a Roth IRA at a low-cost brokerage
- Set up automatic monthly contributions
- Choose appropriate investments (target-date funds are easiest)
- Increase contributions as your income grows
- Consider the Backdoor Roth if your income exceeds limits
This information is for educational purposes only and should not be considered tax or investment advice. Tax laws are complex and subject to change. Consult with a qualified tax professional or financial advisor for personalized guidance.