What is a Roth IRA?

A Roth IRA is an individual retirement account where you contribute after-tax money, the investments grow tax-free, and qualified withdrawals in retirement are also tax-free. Income limits apply.

Section 01

Who can contribute

You need earned income and your modified adjusted gross income must be below the IRS limit. The contribution limit is shared with traditional IRAs, so total IRA contributions cannot exceed that cap.

Section 02

Withdrawal rules

  • Contributions can be withdrawn anytime without tax or penalty.
  • Earnings are tax-free after age 59½ and a 5-year account holding period.
  • Some early withdrawals, like a first home purchase, have exceptions.
Section 03

FAQ

Roth or traditional IRA?

Roth usually wins if you expect to be in the same or higher tax bracket in retirement. Traditional wins if you expect to be in a lower bracket.

Can I open one for my child?

Key takeaway

Yes, if they have earned income. A Roth IRA for a teenager can grow for decades tax-free.

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Model long-term contributions with the Roth IRA calculator

A Roth IRA account is funded with after-tax money, so contributions do not generally create a federal income-tax deduction. Qualified distributions can receive favorable federal tax treatment when applicable requirements are met. A projection adds planned contributions to the current balance and applies an assumed return. Market performance, fees, contribution timing, and withdrawals can make actual results materially different from the estimate.

Roth IRA contribution limits and income eligibility rules can change, so check current IRS guidance rather than relying on an older limit. When comparing a traditional IRA vs Roth IRA, consider current tax treatment, possible deductions, future distribution rules, and required minimum distribution rules. A Roth IRA vs 401k comparison should also address employer matching, investment choices, fees, creditor protections, and access to money. Complex conversion strategies may create tax consequences.

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