What Is a Roth IRA?

A Roth IRA is an individual retirement account that you fund with after-tax money. You get no tax deduction for contributing, but in exchange the account grows tax-free and qualified withdrawals in retirement — including all of the investment gains — are completely tax-free. That trade-off is the defining feature of a Roth: pay tax now, owe nothing later.

How a Roth IRA Works

You contribute money you have already paid income tax on, then invest it inside the account in funds, stocks, or bonds. The investments grow without annual taxes on dividends or capital gains. Once you meet the rules below, you can withdraw both your contributions and the earnings without owing any federal income tax — a powerful benefit if your investments grow substantially over decades.

Roth IRA vs. Traditional IRA

The mirror image of a Roth is a traditional IRA, which is funded with pre-tax dollars: you may deduct contributions now, but withdrawals in retirement are taxed as ordinary income. In short, a traditional IRA gives you the tax break today, while a Roth gives it to you in retirement. Which is better depends largely on whether you expect your tax rate to be higher now or later.

Contribution and Income Limits

The IRS sets an annual Roth IRA contribution limit, with a higher "catch-up" amount for people age 50 and older, and it also phases out who can contribute directly once income rises above certain thresholds. Both the contribution limit and the income phase-out ranges are adjusted for inflation most years, so always confirm the current figures at IRS.gov rather than relying on a number that may be a year or two out of date.

Key Rules: The 5-Year Rule and No RMDs

Two rules make the Roth distinctive. First, to withdraw earnings tax-free you generally must be at least 59½ and have had a Roth open for at least five years (the "5-year rule"); your own contributions, however, can be withdrawn at any time tax- and penalty-free because you already paid tax on them. Second, unlike traditional IRAs and 401(k)s, a Roth IRA has no required minimum distributions during the original owner's lifetime, so the money can keep growing untouched.

Who Should Consider a Roth IRA

A Roth is especially attractive if you expect to be in a higher tax bracket later — which often applies to younger savers early in their careers — or if you simply want tax diversification so that not all of your retirement income is taxable. Savers whose income exceeds the direct-contribution limit sometimes use a "backdoor Roth" (contributing to a traditional IRA and converting it), though that has its own tax considerations worth discussing with a professional.

A Roth is one of several retirement accounts — see what an IRA is generally, weigh it in Roth vs. traditional IRA, and plan the bigger picture with our retirement calculator.

Frequently Asked Questions