A Roth IRA is a retirement savings account where you contribute money after taxes, and then withdraw it tax-free in retirement

A Roth IRA is an individual retirement account that works backwards from a traditional IRA. You put in money you have already paid income tax on, the money grows inside the account without being taxed each year, and when you withdraw it in retirement, you owe no federal income tax on any of it — not on your contributions and not on the growth. This is the opposite of a traditional IRA, where you get a tax break on the money going in but pay tax on everything coming out.

The account is named after Senator William Roth, who sponsored the legislation that created it in 1997. You can open one through a bank, brokerage firm, or credit union. You decide what to invest the money in — stocks, bonds, mutual funds, or simply keep it in a savings option the institution offers. The money sits there and compounds over decades, and the IRS does not tax the growth.

Key Takeaways

  • You contribute after-tax dollars to a Roth IRA, meaning you do not get a tax deduction in the year you contribute.
  • All growth inside the account — dividends, capital gains, interest — is never taxed by the federal government.
  • Withdrawals in retirement are tax-free as long as the account has been open for at least five years and you are at least 59½ years old.
  • You can withdraw your contributions (not the growth) at any time without penalty, even before retirement.
  • Income limits determine whether you can contribute the full amount, a reduced amount, or nothing in a given year.

How contributions work and what you can put in each year

You can contribute up to a set dollar amount each year if your income is below the limit for your filing status. For 2024, that limit is $7,000 per year if you are under 50, and $8,000 if you are 50 or older (the extra $1,000 is called a catch-up contribution). These numbers change each year based on inflation, so check the IRS website or your brokerage before you contribute.

The money you contribute must come from earned income — wages, salary, self-employment income, or taxable alimony. You cannot contribute money from investments, Social Security, or pensions. If you do not earn enough in a year to max out the limit, you can only contribute what you earned. For example, if you earned $4,000 in 2024, you can contribute up to $4,000 to a Roth IRA, not the full $7,000.

You can contribute to a Roth IRA as long as you have earned income that year, no matter how old you are. There is no age cutoff, unlike traditional IRAs where contributions stop at age 73.

Income limits that reduce or block your contributions

The IRS phases out your ability to contribute to a Roth IRA if your income is too high. The income limit depends on your filing status — single, married filing jointly, married filing separately, or head of household — and it changes every year. For 2024, the phase-out range for a single filer starts at $146,000 and ends at $161,000, meaning if you earn more than $161,000, you cannot contribute to a Roth IRA that year through the normal route.

If your income falls within the phase-out range, you can contribute a reduced amount. The IRS publishes a worksheet to calculate it, or your brokerage can tell you the exact number. If you earn above the limit, you have another option: a backdoor Roth conversion, which involves contributing to a traditional IRA and then converting it to a Roth. This is a legal strategy, but it has tax consequences if you already have other traditional IRA balances, so consult a tax professional before doing it.

The five-year rule and when you can withdraw without penalty

To withdraw your earnings (the growth, not your contributions) tax-free, two things must be true: the account must have been open for at least five tax years, and you must be at least 59½ years old. The five-year clock starts on January 1 of the year you opened the account, not the day you opened it. If you opened a Roth IRA on December 31, 2024, the five-year period ends on January 1, 2030.

Your contributions themselves can be withdrawn at any time, tax-free and penalty-free, because you already paid tax on that money. The growth stays locked until you meet both conditions. If you withdraw earnings before age 59½ and the account is less than five years old, you owe income tax on the earnings plus a 10 percent penalty — unless you may have access to for an exception, such as disability, death, or a first-time home purchase (up to $10,000 lifetime).

Why people choose a Roth over a traditional IRA

The main reason is tax certainty. When you retire, you know exactly what you will owe in taxes on Roth withdrawals: nothing. With a traditional IRA, you do not know what tax rates will be in 20 or 30 years, so you cannot predict your tax bill. If you think tax rates will be higher in the future, a Roth is more attractive. If you think you will be in a lower tax bracket in retirement, a traditional IRA might save you more money now.

A Roth also has no required minimum distributions (RMDs). With a traditional IRA, the IRS forces you to start withdrawing money at age 73, whether you need it or not. With a Roth, you can leave the money untouched for your entire life and pass it to heirs. This makes a Roth useful for people who do not need the money in retirement and want to leave a larger inheritance.

A Roth is also more flexible if you need money before retirement. You can always pull out your contributions without penalty. With a traditional IRA, any withdrawal before 59½ triggers a 10 percent penalty on the entire amount (with some exceptions).

How a Roth IRA differs from a 401(k) and other retirement accounts

A Roth IRA is an individual account you open yourself, while a 401(k) is an employer-sponsored plan. If your employer offers a 401(k), they handle the setup and payroll deductions. A Roth IRA is your responsibility to fund and manage. You can have both — many people do — and they have separate contribution limits. In 2024, you can contribute up to $7,000 to a Roth IRA and up to $23,500 to a 401(k) in the same year.

A Roth 401(k) exists too, and it works like a Roth IRA in that contributions are after-tax and withdrawals are tax-free. The difference is that a Roth 401(k) has required minimum distributions starting at age 73, while a Roth IRA does not. A Roth 401(k) also has much higher contribution limits — the same as a traditional 401(k) — but it is only available through an employer.

A SEP IRA or Solo 401(k) is for self-employed people and small business owners. These allow much larger contributions than a Roth IRA, but they are more complex to set up and maintain. If you are an employee, you cannot use them.

How to open a Roth IRA and what happens after

You can open a Roth IRA at any bank, brokerage, or credit union that offers them. Common providers include Vanguard, Fidelity, Charles Schwab, and many others. You will need to provide your name, Social Security number, address, and employment information. The process takes 10 to 20 minutes online.

Once the account is open, you decide how to invest the money. Some institutions offer a money market fund or savings option that earns a small amount of interest. Others require you to choose stocks, bonds, or mutual funds. If you are unsure what to invest in, a target-date fund — which automatically shifts from stocks to bonds as you approach retirement — is a common starting point. You are not required to invest in anything risky; you can keep the money in a low-yield savings option if you prefer.

You can contribute to your Roth IRA until the tax filing deadline for that year, usually April 15 of the following year. For example, you can contribute to your 2024 Roth IRA until April 15, 2025. If you miss the deadline, you cannot make up the contribution for that year.

Frequently Asked Questions

Can I have both a Roth IRA and a traditional IRA?

Yes, you can have both, but your total contributions to both accounts combined cannot exceed the annual limit — $7,000 in 2024 if you are under 50. If you contribute $4,000 to a traditional IRA, you can only contribute $3,000 to a Roth that year. You can split the money however you want between the two.

What happens to my Roth IRA if I die?

Your heirs inherit the account and can withdraw the money. If they are your spouse, they can treat it as their own Roth IRA or keep it as an inherited account. Non-spouse heirs must withdraw the money within 10 years under current rules, though they do not owe income tax on it since you already paid tax on the contributions.

Can I withdraw my contributions before retirement without a penalty?

Yes. You can withdraw the money you contributed (not the earnings) at any time, tax-free and penalty-free. The earnings stay locked until you are 59½ and the account is at least five years old, unless you may have access to for an exception like disability or a first-time home purchase.

What if my income is too high to contribute to a Roth IRA?

You can use a backdoor Roth conversion: contribute to a traditional IRA and then convert it to a Roth. This is legal, but if you have other traditional IRA balances, the conversion triggers taxes. Consult a tax professional to understand the cost before you do it.

Do I have to invest the money in stocks?

No. You can keep your Roth IRA in a savings option, money market fund, or certificates of deposit (CDs) if your institution offers them. You can also invest in stocks, bonds, and mutual funds. The choice is yours based on your comfort level and how long until you retire.