A Roth IRA is a retirement account where you save after-tax money and withdraw it tax-free later

A Roth IRA is an individual retirement account that lets you put money in after you have already paid income tax on it. When you withdraw that money in retirement — along with any growth it earned — you owe no federal income tax on it. The trade-off is that you cannot deduct your contributions from your taxable income in the year you make them, the way you can with a traditional IRA.

The account is named after Senator William Roth, who sponsored the legislation that created it in 1997. It is offered by banks, brokerages, and investment firms, and you can hold stocks, bonds, mutual funds, or cash inside it. The IRS sets annual contribution limits and income thresholds that determine who can contribute.

Key Takeaways

  • You contribute money you have already paid taxes on, so your contributions are never taxed again when you withdraw them.
  • Investment earnings inside the account grow tax-free, and you pay no tax on those earnings when you withdraw them in retirement.
  • You must be at least 59½ years old and have held the account for at least five years to withdraw earnings without penalty, though contributions can come out anytime.
  • There is no income limit to convert a traditional IRA to a Roth, but there are income limits if you want to contribute directly to a Roth each year.
  • Unlike a traditional IRA, a Roth IRA has no required minimum distributions during your lifetime, so your money can keep growing.

How contributions and tax treatment work

When you put money into a Roth IRA, you use after-tax dollars — money left over after you have paid federal, state, and local income taxes. You cannot deduct those contributions on your tax return. This means your taxable income for the year does not go down because you opened a Roth.

The benefit comes later. Any money your contributions earn — through interest, dividends, or capital gains — grows inside the account without being taxed each year. When you withdraw both your contributions and those earnings in retirement, you owe no federal income tax on any of it. That tax-free growth is the core advantage of a Roth over a regular taxable savings account.

Contribution limits and income rules

The IRS sets an annual limit on how much you can contribute to a Roth IRA. For 2024, that limit is $7,000 if you are under 50, and $8,000 if you are 50 or older. These limits change periodically, and you can find the current year's limit on the IRS website.

You can only contribute to a Roth if your income falls below a certain threshold. That threshold depends on your filing status and changes each year. If your income is above the limit, you cannot contribute directly to a Roth that year, though you may be able to use a backdoor Roth strategy (converting a traditional IRA to a Roth) regardless of income. Check the IRS website or a tax professional for the current year's income limits based on your situation.

When you can withdraw money without penalty

You can withdraw your contributions (the money you put in) at any time, for any reason, with no tax or penalty. This is one of the Roth's unique features — your contributions are always yours to access.

Withdrawing earnings is different. You must be at least 59½ years old and have held the account for at least five years to withdraw earnings without owing a 10 percent early withdrawal penalty and income tax on those earnings. The five-year rule starts from January 1 of the year you opened your first Roth IRA, not from the date of each individual contribution. There are narrow exceptions to this rule — such as withdrawals for a first home purchase (up to $10,000 lifetime) or certain medical expenses — but they require you to meet specific conditions.

No required minimum distributions in your lifetime

A traditional IRA requires you to start taking withdrawals at age 73 (as of 2023; this age has been rising gradually). A Roth IRA has no such requirement during your lifetime. You can leave the money in the account to keep growing for as long as you live, and withdraw only what you need.

This feature makes a Roth useful if you do not need the money in retirement or want to pass it to heirs. Your beneficiaries will inherit the account and can withdraw it over their own lifetimes, though they will owe income tax on any earnings (not on your original contributions). The rules for inherited Roths changed in 2024, so check current guidance if you are planning to leave a Roth to someone.

Roth conversions and the backdoor Roth strategy

If your income is too high to contribute directly to a Roth, you can convert money from a traditional IRA, SEP IRA, or SIMPLE IRA into a Roth. This is called a Roth conversion. You will owe income tax on the amount you convert in that tax year, but once the money is in the Roth, it grows tax-free.

A common strategy is the backdoor Roth: you contribute to a traditional IRA (which has no income limit), then immediately convert it to a Roth. You pay tax on any earnings that accumulated during that brief time, but your original contribution moves into the Roth tax-free. This works regardless of your income level. A tax professional can walk you through the mechanics and help you avoid pitfalls, such as the pro-rata rule, which can complicate conversions if you have other traditional IRAs.

Roth IRAs versus other retirement accounts

A Roth IRA differs from a traditional IRA mainly in when you pay tax: upfront with a Roth, or in retirement with a traditional IRA. A traditional IRA lets you deduct contributions now, lowering your current taxable income, but you pay income tax on withdrawals later. A Roth costs you nothing in taxes later, but you get no deduction now.

A Roth 401(k), offered by some employers, works similarly to a Roth IRA — you contribute after-tax money and withdraw tax-free — but has higher contribution limits and requires minimum distributions starting at age 73. A regular 401(k) is funded with pre-tax money, like a traditional IRA. A Roth IRA is simpler to manage than a 401(k) because you control it yourself, not your employer, and you can invest in almost anything.

Frequently Asked Questions

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

Yes, but your total contributions to both accounts combined cannot exceed the annual limit. If you contribute $4,000 to a traditional IRA, you can contribute only $3,000 to a Roth that year (assuming the limit is $7,000). You can split your contributions however you want between the two, as long as the total does not exceed the limit.

What happens to a Roth IRA if I die?

Your beneficiary inherits the account. They can withdraw your contributions tax-free anytime. Earnings must be withdrawn within ten years (as of 2024 rules), and they will owe income tax on those earnings. The rules changed recently, so your beneficiary should check current IRS guidance or speak with a tax professional about their options.

Can I withdraw money from my Roth to buy a house?

You can withdraw your contributions anytime without penalty. If you are a first-time homebuyer, you can also withdraw up to $10,000 in earnings (lifetime limit) without the 10 percent early withdrawal penalty, though you will owe income tax on those earnings. You must meet the five-year holding requirement for the account.

Is a Roth IRA a good choice if I expect to be in a higher tax bracket in retirement?

A Roth is often a strong choice if you expect higher future tax rates or higher future income. You lock in today's tax rate by paying tax now, and all future growth is tax-free. If you expect to be in a lower tax bracket in retirement, a traditional IRA might save you more money overall, but a Roth still offers flexibility and no required withdrawals.

What if I earn too much to contribute to a Roth?

You cannot contribute directly to a Roth if your income exceeds the IRS limit for your filing status. However, you can use a backdoor Roth by contributing to a traditional IRA and converting it to a Roth. There is no income limit on conversions. A tax professional can help you execute this strategy correctly.