Start by deciding how much to contribute each year
Once your Roth IRA account is open, your first decision is how much money to put in. The IRS sets an annual contribution limit — for 2024, that limit is $7,000 if you are under 50, or $8,000 if you are 50 or older. You do not have to contribute the maximum; you can contribute any amount up to that limit, and you can change the amount from year to year.
The deadline to contribute for a given tax year is typically April 15 of the following year (the tax filing deadline). For example, you can contribute to your 2024 Roth IRA through April 15, 2025. This flexibility means you can wait until early the next year to decide how much you can afford to set aside.
If your income is very high, you may not be able to contribute the full amount or may not be able to contribute at all. Income limits vary by filing status and change yearly, so check the current limits on the IRS website or ask your account provider what applies to you.
Key Takeaways
- Decide how much to contribute each year — you can contribute any amount up to the annual limit, and you have until the tax deadline of the following year to do so.
- Choose investments for your money: stocks, bonds, mutual funds, or target-date funds are common options, and your choice depends on your age and risk tolerance.
- Let your money grow tax-free and do not withdraw it before age 59½ unless you have a may have access to reason, because early withdrawals trigger taxes and penalties on earnings.
- At age 73, you must begin taking required minimum distributions, which are mandatory annual withdrawals that you will owe taxes on.
- You can withdraw your contributions (not earnings) at any time without penalty, which is one advantage of a Roth over a traditional IRA.
Choose what investments to hold inside the account
Your Roth IRA is a container — the money inside it must be invested in something. Your brokerage or bank will offer you a menu of options. Common choices include individual stocks, bonds, mutual funds, exchange-traded funds (ETFs), and target-date funds. A target-date fund automatically shifts from stocks to bonds as you approach retirement, which is useful if you do not want to rebalance manually.
Your choice should depend on how long until you need the money and how comfortable you are with the value going up and down. If you are in your 20s or 30s, you have decades before retirement, so you can typically afford to hold mostly stocks, which grow faster over long periods but are more volatile year to year. If you are closer to retirement, a mix of stocks and bonds, or a target-date fund, is more common.
If you are unsure what to choose, a low-cost target-date fund matched to your expected retirement year is a straightforward starting point. Many people hold the same fund for decades without changing it.
Understand the rules for withdrawing money before retirement
One major advantage of a Roth IRA is that you can withdraw the money you contributed (your contributions) at any time without penalty or taxes. If you put in $5,000 and the account grows to $6,000, you can withdraw the $5,000 anytime. This is different from a traditional IRA, where withdrawals before age 59½ are penalized.
However, if you withdraw the earnings (the $1,000 of growth in the example above) before age 59½, you will owe income tax on that amount plus a 10% penalty, unless you have a may have access to reason. may have access to reasons include a first-time home purchase (up to $10,000 lifetime), disability, medical expenses above a threshold, or a few other narrow situations. The IRS is strict about what counts.
Because of this rule, many people use a Roth IRA as both a retirement account and an emergency fund — they know they can access their contributions if needed. But the earnings are meant to stay invested until retirement.
Plan for required minimum distributions starting at age 73
At age 73, the IRS requires you to begin taking money out of your Roth IRA each year, whether you need it or not. These are called required minimum distributions (RMDs). The amount is calculated based on your age and account balance, and the IRS publishes a table each year to show you how much you must withdraw.
Unlike traditional IRAs, you do not owe income tax on the RMD itself if you are withdrawing your contributions and earnings proportionally. However, if you have not yet reached age 59½, the earnings portion of the RMD will be taxed. If you miss an RMD, the IRS charges a penalty of 25% of the amount you should have withdrawn (reduced to 10% if you correct it within two years).
Many people do not need the money at 73 and find RMDs inconvenient. If that is your situation, you can transfer the RMD to a taxable brokerage account or donate it to charity. The withdrawal itself is still required, but you control where the money goes.
Rebalance your investments periodically
Over time, some of your investments will grow faster than others. If you started with 80% stocks and 20% bonds, and stocks soared, you might end up with 90% stocks and 10% bonds. Rebalancing means selling some of the winners and buying more of the losers to get back to your target mix.
You do not need to rebalance every month or even every year. Many people rebalance once a year or once every few years. The advantage of rebalancing inside a Roth IRA is that you pay no capital gains tax on the sales — all the growth stays sheltered. In a taxable account, rebalancing can trigger a tax bill.
If you hold a target-date fund, the fund manager rebalances for you automatically, so you do not need to do anything.
Consider whether to convert a traditional IRA to a Roth
If you have money in a traditional IRA or a 401(k) from a previous job, you can convert some or all of it to a Roth IRA. The conversion is taxable in the year you do it — you will owe income tax on the amount converted — but after that, the money grows tax-free in the Roth, just like money you contributed directly.
A conversion makes sense if you expect to be in a higher tax bracket in retirement, or if you want to reduce the size of your traditional IRA to lower your required minimum distributions later. It does not make sense if you cannot afford to pay the tax bill from other money; converting just to move the money is wasteful.
Conversions are not subject to the annual contribution limit, so you can convert large amounts. However, if you have both traditional and Roth IRAs, the IRS has a "pro-rata rule" that affects how much of the conversion is taxable. Consult a tax professional before converting if you have multiple IRAs.
Monitor your account and stay informed about rule changes
Once your account is set up and invested, you do not need to do much. Check your statement a few times a year to make sure the investments are performing as expected and that contributions are being made on schedule if you set up automatic transfers.
Tax rules and contribution limits change periodically. The IRS publishes new limits each January, and Congress occasionally passes laws that affect IRAs. Your brokerage will usually send you a notice if a rule change affects your account, but it is also worth checking the IRS website or a financial resource once a year to stay current.
Frequently Asked Questions
Can I have both a Roth IRA and a traditional IRA at the same time?
Yes, you can have both. However, your total contributions to both accounts combined cannot exceed the annual limit. If you contribute $4,000 to a traditional IRA, you can only contribute $3,000 to a Roth that year (assuming the $7,000 limit). You will report both accounts on your tax return.
What happens to my Roth IRA if I die?
Your beneficiary inherits the account. They can withdraw the money tax-free if the account has been open for at least five years, or they can keep it invested and take distributions over time. The rules are complex if the beneficiary is a spouse versus a non-spouse, so name a beneficiary and let your heirs know where the account is.
Can I move money between my Roth IRA and a savings account?
You can withdraw money from your Roth IRA and deposit it into a savings account, but that is a withdrawal — it counts against your contribution limit if you want to put it back. A direct transfer between financial institutions does not count as a withdrawal and is the better option if you are moving the account to a different provider.
What if my income drops and I did not know I was over the limit when I contributed?
If you over-contributed because your income was higher than you expected, you can withdraw the excess contribution and any earnings on it by the tax deadline. You will owe tax on the earnings portion, but you can avoid the penalty if you catch it in time. File Form 5329 with your tax return to report the correction.
Should I invest in individual stocks or a fund?
Funds (mutual funds or ETFs) are simpler and lower-risk for most people because they spread your money across many companies. Individual stocks require more research and time. If you are new to investing, a low-cost index fund or target-date fund is a solid choice. You can always add individual stocks later if you want to.