A Roth IRA (Individual Retirement Account) is a tax-advantaged retirement savings account where you contribute after-tax money — meaning you pay taxes on the money before it goes in. In exchange, your investments grow tax-free and you pay no taxes on withdrawals in retirement.
If you invest $7,000/year starting at age 25 in a Roth IRA earning 8% annually, you'll have approximately $1.9 million tax-free at age 65. In a traditional taxable account, you'd owe capital gains taxes on that growth. The tax-free compounding is the most powerful feature of the Roth IRA.
| Age | 2026 Contribution Limit |
|---|---|
| Under 50 | $7,000 |
| 50 and older (catch-up) | $8,000 |
You can contribute to a Roth IRA for any year up until the tax filing deadline (typically April 15 of the following year). You can contribute to both a Roth IRA and a traditional IRA in the same year, but your total contributions across all IRAs cannot exceed the annual limit.
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Roth IRA contributions are subject to income limits. If your income exceeds the limit, you cannot contribute directly to a Roth IRA (though you may be able to use the "backdoor Roth IRA" strategy).
| Filing Status | Phase-Out Begins | No Contribution Allowed |
|---|---|---|
| Single / Head of Household | $161,000 | $176,000+ |
| Married Filing Jointly | $240,000 | $250,000+ |
| Married Filing Separately | $0 | $10,000+ |
If your income exceeds the Roth IRA limit, you can use the backdoor Roth IRA strategy: contribute to a traditional IRA (no income limit for contributions), then convert it to a Roth IRA. This is a legal strategy used by millions of high earners. Consult a tax advisor before executing.
Roth IRA withdrawal rules are more flexible than traditional IRAs:
Because Roth IRA growth is tax-free, you want your highest-growth investments in your Roth IRA. A simple approach: put a total US stock market index fund (like Fidelity's FZROX or Vanguard's VTI) in your Roth IRA. The tax-free compounding on stocks is far more valuable than on bonds.
| Feature | Roth IRA | Traditional IRA |
|---|---|---|
| Tax treatment | After-tax contributions; tax-free growth | Pre-tax contributions; taxed on withdrawal |
| Income limits | Yes ($161K single, $240K married) | No income limit for contributions |
| Deductibility | Not deductible | May be deductible (depends on income) |
| Withdrawals in retirement | Tax-free | Taxed as ordinary income |
| Required minimum distributions | None | Required starting at age 73 |
| Early withdrawal of contributions | Tax-free and penalty-free | Taxed + 10% penalty |
| Best for | Expect higher tax rate in retirement | Expect lower tax rate in retirement |
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