A Roth IRA is a retirement savings account where you contribute after-tax money

A Roth IRA is a retirement savings account you open at a bank, credit union, or brokerage firm. You put money into it with dollars you've already paid income tax on. The money grows over time through interest, dividends, or investment gains, and you can withdraw it tax-free after age 59½, as long as the account has been open for at least five years. The main difference from a traditional IRA is the timing of the tax break: with a Roth, you pay taxes now and withdraw tax-free later.

You don't have to work for a specific employer to open a Roth IRA. Anyone with earned income—from a job, self-employment, or freelance work—can open one. The account stays in your name and moves with you if you change jobs.

Key Takeaways

  • You contribute money you've already paid income tax on, so withdrawals in retirement are tax-free.
  • Income limits determine whether you can contribute the full amount, and these limits change each year based on your filing status and total income.
  • You can withdraw your contributions (the money you put in) at any time without penalty, but earnings stay locked until age 59½.
  • Annual contribution limits are set by the IRS and are the same whether you have one Roth IRA or multiple accounts across different institutions.
  • A Roth IRA has no required withdrawals during your lifetime, unlike traditional IRAs, which means your money can keep growing.

How much you can contribute each year

The IRS sets an annual contribution limit for Roth IRAs. For 2024, you can contribute up to $7,000 if you're under age 50, or $8,000 if you're 50 or older (the extra $1,000 is called a catch-up contribution). These limits change periodically, and the IRS announces new limits in October for the following year.

The limit applies to your total contributions across all Roth IRAs you own—if you have accounts at two different banks, the $7,000 limit covers both combined, not each one separately. You can contribute the full amount only if your income falls below certain thresholds. If your income is above those thresholds, your contribution limit phases out, meaning you can contribute less or nothing at all. Income limits vary by filing status (single, married filing jointly, married filing separately) and change annually.

Income limits that reduce or block your contributions

The IRS uses your modified adjusted gross income (MAGI) to determine how much you can contribute. MAGI is roughly your total income with certain deductions added back in. If your MAGI exceeds a certain amount, you cannot contribute the full limit. If it exceeds a higher amount, you cannot contribute at all.

These income limits are different for single filers, married couples filing jointly, and married people filing separately. They also change every year. For example, in 2024, a single filer with MAGI above $146,000 cannot contribute to a Roth IRA at all, but someone with MAGI between $161,000 and $176,000 can contribute a reduced amount. A married couple filing jointly has higher limits. You can find the current year's limits on the IRS website or ask your tax preparer what your MAGI is and whether you're within the range.

Contributions versus earnings: what you can withdraw and when

Your Roth IRA contains two types of money: contributions (the money you put in) and earnings (the growth from interest, dividends, or investment gains). The rules for withdrawing them are different.

You can withdraw your contributions at any time, at any age, without penalty or taxes. If you put in $5,000 and the account grows to $6,500, you can withdraw the $5,000 anytime. The $1,500 in earnings, however, stays locked until you turn 59½ and have held the account for at least five years. If you withdraw earnings before then, you owe income tax on them plus a 10% penalty, with some exceptions (such as a first-time home purchase up to $10,000 lifetime, or disability).

Where to open a Roth IRA and what to invest in

You open a Roth IRA through a bank, credit union, brokerage firm, or robo-advisor. Banks and credit unions typically offer Roth IRAs that hold savings accounts or certificates of deposit (CDs), which earn a fixed interest rate. Brokerage firms let you invest in stocks, bonds, mutual funds, or exchange-traded funds (ETFs). Robo-advisors automatically build and manage a portfolio for you based on your age and risk tolerance.

There is no single "best" place to open one—it depends on how much you want to manage the investments yourself and what fees the institution charges. Some banks charge annual maintenance fees; some brokerages charge trading fees or expense ratios on funds. Compare a few institutions before opening an account. Once you open the account, you can move money into it whenever you have funds available, up to your annual limit.

No required withdrawals during your lifetime

A major advantage of a Roth IRA is that you never have to withdraw money during your lifetime if you don't want to. Traditional IRAs require you to start taking withdrawals at age 73 (as of 2023, under current law), but Roth IRAs have no such requirement. This means your money can continue to grow tax-free for as long as you live.

When you pass away, your heirs inherit the Roth IRA and must withdraw the money according to rules set by the IRS, but the tax-free growth benefit passes to them as well. This makes a Roth IRA a useful tool for leaving money to the next generation.

Roth IRAs versus other retirement accounts

A traditional IRA works in reverse: you may deduct your contributions from your taxes now, but you pay taxes on withdrawals in retirement. A 401(k) is offered through an employer and often includes a matching contribution from your employer, but it has higher annual limits and requires withdrawals starting at age 73. A SEP IRA or Solo 401(k) is for self-employed people and allows much larger contributions.

You can have a Roth IRA and a traditional IRA at the same time, but your combined contributions cannot exceed the annual limit. Many people use both: they contribute to an employer 401(k) for the employer match, then open a Roth IRA for additional tax-free growth. A tax professional can help you decide which accounts make sense for your situation.

Frequently Asked Questions

Can I open a Roth IRA if I'm self-employed or a freelancer?

Yes. You need earned income from self-employment or freelance work, and your income must be below the annual limits. Self-employed people can also open a SEP IRA or Solo 401(k), which allow much larger contributions. A tax preparer can help you decide which account fits your income level and retirement goals.

What happens if I contribute more than the annual limit?

The excess contribution is subject to a 6% penalty tax each year it remains in the account. You can withdraw the excess and any earnings on it before your tax return deadline to avoid the penalty. If you discover an overage after filing, you can request a correction from the IRS, but it's best to track your contributions carefully throughout the year, especially if you have multiple accounts.

Can I roll money from a 401(k) into a Roth IRA?

Yes, through a process called a Roth conversion. You withdraw money from your 401(k) and deposit it into a Roth IRA within 60 days. You owe income tax on the amount converted in the year you do it, but the money then grows tax-free in the Roth. This strategy works best when your income is lower than usual or when you expect to be in a higher tax bracket in retirement.

Do I need to report my Roth IRA on my tax return?

You don't report contributions or growth on your annual tax return. You only report a Roth IRA if you withdraw earnings before age 59½ and five years have passed, or if you convert money from another account. Your financial institution sends you a Form 5498 each year for your records, but you don't attach it to your return unless you have a reportable transaction.