A Roth IRA is a retirement savings account where you contribute money after taxes, and withdrawals in retirement are tax-free
A Roth IRA is an individual retirement account you open at a bank, brokerage, or credit union. You put money in with dollars you've already paid income tax on. The account grows over time — through interest, dividends, or investment gains — and when you withdraw money in retirement, you owe no federal income tax on any of it, including the growth.
The trade-off is straightforward: you pay taxes now instead of later. A traditional IRA lets you deduct contributions from your taxes this year but taxes you on withdrawals later. A Roth does the opposite. Which one makes sense depends on whether you expect to be in a higher or lower tax bracket when you retire.
You can open a Roth IRA yourself — you do not need an employer to sponsor it. You can have one alongside a 401(k) or other workplace plan, though there are income limits that may prevent you from contributing to a Roth if you earn above a certain threshold.
Key Takeaways
- You contribute after-tax money to a Roth IRA, and may have access to withdrawals in retirement are completely tax-free.
- Income limits apply: if you earn above a certain amount (which varies by year and filing status), you cannot contribute the full amount or may not be able to contribute at all.
- You can withdraw your contributions (the money you put in) anytime without penalty, but earnings withdrawals before age 59½ usually trigger a 10% penalty plus income tax.
- Unlike a traditional IRA, a Roth has no required withdrawals at any age, so your money can keep growing tax-free for as long as you leave it alone.
- You can open a Roth IRA at any bank or brokerage and invest the money in stocks, bonds, mutual funds, or keep it in cash.
Income limits and contribution caps for 2024
The amount you can contribute to a Roth IRA each year depends on your income and filing status. For 2024, the income phase-out ranges are $146,000 to $161,000 for single filers and $230,000 to $240,000 for married couples filing jointly. If your income falls within that range, your contribution limit shrinks. If you exceed the upper limit, you cannot contribute directly to a Roth that year.
The annual contribution limit itself — the maximum you can put in regardless of income — is $7,000 for people under 50 and $8,000 for people 50 and older. These amounts change each year based on inflation. You can contribute less than the limit, but not more.
If your income is too high to contribute directly, you may be able to use a "backdoor Roth" strategy: contribute to a traditional IRA and then convert it to a Roth. This is legal but has tax consequences and rules you should understand before attempting it. A tax professional or your brokerage can walk you through whether it makes sense for your situation.
When you can withdraw money without penalty
The rules for withdrawals differ depending on whether you are taking out contributions (money you put in) or earnings (growth and investment gains). You can withdraw your contributions anytime, at any age, with no penalty and no tax. That money was already taxed when you earned it.
Earnings are different. If you withdraw earnings before age 59½, you typically owe a 10% penalty plus income tax on the amount withdrawn — unless you meet a narrow exception. The main exceptions are disability, medical expenses over 7.5% of your income, first-time home purchase (up to $10,000 lifetime), or substantially equal periodic payments under IRS rules.
To withdraw earnings tax-free and penalty-free, you must be at least 59½ and have held the Roth IRA for at least five tax years. The five-year clock starts on January 1 of the year you first contributed to any Roth IRA, not when you opened the account.
No required withdrawals, ever
A traditional IRA forces you to start taking withdrawals at age 73 (as of 2023; this age rises over time). A Roth IRA has no such requirement. You can leave the money untouched for your entire life, and it keeps growing tax-free. This makes a Roth useful if you do not need the money in retirement or want to leave it to heirs.
Your beneficiaries will inherit the Roth and can withdraw it tax-free, though they must follow specific rules about how fast they must empty the account. The rules changed in 2024 and depend on whether the beneficiary is a spouse, a child, or someone else. A financial advisor or the institution holding the Roth can explain the rules for your heirs.
How to open a Roth IRA and what to invest in
You can open a Roth IRA at any bank, credit union, or brokerage firm. Common places include Vanguard, Fidelity, Charles Schwab, and your own bank. The process takes 15 to 30 minutes online. You will need your Social Security number, address, and employment information. There is no cost to open the account.
Once the account is open, you decide what to invest the money in. You can keep it in a savings account earning interest, buy individual stocks or bonds, or invest in mutual funds and exchange-traded funds (ETFs). The institution will show you options. If you are unsure, a target-date fund — which automatically shifts from stocks to bonds as you approach retirement — is a common starting point for people new to investing.
You can contribute to your Roth IRA anytime during the year, but the deadline to contribute for a given tax year is usually April 15 of the following year (the tax filing deadline). If you miss that deadline, you cannot go back and contribute for that year.
Roth IRA versus traditional IRA: the main differences
| Feature | Roth IRA | Traditional IRA |
|---|---|---|
| Contributions are tax-deductible | No | Yes (usually) |
| Withdrawals in retirement are taxed | No | Yes |
| Income limits on contributions | Yes | No |
| Required withdrawals at age 73 | No | Yes |
| Can withdraw contributions anytime | Yes | No (penalty applies) |
The choice between a Roth and a traditional IRA often comes down to your current tax bracket versus your expected bracket in retirement. If you are young and in a low tax bracket now, a Roth may save you money because you pay tax at a low rate today and owe nothing later. If you are near retirement and in a high tax bracket, a traditional IRA lets you reduce your taxable income this year.
Frequently Asked Questions
Can I have both a Roth IRA and a traditional IRA?
Yes, you can have both accounts at the same time. However, your total contributions across both accounts cannot exceed the annual limit — $7,000 for 2024 if you are under 50. If you contribute $4,000 to a Roth, you can only contribute $3,000 to a traditional IRA that year.
What happens if I withdraw money before age 59½?
You can withdraw your contributions anytime with no penalty. If you withdraw earnings before 59½, you owe a 10% penalty plus income tax on the earnings, unless you meet an exception like disability or first-time home purchase. The five-year holding period also applies to earnings withdrawals.
Can I contribute to a Roth IRA if I am self-employed?
Yes. Self-employed people can contribute to a Roth IRA just like anyone else, as long as they have earned income and are below the income limits. Self-employed people can also open a SEP IRA or Solo 401(k), which have higher contribution limits and no income restrictions.
Do I pay taxes on investment gains in a Roth IRA?
No. All investment gains — interest, dividends, capital gains — grow tax-free inside the Roth. You only pay taxes on earnings if you withdraw them before meeting the age and holding-period requirements.
What if my income is too high to contribute to a Roth?
If you exceed the income phase-out range, you cannot make a direct contribution. Some people use a backdoor Roth: contribute to a traditional IRA and convert it to a Roth. This works but has tax implications. Consult a tax professional before attempting this strategy.