What is a Roth IRA?

A Roth IRA is a powerful retirement account where you contribute after-tax dollars, your investments grow tax-free, and qualified withdrawals in retirement are completely tax-free. It's one of the best tax-advantaged accounts available to most Americans.

Named after Senator William Roth, who championed its creation in 1997, the Roth IRA has become a cornerstone of smart retirement planning.

2026 Contribution Limits

Age Group	Maximum Contribution
Under 50	$7,500
50 and older	$8,500 (includes $1,000 catch-up)

2026 IRS contribution limits

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Contribution Deadline

You have until April 15, 2027 to make contributions for the 2026 tax year. This gives you flexibility to fund based on prior year's income.

2026 Income Limits (MAGI)

Single Filers

Income Range	Contribution Allowed
Under $161,000	Full contribution
$161,000 - $176,000	Reduced (phase-out)
Over $176,000	Not eligible (directly)

Married Filing Jointly

Income Range	Contribution Allowed
Under $240,000	Full contribution
$240,000 - $250,000	Reduced (phase-out)
Over $250,000	Not eligible (directly)

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Income Exceeds Limits?

You can still contribute through a Backdoor Roth IRA: Contribute to a Traditional IRA (non-deductible), then immediately convert to Roth. Consult a tax professional for proper execution.

Roth IRA Benefits

Tax-Free Growth

All investment gains — dividends, interest, capital gains — grow 100% tax-free. This is incredibly powerful over decades of compounding.

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Example: The Power of Tax-Free Growth

$7,500/year for 30 years at 7% return = $709,000. In a taxable account, you'd owe ~$80,000 in taxes on the gains. In a Roth, you keep 100%.

Tax-Free Withdrawals

Qualified withdrawals in retirement are completely tax-free. This means:

No income tax on withdrawals
No impact on Social Security taxation
No Medicare premium surcharges
More flexibility in managing retirement income

No Required Minimum Distributions

Unlike Traditional IRAs and 401(k)s, Roth IRAs have no RMDs during your lifetime. You can let the money grow tax-free indefinitely and pass it to heirs.

Flexible Access

You can withdraw your contributions (not earnings) at any time, for any reason, without taxes or penalties. This provides an emergency backup while still saving for retirement.

Roth vs Traditional IRA

Feature	Roth IRA	Traditional IRA
Contributions	After-tax (no deduction)	Pre-tax (tax deduction)
Growth	Tax-free	Tax-deferred
Withdrawals	Tax-free	Taxed as ordinary income
RMDs	None during lifetime	Required at age 73/75
Early Withdrawal	Contributions anytime	10% penalty + taxes
Income Limits	Yes	No (but deduction may be limited)
Best If	Expect higher taxes later	Need tax break now

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The Roth Decision Rule

Choose Roth if you expect your tax rate in retirement to be higher than now. This includes young professionals early in their careers, those expecting pension income, and anyone concerned about future tax rate increases.

Investment Options

A Roth IRA isn't an investment itself — it's a container that can hold various investments:

Stock mutual funds and ETFs
Bond funds
Target-date retirement funds
Individual stocks
REITs (Real Estate Investment Trusts)
CDs (within an IRA)

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Roth IRA Investment Strategy

Since Roth gains are tax-free, hold your highest-growth investments here. Put bonds and low-growth assets in taxable accounts where gains are smaller.

The Backdoor Roth Strategy

For high earners who exceed income limits, the Backdoor Roth provides a legal workaround:

Contribute to a Traditional IRA (non-deductible contribution)
Wait a few days for the contribution to settle
Convert the entire Traditional IRA to Roth
Pay minimal tax on any gains during the brief holding period
Future growth is now tax-free in the Roth

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Pro-Rata Rule

If you have existing Traditional IRA balances, the conversion becomes more complicated due to the pro-rata rule. Consider rolling those into a 401(k) first, or consult a tax professional.

Withdrawal Rules

Qualified Withdrawals (Tax & Penalty Free)

Must meet both conditions:

Account has been open for at least 5 years
You are age 59½ or older, OR disabled, OR buying first home ($10,000 lifetime limit)

Withdrawal Order

Roth IRA withdrawals come out in this order:

Contributions (always tax and penalty free)
Conversions (tax-free after 5 years each)
Earnings (tax-free only if qualified)

Frequently Asked Questions

Q: Can I have both a Roth IRA and Traditional IRA?

A: Yes! But your combined contributions to ALL IRAs cannot exceed the annual limit ($7,500 or $8,500 if 50+).

Q: Can I contribute to a Roth IRA if I have a 401(k)?

A: Absolutely! The Roth IRA limit is separate from 401(k) limits. Max out both if possible.

Q: What if my income varies year to year?

A: If you're unsure about income, wait until year-end to contribute, or use the recharacterization option if you exceed limits.

Q: Can I contribute for my spouse?

A: Yes! If you file jointly, even a non-working spouse can have a Roth IRA funded with the working spouse's income (Spousal IRA).

Q: Where should I open a Roth IRA?

A: Low-cost brokerages like Fidelity, Schwab, or Vanguard are excellent choices. Look for no account minimums, no fees, and broad investment options.

Q: Is it too late to start a Roth IRA?

A: It's never too late! Even 10-15 years of contributions can build significant tax-free wealth. The best time to start is now.

Getting Started

Check your income against the eligibility limits
Open a Roth IRA at a low-cost brokerage
Set up automatic monthly contributions
Choose appropriate investments (target-date funds are easiest)
Increase contributions as your income grows
Consider the Backdoor Roth if your income exceeds limits

This information is for educational purposes only and should not be considered tax or investment advice. Tax laws are complex and subject to change. Consult with a qualified tax professional or financial advisor for personalized guidance.

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