A Roth IRA lets you save money for retirement using after-tax dollars, then withdraw that money tax-free once you hit 59½

A Roth IRA is an individual retirement account where you contribute money you've already paid taxes on. The account grows tax-free, and when you withdraw money in retirement, you pay no federal income tax on those withdrawals—not on your contributions, not on the growth. That's the core difference from a traditional IRA, where contributions may be tax-deductible now but withdrawals are taxed later.

You can open a Roth IRA at a bank, credit union, brokerage firm, or investment company. You fund it with your own money (not employer contributions), and you decide how to invest what's inside—stocks, bonds, mutual funds, or cash. The account itself is just a container; the tax treatment is what makes it a Roth.

Key Takeaways

  • You contribute after-tax money to a Roth IRA, and all growth and withdrawals after age 59½ are tax-free.
  • For 2024, you can contribute up to $7,000 per year if you're under 50, or $8,000 if you're 50 or older, but only if you have earned income that year.
  • Your income must fall below a certain threshold to contribute directly; these limits vary by filing status and change each year.
  • You can withdraw your contributions (the money you put in) at any time without penalty, but earnings withdrawals before 59½ usually trigger a 10% penalty plus taxes.
  • A Roth IRA has no required withdrawals during your lifetime, so the money can keep growing as long as you live.

How much you can contribute each year

The IRS sets an annual contribution limit. For 2024, you can put in up to $7,000 if you're under 50 years old, or $8,000 if you're 50 or older (the extra $1,000 is called a catch-up contribution). These limits change most years, so check the IRS website or your brokerage statement before you contribute.

You can only contribute money you earned that year. If you had no income, you cannot fund a Roth IRA. If you earned $3,000, you can contribute up to $3,000. If you earned $10,000, you can contribute the full $7,000 (or $8,000 if 50+). Self-employment income counts, as does W-2 wages, freelance pay, and rental income if you actively manage the property.

You can contribute to a Roth IRA and a traditional IRA in the same year, but your combined contributions across both accounts cannot exceed the annual limit.

Income limits that affect your ability to contribute directly

The IRS restricts who can contribute to a Roth IRA based on income. If your income is too high, you cannot contribute directly—though a workaround called a "backdoor Roth" exists (ask your tax preparer about this if it applies to you).

The income thresholds depend on your filing status and change each year. For 2024, if you file as single, the phase-out range starts at $146,000 and ends at $161,000 of modified adjusted gross income (MAGI). If you're married filing jointly, it starts at $230,000 and ends at $240,000. If you're married filing separately, the range is $0 to $10,000. These numbers shift annually, so verify the current year's limits before you contribute.

If your income falls within the phase-out range, you can contribute a reduced amount. If it exceeds the upper limit, you cannot contribute directly to a Roth IRA that year.

What happens when you withdraw money

Withdrawals from a Roth IRA follow specific rules. You can withdraw your contributions (the money you deposited) at any time, for any reason, with no tax or penalty. That money was already taxed when you earned it, so the IRS lets you take it back whenever you want.

Withdrawals of earnings (the growth your money made inside the account) are different. If you're under 59½ and you withdraw earnings, you owe federal income tax on that amount plus a 10% early withdrawal penalty—unless an exception applies. Common exceptions include a first-time home purchase (up to $10,000 lifetime), disability, medical expenses above a threshold, or birth or adoption of a child.

Once you turn 59½ and have held the Roth IRA for at least five tax years, you can withdraw earnings tax-free and penalty-free. The five-year rule applies to each Roth IRA separately if you have multiple accounts, though there are exceptions for conversions and inherited accounts.

No required withdrawals during your lifetime

A traditional IRA forces you to start taking withdrawals at age 73 (as of 2023; this age has been rising). A Roth IRA has no such requirement. You never have to withdraw money during your lifetime, which means your account can keep growing tax-free for decades.

This makes a Roth IRA useful if you don't need the money in retirement or if you want to leave it to heirs. Your beneficiaries will inherit the account and can withdraw it tax-free (though they must follow their own withdrawal timeline, which depends on their relationship to you and when you died).

Converting a traditional IRA to a Roth IRA

You can move money from a traditional IRA into a Roth IRA through a process called a conversion. When you convert, you pay income tax on the amount you move (because traditional IRA money was never taxed). After that, the money grows tax-free in the Roth, and you pay no tax on future withdrawals.

Conversions make sense if you expect to be in a higher tax bracket later, or if you want to lock in the current tax rate. They also make sense if you have a traditional IRA with little or no growth and want to move it to a tax-free account. There is no income limit on conversions, so even high earners can use this strategy.

When you convert, you owe taxes that year on the full amount converted. Plan ahead so you have money outside the IRA to pay the tax bill; if you use IRA money to pay the tax, that counts as an additional withdrawal and may trigger penalties.

Roth IRAs and employer retirement plans

A Roth IRA is separate from your employer's 401(k) or 403(b) plan. You can have both at the same time. Your employer plan contributions do not count toward your Roth IRA limit, and vice versa.

Some employers now offer a Roth 401(k) option, which works like a Roth IRA but is tied to your job. You contribute after-tax money, it grows tax-free, and withdrawals are tax-free in retirement. If your employer offers this, you can fund both a Roth 401(k) and a traditional 401(k) in the same year, but your combined contributions cannot exceed the annual 401(k) limit (not the Roth IRA limit).

Frequently Asked Questions

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

Yes. You can open a Roth IRA as long as you have earned income that year. Self-employment income counts. You can also open a solo 401(k) or SEP IRA if you want to save more than the Roth IRA limit allows.

What if I contribute too much to my Roth IRA by mistake?

Contact your brokerage and ask them to remove the excess contribution and any earnings on it before the tax filing deadline. If you catch it late, you may owe a 6% penalty per year the excess sits in the account. The IRS has forms to report and correct this.

Can I use a Roth IRA to buy a house?

You can withdraw up to $10,000 of earnings (lifetime limit) for a first-time home purchase without the 10% penalty, though you still owe income tax on the earnings. You can withdraw your contributions anytime without penalty. Check the five-year rule before you withdraw earnings.

What happens to my Roth IRA when I die?

Your beneficiaries inherit the account tax-free. They must withdraw it within a set timeframe depending on their relationship to you and when you died. Spouses can treat it as their own; most others must empty it within 10 years. The money itself is never taxed, but the timeline matters.

Can I have more than one Roth IRA?

Yes, but your combined contributions across all Roth IRAs cannot exceed the annual limit. If you have two Roth IRAs and contribute $4,000 to one, you can only contribute $3,000 to the other (assuming the $7,000 limit for 2024). The five-year rule applies separately to each account.