A Roth IRA is a type of retirement account with special tax advantages. When you make contributions to a traditional IRA, you get a tax break upfront and typically don't pay taxes until you make withdrawals during retirement. A Roth IRA works differently. By contributing money that has already been taxed, you typically get tax-free withdrawals when you retire.
You pay taxes on your Roth IRA contributions in the year you make them. The money can grow tax-free, and you won't owe tax when you make withdrawals in retirement. When used strategically as part of your financial plan, Roth IRAs can help you manage the impact of taxes.
No required minimum distributions
Unlike with other types of retirement accounts, you won't need to take required minimum distributions (RMDs) (mandatory withdrawals after a certain age) from a Roth IRA once you reach a certain age. This gives your money more time to compound and grow tax-free.
Accessibility
Most people who earn income can open and contribute to a Roth IRA. But there's an exception for high earners: If you earn more than a certain amount during the year, you may not be able to make contributions to a Roth IRA, or you might have a lower limit on contributions.
Flexibility
Because you've already paid taxes on them, you can often withdraw your contributions (but not any growth) from your Roth IRA without triggering taxes or penalties. This makes a Roth IRA a great backup for your emergency fund.
For the 2024 and 2025 tax years, most people can contribute up to $7,000 per year to a Roth IRA. If you're 50 or older, you may be able to make a catch-up contribution of up to an additional $1,000 (for a total of $8,000). While this is the maximum amount that you can contribute, the amount you should contribute to an IRA might be different based on your unique situation.
Yes. As long as you meet the income threshold for contributing to a Roth IRA, you can have both types of accounts. Importantly, the annual contribution limit ($7,000 for those under 50, $8,000 for those 50 and older) applies across all of your IRA accounts. This means that if you're under 50 and contribute $3,000 to a traditional IRA, you can contribute only up to $4,000 to your Roth IRA that year.
Yes. A 401(k) is an employer-sponsored retirement account. You can open and contribute to a Roth or traditional IRA even if you have access to and make contributions to a 401(k). Contributions you make to your 401(k) won't count toward your Roth IRA contribution limit, so it's possible to max out your 401(k) and then use your IRA to save even more for retirement.
To open a Roth IRA, you'll need to select a financial institution that offers them and then complete some forms to open your account. Once the account is opened, you can begin making contributions and selecting your investments. Remember to choose a beneficiary for your account. This person will automatically inherit the account when you pass away.
Anyone who earns income can open a Roth IRA. One catch is that if you earn more than the IRS's income limits, the amount you can contribute may be limited (or you may not be able to contribute at all). In order to be eligible to make a full contribution to your Roth IRA in 2025, your modified adjusted gross income (MAGI) must be less than $150,000 for single filers or $236,000 for joint filers. How much you're eligible to contribute gradually phases out if you earn more than these amounts. Single filers earning $165,000 or more (or joint filers earning $246,000 or more) are not eligible to make contributions to a Roth IRA.
Yes. If your child earns an income but is too young to open and manage an IRA themself, you can open a custodial Roth IRA in their name. Once they reach adulthood, they will take control of the account. This can be a great way of giving your child a leg up financially from a young age.
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