Guide · Retirement
Roth IRA Explained: Tax-Free Growth, Contribution Limits, and Withdrawal Rules
A Roth IRA trades a tax deduction today for completely tax-free growth and withdrawals later. Here's how the rules actually work, and why starting early matters so much.
Roth vs Traditional
With a Traditional IRA, contributions may be tax-deductible now, but every dollar withdrawn in retirement — contributions and growth alike — is taxed as ordinary income. With a Roth IRA, you contribute after-tax money, but qualified withdrawals, including decades of compounded growth, are entirely tax-free.
The choice often comes down to whether you expect to be in a higher or lower tax bracket in retirement than you are today — though many savers use both for tax diversification.
2026 contribution limits
The limit applies across all your IRAs combined (Traditional + Roth), not per account. Contributions also can't exceed your earned income for the year.
Why starting early matters so much
Because growth inside a Roth IRA is never taxed, every extra year of compounding is pure upside. Contributing the full $7,000 starting at 25 instead of 35, at a 7% return, makes a dramatic difference by 65:
| Start Age | Years Contributing | Balance at 65 |
|---|---|---|
| 25 | 40 | $1,497,000 |
| 35 | 30 | $707,000 |
| 45 | 20 | $306,000 |
Frequently asked questions
What's the difference between a Roth IRA and a Roth 401(k)?
Both grow tax-free, but a Roth IRA is opened individually with a much lower contribution limit ($7,000 for 2026) and has income limits on who can contribute directly. A Roth 401(k) is offered through an employer, shares the much higher 401(k) contribution limit, and has no income limit.
What counts as a 'qualified' Roth IRA withdrawal?
A withdrawal of earnings is qualified — and therefore tax- and penalty-free — if the account has been open at least 5 years and you're 59½ or older (or meet an exception like disability, first home purchase up to $10,000, or death).
Can high earners still use a Roth IRA?
Direct contributions phase out above certain income levels. Many high earners instead use a 'backdoor Roth' — contributing to a Traditional IRA (which has no income limit) and immediately converting it to a Roth, paying tax only on any growth before conversion.
Does a Roth IRA have required minimum distributions (RMDs)?
No — unlike Traditional IRAs and 401(k)s, Roth IRAs have no RMDs during the original owner's lifetime, making them a useful tool for legacy planning as well as retirement income.