ROTH IRA
Contribute now, withdraw tax-free later.
A Roth IRA is an individual retirement account funded with after-tax contributions, designed so qualified withdrawals in retirement are not taxed.
HOW IT WORKS
You contribute money that's already been taxed. In exchange, qualified withdrawals of both contributions and earnings are generally tax-free, provided certain conditions are met.
Potential advantages
Qualified withdrawals, including investment growth, are generally tax-free.
Contributions — though not earnings — can generally be withdrawn without penalty, offering some flexibility.
There's generally no required distribution age during the original owner's lifetime under current rules.
Important considerations
Contributions are not tax-deductible in the year they're made.
Eligibility to contribute directly phases out at higher income levels.
A five-year holding requirement generally applies before earnings can be withdrawn tax-free.
Who typically uses it
Savers who expect to be in a similar or higher tax bracket in retirement, or who want tax diversification alongside pre-tax accounts.
Planning considerations
Roth accounts can be a valuable complement to pre-tax savings, particularly earlier in a career — but eligibility and the right mix depend on individual income and circumstances.
This page is educational and does not constitute personalized tax, legal or investment advice, and does not assume every reader qualifies for this account type. Contribution rules, income limits and tax treatment are set by current IRS rules and change over time — consult a qualified tax or financial professional before acting.
FAQ
Common questions
What is the five-year rule?
Roth IRAs generally require the account to have been open for a minimum period before earnings can be withdrawn tax-free, in addition to reaching retirement age. The specific rules are worth reviewing with a tax professional.
Can I still use a Roth IRA if my income is high?
Direct contributions phase out above certain income levels under current IRS rules, though alternative approaches exist for some savers. This is a good topic to raise with a qualified advisor.
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