Roth IRA

Roth IRA summary:

• An IRA is an individual retirement account you can open on your own. You can contribute money to your IRA in addition to or instead of a workplace retirement plan. 

• A Roth IRA lets you contribute after-tax dollars and withdraw that money tax-free when you retire. 

• Roth IRAs have specific tax rules for contributions and distributions that you need to be familiar with before you open an account. 

Roth IRA definition and meaning

IRAs are special accounts you can open to save for retirement. There are two main types of IRAs: traditional and Roth. The main difference between them is their tax treatment.

Roth IRAs are funded with after-tax dollars. That means you pay tax on the money before it goes into your account. The upside is that when you retire, you can withdraw what you saved tax-free. 

You can have a Roth IRA even if you have a 401(k) or another retirement plan at work. The IRS does, however, limit who can contribute to a Roth account based on their income and tax filing status. 

Key concept: A tax-advantaged retirement account. 

More on Roth IRA

What does your dream retirement look like? Are you strolling on a beach, indulging in new hobbies, or finally getting around to those home renovations you've been putting off?

Whatever your retirement vision, a Roth IRA could help you bring it to life. A Roth IRA is an investment account that's designed just for retirement savings. Roth IRAs offer some sweet tax benefits, since you can withdraw the money you saved in retirement tax-free. 

You can fund a Roth account in addition to what you save in your retirement plan at work. A Roth IRA could also be a substitute for an employer-sponsored plan if your job doesn't offer one or you're self-employed. 

Here's a closer look at how a Roth IRA could help you fund your retirement savings goals. 

Roth IRA: a comprehensive breakdown

A Roth IRA is a tax-advantaged retirement account for individuals. The IRS sets rules for these accounts, including who can contribute and the maximum amount that you can save each year. 

Here are the key facts to know about Roth IRAs:

• Roth IRAs are funded with after-tax dollars, which means you've already paid the tax on the money before it goes into your account. 

• You can withdraw your original contributions at any time, with no tax penalties. (You’ve already paid the tax.) 

• You'll need to wait until you're 59 1/2 to withdraw the earnings from your account without a tax penalty. 

• The account must be five years old before you can withdraw your earnings without penalty—even after you turn 59 1/2.

• Qualified withdrawals are 100% tax-free. 

• You're not required to take mandatory withdrawals from your Roth IRA. If you don't use the money, you can pass it on to someone else when you die. 

• You can contribute to a Roth IRA as long as you have earned income each year, regardless of your age.

• Contributions are capped each year. 

• The money you put in isn't tax-deductible. 

Now, who can contribute to a Roth IRA? It's tied to your income and filing status. The IRS sets the income limits and adjusts them each year for inflation. 

• If your income is at or under the limit for your filing status, you can make a full contribution. 

• If your income is over the limit for your filing status, you may be able to make a partial contribution. 

The IRS also adjusts the annual contribution limit. In 2025, for example, the full contribution limit is $7,000. If you're 50 or older, you can tack on another $1,000 in catch-up contributions to that amount. 

You can't borrow from a Roth IRA, but the IRS does let you take money out early without a penalty in some situations. For example, you could pull up to $10,000 to buy a home or use some of your IRA savings to pay for college. However, you couldn't cash out your Roth IRA to pay off credit card debt without a penalty.