What Is A Roth IRA? How They Work, How To Open One

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The reason Roth IRAs are popular is that all the money you withdraw in retirement comes out tax-free. That means all of the investment returns you earned over the years that you were saving and investing can be withdrawn tax-free in retirement.

With a Roth IRA, you deposit money you earn at work, grow that money by investing it and then take it out at retirement (age 59½ or older) tax-free forever.

The whole “tax-free forever” part? That’s what turns heads. But the Roth IRA offers other perks, too:

• You can withdraw your contributions any time tax-free (since you’ve already paid taxes on them), and you can use the money for any reason. Ideally, you leave the money there for your retirement, but in a pinch this feature can be helpful.
• If you open your Roth IRA at an online broker, you can invest in high-return investments such as stocks and stock mutual funds and ETFs, where you can earn much more than in a traditional bank account.
• If you take out your investment earnings early, you can be hit with income tax and a 10% penalty on the money you withdraw. However, in some cases — for example, if you use the money for qualified education expenses — you can avoid the penalty (though not the income taxes).
• Roth IRAs are useful if the account is likely to be passed down, because your beneficiaries won’t owe taxes. Plus, you’re never too old to invest in a Roth IRA, so you can stash money there your whole life, as long as your income stays below the limits (more on those below), and you’ll never face required minimum distributions with a Roth (though your beneficiaries will face a time limit on withdrawing the money). Learn more about the rules for inherited IRAs.

Roth IRA rules

Withdrawals: You can withdraw any contributions and earnings tax-free at retirement (age 59½ or older), with one stipulation: Five years must have elapsed since your first contribution to a Roth IRA, and the clock starts on Jan. 1 of the year you made it. The five-year rule is important to remember, and it means you need to plan a bit ahead.

Contribution limits:

• In 2026, you’re allowed to contribute up to $7,500 to your Roth IRA, up from $7,000 in 2025. If you’re age 50 or older, you can make an additional catch-up contribution of $1,100 in 2026, up from $1,000 in 2025. (Both the annual limit and the catch-up contribution are adjusted for inflation each year.)
• You can contribute to your Roth IRA all the way up until the April 15 tax deadline for that year. For example, you can allocate $7,000 “for 2025” until April 15, 2026, even if you also contribute $7,500 “for 2026” in the same year.
• One caveat: The maximum contribution must be the lesser of the above contribution limits or your earned income. If your total earnings from work are, say, $6,000 in 2026, that’s your maximum Roth IRA contribution.

Rollovers: The Roth IRA is a great rollover option if you have a Roth 401(k). You can roll the money from the employer-sponsored account to a Roth IRA held at a brokerage, for example, and be able to invest in whatever you want, not just the funds available in the 401(k). Money in a Roth 401(k) should move to a Roth IRA without creating tax liabilities, but any employer match held in a traditional 401(k) will be subject to tax if rolled to a Roth IRA.

Who can open a Roth IRA?

There are two main limitations on who can open a Roth IRA:

Earned income: You must have earned income to contribute to a Roth IRA.

The spousal IRA, however, is an exception to the earned income requirement. If your spouse doesn’t work for pay, you and your spouse can each contribute to your own Roth IRAs, as long as your contributions, if added together, don’t exceed your total annual income. For example, if you earn, say, $50,000 this year, you can contribute $7,500 to your Roth IRA and your spouse can contribute $7,500 to their own Roth IRA.

Income limits: If you earn more than the Roth IRA income limits, you can’t contribute directly. Here are the 2026 income limits:

• Single filers as well as head-of-household taxpayers can contribute to a Roth IRA if their modified adjusted gross income is less than $153,000 in 2026. They can contribute a reduced amount (that is, less than $7,500) if their income is between $153,000 and $168,000. Once income hits $168,000 or higher, single and head-of-household filers can’t contribute to a Roth IRA.
• Married-filing-jointly taxpayers can contribute if their modified adjusted gross income is less than $242,000 in 2026. They can contribute a reduced amount (less than $7,500) if their income is between $242,000 and $252,000. If income is above $252,000, they’re prohibited from contributing to a Roth IRA.

The income limits are adjusted for inflation each year. For more details, check out our story on Roth IRA and traditional IRA income limits.

Keep in mind that if you make above those amounts, you can still open a Roth IRA, but the route is a bit more roundabout  — you’ll need to use a backdoor Roth IRA.

Roth IRA vs. traditional IRA

The other main type of individual retirement account is the traditional IRA, and it can be a valuable savings vehicle for retirement, too. In contrast to the Roth IRA, the traditional IRA allows you to make contributions on a pre-tax basis, meaning you get a tax break each year you make a contribution, assuming you qualify to deduct your IRA contribution. Once you start withdrawing the money in retirement (age 59½ or older), you’ll owe income tax on any withdrawals.

There is no income restriction for opening and contributing to a traditional IRA: Anyone with earned income can do it. But to get a tax deduction for your traditional IRA contributions, income limits come into play only if you (or your spouse if you’re married) have a retirement plan at work.

• If you (and your spouse) don’t have a retirement plan at work, and if you have earned income, you can contribute to a traditional IRA and get a tax deduction for your contributions — no matter what your income.
• If you (or your spouse) do have a retirement plan at work, then your ability to deduct your contributions will depend on your income level. Read more about traditional IRA income limits.

FAQs

• How much can I earn in a Roth IRA?
  

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  What you earn in a Roth IRA depends on what you’ve invested in. An account with one of the best brokers for Roth IRAs will allow you to purchase a range of securities, from low-risk, low-return choices such as bonds to high-risk, high-return choices such as individual stocks and stock mutual funds and ETFs. Over time, a diversified portfolio of stocks has outpaced inflation and made many investors millionaires.

   

• Is it better to contribute to a 401(k) or a Roth IRA?
  

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  Retirement advisors routinely tell clients to invest in their 401(k) before turning to their Roth IRA. That’s because many 401(k)s offer an employer match on contributions, offering free money just for saving for retirement, often 3% of the employee’s salary each year. Once workers have raked in all that free money, the best strategy is to turn to the Roth IRA and max that out, before turning back to the 401(k) again.

   

• Can you lose money in a Roth IRA?
  

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  The performance of a Roth IRA depends on its investments. Any market-based investments such as stocks and bonds may lose money. However, brokerage accounts also allow you to invest in some of the safest types of investments, such as the best money market funds.