A Roth IRA (Individual Retirement Account) is a type of retirement savings account in the U.S. that allows your money to grow tax-free.
Key Features:
- Contributions are made with after-tax dollars: You pay taxes on the money before you put it in.
- Tax-free growth and withdrawals: Your investments grow tax-free, and qualified withdrawals in retirement are also tax-free.
- No required minimum distributions (RMDs): Unlike traditional IRAs, you’re not forced to withdraw money at a certain age.
- Income limits: High earners may not be eligible to contribute directly (but there's a workaround called a Backdoor Roth IRA).
Contribution Limits (for 2025):
- Up to $7,000 per year ($8,000 if you're age 50 or older).
- Income phase-out starts at $146,000 for single filers and $230,000 for married couples filing jointly.
When can you withdraw tax-free?
- You must be 59½ or older, and
- Your account must be at least 5 years old.
A Roth IRA is especially great if you expect to be in a higher tax bracket in retirement than you are now.
