Roth IRA

A Roth IRA is an individual retirement account that allows your money to grow tax-free. Unlike a traditional IRA, contributions to a Roth IRA are made with after-tax dollars. This means you do not get a tax deduction when you put money in, but qualified withdrawals in retirement are completely tax-free, including all the earnings your account has accumulated over the years.

To make a full contribution in 2026, your income must fall below certain limits. Single filers begin to phase out at $150,000 in modified adjusted gross income, and married couples filing jointly phase out starting at $236,000. The contribution limit for 2026 is $7,000 per year, or $8,000 if you are age 50 or older, thanks to the catch-up contribution rule.

One of the most valuable features of a Roth IRA is that there are no required minimum distributions (RMDs) during the account owner’s lifetime. This makes it a flexible tool for long-term wealth building and estate planning, since the money can stay invested and growing for as long as you choose.

A practical example: suppose a 35-year-old contributes $7,000 to a Roth IRA each year for 30 years. Assuming consistent growth, all of those earnings can be withdrawn in retirement without paying a single dollar in federal income tax on them.

To take a qualified tax-free withdrawal, two conditions must be met:

• The account must have been open for at least five years.
• The account holder must be age 59½ or older, or meet another qualifying reason such as a first home purchase or disability.

Roth IRAs are offered by most banks, brokerages, and credit unions. They can hold a wide variety of investments, including stocks, bonds, mutual funds, and ETFs. Because contributions (not earnings) can be withdrawn at any time without taxes or penalties, many people also view a Roth IRA as a flexible savings option with retirement as the primary goal.

RetireGrader is not a financial advisor or fiduciary. This definition is for educational purposes only.