Pay tax now, and — if the rules are met — never again. The Roth IRA’s promise is tax-free growth; its discipline is the fine print around eligibility and withdrawals.
Key takeaways
- Contributions are made with after-tax dollars; qualified withdrawals of earnings can be tax-free.
- Eligibility to contribute directly phases out above certain incomes.
- No required minimum distributions during the original owner’s lifetime.
What it is
After-tax contributions with tax-free growth potential. The account is a structure; the investments it holds are separate and carry their own risks.
Who it’s for
- Savers who expect higher tax rates later
- Younger investors with decades of compounding ahead
- High earners using a backdoor contribution, with care
- Anyone who wants tax-free assets to leave to heirs
How it works
- Open a Roth IRA and contribute after-tax dollars, or convert eligible funds from another account.
- Investments grow inside the account.
- Qualified distributions (generally after age 59½ and a 5-year holding period) are tax-free.
Eligibility
Available to those with earned income, subject to modified adjusted gross income phase-outs that limit or eliminate direct contributions at higher incomes.
Contributions and funding
$7,500 (under 50) or $8,600 (50+) for 2026, across all IRAs combined and reduced by any Traditional IRA contributions. Direct contributions phase out at modified AGI $153,000–$168,000 (single) and $242,000–$252,000 (married filing jointly). 2026 tax year
A worked example
Contribute $7,500 at age 35 and let it compound. Qualified withdrawals after age 59½ and the five-year holding period come out entirely tax-free — earnings included. If your income exceeds the direct-contribution limit, a nondeductible Traditional contribution followed by a conversion (the ‘backdoor’) can achieve a similar result, but the pro-rata rule may make it taxable if you hold other pre-tax IRA money.
What it can hold
Publicly traded securities and, in a self-directed model, permitted alternative assets subject to the same restrictions as any IRA.
Taxes and reporting
Qualified withdrawals of contributions and earnings are generally tax-free. Nonqualified earnings withdrawals may be taxable and subject to the 10% additional tax. Requires tax review
Withdrawals and distributions
Contributions can generally be withdrawn at any time; earnings are tax-free only if the distribution is qualified. No lifetime RMDs for the original owner.
How Investor Services custodies it
Investor Services custodies the Roth IRA and the assets you direct into it, tracks contributions and conversions for reporting, and furnishes the tax forms a custodian must file. The investment choices remain yours.
Risks and limitations
- Contributing while ineligible creates an excess contribution
- Nonqualified withdrawals can trigger tax and penalties
- Investment risk, including loss of principal
Common mistakes to avoid
- Contributing while over the income limit (an excess contribution)
- Withdrawing earnings before the account is qualified
- Overlooking the pro-rata rule on a backdoor Roth
- Assuming a conversion can be undone — it cannot
Frequently asked questions
What is a backdoor Roth?
A strategy involving a nondeductible Traditional IRA contribution followed by a conversion. The tax result depends on your other IRA balances (the pro-rata rule). Requires tax review
When are Roth earnings tax-free?
Generally when the account has been open five years and you are at least 59½, or another qualifying condition applies.
Are there income limits?
Yes — direct contribution eligibility phases out above certain incomes for the tax year.
Educational only. This page is general information, not individualized investment, legal, or tax advice. Rules depend on your account type, transaction, tax year, and circumstances — consult a qualified professional.