What is a Roth IRA?

A Roth Individual Retirement Account (Roth IRA) is a type of retirement savings account that allows you to contribute after-tax dollars, and the money grows tax-free over time. Here are some key benefits and features of a Roth IRA:

Key Benefits

Tax-free growth: The money in your Roth IRA grows tax-free, meaning you won’t have to pay taxes on the investment earnings.
Tax-free withdrawals: If you wait until age 59 1/2 and have had a Roth IRA for at least five years, your withdrawals are tax-free.
Flexibility: You can withdraw your contributions (not the earnings) at any time tax-free and penalty-free.

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Key Features

Contribution limits: For 2026, you can contribute up to $7,500 if you are under 50, or $8,600 if you are 50 or older.
Income limits: For 2026: single filers get the full contribution with MAGI under $153,000, a reduced amount from $153,000 to $168,000, and nothing at $168,000 or above. Married couples filing jointly: full under $242,000, reduced from $242,000 to $252,000, nothing at $252,000 or above.
Required minimum distributions (RMDs): Unlike traditional IRAs, Roth IRAs do not have RMDs, which means you’re not required to take withdrawals at a certain age.
Investment options: You can invest your Roth IRA contributions in a variety of assets, such as stocks, bonds, ETFs, and mutual funds.

The two five-year rules

Roth IRAs come with not one but two five-year clocks, and confusing them is one of the most common Roth mistakes.

The first clock starts with your very first Roth contribution and governs your earnings. You can always withdraw what you contributed, tax and penalty free, at any age, because you already paid tax on that money. But the earnings are only tax free if two conditions are met: the account has been open at least five years (measured from January 1 of the year of your first contribution) and you are at least 59 and a half. Open your first Roth in 2026 and the earnings clock runs to January 1, 2031. One practical tip falls out of this: even a tiny contribution starts the clock, so opening a Roth early, even with a small amount, is never wasted.

The second clock applies to conversions, and each conversion starts its own. If you convert traditional IRA money to Roth and then withdraw the converted amount within five years while under 59 and a half, you owe the 10 percent early-withdrawal penalty on it. This is the rule that surprises people doing backdoor Roths or large conversions: the tax on the conversion is only half the story. Know both clocks before you move money.

Who is a Roth IRA suitable for?

A Roth IRA is a good option for:

Younger investors: If you’re in a lower tax bracket now, it might make sense to contribute to a Roth IRA and pay taxes now, rather than later when you’re in a higher tax bracket.
Those who expect to be in a higher tax bracket in retirement: If you think you’ll be in a higher tax bracket in retirement, a Roth IRA can provide tax-free income.
Those who want flexibility: If you want to be able to withdraw your contributions at any time, a Roth IRA might be a good choice.

Roth vs. traditional: the one-question test

Choosing between a Roth and a traditional IRA comes down to one question: will your tax rate be higher now or in retirement? Pay tax now with a Roth if you expect to be in a higher bracket later, which is the usual case for young earners with decades of raises ahead. Take the deduction now with a traditional IRA if you expect a lower rate in retirement, which is the usual case for peak earners nearing the end of their careers.

Two tiebreakers help when the answer is unclear. First, Roth IRAs have no required minimum distributions in your lifetime, so they double as an estate-planning tool. Second, being able to withdraw contributions anytime makes a Roth a more flexible emergency backstop than a traditional IRA, though raiding retirement for emergencies is still a last resort. When genuinely unsure, splitting contributions between the two is a reasonable hedge against an unknowable future tax code.