What Is a Roth IRA and How Does It Work?

A Roth IRA is one of the most powerful retirement accounts available — you contribute money you've already paid tax on, and in retirement every dollar of growth comes out completely tax-free.

How it works

You contribute after-tax money to a Roth IRA and invest it. It grows for decades, and qualified withdrawals in retirement — including all the gains — are 100% tax-free. Project that tax-free growth on the Roth IRA calculator.

Contribution and income limits

The IRS sets an annual contribution limit (with a higher catch-up amount once you're 50+). High earners may be phased out of contributing directly — always check the current year's figures, as they change.

The best part: flexible withdrawals

Because you've already paid tax on your contributions, you can withdraw the contributions (not the earnings) at any time without taxes or penalties. That makes a Roth IRA more flexible than most retirement accounts — though it's still best left to grow.

Who benefits most

A Roth shines if you expect to be in a higher tax bracket later — which describes most younger savers. You lock in today's lower rate and never pay tax on the growth. Compare the trade-off in Roth vs Traditional.

How to open one

1. Pick a low-cost brokerage and open a Roth IRA (a few minutes online).
2. Contribute up to the annual limit — automate it if you can.
3. Invest the cash in low-cost index funds; don't leave it sitting as cash.

Project your Roth

Frequently asked questions