Roth IRA

A Roth IRA is an individual retirement account funded with money that has already been taxed. In exchange for giving up the deduction a traditional IRA offers, you get the reverse benefit at the other end: decades of growth and every qualified withdrawal, entirely tax-free. The account is named for Senator William Roth of Delaware and dates to the Taxpayer Relief Act of 1997.

The Roth's appeal goes beyond the tax math. Your contributions (though not your earnings) can be withdrawn at any time without tax or penalty, the account never forces distributions during your lifetime, and whatever you leave behind passes to heirs tax-free. That combination of flexibility and finality has made the Roth a fixture of retirement planning, and its workplace twin, the Roth 401(k), now sits inside most employer plans.

The catch is a set of rules that reward patience and punish shortcuts: income limits on who can contribute directly, two different five-year clocks, and ordering rules that decide which dollars come out first. This article walks through each.

The after-tax deal#

Contributions to a Roth IRA are made from income you have already paid tax on, so nothing about the contribution shows up on your tax return. From then on the account grows untaxed, and a qualified distribution is completely tax-free. A distribution is qualified once you are at least 59 1/2 (or disabled, or using up to $10,000 for a first home, or the account owner has died) and at least five years have passed since your first Roth contribution ¹.

Compare that with a traditional IRA or 401(k), where every withdrawn dollar of pre-tax money is taxed as ordinary income. A Roth dollar is worth its face value in retirement; a traditional dollar is worth its face value minus whatever tax rate the future brings. Which deal wins depends mostly on your tax bracket now versus later, taken up at the end of this article.

Sources for this section: [1]

Contribution limits and income phase-outs for 2026#

Roth and traditional IRAs share one limit: in 2026, $7,500 total, or $8,600 for those 50 and older ². You need earned income (wages or self-employment income) at least equal to what you contribute, there is no age cutoff, and contributions for a tax year can be made until the following April's filing deadline ³.

Unlike a traditional IRA, the Roth also limits who can contribute directly, based on modified adjusted gross income (MAGI), which is roughly adjusted gross income with a few items added back. For 2026 ²:

Inside the phase-out range, the allowed contribution shrinks proportionally ⁴. Contributing more than your income allows is an excess contribution, taxed at 6 percent for each year it stays in the account, though it can be withdrawn or recharacterized before the tax deadline to avoid the charge ³. High earners shut out of direct contributions are not shut out of the Roth entirely; the backdoor route below exists for exactly that situation.

Sources for this section: [2] [3] [4]

The five-year rules#

Two separate five-year clocks confuse more people than any other Roth feature. They answer different questions.

The clock on earnings#

For your earnings to come out tax-free, five tax years must have passed since January 1 of the year of your first contribution to any Roth IRA ¹. One clock covers all your Roth IRAs forever; opening a second account does not restart it, and a contribution made in April for the prior tax year backdates to January 1 of that prior year ¹. The rule still applies after 59 1/2: a 68-year-old who opened her first Roth at 66 must wait until the account's fifth year before earnings are qualified, although her own contributions remain available tax-free the whole time ¹.

The clock on conversions#

Money converted from a traditional IRA or 401(k) gets its own five-year clock, one per conversion, each starting January 1 of its conversion year ⁵. This clock has nothing to do with tax-free earnings; it decides whether the 10 percent early distribution penalty applies if you withdraw converted dollars before age 59 1/2 ⁵⁶. Once you reach 59 1/2 the conversion clocks stop mattering for the penalty. The rule exists to keep conversions from becoming a loophole around the early withdrawal penalty that applies to traditional accounts.

Sources for this section: [1] [5] [6]

Which dollars come out first#

When you take money from a Roth IRA, the IRS applies ordering rules rather than asking which dollars you meant. Withdrawals are treated as coming first from your direct contributions, then from converted amounts (oldest conversions first), and only last from earnings ⁵.

The ordering is generous. Because contributions come out first, and contributions are always tax- and penalty-free, a 45-year-old who has contributed $60,000 over the years can withdraw up to $60,000 with no tax consequences at all, regardless of any clock. Only after contributions and conversions are exhausted do earnings emerge, carrying tax and possibly penalty if the withdrawal is not qualified ⁵. This is why a Roth can double as a deep emergency reserve, though money withdrawn early loses its tax-free compounding and, beyond limited recent exceptions, cannot be put back.

Sources for this section: [5]

Conversions and the backdoor Roth#

Anyone can convert traditional IRA or workplace plan money to a Roth, whatever their income; Congress removed the income limit on conversions in 2010 ⁷. The cost is immediate: every pre-tax dollar converted is added to that year's taxable income. Conversions tend to appeal in unusually low-income years, such as the gap between retiring and starting Social Security or required minimum distributions, when the tax on conversion is cheapest. Once made, a conversion cannot be undone.

The backdoor Roth uses conversion to sidestep the income limits on contributions: contribute to a traditional IRA without taking a deduction, then convert to a Roth shortly after, reporting both steps on Form 8606 ⁷. Done cleanly, almost nothing is taxable, because the contribution was after-tax money.

Caution: The pro-rata rule can spoil a backdoor Roth. If you hold any pre-tax money in any traditional, SEP, or SIMPLE IRA, the IRS treats all of it as one pool, and a conversion is taxed on the pre-tax proportion of the whole pool, not just the account you converted from ⁷. People with large pre-tax IRA balances often owe far more conversion tax than they expected.

Sources for this section: [7]

No lifetime required minimum distributions#

Traditional IRAs and 401(k)s force withdrawals beginning at age 73. A Roth IRA never does during your lifetime: no RMDs, no schedule, no forced taxable events ⁸. Since 2024, Roth accounts inside workplace plans are exempt as well ⁸. The money can compound untouched into your 90s if you never need it.

Heirs are a different matter. Beneficiaries are subject to distribution rules ⁸, and most non-spouse heirs must empty an inherited Roth within 10 years, though what they withdraw is generally tax-free; the details sit in the required minimum distributions article. A surviving spouse can treat an inherited Roth as their own and preserve the no-RMD treatment. Because it delivers tax-free money on a flexible schedule, the Roth is often the last account families touch and the one they most like to inherit, a consideration that belongs in estate planning.

Sources for this section: [8]

When a Roth tends to beat a traditional account#

The core comparison is one question: is your tax rate higher now or in retirement? Pay tax at today's rate and the Roth wins whenever tomorrow's rate would have been higher; take the deduction and the traditional account wins whenever today's rate is the higher one. That points the Roth toward early-career workers, people in temporarily low brackets (a sabbatical, a business loss, the first years of retirement), and anyone who expects tax rates in general to rise. It points peak earners, who get the deduction at their highest lifetime rate, toward traditional accounts, which is why the two often alternate across one career.

The Roth carries side benefits the bracket math misses. Withdrawals do not count as income in the formulas that tax Social Security benefits or trigger income-based Medicare premium surcharges, so retirees drawing from a Roth can keep those costs down in ways traditional withdrawals cannot; taxes in retirement works through those thresholds. The absence of RMDs adds control late in life, and tax-free treatment for heirs adds value after it. Holding both kinds of accounts hedges the guess about future rates and lets you choose which to tap each year, one of the levers behind retirement withdrawal strategies. What the comparison cannot deliver is certainty: future tax law is unknowable, which is itself an argument for not betting the whole retirement on either answer.

RetiredWiki. (2026, July 6). Roth IRA. https://retiredwiki.com/article/roth-ira