A Roth IRA works on a three-stage tax deal: you contribute money you’ve already paid income tax on, it grows inside the account without any annual tax on dividends, interest, or capital gains, and qualified withdrawals in retirement come out entirely tax-free. For 2026, you can put in up to $7,500 a year, or $8,600 if you’re 50 or older, as long as your income falls under the limits set by the IRS.1Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026, IRA Limit Increases to $7,500 That taxed-in, untaxed-through, untaxed-out structure is the feature that separates it from almost every other retirement account.
Who Can Contribute and How Much
You need earned income to contribute. Wages, salary, self-employment income, and tips count. Investment income, rental income, and Social Security benefits don’t.2Internal Revenue Service. Topic No. 309, Roth IRA Contributions Your contribution for the year can’t exceed what you earned that year, so if you made $4,000, that’s your ceiling regardless of the general limit.
Assuming you have enough earned income, the 2026 cap is $7,500 under age 50. At 50 or older, an extra $1,100 catch-up brings you to $8,600.1Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026, IRA Limit Increases to $7,500 The catch-up is now indexed for inflation under the SECURE 2.0 Act, so it will adjust in future years.
Your ability to contribute phases out as income rises. For 2026, based on modified adjusted gross income (MAGI):
- Single or head of household: full contribution below $153,000, reduced contribution between $153,000 and $168,000, none at $168,000 or above.
- Married filing jointly: full contribution below $242,000, reduced between $242,000 and $252,000, none at $252,000 or above.
- Married filing separately: the phase-out runs from $0 to $10,000, so unless your income is near zero, there’s little room.
Inside a phase-out range, you can still contribute something. The IRS uses a formula that reduces your limit proportionally based on how far into the range your income sits.3Office of the Law Revision Counsel. 26 USC 408A – Roth IRAs
Spousal Contributions
If you file jointly and one spouse has little or no earned income, the working spouse can fund a Roth IRA for both of you. Each spouse gets their own account with the same $7,500 limit (or $8,600 with catch-up), as long as the couple’s combined taxable compensation covers both contributions.4Internal Revenue Service. Retirement Topics – IRA Contribution Limits
Contribution Deadline
You have until the tax filing deadline, typically April 15 of the following year, to contribute for a given tax year. A contribution made in March 2027 can count toward either 2026 or 2027, depending on how you designate it. Contribute too much and a 6% excise tax applies to the excess for every year it stays in the account.5Internal Revenue Service. IRA Excess Contributions
How the Taxes Actually Work
The structure is simple, but it’s easy to confuse with a traditional IRA. You contribute after-tax dollars: money you’ve already paid income tax on. You get no deduction for the contribution in the year you make it. That’s the cost of entry.
Once the money is inside, dividends, interest, and capital gains accumulate with no annual tax bill. In a regular brokerage account, selling a stock at a profit triggers capital gains tax that year. Inside a Roth, that same gain sits untouched, and the full balance keeps compounding rather than getting shaved down each April.
When you withdraw in retirement as a qualified distribution, you pay zero federal income tax on the earnings.3Office of the Law Revision Counsel. 26 USC 408A – Roth IRAs Pay tax now at today’s rate, and everything that grows inside is yours free and clear.
What You Can Hold Inside a Roth IRA
A Roth IRA is a container, not an investment. You choose what goes inside — typically some mix of index funds, ETFs, individual stocks, and bonds. The account provides the tax-advantaged wrapper around whatever you pick.
A few things can’t go in. The IRS prohibits collectibles in any IRA, including artwork, antiques, gems, stamps, most coins, and alcoholic beverages. Life insurance is also off-limits. Certain precious metals meeting specific purity standards are an exception to the collectibles ban.6Internal Revenue Service. Retirement Plan Investments FAQs
The IRS also bars “prohibited transactions” between your IRA and yourself or close family members. You can’t borrow from your Roth IRA, sell property to it, use it as loan collateral, or buy a vacation home with IRA funds for personal use.7Internal Revenue Service. Retirement Topics – Prohibited Transactions Violating these rules can disqualify the entire account, turning all of it into a taxable distribution.
Getting Money Out
Roth withdrawal rules are more flexible than people realize, but the details matter. Your original contributions can come out at any time, at any age, for any reason, with no tax and no penalty. You already paid tax on that money, so the IRS doesn’t tax it again on the way out.8Internal Revenue Service. Traditional and Roth IRAs
The IRS treats withdrawals as coming from contributions first, then conversions, then earnings. You’ll work through every dollar of contributions before the IRS considers you to be touching earnings, which is where the restrictions kick in.
For earnings to come out completely tax-free, you need a qualified distribution. Two conditions must both be met:
- The five-year clock. At least five tax years must have passed since January 1 of the year you first contributed to any Roth IRA. Open your first Roth in June 2024 and designate it as a 2024 contribution, and the clock started January 1, 2024, running through January 1, 2029.
- A qualifying event. You’ve reached age 59½, become permanently disabled, are a beneficiary withdrawing after the owner’s death, or are using up to $10,000 for a first-time home purchase.
Withdraw earnings without meeting both conditions and you’ll owe regular income tax on the amount plus a 10% early withdrawal penalty. Some exceptions waive the 10% penalty even when the distribution isn’t fully qualified, including qualified higher education expenses and unreimbursed medical costs exceeding 7.5% of your adjusted gross income.9Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions The penalty goes away in those situations, but the income tax on earnings generally doesn’t unless the distribution is fully qualified.
No Required Minimum Distributions During Your Lifetime
Traditional IRAs force you to start taking distributions at age 73 whether you need the money or not. Roth IRAs have no such requirement while the original owner is alive.10Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs You can leave every dollar in the account for your entire life and keep the tax-free growth going.
The Backdoor Roth if Your Income Is Too High
If your income exceeds the Roth contribution limits, you’re not entirely shut out. The backdoor Roth is a two-step process: contribute to a traditional IRA, which has no income limit for nondeductible contributions, then convert that traditional IRA to a Roth. Since 2010, there has been no income cap on conversions, so the conversion step is available to everyone.11Internal Revenue Service. Retirement Plans FAQs Regarding IRAs
The conversion itself is straightforward. You can do a trustee-to-trustee transfer, a same-trustee transfer, or a rollover within 60 days. When you convert, any untaxed amounts become taxable income for that year. If you contributed nondeductible (after-tax) dollars and convert promptly, before any gains accumulate, the tax bill on conversion is minimal or zero.
The trap is the pro-rata rule. If you have any other traditional IRA balances containing pretax money, from old rollovers, deductible contributions, or employer plan transfers, the IRS won’t let you cherry-pick which dollars you’re converting. Each conversion is treated as coming proportionally from your pretax and after-tax balances across all your traditional IRAs.12Internal Revenue Service. Rollovers of After-Tax Contributions in Retirement Plans If 80% of your combined traditional IRA balance is pretax, then 80% of any conversion is taxable, even if the specific dollars you just contributed were entirely after-tax.
The cleanest way to run a backdoor Roth is to have zero other traditional IRA balances at the time of conversion. If you have old traditional IRA money, one option is rolling it into a current employer’s 401(k) first, if the plan allows it, to clear the slate. You’ll also need to file IRS Form 8606 to report both the nondeductible contribution and the conversion.13Internal Revenue Service. Instructions for Form 8606
Fixing an Overcontribution
Contributing more than your limit, or contributing when your income was too high, creates an excess subject to a 6% excise tax every year it remains in the account.5Internal Revenue Service. IRA Excess Contributions The tax compounds: miss it for three years and you’ve paid 6% three separate times on the same overcontribution.
To avoid the penalty, withdraw the excess plus any earnings it generated by your tax filing deadline, including extensions (typically October 15 if you filed for one). The earnings portion of what you withdraw counts as taxable income for the year of the excess contribution. Catch it early and act before the deadline, and the 6% never applies.
If you miss the deadline, you can still stop the bleeding by withdrawing the excess or by contributing less in a future year and applying the shortfall against the previous overage. Either way, you owe 6% for every year the excess sat in the account uncorrected.
What Happens to the Account When You Die
Inherited Roth IRA rules depend on who inherits.
Surviving Spouses
A surviving spouse has the most options. They can roll the inherited Roth into their own Roth IRA and treat it as if it had always been theirs, with no required distributions during their lifetime. Or they can keep it as an inherited account and take distributions based on their own life expectancy, or follow the 10-year rule.14Internal Revenue Service. Retirement Topics – Beneficiary
Non-Spouse Beneficiaries
For deaths in 2020 or later, most non-spouse beneficiaries must empty the inherited Roth IRA by the end of the 10th year following the year of the owner’s death. There’s no annual distribution requirement within that decade; you can take it all in year one or wait until year ten, but the account must be fully distributed by that deadline.14Internal Revenue Service. Retirement Topics – Beneficiary
A narrow group of “eligible designated beneficiaries” can stretch distributions over their own life expectancy instead. That group includes minor children of the deceased owner (until they reach the age of majority), disabled or chronically ill individuals, and people no more than 10 years younger than the original owner. Everyone else follows the 10-year clock.
As long as the original owner’s Roth IRA satisfied the five-year holding period before death, distributions to beneficiaries come out tax-free. The inherited account keeps its Roth tax treatment even under the 10-year rule.
Opening and Funding an Account
Opening a Roth IRA takes about 15 minutes at most brokerages. You’ll need your Social Security number, employment information, and a bank account for funding. You’ll also designate beneficiaries during setup, and this is worth getting right: beneficiary designations on retirement accounts override whatever your will says.
Funding options include electronic transfers from a bank account, mailing a check, or rolling over money from another retirement account. If you’re rolling over from an employer plan like a 401(k), the transfer should go directly between custodians (a “direct rollover”) to avoid complications. Converting from a traditional IRA to a Roth is a taxable event, so plan the timing around your overall income for the year.
Once the account is funded, you still have to pick investments. The account itself earns nothing until you put the money to work.