What Is a Roth IRA? Contributions, Withdrawals, and Backdoor Rules

A Roth IRA is an individual retirement account you fund with money you’ve already paid income tax on, in exchange for tax-free withdrawals in retirement, including every dollar of investment growth the account produced along the way. For 2026, you can contribute up to $7,500, or $8,600 if you’re 50 or older.¹ The account also skips one rule that applies to almost every other tax-advantaged retirement plan: there are no required minimum distributions during the original owner’s lifetime, so the money can keep compounding as long as you leave it there.²

Who Can Contribute

Your eligibility hinges on Modified Adjusted Gross Income (MAGI). For the 2026 tax year, single filers with a MAGI below $153,000 can make the full contribution. Between $153,000 and $168,000, the amount you’re allowed to put in shrinks proportionally until it reaches zero. Married couples filing jointly get a wider window: the phase-out runs from $242,000 to $252,000.¹ Income above the top of the range locks you out of direct contributions for that year.

Married individuals filing separately face the tightest rule. If you lived with your spouse at any point during the year, your phase-out range is $0 to $10,000, which effectively blocks most separate filers. If you didn’t live with your spouse at all during the year, the single-filer thresholds apply instead.

MAGI starts with the adjusted gross income on your tax return, then adds back specific deductions the IRS lists, including the student loan interest deduction, the IRA deduction, foreign earned income exclusions, and savings bond interest exclusions.³ For most W-2 employees without foreign income, MAGI and adjusted gross income are the same number. Claim any of those add-back deductions and your MAGI could land in the phase-out even when your AGI looks safe.

Contribution Limits and Deadlines for 2026

The $7,500 limit applies across all traditional and Roth IRAs you own combined, not per account. If you’re 50 or older, the additional $1,100 catch-up contribution brings your ceiling to $8,600.⁴ Under the SECURE 2.0 Act, that catch-up figure is now indexed to inflation, which is why it moved off the flat $1,000 it had been for years.¹

There’s a floor beneath those limits: you can never contribute more than your taxable compensation for the year. Earned $4,000 in wages? Then $4,000 is your maximum, regardless of the IRS ceiling.⁴ Compensation covers wages, salaries, tips, and self-employment income, but not investment earnings, rental income, or pension payments.

A useful planning rule for one-income households: on a joint return, a non-working spouse can contribute to their own Roth IRA using the working spouse’s compensation. Each spouse can contribute up to the full limit, as long as combined contributions don’t exceed the couple’s joint taxable compensation.⁴

Contributions for a tax year can be made up until that year’s federal tax filing deadline. Contributions for the 2026 tax year are due by April 15, 2027. Tell your financial institution which tax year the deposit applies to. Filing a tax extension does not extend this deadline.

Overshoot the limit and the IRS imposes a 6% excise tax on the excess every year it stays in the account.⁵ Withdraw the excess plus any earnings on it before your tax filing deadline and no penalty applies.

How the Tax Treatment Actually Works

Every dollar going into a Roth IRA has already been taxed as income. You get no deduction in the year you contribute, unlike a traditional IRA. That upfront tax cost buys you two things.

First, nothing inside the account is taxed while it grows. You can buy and sell investments, collect dividends, and reinvest capital gains without triggering a tax event. In a regular brokerage account, selling a winning stock means paying capital gains tax that year. Inside a Roth IRA, the same trade has zero tax impact.⁶

Second, qualified withdrawals in retirement come out completely tax-free, growth included. If federal tax rates rise between now and when you retire, it won’t matter for money already in the account. You’ve paid your share. The core bet with a Roth: pay tax at today’s rate in exchange for locking in tax-free treatment on potentially decades of growth.

The absence of required minimum distributions matters here too. Traditional IRAs and 401(k)s force you to start pulling money out at a set age. A Roth IRA doesn’t, at least not for the original owner.² The balance can sit untouched through your 70s, 80s, and beyond, which makes the Roth a useful estate-planning tool as well as a retirement account.

Taking Money Out

Two conditions have to be satisfied for a withdrawal of earnings to be fully tax-free. First, at least five tax years must have passed since your first contribution to any Roth IRA. The clock starts on January 1 of the tax year for which you made that initial contribution, not the date you deposited the money.⁷ Open your first Roth IRA in March 2026 and designate the contribution for 2025, and the five-year clock started on January 1, 2025.

Second, you must be at least 59½. Other qualifying events also satisfy this prong: becoming permanently disabled, having the distribution paid to a beneficiary after your death, or using up to $10,000 toward a first-time home purchase.⁷

What most people don’t realize is that the Roth IRA is more flexible than the five-year rule and the age 59½ rule suggest, because withdrawals come out in a set order that heavily favors you:

Regular contributions come out first. Because you already paid tax on this money when you earned it, you can withdraw contributions at any age, for any reason, with no tax and no penalty.
Converted or rolled-over amounts come out next. The taxable portion of any conversion comes out before the nontaxable portion, and conversions are processed first-in, first-out.
Earnings come out last. Investment growth pulled out before you satisfy the qualified distribution requirements is taxed as ordinary income and potentially hit with a 10% early withdrawal penalty.

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The practical effect is that the money you originally put in is always accessible without tax consequences. Penalty risk only arrives if you dig deep enough to reach the earnings layer before you qualify for tax-free withdrawals.

Penalty Exceptions Before Age 59½

If you do reach the earnings layer early, the tax code carves out a long list of exceptions to the 10% additional tax.⁹ The earnings may still be taxed as ordinary income if the five-year rule hasn’t been met, but the 10% surcharge goes away for:

A first-time home purchase, up to $10,000 in earnings over your lifetime. “First-time” means anyone who hasn’t owned a home in the previous two years, and the exception can also be used for a spouse, child, or grandchild.⁹
Higher education expenses: tuition, fees, books, and required supplies at an eligible post-secondary institution for you, your spouse, or your children.¹⁰
Unreimbursed medical expenses above 7.5% of your adjusted gross income.¹¹
Total and permanent disability as determined by a physician.¹¹
Substantially equal periodic payments taken over your life expectancy, for at least five years or until you turn 59½, whichever is longer. Break the schedule early and the penalty applies retroactively to every prior distribution.¹⁰
Health insurance premiums while unemployed, after you’ve received unemployment compensation for at least 12 consecutive weeks.¹⁰
Birth or adoption of a child, up to $5,000 per child.¹¹
Terminal illness, when a physician certifies that the illness is reasonably expected to result in death within 84 months.
Emergency personal expenses. Starting in 2024, SECURE 2.0 allows one penalty-free withdrawal per year of up to $1,000 for unforeseeable personal emergencies.

“Penalty-free” and “tax-free” are different things. These exceptions eliminate the 10% additional tax, but the earnings portion of the withdrawal is still taxed as ordinary income unless the five-year rule is also satisfied.

The Backdoor Roth for High Earners

If your income exceeds the phase-out limits, direct contributions are off the table. There is a workaround. Congress removed the income cap on Roth conversions in 2010, and that opened up a two-step process commonly called a backdoor Roth: contribute to a traditional IRA (which has no income limit for non-deductible contributions), then convert that balance to a Roth IRA.

Because you didn’t take a deduction on the traditional IRA contribution, you’ve already paid tax on that money, and only the investment gains between contribution and conversion are taxable. The conversion gets reported on Form 8606 with your tax return.¹²

The complication is the pro-rata rule. If you have any pre-tax money in any traditional IRA, SEP IRA, or SIMPLE IRA, the IRS won’t let you pick which dollars you’re converting. It treats the conversion as coming proportionally from your pre-tax and after-tax balances across all traditional IRAs combined. If 80% of your total traditional IRA balance is pre-tax, 80% of any conversion counts as taxable income. The cleanest backdoor Roth happens when you have zero pre-tax IRA money. If you do have existing traditional IRA balances, rolling them into a workplace 401(k) first can clear the way.

Converted funds carry their own five-year holding period, separate from the contribution five-year rule. Pull out the converted amount before five years have passed while you’re under 59½ and the 10% penalty applies to the taxable portion of the conversion. Each conversion starts its own clock, counted from January 1 of the year the conversion occurred. Once you turn 59½, this separate holding period stops mattering.

What You Can’t Hold in a Roth IRA

Most common investments are allowed: stocks, bonds, mutual funds, ETFs, and CDs. Federal law draws a hard line at two categories: life insurance contracts and collectibles.¹³

Collectibles include artwork, antiques, gems, stamps, rugs, most coins, most metals, and alcoholic beverages. Use IRA funds to buy any of these and the IRS treats the purchase amount as a distribution in the year you bought it, which means income tax and potentially the 10% early withdrawal penalty.¹³ Certain highly refined gold and silver bullion is an exception, but only if held in the physical possession of a bank or IRS-approved trustee. Real estate is technically allowed, but most IRA custodians won’t let you hold it because of the administrative complexity; a self-directed IRA custodian that specifically permits it is required.

What Happens When You Die

The lifetime RMD exemption applies to the original owner. Once a Roth IRA passes to a beneficiary, different rules kick in, and they depend on who inherits.

A surviving spouse has the most flexibility. They can treat the inherited Roth IRA as their own, which means no required distributions during their lifetime, or roll the inherited funds into their existing Roth IRA.

Non-spouse beneficiaries generally must empty the account by the end of the tenth calendar year following the year the owner died.¹⁴ Qualified distributions from the inherited account remain tax-free, assuming the original owner’s five-year holding period was already satisfied; the beneficiary doesn’t restart that clock. Certain “eligible designated beneficiaries,” including minor children of the deceased, disabled individuals, and beneficiaries not more than 10 years younger than the owner, may stretch distributions over their own life expectancy instead of using the 10-year rule.

The point that catches people off guard is that inherited Roth IRAs are subject to RMD rules even though the original owner’s account was not.² A non-spouse beneficiary who forgets the 10-year deadline can face steep penalties on the undistributed balance.

1
Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026, IRA Limit Increases to $7,500
2
Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs
3
Internal Revenue Service. Modified Adjusted Gross Income
4
Internal Revenue Service. Retirement Topics – IRA Contribution Limits
5
Office of the Law Revision Counsel. 26 USC 4973 – Tax on Excess Contributions to Certain Tax-Favored Accounts and Annuities
6
Internal Revenue Service. Topic No. 451, Individual Retirement Arrangements (IRAs)
7
Office of the Law Revision Counsel. 26 USC 408A – Roth IRAs
8
Internal Revenue Service. Publication 590-B, Distributions from Individual Retirement Arrangements
9
Internal Revenue Service. Topic No. 557, Additional Tax on Early Distributions From Traditional and Roth IRAs
10
Office of the Law Revision Counsel. 26 USC 72 – Annuities; Certain Proceeds of Endowment and Life Insurance Contracts
11
Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions
12
Internal Revenue Service. Instructions for Form 8606
13
Internal Revenue Service. Retirement Plans FAQs Regarding IRAs
14
Internal Revenue Service. Retirement Topics – Beneficiary