Key takeaways

• A Roth IRA uses after-tax contributions, and qualified withdrawals may be tax-free if IRS rules are met.
• Unlike many retirement accounts, Roth IRAs generally have no required minimum distributions (RMDs) for the original owner.
• Contribution eligibility and annual limits depend on IRS rules, including your income and tax filing status.

A Roth IRA is a type of individual retirement account. When you have a Roth IRA, you contribute after-tax dollars — up to a certain limit every year.

That money stays in your retirement investment account and can potentially earn investment returns as you work your way toward retirement.

Roth IRAs are similar to traditional IRAs in many ways, but they come with some differences. Here’s a look at exactly how Roth IRAs work, including how to open one, how much you can contribute, and which potential advantages or disadvantages you should be aware of.

How does a Roth IRA work?

In a lot of ways, Roth IRAs work like some other popular retirement savings plans, such as 401(k)s and traditional IRAs.

Roth IRA vs Traditional IRA: Which Is better for you?

Here are some of the similarities you'll find between these types of plans:

• You choose to put some of your income into them now to save for retirement later.
• The money is a voluntary amount you can contribute each year, and you can change how much you contribute every year.
• You're limited by the Internal Revenue Code as to how much you can contribute in any given year.
• The money is held in an investment account, so it has the potential for compound growth through the years. In the end, you could have more than you contributed over the years.

There are a few ways that Roth IRAs are different from other types of retirement plans:

• You contribute with after-tax dollars, which means you’ve already paid taxes on the money you contribute. Roth IRAs generally don't have RMDs, which provides a bit more flexibility when it comes to managing your retirement savings.
• You can withdraw your contributions at any time without a penalty because you’ve already paid taxes on the contribution amount.

Read more: Roth vs. traditional IRA: Which should choose?

Opening a Roth IRA

Roth IRA accounts are only offered by qualifying financial institutions. That generally includes federally insured credit unions and banks, so if you already hold accounts with these types of institutions, you might want to ask about Roth IRA options.

The IRS keeps a list of approved nonbank trustees and custodians.¹ These are other financial institutions and broker-dealers that can help you with a Roth IRA account. Many individuals choose to work with registered broker-dealers that can help them set up and manage their account.

These steps can help you get started:

Research Roth IRA account options

Providers of Roth IRAs aren't all the same. Each has its own fee schedule and processes. Different financial institutions and broker-dealers may also offer access to different investment options. For example, one might only offer Roth IRAs with mutual fund investments while another includes all types of investment options.

When looking for a Roth IRA option, consider your budget, how much you want to save and your risk profile. If you're young, for example, you may want more options so you can be more aggressive with your investment strategy given the extended investing timeline.

Contact the financial institution

Once you decide on an option, reach out to the financial institution to set things in motion. Ask them what you'll need to set up your account. Make an appointment or find out if you can open the account online.

Some documents you may need to open a Roth IRA include:

• A government-issued ID with photo, such as a driver's license
• Your Social Security number, although you don't need your actual Social Security card
• Something to fund your account with, such as a check or the routing and account number for your checking or savings account
• Information about any beneficiaries you want to add to the account — you'll typically need each beneficiary's full name, and address.

Review the fine print and details

Before you sign anything or fund your account, review all the details — especially those associated with fees. Ensure you understand what services you're paying for and how much your Roth IRA costs overall. Fees may be subtracted from your account, so if you don't pay attention to them, they can add up to a surprising amount over time.

Begin contributing to your account

You can establish a Roth IRA anytime during the calendar tax year or through the tax deadline for that year. You have until the tax filing deadline to make any Roth IRA contributions for that tax year. For example, for tax year 2026, you’ll have until April 15, 2027.

Actively manage your investments

Continue contributing according to your retirement savings plan each year and pay attention to your investments. Even if an investment professional handles the day-to-day for you, it can be in your best interest to actively review your funds. Tools like the Empower Personal Dashboard^TM can be helpful to check on balances and performance on an ongoing basis.

Benefits of a Roth IRA

Many people wonder why you would contribute to a Roth IRA with after-tax dollars if you can get immediate tax benefits by contributing to a traditional IRA or another type of retirement account. However, Roth IRAs offer a number of benefits that might make it a good choice, depending on your financial needs.

Tax-free investment growth potential

You don't have to report the investment growth earned in your Roth IRA as taxable income when you file your taxes. You may need to pay taxes on any investment earnings when you make withdrawals, though.

Read more: What are Roth IRA taxes & how do they work?

No RMDs

Unlike other retirement accounts, Roth IRAs don't come with a requirement for taking distributions at a certain age. According to Roth IRA withdrawal rules, the original owner generally doesn’t have to take any money out of  their account if they don't need it. This allows you to keep money in reserve until you really need it or even hold wealth to pass on to heirs, though beneficiaries are subject to IRS distribution rules after the account owner dies.

Tax savings for beneficiaries

If you have money in a Roth IRA when you pass away, your beneficiaries inherit it. They do have to take RMDs from the account, which means they can't hold on to it forever. However, if the Roth IRA was established five or more years prior to that point, your beneficiaries won't pay any taxes on those distributions.

Roth IRA contribution limits and eligibility

It's important to understand Roth IRA rules. Roth IRAs have the same contribution limits as traditional IRAs.² In fact, the contribution limit for all IRAs is combined.

For the 2026 tax year, the maximum amount you can contribute to a Roth IRA is $7,500, or $8,600 if you are 50 or older.³ The reason older adults are allowed to put more into their retirement funds is because they have the option of making catch-up contributions. Catch-up contributions give people the ability to contribute more to their retirement account as they come closer to retirement age.

To understand how this might work, let's consider a hypothetical scenario. Betty has a traditional IRA and a Roth IRA. She is 45 years old. So far in 2025, she has contributed $4,000 in pretax dollars into her traditional IRA. That leaves her with $3,000 in remaining potential contributions that she might decide to put into her Roth IRA.

Read more: Roth IRA 2025 and 2026 contribution limits

How income and filing status impact contribution limits

If all those rules weren't enough, your income and filing status can further limit how much you can contribute to a Roth IRA. Roth IRA contribution limits are phased out as incomes rise. The table below shows the modified Adjusted Gross Income (MAGI) phase-out ranges for determining Roth IRA contribution eligibility for tax year 2026:

Your eligibility to contribute is reduced as your income enters these ranges and is eliminated when your income exceeds these ranges.

How to maximize savings with a Roth IRA

Roth IRAs can be beneficial for many people who are looking to maximize their savings for retirement. There are a few steps you can take to help you increase the benefits of investing in a Roth IRA.

Invest early

Investing in a Roth IRA gives your money time to grow. Generally, the earlier you start, the more your savings can potentially grow by retirement.

The example below compares two people who contribute the same amount each year but start at different ages. Even though the person who starts at 29 only contributes $55,000 more, their account could be worth more than twice as much at retirement. They could end up with a little more than four times the money they contribute, while the person who starts at age 40 could end up with around 2.5 times what they put in.

FOR ILLUSTRATIVE PURPOSES ONLY. These hypothetical illustrations do not reflect a particular investment and are not a guarantee of future results. Examples assume 36 and 25 years of contributions, respectively of $5,000 contributions made at the end of each year. Both assume a 7% rate of return, compounded yearly, that is reinvested. Rates of return may vary. The illustration does not reflect associated fees, which could change the outcomes provided.

Diversify your investments

You have probably heard that you need to diversify your portfolio to protect your investments. For example, if you invest all your money in a single company that doesn’t do well, you will have little to show for your investments.

Depending on how your Roth IRA is set up, you may be able to diversify with asset allocation. For example, if you have options for stocks and bonds, you might decide on a 50/50 allocation. This would invest half of your funds in stocks and half in bonds. Another way to diversify your Roth IRA is by investing in funds, such as ETFs or mutual funds.

Boost contributions when it makes sense

Making the most of your contributions can support your future savings. Here are a few tips.

• Check every year to see what the contribution limits are: Limits update annually (and sometimes stay the same). You may find you can contribute more this year than you have in the past.
• Make catch-up contributions if applicable: When you reach age 50, you can contribute an additional amount each year to your retirement accounts. Take advantage of this opportunity, especially if you've moved up in your career and have more disposable income than before.
• Contribute to more than one retirement account: You can contribute to multiple retirement accounts and may be able to save more each year. If you have an employer-sponsored 401(k) plan with matching, consider contributing enough to get your full employer match. View that as part of your overall compensation package. Next, you may want to invest remaining funds into a Roth IRA.
• Set retirement savings goals: Set goals for yourself, no matter how much you can contribute at the moment. If you can only spare $100 a month, that's still $1,200 a year. Write the goal somewhere you can see it and mark it off when you reach it. Tools like the Empower Personal Dashboard^TM allow you to input savings goals and give you a clear picture of your current finances and help you predict potential outcomes. Also, consider trying to increase your savings goal by a certain percentage every year.

Roth IRA conversion: Should you move funds from a traditional IRA?

In addition to eligible contributions to your Roth IRA, it is also possible to move other funds to your Roth IRA in what is known as a Roth IRA Conversion.

The primary reasons for converting a traditional IRA or pre-tax retirement account to a Roth are to reduce taxes in retirement and for legacy planning purposes.

The money you move into the Roth will be taxable income in the year of the conversion, so the hope would be that you save more in taxes down the road from later Roth distributions than what you pay in taxes now.

Frequently asked questions about Roth IRAs

What happens if you exceed the IRS contribution limits?

If you make contributions above the allowed amounts, you may owe a 6% excise tax on the excess for each year it remains in your IRA, unless you correct it. The end result is that your tax bill is higher, and the amount you earn on your Roth IRA account may be diminished by those penalties. Consider taking precautions to first determine your eligibility before making your contributions.

When and how much can you withdraw from a Roth IRA?

You can withdraw Roth IRA contributions at any time, but investment earnings are subject to specific rules. You must be 59 ½ years of age or older and the Roth IRA must have been open for at least five years. So, if you open a Roth IRA at age 55, you’ll have to wait until you’re 59 ½ to withdraw any earnings tax free.

What happens if you withdraw from a Roth IRA too early?

If you withdraw earnings from a Roth IRA early and it isn't a qualified distribution, you may pay regular income tax on the amount you withdraw and may end up paying an additional 10% penalty tax on the amount as well.

What's the difference between a Roth IRA and a traditional IRA?

Roth IRAs and traditional IRAs are easy to confuse since both are individual retirement accounts. As an individual, you can set up either of these accounts without an employer, which makes them potential options for the self-employed or those who want additional retirement savings outside of what their employers sponsor.

But there are many differences between these two types of IRAs. These differences may make one a better choice for you than another or, potentially, may make it advantageous to open both types of accounts. The table below highlights what you need to know about Roth IRAs vs. traditional IRAs.

What's the difference between a Roth IRA and a Roth 401(k)?

A Roth 401(k) is an option within an employer-sponsored 401(k) retirement plan. A Roth 401(k) is funded with after-tax dollars.