Roth withdrawals are federally tax-free if they are qualified distributions as defined by the IRS. State and local taxes may apply. For a distribution to be qualified, the account must have been open for at least five years, and the withdrawal must occur after age 59½, death, or disability. Contributions may be withdrawn at any time without penalty. Earnings withdrawn before those conditions are met may be subject to taxes and penalties. Tax laws are subject to change. State and local taxes may still apply.

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.

Roth IRAs are retirement accounts that allow individuals to 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 accounted for 32.3% of Gen Z’s retirement savings and 25.3% of Millennials’ as of March 2026, a breakdown that’s been consistent in recent years.

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

What is a Roth IRA?

A Roth IRA is a retirement account that allows you to invest after-tax dollars in assets such as stocks, bonds, mutual funds, and ETFs. While contributions aren’t tax-deductible, your money has the potential to grow tax-free, and contributions can be withdrawn at any point without penalty. Any earnings may also be withdrawn tax-free once you are age 59½ or older and have kept the account for at least five years. Keep in mind that you can also lose money when you invest.

A Roth IRA may be especially appealing to people who expect to be in a higher tax bracket later, because they pay taxes on contributions now and may be able to make tax-free qualified withdrawals in retirement. In other words, some savers may prefer to pay taxes at today’s rate rather than risk paying a higher rate later.

How does a Roth IRA work?

Roth IRAs work like some other popular retirement savings plans, such as 401(k)s and traditional IRAs, in the following ways:

• 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.

However, 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.

Roth IRA contribution limits and eligibility

It's important to understand Roth IRA rules. Roth IRAs have the same contribution limits as traditional IRAs.¹ 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.² 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 2026, she has contributed $4,000 in pretax dollars into her traditional IRA. That leaves her with $3,500 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.

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

Opening a Roth IRA

Opening a Roth IRA generally takes several steps, including researching the account options available across financial institutions, setting up the account itself, and managing your IRA contributions.

These steps can help you get started:

1. Identify which financial institutions offer Roth IRA accounts

Roth IRA accounts are only offered by qualifying financial institutions, including many federally insured credit unions and banks. If you already hold accounts with these types of institutions, then you might want to ask about Roth IRA options.

The IRS keeps a list of approved nonbank trustees and custodians.³ These are other financial institutions and broker-dealers that can help you with a Roth IRA account. Some individuals choose to work with registered broker-dealers that can help them set up and manage their account.

2. Research Roth IRA account options

When looking for a Roth IRA option, consider your budget, how much you want to save and your risk profile. Providers of Roth IRAs aren't all the same, and 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. If you're young, you may want more options so you can be more aggressive with your investment strategy given the extended investing timeline.

3. Contact the financial institution

Once you select a Roth IRA account that suits your needs, 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.

4. 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.

5. 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.

6. 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.

Roth IRA Benefits

Roth IRAs offer a number of benefits that might make it a good choice, depending on your financial needs.

Tax-free investment growth and withdrawal potential

One of the potential key benefits of a Roth IRA is that investment growth, if any, is not taxed, and because contributions are made with post-tax dollars, you won’t pay income taxes on qualified distributions from your account. As a result, Roth IRAs can potentially save you ordinary income and capital gains taxes over time.

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

No RMDs

Another important benefit of a Roth IRA is you won’t be subject to any required minimum distributions (RMDs). Unlike other retirement accounts, Roth IRAs don't come with a requirement for taking distributions at a certain age, meaning 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

Roth IRA accounts offer additional tax advantages for account 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 conversions

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.

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 potentially grow. Generally, the earlier you start, the more your savings can potentially grow by retirement. Custodial Roth IRAs are another option for parents and guardians looking to save for their children’s futures.

Starting to save when your child is young allows for the potential of compound earnings, which can have an incredible impact on their long-term wealth. Your child can continue to contribute to a custodial Roth IRA once they have earned income.

The example below compares two people who contribute the same amount each year to their Roth IRAs 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.

Diversify your investments

You have probably heard that you need to diversify your portfolio to help manage the risk of 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.

Consider boosting 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.

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 54, you’ll have to wait until you’re 59 ½ to withdraw any earnings tax free.

Read more: Roth IRA withdrawal rules

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 some things you need to know about Roth IRAs vs. traditional IRAs.

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

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 and typically offers higher contribution limits with no income restrictions. Alternatively, a Roth IRA can offer a wider range of investment options while allowing you to access your contributions at any time penalty-free.

Read more: Roth 401(k) vs. Roth IRA: Key differences

Asset allocation and diversification do not ensure profit or protect against loss.

Investing involves risk, including possible loss of principal.

Exchange-traded funds (ETFs) are a type of exchange-traded investment product that must register as either an open-end investment company (generally known as “funds”) or a unit investment trust. ETFs are not mutual funds.

Unlike with mutual funds, individual shares of ETFs are not redeemable directly with the issuer. ETF shares are a collection of securities bought and sold at market price, which may be higher or lower than the net asset value. Investment returns will vary based on market conditions and volatility, so an investor’s shares, when redeemed or sold, may be worth more or less than their original cost. ETFs are subject to risks, including those of their underlying securities.