What Is a Roth IRA? Definition & How It Works

While you pay taxes now on money going into your Roth IRA, withdrawals in retirement are tax-free.
Elizabeth Ayoola
Tina Orem
By Tina Orem and  Elizabeth Ayoola 
Edited by Chris Hutchison Reviewed by Michael Randall

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Nerdy takeaways
  • Anyone — including children — can open a Roth IRA as long as they have earned income. And unlike other types of IRAs, there’s no requirement to start taking money out after a certain age.

  • You can have both a Roth IRA and traditional IRA, but the accounts share an annual contribution limit of $6,500 in 2023 (plus an extra $1,000 for if you’re 50 or older).

  • In 2023, single filers must earn less than $153,000 to contribute to a Roth IRA, while married couples filing jointly must earn less than $228,000. However, even if your income exceeds these levels, you might still be able to contribute to your Roth IRA through other options we’ll detail below.

What is a Roth IRA account?

A Roth IRA is an individual retirement account where you contribute after-tax dollars, then enjoy tax-free growth and withdrawals. Once you hit age 59½, and have held the Roth IRA for at least five years, you can take distributions of your contributions and investment earnings without paying federal taxes.

This makes the Roth IRA distinct from the traditional IRA, which offers a tax deduction when you contribute but requires you to pay taxes on any money taken out in retirement.

» Ready to get started? See our top picks for the best Roth IRA accounts.

How does a Roth IRA work?

To start a Roth IRA, you’ll first need to choose a broker and have a qualifying source of earned income. Money contributed to your Roth IRA could come from a job, but could also be a rollover from a Roth 401(k) plan, conversion from an existing traditional IRA or 401(k) plan, a spousal contribution, or other transfer.(More on these options below.)

After opening your Roth IRA, you’ll be able to choose where you want to invest the money, which will help your contributions grow. Over a long time horizon, those investments will likely earn a return.

That’s where the real benefit of the Roth IRA kicks in: All that investment growth could have been taxed when it’s time to withdraw the funds, but because you didn’t receive a tax benefit when you funded the account, you’ll get the money tax-free.

And if for some reason you need the money in your Roth IRA before retirement, you can withdraw the contributions — but not investment earnings — at any time without additional taxes or penalties from the IRS.

» See how your contributions can grow: Use our free Roth IRA calculator

Roth IRA income and contribution limits for 2023

You can fund a Roth IRA as long as your income is under the limits below; at higher income levels, the amount you're allowed to contribute is phased out and, eventually, eliminated completely.

But that doesn’t mean it’s impossible to contribute to your Roth IRA. By doing a Roth IRA conversion, you first contribute to a qualifying IRA or employer-sponsored retirement plan, then convert the funds to a Roth IRA. Also called a backdoor Roth, this is an option for high-earners who otherwise can’t contribute to a Roth IRA. But will require calculating the taxes owed as Roth IRAs only take post-tax dollars.

» A step-by-step guide to backdoor Roth IRAs

Filing status

Roth IRA income limits

Roth IRA contribution limits 2023

Single, head of household, or married, filing separately (if you didn't live with spouse during year)

Less than $138,000.

$6,500 ($7,500 if 50 or older).

More than $138,000, but less than $153,000.

Contribution is reduced.

$153,000 or more.

No contribution allowed.

Married filing jointly or qualifying widow(er)

Less than $218,000.

$6,500 ($7,500 if 50 or older).

More than $218,000, but less than $228,000.

Contribution is reduced.

$228,000 or more.

No contribution allowed.

Married filing separately (if you lived with spouse at any time during year)

Less than $10,000.

Contribution is reduced.

$10,000 or more.

No contribution allowed.




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What are the Roth IRA benefits?

What makes a Roth IRA so attractive to investors is the potential tax savings. If you think you'll be in a higher tax bracket when you retire than you are now, a Roth IRA may be more beneficial than a traditional IRA. The reason: You've already paid taxes on your contributions, so your higher tax bracket won't result in a high tax bill when it's time to enjoy your hard-earned money.

Another reason the Roth IRA is attractive is rising inflation. Inflation erodes the value of money over time. Giving your money an opportunity to grow tax-free is lucrative.

Some other benefits of a Roth IRA include:

  • No required minimum distributions: Account holders of Roth IRAs aren't subject to the required minimum distributions required of traditional IRA or 401(k) accounts

    . (Beginning in 2023, these RMDs must start at age 73.) This means account holders don't have to take distributions from a Roth IRA at any point while they're alive, unlike with traditional IRAs or 401(k)s. However, it's worth noting that inherited Roth IRAs are subject to RMDs, unless you're inheriting it from a spouse. There are special rules in those circumstances.

  • No income tax on inherited Roth IRAs: If you pass a Roth IRA to a heir, they enjoy tax-free withdrawals as long as the account was held for at least five years at the time of the account holder's death.

  • Easy withdrawals: You can withdraw the money you contributed any time, without taxes or penalty. (You may be taxed or penalized if you withdraw investment earnings.)

  • Double dipping: You can contribute to a Roth IRA in addition to an employer retirement account such as a 401(k).

  • Flexible timing: You can choose when and how much you contribute to a Roth IRA. For example, you could contribute the full limit on the first day of the year, or split up your contributions throughout the year.

  • Extra time to contribute: You have until that year's tax deadline to contribute for the previous calendar year, which usually falls in mid-April.

  • Tax-free distributions: At age 59½, if you've held the account for at least five years, you can take distributions, including earnings, from a Roth IRA without paying federal taxes or penalties.

  • No age limit to open: You can open a Roth IRA at any age, as long as you have earned income (you can’t contribute more than your earned income).

How to open a Roth IRA

First, decide whether you want to do passive or active investing, and then choose a Roth IRA provider for your investing approach.

For example, if you aren't keen on the idea of constantly watching the stock market and trading, you may want to do passive investing and use a robo-advisor. Robo-advisors do all the work of choosing and managing investments for you based on your investing goals. If you enjoy managing your own investments, investing in individual stocks, or advanced investing strategies such as day trading or options, then opening a regular Roth IRA brokerage account may be the better option.

There are several types of securities you could invest in using your Roth if you choose a more hands-on approach to investing. Some of them include:

» Learn more: Read our full guide on how to open a Roth IRA

What are the Roth IRA rules?

Here are a few withdrawal and distribution rules you must follow:

Roth IRA withdrawal rules

  • You can withdraw your original contributions whenever you want, without owing any penalties or taxes, no matter how long your account has been open. That's because the money you put in is money you've already paid income tax on.

  • When you withdraw money from a Roth IRA, the IRS always assumes your original contributions come out first.

  • People at least 59½ years old, and who hold their accounts for at least five years, can take distributions, including earnings, without paying federal taxes.

    IRS. Traditional and Roth IRAs. Accessed Mar 17, 2022.

Roth IRA withdrawal penalty

Qualified withdrawals of investment earnings in the account come out tax-free. The key here is "qualified." If you withdraw earnings before 59½, or otherwise don’t meet the rules for a qualified withdrawal, the IRS may want a piece of those returns, in the form of taxes and a possible penalty. Examples of qualified withdrawals before age 59 1/2 include a first home purchase, qualified education expenses, health insurance premiums while unemployed, disability related expenses, having a baby or adopting. Be sure you understand all the rules of these exceptions.

» Get a better understanding of Roth withdrawal rules

Roth IRA vs. traditional IRA: What's the difference?

The main difference between a Roth IRA and traditional IRA is how they're taxed. Roth IRAs give you tax-free withdrawals in retirement, while traditional IRAs give you a tax break when you contribute. So, if you want an immediate tax break, consider a traditional IRA. If you like the idea of tax-free income in retirement, Roth IRAs might be a better option for you. You can read our Roth IRA vs. traditional IRA article to learn more about the differences.

» Learn more: Find the best IRA account for you

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