What Is a Roth IRA? How Roth IRAs Work, Contribution Rules & Where to Start

Roth IRAs are retirement accounts that offer valuable tax benefits, including tax-free growth on your investments.

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What is a Roth IRA?

A Roth IRA is an individual retirement account that provides tax-free growth and withdrawals. The 2021 contribution limit is up to $6,000 ($7,000 if 50 or older) for modified AGIs below $140,000 (single filers) or $208,000 (married filing jointly). People 59½ years or older holding accounts for at least 5 years can withdraw money without paying federal taxes.

In 2020 the contribution limit was up to $6,000 ($7,000 if 50 or older) for modified adjusted gross incomes below $139,000 (single filers) or $206,000 (married filing jointly).

How a Roth IRA works

A Roth IRA is an individual retirement account in which money grows tax-free and withdrawals in retirement are tax-free. Here are the five key characteristics of a Roth IRA.

  1. You pay taxes on money you put in the account. You cannot deduct the contributions on your taxes.

  2. In 2020 and 2021 you can contribute up to $6,000 ($7,000 if you're 50 or older).

  3. You cannot contribute to a Roth IRA if your modified adjusted gross income (MAGI) was more than $139,000 in 2020 (single filers) or $206,000 (married filing jointly). In 2021 the MAGI limit is $140,000 (single filers) or $208,000 (married filing jointly). (The backdoor Roth strategy offers a workaround to these limits.)

  4. 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.

  5. You don't have to take any money out of your Roth IRA if you don't want to. There are no required minimum distributions (RMDs).

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Who can open a Roth IRA?

To open a Roth IRA, you must have earned income and your income cannot exceed certain limits. Here are the basic rules and qualifications.

You must be under the income limit. To contribute to a Roth IRA, your modified adjusted gross income (MAGI) must be under $139,000 in 2020 (single filers) or $206,000 (married filing jointly). In 2021 the MAGI limit is $140,000 (single filers) or $208,000 (married filing jointly). (IRS Publication 590-A, Worksheet 2-1 has complete instructions on figuring MAGI for Roth IRAs.)

You have to have earned income. You must have income from work (the IRS term is "taxable compensation"). The max you can contribute to a Roth in a year is your income from work or $6,000 ($7,000 if you're age 50 or older), whichever is less.

Do you qualify for a Roth? Roth IRA income limits

Filing status

2020 MAGI

2021 MAGI

Maximum annual contribution

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

Less than $124,000

Less than $125,000

$6,000 ($7,000 if 50 or older)

$124,000 up to $139,000

$125,000 up to $140,000

Contribution is reduced

$139,000 or more

$140,000 or more

No contribution allowed

Married filing jointly or qualifying widow(er)

Less than $196,000

Less than $198,000

$6,000 ($7,000 if 50 or older)

$196,000 up to $206,000

$198,000 up to $208,000

Contribution is reduced

$206,000 or more

$208,000 or more

No contribution allowed

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

Less than $10,000

Less than $10,000

Contribution is reduced

$10,000 or more

$10,000 or more

No contribution allowed

For more details on Roth IRA limits and the exceptions to them, see our IRA limits page.

Here's how to open a Roth IRA

You open a Roth IRA at a brokerage or bank. Then you invest the money. You can choose what you want to invest your money in, such as mutual funds, stocks, bonds, exchange-traded funds (ETFs) or bank savings products. If you want to invest in stocks and bonds, you may want to open your Roth at a brokerage or robo-advisor rather than at a bank. (Here's more on how to invest your IRA.)

You can add money over time. A lump sum or smaller contributions over the course of the year are fine, as long as your contributions don't exceed $6,000 ($7,000 if you're 50 or older) or your taxable compensation, whichever is smaller. You can also add money to a Roth by rolling over money from another retirement account.

Most online brokers, banks and robo-advisors offer Roth IRAs. Here's how they differ.

  • Banks. Because most banks offer savings vehicles (like CDs) rather than investments, they are generally not the best place to open an IRA, which should be geared toward long-term growth.

  • Robo-advisors. If you want to take a hands-off approach to investing, a robo-advisor and its automated investment process might be appealing.

  • Traditional brokers. These offer a more active approach to choosing your investments.

» Want the deep dive? Here are all of our top picks for the best Roth IRA accounts

Roth IRA withdrawals and distributions

Here's how Roth IRA distributions basically work.

  1. 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 on which you already paid income tax.

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

  3. Qualified withdrawals of investment earnings in the account come out tax-free. However, in certain circumstances the IRS may want a piece of those returns, in the form of taxes and a possible penalty, if you withdraw early or otherwise don’t meet the rules for a qualified withdrawal.

  4. 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.

» Check out our easy explainer on Roth IRA withdrawal rules

Advantages and benefits of Roth IRAs

  • Potential tax savings. If you expect your tax rate to be higher in the future, Roth IRAs may be worth it because you contribute money now that you'll pay income taxes on this year rather than in the future when your tax rate is higher. If your tax rate is lower now, it makes sense to pay taxes now in return for tax-free retirement withdrawals.

  • 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 in addition to a 401(k).

  • Flexible timing. You can choose when and how much you contribute to a Roth IRA. For example, you could contribute $6,000 on the first day of the year, or split up your contributions over many months.

  • Extra time to contribute. You have until the tax deadline to contribute for the previous calendar year.

  • Tax-free distributions. Once you hit 59½ and have held the account for at least five years, you can take distributions, including earnings, from a Roth IRA without paying federal taxes.

  • 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).

  • No RMDs. Roth IRAs aren't subject to the required minimum distributions required from a traditional IRA or 401(k) starting at age 72 (in 2019 and earlier years, that age was 70½).

The benefits of an IRA and Roth IRA

The downside of a Roth IRA

There are many advantages to a Roth IRA, but nothing’s perfect. Here are a couple of disadvantages to consider:

  • You can’t take a loan from an IRA the way you can with many 401(k)s. That said, you can always withdraw your Roth IRA contributions anytime without penalty, interest or taxes.

  • Early withdrawals (before age 59½) of your investment earnings come with a 10% penalty unless you meet one of a handful of exceptions.

Roth IRA vs. traditional IRA

If you want an immediate tax break, consider a traditional IRA. If you like the idea of tax-free income in retirement, a Roth IRA is a good idea.

Roth IRAs are a smart savings tool for young people just starting out, because they’re likely to face higher income tax rates as they move along in their careers. Someone further along on their career path may also like a Roth IRA, because they provide tax-free income in retirement. That provides what some financial advisors call "tax diversification."

Money stashed in accounts, such as 401(k)s and traditional IRAs, leads to tax bills in retirement. A Roth IRA can offer a convenient way to manage that tax bill; for example, by pulling at least some income from the Roth to avoid being pushed into a higher tax bracket.

Frequently asked questions
  • Potential tax savings. Pay income taxes now for tax-free withdrawals later.

  • Easy withdrawals. Withdraw contributions without taxes or penalty at any time.

  • Double dipping. You can contribute to a Roth in addition to a 401(k).

  • Flexible timing. You can choose when and how much you contribute.

  • Extra time to contribute. Contribute for the prior year up until the tax deadline.

  • Tax-free distributions. If you're 59½ and held the account for five years, distributions are federal tax-free.

  • No age limit to open. If you have earned income, open a Roth at any age.

  • No RMDs. Unlike traditional IRAs, no required minimum distributions.

Many discount brokers and robo-advisors have $0 minimums to open an IRA. You can see which ones in our roundup of best IRA providers. However, the tax perks of investing in an IRA start only when you start contributing money to the account. But don’t worry: You don’t need to come up with your full contribution all at once. You’re also not required to save the maximum the IRS allows (up to $6,000 in 2021, or $7,000 if you’re age 50 or over).

You can add money to your IRA at whatever cadence and amount work for your budget. Many brokers and robos allow savers to set up automatic deposits to transfer money from your bank into your account.

Yes. You can put your IRA money in a variety of investments, and some of those investments may lose value.

Related articles

Ready to get started? Here's everything you need to know about owning and operating a Roth IRA.

Information for starting an account. Learn more.

See our picks for good places to open an account. Learn more.

Here's how to choose. Learn more.

Once the account is open, how do you put the money to work? Learn more.

There are many kinds of IRAs; see which ones fit you. Learn more.

These tips could help you have more later. Learn more.

Understand how and when to get your money out. Learn more.