Roth IRA
A U.S. retirement account with tax-free growth and tax-free qualified withdrawals.
What it is
An Individual Retirement Account funded with after-tax money that grows tax-free.
Best for
Long-term investors who expect to be in the same or a higher tax bracket in retirement.
Watch for
Income limits, annual contribution limits, and withdrawal rules.
Quick take
- Contributions are made with after-tax dollars.
- Investments grow tax-free.
- Qualified withdrawals are tax-free.
- No required minimum distributions during the owner's lifetime.
Key terms
- Contribution limit: maximum amount you can contribute each year.
- Income limit: high earners may not qualify to contribute directly.
- Qualified withdrawal: tax-free withdrawal that meets IRS requirements.
- Five-year rule: account generally must be open for at least five years for tax-free earnings withdrawals.
Pros
| Topic | Notes |
|---|---|
| Tax-free growth | Investment gains compound without future taxes. |
| Tax-free withdrawals | Qualified withdrawals are generally tax-free. |
| No RMDs | No required minimum distributions during your lifetime. |
| Estate planning | Can be an efficient account to leave to beneficiaries. |
Cons
| Topic | Notes |
|---|---|
| No deduction today | Contributions do not reduce current taxable income. |
| Income limits | Higher-income individuals may not qualify directly. |
| Contribution limits | Annual contributions are capped. |
| Withdrawal rules | Early withdrawals of earnings may trigger taxes and penalties. |
Educational content only — not financial advice.