A 401(k) is a great start, but it might not be enough on its own. If you’re looking for more ways to grow your retirement savings—and keep more of it when you retire—a Roth IRA can help.
With a Roth IRA, your investments grow tax-free, and you won’t pay taxes when you take the money out in retirement. It’s also one of the few accounts that offers flexible access to your contributions if you need cash earlier in life.
Here’s how a Roth IRA works, who qualifies, and how to make the most of it.
What is a Roth IRA?
A Roth IRA (Individual Retirement Account) is a type of retirement savings account that allows you to save and invest money for retirement on a tax-advantaged basis.
Contributions to a Roth IRA are made with after-tax dollars, meaning you cannot claim a tax deduction for the money you contribute. However, once the money is in the account, it can grow tax-free, and you can withdraw it tax-free in retirement.
This can be extremely beneficial because the money you contribute to a Roth IRA should grow (ideally substantially) between when you put cash in and when you start to take it out. But since you pay income taxes on it the first time around, you don’t have to do it again, even though the amount is larger.
You get to pick the investments in which to place your Roth IRA funds, such as:
How a Roth IRA Works and Why It’s Tax-Friendly
A Roth IRA comes with many tax benefits, which is why it’s so popular these days. Even if you have a 401(k), it’s a great tax-advantaged addition to your retirement plan. And if you’re self-employed or don’t have a 401(k) at work, it’s a good start to investing for your retirement goals.
Here’s how a Roth IRA works:
- Eligibility: To be eligible to contribute to a Roth IRA, you must have earned income and your income must fall below certain thresholds.
- Contributions: You can contribute up to a certain amount each year to a Roth IRA, depending on your age and income. Contributions are made with after-tax dollars and are not tax-deductible.
- Investment options: You can invest the money in your Roth IRA in various ways, such as stocks, bonds, mutual funds, and exchange-traded funds (ETFs).
- Tax benefits: Earnings on your investments grow tax-free, and you can withdraw your contributions and earnings tax-free in retirement as long as you meet certain conditions.
- Withdrawals: You can withdraw your contributions to a Roth IRA at any time without penalty. However, you may owe taxes and a penalty if you withdraw your earnings before you reach age 59 1/2 and have not held the account for at least five years.
Roth IRAs can be a valuable tool for saving for retirement, especially for people who expect to be in a higher tax bracket in retirement than they are now.
Roth IRA Contribution Limits for 2025
For 2025, you can contribute up to $7,000 to a Roth IRA if you’re under 50. If you’re 50 or older, you’re allowed an extra $1,000 in catch-up contributions, raising the limit to $8,000.
There’s no minimum contribution requirement, and you can continue contributing at any age as long as you have earned income and meet the income limits (more on that below). This makes a Roth IRA a useful tool not just for retirement—but also for passing wealth to your heirs.
Roth IRAs also offer more flexibility than most retirement accounts. You can withdraw your contributions at any time without taxes or penalties. And while early withdrawals of earnings may be subject to taxes and a 10% penalty, there are exceptions—for things like qualified education expenses or a first-time home purchase.
That kind of flexibility can make a Roth IRA useful at different stages of life, not just after you retire.
Roth IRA vs. Traditional IRA: Key Differences
The biggest difference between a Roth IRA and a traditional IRA is when you pay taxes.
With a traditional IRA, you can deduct your contributions in the year you make them, which can lower your taxable income now. But when you withdraw the money in retirement, you’ll pay income taxes on both the contributions and any earnings.
With a Roth IRA, contributions are made with after-tax dollars. You don’t get an upfront tax break, but your money grows tax-free—and qualified withdrawals in retirement are also tax-free.
This difference can impact your strategy depending on your current and expected future income. If you expect to be in a lower tax bracket during retirement, a traditional IRA might offer more short-term savings. But if you think your tax rate will stay the same or increase, a Roth IRA could save you more in the long run.
Required Distributions and Tax-Free Withdrawals
Traditional IRAs come with required minimum distributions (RMDs). Starting in 2025, you must begin taking RMDs at age 73. The amount you must withdraw is based on your age and IRS life expectancy tables. Early withdrawals before age 59½ may also trigger a 10% penalty on top of regular income tax.
Roth IRAs don’t have RMDs during your lifetime, which makes them a powerful estate planning tool.
To take tax-free withdrawals from a Roth IRA, the account must be open for at least 5 tax years, and one of the following must apply:
- You’re at least 59½
- You become disabled
- You use up to $10,000 for a first-time home purchase
- The withdrawal is made by your beneficiary after your death
This tax flexibility is a major reason why many investors include both Roth and traditional IRAs in their retirement strategy.
Roth IRA Income Limits and Eligibility for 2025
To contribute to a Roth IRA, you must have earned income and fall within the IRS income limits. High earners may be limited or completely phased out based on their modified adjusted gross income (MAGI).
Income Limits for Single Filers
If you file taxes as single or head of household:
- Full contribution: Allowed if your MAGI is $146,000 or less
- Partial contribution: Allowed if your MAGI is between $146,001 and $161,000
- No contribution: MAGI of $161,000 or more
Income Limits for Married Filing Jointly
If you’re married and file jointly:
- Full contribution: Allowed if your combined MAGI is $230,000 or less
- Partial contribution: Allowed if your MAGI is between $230,001 and $240,000
- No contribution: MAGI of $240,000 or more
These limits apply to contributions for the 2025 tax year and may change annually with inflation.
Why It Pays to Start Early
If your income is still within the allowed range, it’s smart to open and fund a Roth IRA while you can. Contributions made earlier have more time to grow tax-free, and once your income rises above the threshold, you won’t be able to add new money directly.
Even if you’re planning for early retirement or other financial goals like paying for education, a Roth IRA offers flexibility that other retirement accounts don’t—making it a useful part of both short- and long-term financial planning.
How to Open a Roth IRA
You can open a Roth IRA through most banks, credit unions, online brokers, or robo-advisors. The key is to compare providers based on fees, investment options, and ease of use.
Look for platforms that offer commission-free ETFs and mutual funds with no transaction fees. Over time, high fees can eat into your returns—so choose a provider that keeps costs low.
If you plan to roll over funds from a 401(k) or traditional IRA, make sure the provider supports rollovers and offers guidance through the process. Not all robo-advisors accept rollovers, so double-check before you commit.
With a little research, you can find a Roth IRA provider that fits your needs and helps you grow your retirement savings with minimal hassle.
Where to Open a Roth IRA
To open up a Roth IRA, you need to select a brokerage firm. You may be able to do this at a financial institution you already work with, or you could explore other options. Both online and brick-and-mortar banks can serve as a broker. It really depends on where you want to house your investment and the type of fee structure you prefer.
Start with a bank you already use, but don’t be afraid to compare their offerings and fees to other financial institutions. It’s important to maximize your earnings so that you can retire comfortably.
How to Manage a Roth IRA
Once your Roth IRA is open, the first step is funding it. You can contribute earned income up to the annual limit or roll over funds from a traditional IRA or 401(k). Just remember: any pre-tax funds you convert to a Roth will be taxed when transferred, so make sure you’re prepared for the added tax burden.
For 2025, the contribution deadline for the 2024 tax year is April 15, 2025 (unless extended by the IRS). This gives you extra time after the calendar year ends to make or complete your prior year’s contribution.
After funding your account, decide how to invest your money. Your risk level should match your age, timeline, and financial goals. Younger investors may lean toward growth-focused strategies like stock index funds, while those closer to retirement often shift toward more conservative investments like bond ETFs.
Low-cost, diversified options—such as index funds and exchange-traded funds (ETFs)—are often recommended for long-term Roth IRA investing. These allow you to track broader markets while keeping fees low.
Final Thoughts
A Roth IRA gives you tax-free growth, flexible access to your contributions, and no required minimum distributions. It’s one of the most versatile retirement tools available.
To make the most of it, contribute as much as you can while you’re eligible. If a raise or job change could push you over the income limit, maxing out your Roth IRA now gives your investments more time to grow.
And don’t just “set it and forget it.” Revisit your contribution strategy and investment choices each year to keep pace with your goals, tax bracket, and retirement timeline.
Whether you’re decades away from retirement or planning to leave work early, a Roth IRA can give you more control over your financial future.
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