What is a Roth IRA?
A Roth IRA is a US Individual Retirement Account funded with after-tax dollars. Contributions never reduce current taxable income, but qualified withdrawals after age 59 1/2 and a 5-year holding period are entirely tax-free, including every dollar of investment growth. The 2026 contribution limit is $7,000 ($8,000 at age 50 plus), and direct contributions phase out between $150,000 and $165,000 MAGI for single filers.
Detailed definition
The Roth IRA was created by the Taxpayer Relief Act of 1997 and named after its lead Senate sponsor, William Roth of Delaware. It flipped the tax structure of the Traditional IRA: instead of taking a deduction now and paying tax on every withdrawal, you pay tax now and never pay another dollar on the account again. The first Roth IRAs were opened in 1998, and the account type has grown into roughly $1.5 trillion of US household assets as of 2024.
The structure is unusually tax-efficient for two reasons. First, the entire account, including decades of compound growth, is shielded from income tax forever as long as you meet the qualified-withdrawal rules. Second, the absence of lifetime RMDs means you can leave the account to grow untouched into your 90s, then pass it to heirs (who do face a 10-year drain rule under SECURE but pay no tax on the way out). For very long-horizon savers, the Roth is mathematically the most valuable retirement wrapper available.
The two practical constraints are the contribution limit and the income limit. The $7,000 annual cap is shared with the Traditional IRA, so you cannot stack both. The MAGI phase-out cuts off direct contributions above $165,000 single and $246,000 joint in 2026, but the backdoor Roth strategy (contribute non-deductible to a Traditional IRA, immediately convert) bypasses the income limit legally, and the mega-backdoor Roth via a 401(k) after-tax bucket can push another $40,000+ per year into Roth space at employers that allow it.
How qualified withdrawals work
Qualified Roth IRA withdrawal requires BOTH: 1. Age 59 1/2 or older (or death, total disability, first-home $10,000) 2. 5 tax years since your FIRST Roth IRA contribution Ordering rules for any withdrawal: Step 1: Contributions come out first (always tax-free, always penalty-free) Step 2: Conversions come out next (each has its own 5-year penalty clock) Step 3: Earnings come out last (taxable + 10% penalty if non-qualified)
- Contributions: anything you put in with direct out-of-pocket money. Always available.
- Conversions: amounts moved in from a Traditional IRA or 401(k); each conversion has a 5-year clock for the 10 percent penalty (not for the tax).
- Earnings: investment growth on contributions and conversions; subject to both the age 59 1/2 test and the 5-year clock from your first Roth contribution.
- Note: the 5-year clock starts January 1 of the tax year of your first contribution, so a contribution made in April 2026 for tax year 2025 actually starts the clock January 1, 2025.
Worked example
Take a 30-year-old who contributes the maximum $7,000 per year to a Roth IRA for 35 years until age 65, earning a 7 percent long-run average annual return. The contribution limits will rise with inflation in real life, but we model the constant $7,000 case for clarity.
- Annual contribution: $7,000 of after-tax money each year.
- Total contributed across 35 years: $7,000 x 35 = $245,000.
- Future value at age 65 (7 percent return): $7,000 x ((1.07^35 - 1) / 0.07) = approximately $968,000.
- Tax on qualified withdrawal at age 65: $0 (age 59 1/2 met, 5-year rule cleared decades ago).
- Equivalent pre-tax wealth at a 25 percent retirement bracket: $968,000 / (1 - 0.25) = $1,290,667 pre-tax-equivalent.
Roth IRA vs Traditional IRA
The two account types share the $7,000 combined cap but invert almost every other rule.
| Feature | Roth IRA | Traditional IRA |
|---|---|---|
| 2026 contribution limit | $7,000 combined ($8,000 at 50+) | |
| Tax break on contribution | No | Yes, subject to deduction phase-outs |
| 2026 income limit to contribute | $165,000 single, $246,000 MFJ (phase-out top) | None |
| Growth | Tax-free | Tax-deferred |
| Qualified withdrawal tax | $0 | Ordinary income |
| RMDs in retirement | None (lifetime) | Yes, start at age 73 |
| Early-withdrawal flexibility | Contributions always free; earnings face 5-year and 59 1/2 rules | 10 percent penalty plus tax on everything under 59 1/2 |
| Best for | Lower bracket now, higher later; estate planning | Higher bracket now, lower later |
Related terms
Related calculators on 3Tej
Project your own Roth IRA growth, compare against a Traditional, or model a backdoor / mega-backdoor strategy:
Frequently asked questions
What is the Roth IRA contribution limit for 2026?
The 2026 Roth IRA contribution limit is $7,000 for those under age 50 and $8,000 for those 50 and older (the extra $1,000 is the catch-up). The limit is the combined total across all your Traditional and Roth IRAs, not per account. Contributions can be made up to the federal tax-filing deadline of the following April.
What are the Roth IRA income limits for 2026?
For 2026, single filers can contribute the full amount if Modified Adjusted Gross Income (MAGI) is below $150,000, with a phase-out from $150,000 to $165,000 and no direct contribution above $165,000. Married filing jointly has a full contribution below $236,000, phase-out from $236,000 to $246,000, and zero above $246,000. Married filing separately phases out from $0 to $10,000.
What is the Roth IRA 5-year rule?
The 5-year rule says earnings can only be withdrawn tax-free if at least 5 tax years have passed since your first Roth IRA contribution AND you are age 59 1/2 or older (or meet a disability, first-home, or death exception). Each Roth conversion starts its own separate 5-year clock to avoid the 10 percent penalty on the converted amount. Your original contributions can be withdrawn at any time, tax- and penalty-free.
What is a backdoor Roth IRA?
A backdoor Roth IRA is a legal strategy where high earners above the direct-contribution income limit contribute up to $7,000 to a non-deductible Traditional IRA and then convert it to a Roth IRA, usually within days. There is no income limit on Roth conversions. The pro-rata rule complicates things if you hold any pre-tax balance across all your Traditional, SEP, and SIMPLE IRAs.
Do Roth IRAs have Required Minimum Distributions?
No, Roth IRAs have no Required Minimum Distributions during the original owner's lifetime. This makes them powerful estate-planning tools because the account can keep growing tax-free for decades. Inherited Roth IRAs do have RMD rules: most non-spouse beneficiaries must empty the account within 10 years under the SECURE Act, though withdrawals remain tax-free.
How does a Roth IRA compare to a Traditional IRA?
Roth IRA contributions are after-tax, grow tax-free, and qualified withdrawals are tax-free with no lifetime RMDs. Traditional IRA contributions may be deductible (subject to MAGI phase-outs if you have a workplace plan), grow tax-deferred, and withdrawals are taxed as ordinary income with RMDs starting at age 73. Pick Roth if you expect a higher marginal tax rate in retirement than today; pick Traditional if you expect a lower rate.
Sources and further reading
- IRS (2025) Amount of Roth IRA Contributions That You Can Make for 2026 - official MAGI phase-out tables.
- IRS Publication 590-A and 590-B - Contributions to and Distributions from Individual Retirement Arrangements, including the qualified-distribution rules and the 5-year ordering.
- Congress (1997) Taxpayer Relief Act of 1997, Public Law 105-34 - the statute that created the Roth IRA.
- Congress (2022) SECURE 2.0 Act of 2022 - eliminated lifetime RMDs on Roth 401(k) as of 2024 and confirmed Roth IRA lifetime RMD exemption.
- Bogleheads wiki: Roth IRA and the backdoor/mega-backdoor strategy pages - community-maintained references.