Roth Individual Retirement Account (Roth IRA)
What it is
A Roth IRA is a US individual retirement account that shelters investment growth from tax. Contributions are made with money that's already been taxed — there's no deduction on the way in — but everything that happens inside the account (interest, dividends, capital gains) accumulates untaxed, and qualified withdrawals in retirement are tax-free.
The Roth IRA is a wrapper, not an investment. It can hold almost any qualified investment: cash, CDs, mutual funds, ETFs, stocks, bonds, REITs.
Who can open one
US citizens or residents with earned income. There's no upper age limit (the age-70½ contribution cap was repealed by the SECURE Act in 2019). Income limits apply: the 2025 contribution phases out between $150,000 and $165,000 for single filers, and $236,000 to $246,000 for married filing jointly. Above the top of the phase-out, direct Roth IRA contributions are not allowed — the backdoor Roth (a non-deductible Traditional IRA contribution converted to Roth) is the standard workaround.
How contributions work
The 2025 contribution limit is $7,000 per year, plus a $1,000 catch-up if 50 or older. Contributions can be made up to the tax filing deadline (typically April 15) of the following year. Contribution room does not carry forward — unused room in one year is gone the next.
A Roth IRA's contributions are "basis" — the principal you put in. Basis can be withdrawn at any age, for any reason, with no tax or penalty. Earnings (the growth on top of basis) have stricter rules — see Withdrawals below.
Tax treatment
No tax deduction on contributions, no tax on growth, no tax on qualified withdrawals. Foreign tax paid on dividends from non-US stocks held inside a Roth IRA is generally not recoverable (there's no US tax liability to credit it against), so US-listed funds are typically a better fit for the wrapper than direct foreign holdings.
Required Minimum Distributions do not apply to the original Roth IRA owner — the account can grow tax-free for life. This is a meaningful difference vs the Traditional IRA, where RMDs begin at age 73.
How withdrawals work
Contributions (basis) can be withdrawn at any age, for any reason, with no tax or penalty. The IRS treats withdrawals as basis-first.
Earnings withdrawn before age 59½ may be subject to ordinary income tax plus a 10% early-withdrawal penalty unless an exception applies (first-time home purchase up to $10,000, qualified higher education, certain medical expenses, etc.). Withdrawals after age 59½ from an account at least 5 tax years old are "qualified" — fully tax-free.