Roth IRAs in plain English
A Roth IRA is an individual retirement arrangement funded with after-tax contributions. Contributions are not deductible. Qualified distributions of contributions and earnings are generally free from federal income tax.
The account is opened by an individual with a financial institution, not by an employer. The owner chooses among investments the custodian makes available.
“Roth” describes tax treatment, not an investment. Cash left uninvested in a Roth IRA does not automatically grow.
2026 contribution limit
For 2026, total regular contributions across all of one person's traditional and Roth IRAs are limited to the lesser of:
- $7,500, or $8,600 if age 50 or older; and
- the person's eligible taxable compensation for the year.
The limit is shared. A person who contributes $4,000 to a traditional IRA generally has only $3,500 of regular Roth IRA room in 2026 before any age-50 catch-up.
Rollovers and conversions do not use the regular contribution limit, but they have separate rules.
Income eligibility
Direct Roth IRA contributions phase out at higher modified adjusted gross income levels based on filing status. The thresholds are indexed and can change annually.
Do not guess eligibility from salary alone. Modified AGI can differ from wages, and filing status matters. Use the current IRS worksheet or tax software before contributing the maximum.
A person can participate in an employer plan and still contribute to an IRA if compensation and income rules permit.
Spousal IRA contributions
For a married couple filing jointly, a spouse with little or no compensation may be able to receive a regular IRA contribution based on the couple's combined taxable compensation.
Each spouse needs a separate IRA and has a separate contribution limit. Combined contributions cannot exceed eligible combined compensation.
The Roth income phaseout and other eligibility rules still apply.
Contribution deadline
Regular IRA contributions can generally be made until the federal tax-return filing deadline, excluding extensions, for the designated tax year.
Tell the custodian which year the contribution is for, especially between January and the filing deadline. Confirm on statements and Form 5498.
Extensions to file do not generally extend the regular contribution deadline.
Contributions versus earnings
Roth IRA distributions follow ordering rules. Regular contributions generally come out first, then conversion amounts under their ordering rules, then earnings.
Because regular contributions were already taxed, they can generally be withdrawn without income tax or penalty. That flexibility does not make the Roth IRA an ideal checking account: withdrawals sacrifice tax-advantaged space that cannot always be restored.
Earnings require additional conditions for tax-free qualified treatment.
Qualified distributions and the five-year rule
A Roth IRA distribution is qualified when the applicable five-tax-year period has been met and the distribution occurs after age 59½, because of disability, after death, or for an eligible first-home distribution within the lifetime limit.
The five-year period for qualified distributions begins with the first tax year for which the owner made a contribution to any Roth IRA set up for that owner.
Separate five-year rules can apply to converted amounts for additional-tax purposes. “The Roth has been open five years” is not enough to answer every distribution question.
Roth conversions
A Roth conversion moves eligible pre-tax traditional IRA or plan money into Roth status. The untaxed converted amount is generally included in income for that year.
There is no regular Roth contribution income cap on the ability to convert, but tax, estimated-payment, Medicare premium, credit, and state consequences can be substantial.
Conversions after 2017 generally cannot be recharacterized back to traditional IRA status. Model the tax before executing and avoid withholding from retirement funds when practical.
The pro-rata rule
When a person has pre-tax and after-tax money across traditional, SEP, and SIMPLE IRAs, a conversion generally cannot isolate only after-tax dollars. Form 8606 applies a pro-rata calculation using aggregate IRA balances.
This is central to so-called backdoor Roth strategies. A zero balance in one traditional IRA does not eliminate other traditional, SEP, or SIMPLE IRA balances.
Employer-plan balances are treated differently for this calculation, but rollover decisions can change the year-end IRA total.
Investments inside a Roth IRA
Custodians may offer cash, certificates, mutual funds, ETFs, stocks, bonds, and other permitted assets. Choose investments based on time horizon, diversification, risk capacity, fees, and the role of all accounts.
Tax-free potential can make high-expected-return assets attractive, but it does not justify taking risk beyond the household's plan. Losses inside the account can still permanently reduce wealth.
Avoid prohibited transactions and collectibles or other disallowed investments that can create severe tax consequences.
No lifetime RMD for the original owner
The original Roth IRA owner is not required to take minimum distributions during life under current federal rules. This allows continued tax-advantaged growth and can support estate planning.
Beneficiaries are subject to inherited-account distribution rules. Those rules depend on beneficiary type, relationship, disability, age, and date of death.
Beneficiary designations should be reviewed after major life events and coordinated with the estate plan.
Roth IRA versus traditional IRA
A Roth contribution gives up a current deduction in exchange for potential tax-free qualified withdrawals. A deductible traditional contribution can reduce current taxable income but generally creates taxable distributions later.
The comparison depends on marginal tax rates now and later, deduction eligibility, time horizon, state taxes, RMDs, credits, estate goals, and behavioral discipline.
The contribution limit is the same nominal amount, so a fully funded Roth represents more after-tax retirement value than a fully deductible traditional IRA if the tax paid outside the account is considered.
Roth IRA versus Roth 401(k)
A Roth 401(k) is an employer-plan account with the larger 401(k) deferral limit, plan investment menu, and plan rules. A Roth IRA has its own contribution limit, direct-income restriction, custodian choices, and withdrawal ordering.
Someone can contribute to both if separately eligible. Contributions to one do not reduce the other's statutory limit.
Employer matching and plan Roth rules should be reviewed separately.
Excess contributions
An excess can occur from exceeding the shared limit, lacking sufficient compensation, or contributing directly above the Roth income limit.
The IRS generally imposes a 6% excise tax for each year an excess remains, limited as provided by law. Timely corrective distribution or recharacterization can resolve some errors under specific rules.
Contact the custodian and tax professional before simply withdrawing a random amount; earnings and reporting must be handled correctly.
A practical Roth checklist
Before contributing:
- verify compensation and modified AGI eligibility;
- total all traditional and Roth IRA contributions;
- choose the correct tax year;
- set a diversified investment allocation;
- name primary and contingent beneficiaries;
- automate contributions without exceeding the limit; and
- retain Forms 5498, 1099-R, and 8606 where applicable.
The strongest Roth strategy is usually consistent long-term saving, not a last-minute tax maneuver without records.