Workers who save for retirement in a Roth IRA don’t have to worry about a big tax bill in retirement because withdrawals are typically tax-free.
If you’re considering a Roth IRA to save for retirement, understand the following:
— What is a Roth IRA?
— How do Roth IRAs work?
— What are the contribution limits for Roth IRAs?
— When is the Roth IRA contribution deadline?
— Income limits on Roth IRAs
— How to open a Roth IRA.
— What to do with a Roth IRA in retirement
What Is a Roth IRA?
A Roth IRA is a retirement account that allows you to qualify for tax-free investment growth on your retirement savings. While you don’t get a tax break in the year you make a Roth IRA contribution, you can take tax-free withdrawals in retirement and avoid paying income tax on your investment returns.
“That tax design is what makes Roth IRAs so beneficial to start as young as possible,” said Mark Pierce, CEO and founding partner of Wyoming Trust in Sheridan, Wyoming, in an email. “Not only do you really get the benefit of compound earnings and longer growth, but you’re creating a bigger pool of untaxable income for your future self.”
[Read: What the Rothification of Retirement Accounts Means for You]
How Roth IRAs Work
Roth IRA contributions are made with after-tax dollars, and there is no tax deduction in the year you contribute. Withdrawals taken after age 59 1/2 from accounts at least five years old are tax-free. Many people don’t have to pay any income tax on the investment growth they accumulate in a Roth IRA.
Roth IRA Contribution Limits
You can contribute up to $7,000 to a Roth IRA in 2025. People age 50 and older can make additional catch-up contributions of up to $1,000 for a total Roth IRA contribution of $8,000.
To open a Roth IRA, you or your spouse must have earned taxable compensation and can’t contribute more than you’ve earned.
Roth IRA Contribution Deadline
Roth IRA contributions must be made by the due date of your tax return, usually around April 15 each year. If you make a contribution between January and April, you can choose to apply the deposit to the previous tax year or the current calendar year.
Roth IRA Income Limits
Workers must earn below certain income cutoffs to be eligible to save for retirement in a Roth IRA. Those who earn less than $146,000 as an individual or $230,000 as a married couple are eligible to make Roth IRA contributions in 2025. The Roth IRA contribution amount is phased out for those with incomes of more than $165,000 as an individual and $246,000 as a married couple in 2025. However, there are several ways to bypass these income limits by contributing to a traditional IRA or 401(k) and converting the funds to a Roth.
“If your income is too high to be eligible to make a Roth IRA contribution and you do anyway, you’ll be subject to a 6% excise tax per year until the ineligible contribution and associated earnings are removed, said Christopher Stroup, founder and president of Silicon Beach Financial in Santa Monica, California, in an email. “The best solution is to withdraw the funds immediately once the error has been discovered.”
[Read: How to Save in a 401(k) and IRA in the Same Year]
How to Open a Roth IRA
You can open a Roth IRA at most banks and financial institutions. When selecting a Roth IRA provider, consider the available investment options and the fees associated with the account.
“With a Roth IRA, you have the full menu with thousands of investment options,” Hill said. “You can also minimize fees and find a Roth IRA where it costs you next to nothing to invest.”
What to Do With a Roth IRA in Retirement
You can typically take penalty-free and tax-free distributions from your Roth IRA after age 59 1/2. Unlike a traditional IRA, you are not required to take withdrawals from a Roth IRA in retirement.
“Because there is no required minimum distribution with a Roth, you can continue to invest and let it grow your wealth and perhaps pass it on to your children,” said Narumi Yoshida, founder and CEO of Yoshida Wealth Management in White Plains, New York, in an email. The money can accumulate in the account until you need it, or you can leave the funds to your heirs.
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What Is a Roth IRA? originally appeared on usnews.com
Update 06/10/25: This story was published at an earlier date and has been updated with new information.
