Roth IRA

A Roth IRA reverses the timing of a traditional IRA, the other personal kind of IRA, and shares one annual limit with it. You contribute money you have already paid tax on, so there is no deduction, and from then on interest, dividends and gains inside the account aren’t taxed. A withdrawal is either qualified, and completely tax-free, or it follows ordering rules that still protect what you put in. A qualified distribution needs two things: five tax years, counted from January 1 of the first tax year for which you contributed to any Roth IRA, and a qualifying reason, which is reaching 59½, disability, death, or up to $10,000 for a first home.

Because the tax is paid up front, a Roth pays off when today’s rate is lower than the rate you would otherwise pay on withdrawals later. Paying 12% now to avoid 22% later is a gain; paying 32% now to avoid 12% later is a loss.

Two advantages have nothing to do with the rate. Qualified withdrawals aren’t part of adjusted gross income, so they don’t raise the taxable share of Social Security, push you into Medicare IRMAA surcharge tiers or shrink an ACA premium tax credit. The original owner never has to take required minimum distributions, so the balance can keep compounding for life.

Direct contributions depend on modified AGI, figured with Roth-specific adjustments: start with adjusted gross income, subtract any income from a Roth conversion, and add back items such as a traditional IRA deduction and the student loan interest deduction. Below the range in the table you can contribute the full amount, inside it a reduced amount, and above it nothing directly.

The reduction is proportional. For 2026 a single filer loses one-fifteenth of the limit for every $1,000 of modified AGI inside the range and a joint filer one-tenth, rounded up to the next $10, as the formula and example below show.

Two routes remain above the range. Conversions from a traditional IRA have no income limit, which is what makes the backdoor Roth IRA possible: a nondeductible traditional contribution followed by a conversion, taxed under the pro-rata rule if you hold other pre-tax IRA money. A workplace Roth 401(k) has no income limit at all.

The usual IRA compensation rule still applies. You, or your spouse on a joint return through the spousal IRA rule, need taxable compensation at least equal to the contribution, and there is no maximum age.

A withdrawal that isn’t qualified isn’t automatically taxed. The IRS treats all of your Roth IRAs as one and orders the money out in layers: regular contributions first, then converted amounts, oldest conversion first and the taxable part of each before the rest, and earnings last.

Regular contributions come out tax- and penalty-free at any age, for any reason. Someone who has contributed $40,000 over the years to an account now worth $60,000 can withdraw $40,000 without tax or the 10% penalty, which makes contributions a backstop for an emergency or an early retirement.

Converted amounts are never taxed again, but each conversion has its own five-year clock, starting January 1 of the conversion year. Taking out the taxable portion of a conversion within that period, before 59½, triggers the 10% early withdrawal penalty. A Roth conversion ladder is built around that timing, and the Roth five-year rules page explains both clocks.

Earnings come out last. Taken before the account is qualified, they are taxable, and before 59½ they also carry the 10% tax unless an exception, such as disability or up to $10,000 for a first home, applies.

Both are personal IRAs with the same annual limit, deadline, investment choices and compensation rule, and you can split one year’s limit between them. The difference is when the tax is paid and what that does to your flexibility later. Many households end up holding both, which is the idea behind tax diversification: pre-tax money to draw in low-bracket years and Roth money to cover spending without adding taxable income. The main differences:

Roth IRA rules are enforced on your tax return, not by the custodian, which doesn’t check whether your income allows a contribution. The running total of what you have contributed, across years and custodians, is yours to track. That record decides how much of an early withdrawal is tax-free, and a withdrawal that isn’t qualified is reported on Form 8606, where your contribution basis sets the taxable part. The costliest slips: