Roth IRA Explained: Contributions, Income Limits, and Withdrawals

A Roth IRA is an individual retirement account you fund with money that has already been taxed. There is no tax deduction when the money goes in. In exchange, qualified withdrawals in retirement — contributions and every dollar of growth — come out entirely tax-free, and the account has no required minimum distributions during your lifetime. The account is simple to describe and easy to get wrong in the details: the annual limit is shared across all your IRAs, the right to contribute directly phases out as income rises, and taking earnings out too early can cost tax plus a 10% penalty. This guide covers each rule with the current figures, worked examples, and the mistakes that cost people money.

What a Roth IRA is, and how it differs from a Traditional IRA

A Roth IRA holds investments — funds, stocks, bonds — inside a tax wrapper. The wrapper, not the investments, is what makes it a Roth IRA. You contribute after-tax dollars, the investments grow without annual tax on dividends or capital gains, and qualified withdrawals are tax-free. There is no tax bill waiting at the end, which is the whole point: you settle the tax question once, in the year you contribute, at the rate you pay today.

A Traditional IRA works the other way round. Contributions may be deductible, which lowers your tax bill in the year you contribute, but withdrawals in retirement are taxed as ordinary income, and required minimum distributions begin at age 73 (75 for those born in 1960 or later) under current law. A taxable brokerage account has neither benefit: you pay tax on dividends and gains as they arise, and again when you sell, though long-term gains get preferential rates. The three accounts can hold identical investments and still leave you with very different amounts after tax, because the tax timing differs.

Two features set the Roth IRA apart from every other retirement account. First, qualified withdrawals are tax-free, including all the growth — no other mainstream account offers that on the full balance. Second, there are no required minimum distributions during the owner’s lifetime, so the money can stay invested as long as you live, and beneficiaries inherit under their own distribution rules. The price of those features is paid up front: no deduction, a contribution limit, and income limits on direct contributions.

The same dollars, three tax timings. The contribution limit below is the combined limit for all your IRAs, not per account.

Contributions: the limit, earned income, and the deadline

The contribution limit applies to everything you put into IRAs in a tax year — Roth and Traditional combined. For 2026 the limit is $7,500 if you are under 50, and $8,600 if you are 50 or older at the end of the year, because the $1,100 catch-up contribution is added on top. For 2024 and 2025 the limits were $7,000 and $8,000. The limit is adjusted for inflation in $500 steps, which is why it moves some years and not others. Conversions from a Traditional IRA do not count against this limit at all; they are a separate transaction with no dollar cap, covered in the companion guide on Roth conversions.

You need earned income — wages, salary, self-employment income — at least equal to what you contribute. If you earned $4,000 in a year, your IRA contribution for that year cannot exceed $4,000, even though the headline limit is higher. A non-working spouse can still contribute to a spousal IRA based on the working spouse’s earned income, if the couple files jointly. Investment income, pensions, Social Security, and unemployment compensation do not count as earned income for this purpose.

Contributions for a tax year can be made until the tax filing deadline for that year, generally April 15 of the following year, without an extension. A contribution made in February 2027 can therefore count for either 2026 or 2027, and the designation matters: tell the custodian which year it belongs to, and check the statement, because a contribution credited to the wrong year is a common and entirely avoidable error. You can contribute monthly through the year or as a single lump sum; the limit is annual either way.

Contributions must be in cash or cash equivalents. You cannot contribute shares you already own, property, or services. Once inside the account, the money can be invested as you choose, subject to the custodian’s offerings and the prohibited-transaction rules — no collectibles, no life insurance, no self-dealing. None of that affects ordinary savers, but it is why a Roth IRA is opened with a custodian rather than held directly.

Income limits: MAGI, the phase-out, and the reduced contribution

Direct Roth IRA contributions are limited by income. The IRS measures income as Modified Adjusted Gross Income (MAGI) — broadly, adjusted gross income with certain deductions added back, including the student loan interest deduction and any foreign earned income exclusion. For most people MAGI is close to AGI, but the distinction matters near the boundary, and the calculator on this site takes the MAGI figure you enter and applies the phase-out for your filing status. The guide What Is MAGI and How Do You Calculate It? works through the calculation step by step.

Inside the phase-out range, your allowed contribution shrinks in proportion to how far through the range your MAGI sits. Above the range, no direct contribution is allowed at all. The phase-out ranges for 2026, from IRS Notice 2025-67, are:

The reduced contribution is the limit multiplied by the fraction of the range that remains: (upper end − your MAGI) ÷ (upper end − lower end), rounded up to the next $10, with a $200 minimum if any amount is allowed. Work it through. A single filer with MAGI of $160,000 and a $7,500 limit: ($168,000 − $160,000) ÷ $15,000 = 0.5333, so $7,500 × 0.5333 = $4,000. A married couple filing jointly with MAGI of $247,000: ($252,000 − $247,000) ÷ $10,000 = 0.5, so $7,500 × 0.5 = $3,750. Both filers can still use the conversion route — a nondeductible Traditional IRA contribution converted to Roth — which has no income limit. The mechanics, including the pro-rata rule that decides how much of a conversion is taxable, are set out in Roth Conversions Explained.

Withdrawals: contributions first, earnings second, and the two five-year rules

Withdrawals from a Roth IRA follow a fixed ordering, and the ordering is generous. Your regular contributions come out first, and they come out tax-free and penalty-free at any age, for any reason, because you already paid tax on that money. Next come converted amounts, oldest conversion first. Earnings come out last. That order means a saver who contributed $30,000 over several years and watched the account grow to $45,000 can withdraw up to $30,000 without tax or penalty, even at age 35. The remaining $15,000 of earnings is where the rules bite.

Earnings come out tax-free only on a qualified distribution, which needs two things at once: the five-year rule for the account must be met, and one of the qualifying conditions must apply. The account’s five-year clock starts on January 1 of the tax year of your first Roth IRA contribution or conversion, and runs for five tax years — a first contribution in 2026 means the clock is satisfied on January 1, 2031. The qualifying conditions are reaching age 59½, disability, death (for beneficiaries), or a first-home purchase of up to $10,000 over your lifetime. If both parts are met, the whole distribution, earnings included, is tax-free.

If the distribution is not qualified, the earnings portion is taxed as ordinary income, and a 10% additional tax generally applies to the earnings if you are under 59½. Exceptions waive the 10% penalty — though not always the income tax — for disability, death, substantially equal periodic payments, first-home purchases up to $10,000, qualified higher-education expenses, certain medical expenses, and a short list of other hardships. The penalty exceptions are narrow and fact-specific; the income tax on non-qualified earnings is the rule, not the exception.

Converted amounts carry their own five-year clock, separate from the account clock. If you withdraw converted principal within five tax years of the conversion and you are under 59½, the portion that was taxable when converted is hit with the 10% penalty. Each conversion starts its own clock: a 2026 conversion is clear on January 1, 2031. This is the rule that shapes conversion ladders, where each year’s conversion becomes available, penalty-free, five years later. It is also why paying conversion tax from outside the IRA matters — withholding tax from the conversion itself before 59½ can expose the withheld amount to the penalty.

There are no required minimum distributions for the original owner, at any age. Beneficiaries who inherit a Roth IRA do face distribution rules — generally the account must be emptied within 10 years, with exceptions for eligible designated beneficiaries such as a surviving spouse — but inherited distributions that are qualified remain tax-free. The absence of lifetime RMDs is a planning feature, not a detail: it lets the account compound untouched through retirement while taxable and Traditional accounts are drawn first.

Roth vs Traditional vs taxable: which account wins, and when

When the tax rate is the same going in and coming out, Roth and Traditional IRAs tie. A $7,500 after-tax contribution at a 22% rate costs $9,615 of pre-tax pay; the same $9,615 contributed pre-tax to a Traditional IRA, taxed at 22% on withdrawal, leaves exactly the same after-tax amount. The accounts differ only when the rates differ — and rates almost always differ, because income, deductions, and law all change between contribution and withdrawal.

The rough rule is the one on the calculator page: if your rate in retirement will be higher than today, Roth usually wins; if it will be lower, the Traditional deduction usually wins. Early-career earners in low brackets, people in a low-income year, and anyone expecting higher income later generally favor Roth — they buy tax-free growth at today’s low rate. Peak earners expecting a lower retirement income, and anyone whose deduction saves tax at 32% or 37% today, often favor Traditional. Nobody knows future rates, so the honest answer for many savers is a mix: some of each, so retirement income can be drawn from whichever account is cheapest in a given year.

Against a taxable account, the Roth IRA wins whenever the investments generate taxable income along the way — dividends, interest, or turnover gains. A taxable account also pays tax on the final sale. The one advantage of the taxable account is flexibility: no contribution limit, no income limit, no early-withdrawal penalty, and no five-year rules. Money you may need before 59½, beyond your contribution basis, usually belongs in the taxable account, even though it is taxed less kindly.

Run the numbers before deciding. On the calculator, a $7,500 annual contribution at 7% for 30 years grows to about $708,000 — $225,000 of contributions and about $483,000 of growth. In a Roth IRA that growth is tax-free if qualified. In a Traditional IRA it is taxed on withdrawal. In a taxable account it is taxed as it arises and again on sale. The size of the gap depends on your rates, which is why the calculator lets you set both today’s rate and the retirement rate and watch the comparison move.

Mistakes: excess contributions, the wrong year, and early earnings

An excess contribution — more than the limit, more than your earned income, or a direct contribution above the phase-out — is taxed at 6% for every year it stays in the account. The fix is to remove the excess, plus any earnings on it, before the filing deadline for that year (with extensions). Left in place, the 6% charge repeats annually, which is how a one-year slip becomes a multi-year bill. The calculator flags contributions above your limit; treat the flag as a stop sign, not a suggestion.

Contributing for the wrong tax year is the quietest mistake. Money sent in January through mid-April defaults to the current year unless you designate the prior year, and custodians follow the designation on file, not your intention. A 2026 contribution accidentally credited to 2027 uses up 2027 room and leaves 2026 room unused. Check the confirmation, and check the Form 5498 the custodian files — it is the record the IRS sees.

Taking earnings early is the most expensive mistake, because it is the only one that destroys the tax-free growth the account exists for. Withdrawing the full balance at 40 to pay off a loan, for example, takes the contributions tax-free but taxes the earnings and adds the 10% penalty on them. If cash is needed, withdraw contributions only, and leave the earnings invested. And never roll a Roth IRA into a Traditional IRA by accident during a job change — direct rollovers between account types need the conversion step, with its tax bill, done deliberately.

Who a Roth IRA suits best

A Roth IRA suits savers who expect their tax rate to rise, who want tax-free income in retirement, who value having no forced withdrawals, or who want a backup source of penalty-free cash in the form of their contribution basis. It suits young earners most of all: decades of compounding inside a tax-free wrapper, bought at a low entry rate, is the strongest version of the trade. It also suits high earners who cannot contribute directly, via the conversion route, provided the pro-rata rule does not spoil it.

It suits less well anyone who needs the deduction today to make saving affordable, anyone in a very high bracket expecting a much lower retirement income, and anyone who will need the earnings — not just the contributions — before 59½. For those savers, a Traditional IRA, a taxable account, or a mix will usually serve better. The account choice is a tax-rate bet, and like any bet it should be sized, not taken all-or-nothing: many retirement plans hold both Roth and pre-tax money, and draw from each as the year’s tax picture dictates.

Open the calculator, enter your age, balance, contribution, and return, and read the comparison section before you choose. The projection is an illustration at a constant return — real returns vary, fees reduce outcomes, and limits change — but the tax timing it models is the real decision, and it is worth seeing in numbers rather than in slogans.

Frequently asked questions