Roth IRA — overview and eligibility
A Roth IRA is an after-tax retirement account where qualified distributions come out completely tax-free — this article covers who can contribute, how the contribution and distribution rules work, and how a Roth compares to a Traditional IRA.
Steps / Explanation
A Roth Individual Retirement Account (Roth IRA) is a retirement account defined by the Internal Revenue Service (IRS) that lets eligible individuals contribute after-tax earned income. You do not get a tax deduction when you contribute, but in exchange, qualified distributions — including all investment growth — are entirely tax-free. That reversed tax treatment is the defining difference between a Roth IRA and a Traditional IRA.
At Retired.com, a Roth IRA is held as a Self-Directed IRA (SDIRA), which means you choose the investments rather than picking from a broker's pre-approved menu. The Roth tax rules are identical whether the account is held at a standard brokerage or as an SDIRA — what changes is the range of assets you can hold inside it.
Who can contribute
Two conditions have to be met:
You (or, for a joint filer, your spouse) must have earned income for the tax year — wages, salaries, tips, self-employment income, or certain other forms of compensation. Investment income, Social Security, and pension payments do not count.
Your modified adjusted gross income (MAGI) must fall within the IRS's Roth contribution range. Unlike a Traditional IRA, a Roth IRA has income-based eligibility limits. Above a certain MAGI threshold, your allowable Roth contribution phases down; above a second, higher threshold, you cannot contribute directly to a Roth at all.
The IRS publishes MAGI phase-out ranges each year in IRS Publication 590-A. Because those thresholds change annually, we do not quote specific numbers in this article. For the current-year figures, see the IRS publication or "Contributions — limits, deadlines, and how to make them", which is kept current.
There is no age limit on Roth contributions — a feature Traditional IRAs share as of the SECURE Act of 2019.
Contribution limits
The IRS sets annual contribution limits that are indexed to inflation. Key points:
The annual limit is a combined cap across all of your Traditional and Roth IRAs. You cannot contribute the full limit to each.
Individuals age 50 or older can make catch-up contributions above the standard limit.
Contributions for a tax year can generally be made up to the federal tax-filing deadline (usually April 15) of the following year.
Current-year limits live in IRS Publication 590-A and "Contributions — limits, deadlines, and how to make them".
Tax treatment — contributions, growth, and distributions
A Roth IRA has three tax events, and all three work differently from a Traditional IRA:
On contribution. No tax deduction — you contribute with after-tax dollars.
During growth. Investment earnings inside the account grow tax-free, not just tax-deferred.
On distribution. Qualified distributions are tax-free and penalty-free. A distribution is qualified if (1) your Roth IRA has been open for at least five tax years (the "five-year rule"), and (2) one of the following is true: you are age 59½ or older, you are taking up to $10,000 for a first-time home purchase, you are disabled, or the distribution is made to your beneficiary after your death. Non-qualified distributions of earnings may be subject to ordinary income tax and the 10% additional early-withdrawal tax — see "Roth IRA distributions — tax-free withdrawal rules" for the detailed rules.
One distinctive feature worth knowing: your contributions to a Roth IRA can be withdrawn at any time, tax-free and penalty-free, regardless of age or how long the account has been open. This is because contributions are already after-tax. Only the earnings portion of a Roth is subject to the five-year rule and the age-based qualifications.
We recommend consulting a tax advisor or attorney for guidance specific to your situation.
No lifetime RMDs
A Roth IRA is not subject to Required Minimum Distributions (RMDs) during the original owner's lifetime. Beneficiaries who inherit a Roth IRA are subject to distribution rules that are separate from standard RMDs.
The SECURE 2.0 Act also eliminated lifetime RMDs on designated Roth accounts inside workplace retirement plans — such as Roth 401(k)s and Roth 403(b)s — beginning in 2024. Traditional IRAs and other tax-deferred accounts continue to be subject to RMDs; see "Required Minimum Distributions (RMDs) — rules and deadlines" for the full picture.
Roth IRA vs. Traditional IRA — the short version
The choice between a Roth IRA and a Traditional IRA usually comes down to when you want the tax benefit:
A Traditional IRA generally gives you a tax deduction today (subject to income and workplace-plan rules) and taxes you later when you take distributions.
A Roth IRA gives you no deduction today but lets qualified withdrawals — including all growth — come out tax-free later.
Additional differences: Roth IRAs have MAGI-based eligibility limits and Traditional IRAs do not; Roth IRAs have no lifetime RMDs and Traditional IRAs do. See "Traditional IRA — overview and eligibility" for the Traditional side.
A note on Roth conversions
If your income is above the direct-contribution limits, you may still be able to get money into a Roth IRA through a Roth conversion — moving pre-tax funds from a Traditional IRA into a Roth IRA and paying the ordinary income tax on the converted amount in the year of the conversion. Conversions have their own rules, a separate five-year clock for each conversion, and significant tax consequences. See "Roth conversions — how they work" for the detailed process.
We recommend consulting a tax advisor or attorney for guidance specific to your situation.
Common questions
Can I contribute to both a Roth IRA and a Traditional IRA in the same year?
Yes, as long as your combined contributions across all your IRAs stay within the IRS's annual limit. Roth contributions are also subject to the MAGI eligibility rules; Traditional contributions are not. See "Contributions — limits, deadlines, and how to make them".
What if I contribute to a Roth and later discover my income was too high?
Excess Roth contributions are subject to an annual 6% excise tax until removed. The IRS provides a correction process — generally either withdrawing the excess (plus the earnings on it) before your tax-filing deadline or recharacterizing it (in limited circumstances). We recommend consulting a tax advisor or attorney for guidance specific to your situation.
Do Roth IRAs have RMDs?
No — not during the original owner's lifetime. Beneficiaries who inherit a Roth IRA follow inherited-IRA rules, which are separate.
Can I hold the same types of investments in a Roth IRA as in a Traditional IRA?
Yes. The IRS applies the same asset-level restrictions to both — certain collectibles, life insurance, and other categories are prohibited in any IRA. See "Investment restrictions in an IRA". Your Account Representative can help with account setup and walking through the options available to you.
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