What Is a Roth IRA? A Complete Beginner’s Guide

A Roth IRA is a retirement account you open yourself and fill with money you've already paid tax on. That money is invested, and once you're 59½ and have met a five-year rule, everything comes out tax-free, growth included. You can also take back what you put in at any time without tax or penalty.

1. What "Roth IRA" means

IRA stands for individual retirement account. You open it yourself at a bank, brokerage or investing app, and your job isn't involved. The company that holds your account is called your provider.

Roth is the tax style, named after Senator William Roth, who helped create it in 1997. With a Roth, you put in money you've already paid tax on, so you don't get a tax break today. In return, the money you take out in retirement is tax-free.

A Roth IRA is the box, not what's inside it. Say Maria sends $200 a month to her new Roth IRA but never picks an investment. Her money just sits there as cash, earning very little. The growth only starts once she buys something, like a low-cost fund.

So the steps are: open the account, put money in, then choose what it buys.

2. How a Roth IRA is different from a savings account

A savings account holds cash and pays a small, steady interest rate. Your balance doesn't drop, which makes it the right home for money you may need soon.

A Roth IRA holds investments, like stock and bond funds. They can grow much more over decades, but they also go up and down. It's built for money you won't need for many years.

That's why a Roth IRA isn't a good emergency fund. If the market is down when your car breaks, you'd be selling at a loss. Keep a few months of costs in a savings account first. Our emergency fund guide shows how.

3. How Roth IRA taxes work

There are three tax facts to know.

Going in: No tax break. You use money you've already paid tax on.
While it grows: No tax on gains, interest or dividends each year.
Coming out: Tax-free if your withdrawal is qualified. That means you're 59½ or older and five tax years have passed since your first Roth IRA contribution.

A withdrawal can also be qualified before 59½ if you become disabled, or if you use up to $10,000 (a lifetime cap) toward your first home. It also counts if the money goes to your heirs after your death. The five-year rule still has to be met.

There are no required minimum distributions (yearly withdrawals the law forces you to take) on your own Roth IRA. You can leave the money growing as long as you live.

4. Contributions vs. earnings: what comes out first

A contribution is money you put in. Earnings are the growth: gains, interest and dividends. Say you put in $5,000 and it grows to $6,000. Your contributions are $5,000, and your earnings are $1,000.

The IRS has ordering rules for what comes out of a Roth IRA first:

Your contributions come out first. They're always tax- and penalty-free, at any age.
Conversions come next, oldest first. A conversion is money you moved in from a traditional account and paid tax on (see section 8).
Earnings come out last. Taken early, they're taxed as income, plus a 10% penalty if you're under 59½.

So in the example above, you could take out up to $5,000 at any time with no tax. Just know that money stops growing for your retirement. You can't put it back later beyond the yearly limit.

A Roth 401(k) at work doesn't follow this order. Our guide to traditional vs. Roth 401(k)s explains how it differs.

5. The five-year rule, explained

Your five-year clock starts January 1 of the tax year of your first Roth IRA contribution. One clock covers all your Roth IRAs, so opening a second one doesn't restart it.

That means the clock can be shorter than it looks. Open your first Roth IRA in December 2026, and your clock ends January 1, 2031, a little over four years later.

You can even backdate it. Between January 1 and the April tax deadline, you can count a deposit toward the year before.

Here's an example. Carlos opens his first Roth IRA in March 2026 and counts a $1,000 deposit toward 2025. His clock started January 1, 2025, so it's met on January 1, 2030. After that, once he's 59½, everything comes out tax-free.

Each conversion has its own separate five-year clock for the 10% penalty, if you're under 59½.

6. Who can contribute, and how much

You need earned income

You need taxable compensation. That's pay you earn from work, like wages, tips or self-employment income. Interest, rent and investment gains don't count. You can put in your earned income or the yearly limit, whichever is less.

If you're married and file jointly, a non-working spouse can still have a Roth IRA. This is called a spousal IRA. Together, you can't put in more than your combined pay on the joint return.

2026 limits

For 2026, you can put up to $7,500 into IRAs, or $8,600 if you're 50 or older. That's one limit shared by all your IRAs, traditional and Roth. You have until the tax deadline, usually April 15 of the next year, to make contributions for 2026.

The income limit

Higher earners can't put money into a Roth IRA directly. The IRS checks your modified adjusted gross income (MAGI). That's an income figure used for tax limits, usually close to the adjusted gross income on your return. Inside each phase-out range, your allowed amount shrinks step by step to zero.

Filing status	2026 phase-out range (MAGI)
Single or head of household	$153,000–$168,000
Married filing jointly	$242,000–$252,000
Married filing separately	$0–$10,000

Don't put in too much

If you go over your limit, you owe a 6% tax on the extra for each year it stays in. The fix is to take out the extra, plus anything it earned, before your tax-filing deadline (including any extension you file).

Here's an example. Jamal is 30 and sets up $650 a month. By December, he's put in $7,800. That's $300 over the $7,500 limit for people under 50. He should take out the extra $300 plus any growth on it before the deadline. A monthly amount of $625 would hit $7,500 exactly. If he were 50 or older, his limit would be $8,600 and he'd be fine.

7. Opening your first Roth IRA

Where to open one

Online brokerage: The most fund choices, often with no account fees or minimums.
Robo-advisor: An app that picks and manages a fund mix for you, for a small yearly fee.
Bank: Often limited to savings products like CDs (certificates of deposit, which pay a fixed rate for a set time), so the money grows slowly.

Step by step

Pick a provider and open an account labeled "Roth IRA."
Link your bank and set up an amount you can keep up, even $50 a month.
Choose an investment. Your deposit often sits as cash until you do.
Name a beneficiary. That's the person who gets the account if you die. Whoever you name on the account form gets the money, even if your will says otherwise.
Keep records of each year's contributions.

What to invest in

Many beginners start with one target-date fund. It holds a mix of stocks and bonds and gets more cautious as its target year (like 2060) gets close. Another common choice is a broad index fund, a low-cost fund that follows a big slice of the market. An ETF (exchange-traded fund) is a fund that trades like a stock. Many index funds come as ETFs. All of these can lose value, especially in the short run.

Check each fund's expense ratio, the yearly fee shown as a percent. A 0.50% fee costs about $50 a year on $10,000. A 0.05% fee costs about $5. Our investing basics guide covers more.

8. What if you earn too much? The backdoor Roth

Earn more than the Roth income limit? There's a legal workaround called a backdoor Roth. You put money in a traditional IRA without taking a tax deduction. Then you convert it to a Roth IRA. You track this on IRS Form 8606 with your tax return.

It's simple if you have no other pre-tax IRA money. If you do, the IRS uses the pro-rata rule. It counts all your traditional IRA money as one pot when it calculates the tax on a conversion. That can create a surprise tax bill. In that case, talk to a tax pro first.

9. Why a Roth IRA works so well for many savers

A Roth IRA tends to help most if your tax rate is low now and may be higher later. That's often true early in your career. You pay tax at today's low rate and never pay tax on decades of growth.

Here's how that adds up. Aisha puts $200 into her Roth IRA at the end of every month for 30 years. That's $72,000 of her own money. If it earns a steady 0.5% a month (about 6% a year), she could have about $200,900. About $128,900 of that is growth she'll never pay tax on, as long as she follows the rules.

Real returns go up and down, and fees and inflation reduce what money can buy. Treat this as an example, not a promise. Try your own numbers in our investment growth calculator.

If your income is modest, you may get paid extra to save. The Saver's Credit cuts your tax bill when you contribute. For 2026, it's open if your adjusted gross income is $40,250 or less (single), $60,375 or less (head of household) or $80,500 or less (married filing jointly).

10. If you live in New York

No state tax break going in. New York starts from your federal income. Roth IRA contributions don't lower your federal tax, so they don't lower your New York State or New York City tax either.
Tax-free coming out. Qualified Roth IRA withdrawals aren't part of your federal income, so New York doesn't tax them either.
Compare with traditional. At 59½, New York already lets you exclude up to $20,000 a year of pension and IRA income. That softens the tax on traditional IRA money, which can narrow Roth's edge for some retirees.

Common Roth IRA mistakes

Leaving contributions in cash. Your money can't grow until you pick an investment.
Going over the limit. Watch monthly automatic deposits, and check the income limit if you get a raise.
Mixing up conversions and contributions. They follow different rules and clocks.
Assuming every withdrawal is tax-free. Earnings taken early can be taxed and penalized.
Using it for short-term goals. Money you need in a year or two belongs in savings.
Forgetting your beneficiary. Update it after a marriage, divorce or new baby.

Frequently asked questions about Roth IRAs

Is a Roth IRA the same as a Roth 401(k)?

No. You open a Roth IRA yourself. A Roth 401(k) comes through work, has a much higher limit ($24,500 for 2026) and has no income limit. Early withdrawals also follow different rules.

Can I have a Roth IRA if I have a 401(k) at work?

Yes. The limits are separate. Many people get their full 401(k) match, then fund a Roth IRA. Our guide on which account to fund first walks through the order.

Can I take out my contributions?

Yes. What you put in can come out any time, tax- and penalty-free. Just know that money stops growing for your retirement.

Can I lose money in a Roth IRA?

Yes. The account doesn't protect you from market drops. The funds inside it can go down, especially over short periods.

Should I buy individual stocks?

You can, but it's riskier. One company can fall hard. Most beginners start with a broad, low-cost fund that holds hundreds of companies.

The bottom line

A Roth IRA lets you pay tax now and never again on decades of growth. Check that you have earned income and are under the income limit, open the account and pick an investment. Start with an amount you can keep up, and time will do most of the work.

Related reading: Traditional IRA vs. Roth IRA · Investing basics

Sources and further learning

Convivial Wealth education guide · General education for U.S. readers, not personalized tax, legal or investment advice. Figures are for 2026 and are reviewed each year.

Read our full educational disclaimer.