Roth IRAs

A Roth IRA is a retirement savings account that allows your money to grow tax-free. You fund a Roth with after-tax dollars, meaning you've already paid taxes on the money you put into it. In return for no up-front tax break, your money grows tax free, and when you withdraw at retirement, you pay no taxes. That's right -- every penny goes straight in your pocket.


Roth contribution limits are the same those for traditional IRAs: $5,500 for the 2015 tax year, or $6,500 if you're 50 or older.

But not everyone can contribute to a Roth, since contributions are limited by income level. In general, you can contribute to a Roth IRA if you have taxable income and your modified adjusted gross income is either:

  • less than $193,000 if you are married filing jointly
  • less than $131,000 if you are single, head of household, or married filing separately (if you did not live with your spouse at any time during the previous year)
  • less than $10,000 if you're married filing separately and you lived with your spouse at any time during the previous year.


Roth IRAs offer a bit more flexibility than traditional IRAs do. You may withdraw your contributions to a Roth IRA penalty-free at any time for any reason (but you'll be penalized for withdrawing any investment earnings before age 59 ½ unless it's for a qualifying reason).

(If you converted money from a traditional IRA into a Roth IRA, you can't take it out penalty-free until at least five years after the conversion.)

Unlike a traditional IRA, Roth IRAs also let you leave your money untouched for as long as you like. And you can keep contributing to a Roth IRA even if you're over age 70 ½.


Since the big advantage of a Roth IRA is getting to withdraw the money tax free at retirement, the trade-off is that you have to fund it with after-tax dollars, and won't receive any tax breaks for making contributions.

As with most retirement plans, there are some restrictions on when you can take the money out without incurring a penalty.

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