Roth IRA
Explain it like I’m new
A retirement account you open yourself. You pay taxes now, and qualified withdrawals later are tax-free.
Technical version
An individual retirement arrangement under IRC §408A funded with after-tax dollars; qualified distributions of earnings are tax-free after age 59½ and a 5-year holding period.
Why people get confused
- ✕‘I make too much.’ A backdoor Roth may still be available.
- ✕‘I can’t touch the money.’ You can withdraw contributions (not earnings) anytime, tax- and penalty-free.
What decision this affects
Tax-free growth for decades is uniquely powerful for younger savers in lower tax brackets today.
- →Open with a low-fee broker.
- →Automate monthly contributions up to the annual limit.
- →Invest the cash — a Roth IRA holding only cash is a missed opportunity.
Related next concepts
A retirement savings account offered by your employer. Money goes in from your paycheck before taxes, grows over time, and your employer may add a matching contribution.
A fund that buys a little of everything in a market index (like the S&P 500) instead of trying to pick winners. Low cost, broadly diversified.
An Exchange-Traded Fund — like a mutual fund, but it trades on a stock exchange throughout the day.
Trusted sources
- What’s the income limit?
- Roth IRA vs Roth 401(k)?
Was this clear?
Your feedback helps us re-review and rewrite confusing pages.