Roth IRA Guide 2026

The Roth IRA is arguably the single best retirement account available to individual investors. Contributions grow completely tax-free, qualified withdrawals in retirement are completely tax-free, and there are no required minimum distributions during your lifetime. For anyone who expects their tax rate to be the same or higher in retirement — which includes most young workers — the Roth IRA should be a cornerstone of their retirement strategy. This guide covers current contribution and income limits, a detailed comparison with Traditional IRAs and Roth 401(k)s, the 5-year rule, the backdoor Roth strategy for high earners, and recommendations on where to open one and what to invest in. Whether you are opening your first investment account or optimizing an existing retirement plan, this guide provides the specific rules and actionable steps you need.

How a Roth IRA Works: The Core Mechanics

A Roth IRA operates on a simple principle: pay taxes now, never pay them again. Here is how the three phases work:

• Contributions (taxed): You contribute money you have already paid income tax on. Unlike a Traditional IRA or pre-tax 401(k), Roth contributions do not reduce your current taxable income. If you contribute $7,000 to a Roth IRA, you do not get a $7,000 tax deduction
• Growth (tax-free): Once inside the Roth IRA, your investments grow without any tax drag. Dividends, interest, and capital gains accumulate tax-free. You do not owe taxes when you sell one fund and buy another inside the account. This tax-free compounding is the Roth IRA's most powerful feature
• Withdrawals (tax-free): After age 59 and a half, provided the account has been open for at least 5 years, you can withdraw everything — both your contributions and all growth — completely tax-free. A $7,000 contribution that grows to $50,000 over 30 years is $50,000 of tax-free income in retirement

The math makes the advantage clear. If you invest $7,000 per year for 30 years at a 7% average annual return, you will accumulate approximately $661,000. In a Roth IRA, that entire $661,000 is yours — no taxes owed at withdrawal. In a Traditional IRA, you would owe ordinary income tax on every dollar withdrawn, which at a 22% federal rate would cost you roughly $145,000 in taxes.

2026 Contribution Limits

The IRS sets annual contribution limits for Roth IRAs. For 2026 (based on 2025 announced limits; the IRS typically confirms the following year's limits each fall):

• Under age 50: $7,000 per year maximum
• Age 50 and older: $8,000 per year maximum ($7,000 base + $1,000 catch-up contribution)
• Shared limit: The $7,000/$8,000 limit is the total across all your Traditional and Roth IRAs combined. If you contribute $2,000 to a Traditional IRA, you can contribute at most $5,000 to your Roth IRA that year
• Deadline: You have until the tax filing deadline (typically April 15, 2027) to make contributions for the 2026 tax year
• Earned income requirement: You must have earned income (wages, salary, self-employment income) at least equal to your contribution amount. You cannot contribute to a Roth IRA from investment income, Social Security, or pension income alone

If you can afford to max out your Roth IRA at $7,000 per year, do it. At a 7% return, maxing out a Roth IRA from age 25 to 65 produces approximately $1.5 million in completely tax-free retirement savings. Even contributing $3,000-$4,000 per year yields substantial results.

Income Limits and Phase-Outs

Unlike a 401(k), the Roth IRA has income limits that restrict who can contribute directly. These limits are based on your Modified Adjusted Gross Income (MAGI):

Note: These figures are based on 2025 IRS limits. The IRS adjusts limits annually for inflation. Check IRS.gov for confirmed 2026 limits. Married filing separately filers have a $0-$10,000 phase-out range.

If your income falls in the phase-out range, most people simply use the backdoor Roth IRA strategy (covered below), which effectively eliminates the income limit.

Roth IRA vs Traditional IRA: Complete Comparison

Which should you choose? For most people under 40 earning less than $150,000, the Roth IRA is the stronger choice — your tax rate is likely the same or higher in retirement, so paying taxes now and never again is the winning strategy. The Traditional IRA may be better if you are in a high tax bracket today (32%+) and expect to be in a lower bracket in retirement. Some investors contribute to both types for "tax diversification."

Withdrawal Rules and the 5-Year Rule

Roth IRA withdrawal rules are more flexible than most people realize, but the 5-year rule is often misunderstood. Here is how withdrawals actually work:

Contributions (your original deposits): Withdrawable at any time, at any age, for any reason — no taxes, no penalties. This is because you already paid income tax on this money before contributing it. If you have contributed a total of $30,000 over the years, you can take out up to $30,000 at any time, regardless of your age or how long the account has been open.

Earnings (investment growth): Tax-free and penalty-free only if two conditions are met: (1) you are at least 59 and a half years old, AND (2) the account has been open for at least 5 years. If you withdraw earnings before meeting both conditions, you will owe income tax plus a 10% early withdrawal penalty on the earnings portion.

The 5-year rule explained: The clock starts on January 1 of the tax year you make your first Roth IRA contribution (to any Roth IRA — it does not reset when you open a new one). A 2026 contribution starts the clock on January 1, 2026, and the account is seasoned on January 1, 2031. Open one now even if you can only contribute a small amount, to start the clock.

Exceptions to the early withdrawal penalty on earnings:

• First-time home purchase: up to $10,000 lifetime (still must meet 5-year rule for tax-free treatment)
• Qualified education expenses for you, your spouse, children, or grandchildren
• Disability or death
• Unreimbursed medical expenses exceeding 7.5% of AGI
• Health insurance premiums while unemployed
• Substantially equal periodic payments (SEPP/72(t) distributions)

Backdoor Roth IRA Strategy for High Earners

If your income exceeds the Roth IRA income limits ($165,000+ single, $246,000+ MFJ), you cannot contribute directly to a Roth IRA. But you can use the backdoor Roth IRA strategy, which is completely legal and has been used by millions of investors since its inception. Here is the step-by-step process:

1. Contribute to a Traditional IRA. Make a non-deductible contribution of up to $7,000 ($8,000 if 50+). There is no income limit on Traditional IRA contributions — only on the tax deductibility of those contributions. File IRS Form 8606 with your tax return to document the non-deductible contribution
2. Convert the Traditional IRA to a Roth IRA. Contact your brokerage (or do it online — Fidelity, Schwab, and Vanguard all offer online Roth conversions) and request a conversion of the Traditional IRA balance to your Roth IRA. There is no income limit on Roth conversions
3. Pay taxes on any gains. If you convert quickly (within days of contributing), there will be minimal or no gains, meaning minimal or no tax owed. The goal is to contribute and convert before the money has time to grow significantly

Critical warning — the pro-rata rule: If you have existing pre-tax money in any Traditional, SEP, or SIMPLE IRA, the IRS uses the "pro-rata rule" to calculate the taxable portion of your conversion. You cannot just convert the non-deductible portion. For example, if you have $93,000 in pre-tax Traditional IRA money and you contribute $7,000 non-deductible, only 7% ($7,000 / $100,000) of your conversion is tax-free. The workaround: roll your existing pre-tax Traditional IRA balance into your employer's 401(k) plan before doing the backdoor Roth conversion. Most 401(k) plans accept incoming rollovers.

Best Roth IRA Providers Compared

A Roth IRA is just an account type — you can open one at any brokerage and invest in stocks, bonds, ETFs, mutual funds, and more. Here are the top providers compared:

Our recommendation: Fidelity for most investors — zero-fee index funds, no account minimum, and broad investment options. Vanguard and Schwab are equally strong. Betterment or Wealthfront make sense if you want fully automated management and are willing to pay 0.25% per year, but a simple self-directed index fund portfolio at Fidelity, Vanguard, or Schwab costs $0 in advisory fees.

What to Invest In Inside Your Roth IRA

A Roth IRA is not an investment itself — it is a tax-advantaged container. You need to choose what goes inside it. Here are two approaches based on how much involvement you want:

Simplest approach — one target-date fund: Buy a target-date fund matching your expected retirement year. Fidelity Freedom Index 2060 (FDKLX, 0.12%) or Vanguard Target Retirement 2060 (VTTSX, 0.08%) hold a professionally managed mix of US stocks, international stocks, and bonds that automatically adjusts as you age. Put your entire contribution into one fund and you are done.

More control — three-fund portfolio: The gold standard of simplicity and diversification:

• 60-70% US total stock market: FZROX (Fidelity, 0.00%), VTSAX (Vanguard, 0.04%), or VTI (Vanguard ETF, 0.03%). See our index funds vs ETFs comparison for help choosing between the mutual fund and ETF versions
• 20-30% International stock market: FZILX (Fidelity, 0.00%), VTIAX (Vanguard, 0.12%), or VXUS (Vanguard ETF, 0.08%)
• 0-10% US bond market: FXNAX (Fidelity, 0.025%), VBTLX (Vanguard, 0.05%), or BND (Vanguard ETF, 0.03%). Young investors with 30+ years to retirement can skip bonds entirely and go 100% stocks

Because Roth IRAs grow tax-free, they are the ideal place for your highest-growth investments. Put bonds in Traditional (pre-tax) accounts and stocks in the Roth. This "asset location" strategy maximizes the value of tax-free growth.

Roth Conversions: Rolling Over from a Traditional IRA

A Roth conversion moves money from a Traditional, SEP, or SIMPLE IRA into a Roth IRA. The converted amount is added to your taxable income for the year, but once in the Roth, it grows and can be withdrawn tax-free.

When a Roth conversion makes sense: during low-income years (between jobs, early retirement before Social Security), when you expect tax rates to rise (the 2017 Tax Cuts and Jobs Act provisions expire after 2025 unless extended), or for estate planning (Roth IRAs pass to heirs tax-free, though heirs must withdraw within 10 years).

When it does not make sense: If the conversion would push you into a much higher tax bracket, the upfront tax cost may exceed the long-term benefit. Also avoid converting if you would need to use IRA money to pay the tax bill — paying taxes from outside funds preserves the full converted amount for tax-free growth.

Roth IRA vs Roth 401(k)

Many employers now offer a Roth 401(k) option alongside the traditional pre-tax 401(k). Both the Roth IRA and Roth 401(k) provide tax-free growth and tax-free withdrawals, but there are key differences:

• Contribution limits: Roth 401(k) allows $23,500/year (2025 limit) vs $7,000/year for a Roth IRA — the 401(k) lets you shelter dramatically more money
• Income limits: No income limit for Roth 401(k) contributions. The Roth IRA phases out above $150,000 (single) / $236,000 (MFJ)
• Investment options: Roth IRA gives you access to virtually any investment. Roth 401(k) limits you to the funds your employer's plan offers
• RMDs: Neither has RMDs during your lifetime (SECURE 2.0 Act eliminated Roth 401(k) RMDs in 2024). You can roll a Roth 401(k) into a Roth IRA upon leaving your employer
• Employer match: Employer match goes into a pre-tax account (you owe taxes on the match portion at withdrawal). Roth matching is now allowed under SECURE 2.0 but adoption is limited

The optimal strategy: contribute to your 401(k) (Roth or traditional, based on your tax situation) up to the employer match, then max out your Roth IRA for its superior flexibility and investment options, then go back and increase 401(k) contributions. For a complete overview of how investing fits into your broader financial plan, see our personal finance hub.

Roth IRA for Kids: Custodial Accounts

A custodial Roth IRA is opened by a parent or guardian on behalf of a minor child who has earned income. This is one of the most powerful long-term wealth-building strategies available, because a child's Roth IRA has 50+ years of tax-free compounding ahead of it.

Requirements: The child must have earned income — from a job, a family business, babysitting, or other legitimate work. The contribution cannot exceed the child's earned income. If your teenager earns $3,000 from a summer job, you can contribute up to $3,000 to their Roth IRA (the money does not have to come from the child's paycheck — a parent can fund it).

The math is extraordinary: Contributing $3,000 per year from age 15 to 18 ($12,000 total) grows to approximately $240,000 by age 65 at a 7% return — completely tax-free. If the child continues contributing $7,000 per year from age 22 to 65, the total exceeds $1.9 million. Fidelity, Schwab, and Vanguard all offer custodial Roth IRAs with no minimums and no fees. Make sure your own emergency fund and financial health are on track before opening one for a child.

Frequently Asked Questions About Roth IRAs

What is a Roth IRA?

A Roth IRA is an individual retirement account where you contribute after-tax dollars that grow completely tax-free. Qualified withdrawals in retirement (after age 59 and a half, with the account open 5+ years) are also completely tax-free. There are no required minimum distributions during your lifetime, making it one of the most flexible retirement accounts available.

How much can I contribute to a Roth IRA in 2026?

The 2026 contribution limit is $7,000 if you are under 50, and $8,000 if you are 50 or older. This limit is shared across all your Traditional and Roth IRAs. You have until the tax filing deadline (typically April 15, 2027) to make 2026 contributions. You must have earned income at least equal to your contribution amount.

Can I withdraw from my Roth IRA early?

You can withdraw your contributions (the money you put in) at any time, at any age, tax-free and penalty-free. Earnings withdrawals before age 59 and a half may incur taxes and a 10% penalty, with exceptions for first-time home purchase (up to $10,000), disability, qualified education expenses, and other specific situations.

What is the Roth IRA income limit?

The ability to contribute directly phases out at $150,000-$165,000 MAGI for single filers and $236,000-$246,000 for married filing jointly (based on 2025 limits). If your income exceeds these thresholds, you can use the backdoor Roth IRA strategy to contribute indirectly through a Traditional IRA conversion.

What is a backdoor Roth IRA?

A backdoor Roth IRA is a legal strategy for high earners: contribute to a non-deductible Traditional IRA (no income limit), then immediately convert it to a Roth IRA (no income limit on conversions). The tax impact is minimal if you convert before any gains accumulate. Watch out for the pro-rata rule if you have existing pre-tax IRA balances.

Is a Roth IRA better than a 401k?

They serve different purposes — use both if possible. Fund your 401(k) to the employer match first (free money), then max out your Roth IRA for tax-free growth and greater investment flexibility. After maxing the Roth IRA, increase your 401(k) contributions. The 401(k) offers a higher contribution limit ($23,500 vs $7,000) and pre-tax savings, but the Roth IRA offers tax-free withdrawals, no RMDs, and more investment choices.