What Is a Roth IRA?
A Roth IRA is an individual retirement account (IRA) that allows you to save for retirement on a tax-advantaged basis. Contributions are made with after-tax dollars, meaning the money has already been taxed when it goes into the account. Earnings and withdrawals from a Roth IRA are generally not subject to federal income taxes if certain conditions are met. This makes them attractive for those who expect their tax rate in retirement to be higher than it is currently.
Contributions to a Roth IRA can only be made by individuals whose modified adjusted gross income falls below certain limits set by the IRS each year; these limits change annually and vary depending on filing status. The maximum contribution limit per person also changes yearly, but as of 2021, contributions cannot exceed $6,000 or 100% of earned income—whichever is less—for people under age 50. Those over 50 may contribute up to $7,000 due to catch-up provisions allowed by the IRS.