Personal Finance & Estate › Retirement accounts & pensions › Individual Retirement Account (traditional IRA)
Roth IRA
Since 1998· Account or plan
Law or rule (2026)Set by statute, regulation or the agency; numbers change yearly.
An IRA funded with after-tax money whose growth and qualified withdrawals are tax-free, with no RMDs for the owner.
See it on the Personal Finance & Estate map →How it works
Created by the 1997 tax law, named for Senator William Roth, and opened in 1998. The 2026 limit is $7,500 ($8,600 at 50+), shared with traditional IRAs. Direct contributions phase out at incomes of $153,000–$168,000 (single) and $242,000–$252,000 (joint). Contributions can come out anytime; earnings are tax-free after 59½ once the account is five years old. Heirs inherit tax-free, though under the 10-year rule. Main trap: mixing up the separate five-year clocks.
Why it matters for you
Once in, the money is never taxed again, valuable for people expecting higher future rates and for heirs.
Rules, limits and sources (2026)
IRC Sec. 408A; IRS Publications 590-A and 590-B; 2026 income ranges in IRS Notice 2025-67.
Watch out for
Whether Congress will someday limit large Roth balances or conversions, as 2021 proposals tried, is unknowable.
Inside this (1)
Connections (3)
▸Roth IRA is the tax-free-growth cousin of Individual Retirement Account (traditional IRA)Law or rule (2026)
How they connect
Both are IRAs sharing one $7,500 limit in 2026, but the tax treatment flips. A traditional IRA may give a deduction now and taxes withdrawals; a Roth gives no deduction but tax-free qualified withdrawals and no owner RMDs. Money moves from traditional to Roth by conversion, which since 2018 can't be undone.
When it applies
Traditional IRAs began with ERISA in 1974; the Roth was added by the Taxpayer Relief Act of 1997, effective 1998.
The rule
IRC Sec. 408A defines a Roth as an IRA under Sec. 408 with special rules; IRS Publication 590-A covers both.
Watch out for
Which mix is better depends on future tax rates no one can predict; many planners favor holding both for flexibility.
▸Backdoor Roth IRA is a high-earner route into Roth IRAStandard practice
How they connect
Direct Roth IRA contributions phase out above $153,000 single or $242,000 joint income in 2026, but conversions have no income test. The backdoor uses that gap: a nondeductible traditional IRA contribution, converted soon after, lands in the Roth IRA with little or no tax.
When it applies
Possible since 2010, when conversion income limits ended; used yearly by high-earning employees and business owners.
How sure?
The 2017 tax law's conference report described the maneuver as permitted; IRS Form 8606 tracks basis and conversions.
Watch out for
How long to wait between steps is debated over step-transaction risk; most practitioners now see little audit exposure.
▸Tax-efficient investing & asset location puts fast growers in Roth IRAStandard practice
How they connect
Because qualified Roth withdrawals are never taxed and owners face no required withdrawals, asset location usually puts the highest expected-growth holdings, such as stock funds, in the Roth, so the biggest gains escape tax entirely, including for heirs.
When it applies
Roth IRAs began in 1998 under the Taxpayer Relief Act of 1997, named for Senator William Roth; Roth 401(k)s followed in 2006.
How sure?
IRC Sec. 408A; asset-location research by Vanguard and Morningstar.
Watch out for
Some economists argue location matters less on a risk-adjusted basis, since high-growth assets also carry more risk.