How a Roth IRA works
You pay into a Roth IRA with money you have already paid income tax on. In return the account grows without tax, and withdrawals in retirement are tax-free once you are 59½ and the account is at least five years old. There are no required minimum distributions during your lifetime. A traditional IRA works the other way round: contributions may be deductible now, and every dollar you take out later is taxed as income.
Starting at 30 and putting in $7,500 at the start of every year until 67, at a 7% average return, gives about $1,286,700. You would have contributed $277,500; the other $1 million or so is growth that is never taxed. At a 4% withdrawal rate that is about $4,290 a month of tax-free income.
2026 contribution limits
| Limit | 2026 |
|---|---|
| Contribution, under 50 | $7,500 |
| Catch-up, age 50 and over | +$1,100 |
| Cannot be more than | your earned income for the year |
The limit is shared by all your IRAs, Roth and traditional together. You can contribute for 2026 until the tax filing deadline in April 2027. A spouse with little or no income can still contribute through a spousal IRA if you file jointly.
Roth IRA income limits for 2026
Direct Roth contributions shrink as your modified AGI rises through a phase-out range, and stop above it.
| Filing status | Full contribution below | No contribution from |
|---|---|---|
| Single or head of household | $153,000 | $168,000 |
| Married filing jointly | $242,000 | $252,000 |
| Married filing separately (lived with spouse) | $0 | $10,000 |
Inside the range the limit is reduced in proportion, rounded up to the next $10, and anything between $0 and $200 becomes $200. A single filer under 50 with a MAGI of $160,000 is 7,000 into the 15,000-dollar range, so the limit drops by 7/15 to $4,000.
Above the limits, many people use a backdoor Roth: a nondeductible contribution to a traditional IRA, converted to a Roth soon after. It works cleanly only if you have no other pre-tax IRA money, because of the pro-rata rule; talk to a tax professional before doing it.
Roth or traditional?
The choice comes down to your tax rate now compared with the rate you expect in retirement. If the two are the same, a Roth and a traditional IRA give the same spending money for the same cost today, provided the tax a traditional IRA saves you is also invested without tax. In practice that saving usually goes into an ordinary taxable account, where dividends and gains are taxed, so at equal rates the Roth comes out a little ahead. If you expect a clearly lower rate in retirement, traditional wins; if higher, Roth wins. The calculator's comparison invests the traditional IRA's yearly tax saving in a taxable account, so both options cost the same out of pocket.
The comparison assumes your traditional IRA contribution is deductible. If you are covered by a retirement plan at work, the 2026 deduction phases out between $81,000 and $91,000 of modified AGI for single filers and between $129,000 and $149,000 for married couples filing jointly. Above those amounts a traditional contribution gives no tax break now, and a Roth is almost always the better choice.
Reasons to lean Roth even at equal rates: no required distributions, tax-free money for heirs, contributions (not earnings) can be taken out at any time without tax or penalty, and it spreads your tax risk if rates rise. Young workers in the 10% or 12% bracket usually do best with a Roth.
Withdrawal rules
- Contributions can be withdrawn at any time, tax- and penalty-free.
- Earnings are tax-free after 59½ once the first Roth IRA contribution is five tax years old. Taken earlier they are taxed and usually face a 10% penalty, with exceptions such as up to $10,000 for a first home, disability, and certain education costs.
- Conversions have their own five-year clock for the penalty.