Roth IRA
A US retirement account where you contribute post-tax dollars and pay no tax on withdrawals.
A Roth IRA is a US Individual Retirement Account that flips the tax timing of a traditional IRA. You contribute money you've already paid income tax on. It grows tax-free. Qualified withdrawals in retirement (after age 59½ and 5 years from your first contribution) are tax-free.
The contribution limit in 2025 is $7,000 per year, or $8,000 if you're 50 or older.
The math is most favorable when:
- You're young (more years for tax-free growth)
- You're in a low tax bracket today (paying the tax now is cheap)
- You expect to be in a higher tax bracket in retirement (paying tax later would be expensive)
Roth IRAs also have a useful feature most people don't know about: you can withdraw your contributions (not earnings) at any time, with no tax or penalty. That makes a Roth IRA part-emergency-fund-of-last-resort for early-career savers.
Example
Contribute $7,000 of already-taxed income today. In 30 years it might be worth $70,000, all of which you withdraw tax-free.
Why this matters
For young earners and anyone expecting to be in a higher tax bracket in retirement, a Roth IRA is one of the most efficient wrappers in personal finance.
The catch
There's an income limit. In 2025, single filers earning above $165,000 (modified AGI) can't contribute directly. There's a workaround called a "backdoor Roth," but it requires you to know the rules — most people don't.