Roth IRA

A Roth IRA flips the traditional retirement-account deal. Instead of a tax break today and a tax bill in retirement, you pay tax on the money before it goes in, and everything after that--growth, dividends, withdrawals in retirement--escapes federal income tax entirely, provided you follow the rules. You open one on your own at any brokerage, independent of your employer, and invest in almost anything the custodian offers. Because the IRS has already collected its share, it never forces money out: unlike traditional IRAs and 401(k)s, a Roth IRA has no required minimum distributions while you're alive.

For 2026, you can contribute up to $7,500, plus a $1,100 catch-up if you're 50 or older, limited to your earned income for the year. Direct contributions phase out at higher incomes: between $153,000 and $168,000 of modified adjusted gross income for single filers, and between $242,000 and $252,000 for married couples filing jointly. High earners above those ranges often use the backdoor Roth IRA strategy instead.

Withdrawal ordering is the underrated feature. The IRS treats your own contributions as coming out first, and those are always tax-free and penalty-free, at any age, for any reason. Earnings are different: to withdraw earnings tax-free you generally need to be 59 1/2 or older and have had a Roth IRA for at least five years. There is a second, separate five-year rule that applies to converted amounts. The details of both are worth understanding before any early withdrawal, but the short version is that money you contributed directly is far more accessible than most people assume, while earnings should be treated as untouchable until retirement.

Strategically, Roth dollars are most valuable when your tax rate at contribution is lower than your expected rate in retirement, which is why early-career years, gap years, and other low-income windows are prime Roth territory. Roth balances also improve flexibility later: withdrawals don't increase your taxable income, which can matter for taxation of Social Security benefits and Medicare premium surcharges.

A hypothetical example: Sam, 30, contributes $7,500 to a Roth IRA in 2026 and invests it in a broad index fund. He gets no deduction, so the contribution costs him the full $7,500 of after-tax money. If the account grows to $60,000 by the time he is 65, every dollar of that growth comes out federally tax-free, because he'll be past 59 1/2 and well past the five-year mark.

Compare that with a traditional IRA holding the same investments: the $60,000 would be taxed as ordinary income on the way out, and required minimum distributions would eventually force withdrawals whether Sam needed the money or not. And if Sam hits an emergency at 40, he can pull out the $7,500 he contributed (though not its earnings) with no tax and no penalty--a safety valve traditional accounts don't offer.

Pros

• Tax-free growth and tax-free qualified withdrawals, with no required minimum distributions during your lifetime.
• Contributions can be withdrawn anytime without tax or penalty, making it more flexible than other retirement accounts.
• Withdrawals in retirement don't raise your taxable income, which helps with Social Security taxation and Medicare premiums.
• Anyone with earned income can contribute regardless of age, and heirs generally inherit the account income-tax-free.

Cons

• No deduction today, so the tax benefit is deferred and depends on future rates and growth.
• Direct contributions are off-limits above the income phase-outs without using the backdoor strategy.
• The annual limit is modest, so a Roth IRA alone rarely funds a retirement.
• Two different five-year rules trip up early withdrawals of earnings and conversions.