What it is
A Roth IRA is an individual retirement account (IRA) that differs from traditional IRAs in its tax treatment. Contributions to a Roth IRA are made with after-tax dollars, meaning you don't get an upfront tax deduction. However, qualified withdrawals in retirement, including all earnings, are entirely tax-free. This makes it particularly attractive for individuals who anticipate being in a higher tax bracket during retirement than they are today.
To qualify for tax-free withdrawals, the account must be open for at least five years, and the account holder must be at least 59½ years old, disabled, or using the funds for a first-time home purchase. Unlike a traditional IRA, there are income limitations for contributing to a Roth IRA, and contributions are not tax-deductible. For retail investors, a Roth IRA offers diversification in tax planning, ensuring a stream of tax-free income in retirement.
Why it matters
A Roth IRA provides tax-free growth and withdrawals in retirement, which can be highly beneficial if you expect higher future tax rates. It's a key component of a diversified retirement strategy.
Reviewed under editorial standardsUpdated September 26, 2026Not investment advice