What is a Roth IRA?
It’s a retirement account funded with posttax dollars. Withdrawals are generally tax and penalty free if you meet these requirements:
- You’ve owned the account for 5 years.1
- You're age 59½ or older.2
Who can open a Roth IRA?
Anyone with earned income can open a Roth IRA. However, in order to contribute, you must fall within the Roth IRA income limits. You can open a Roth IRA for yourself or someone else, even a minor.
Benefits of a Roth IRA
Figure out your max contribution
Your eligibility to contribute to a Roth IRA varies based on by how much you earn. Your modified adjusted gross income (MAGI) must be less than the annual limit set by the IRS. If your income is too high you can consider a backdoor Roth IRA.
Roth IRA investment options
Two ways to save for one goal.
Frequently asked questions
Yes, you can open more than one Roth IRA. However, you can’t exceed the IRS contribution limits across all your Roth accounts.
A Roth IRA can be an advantage to your overall retirement strategy, as it offers tax-free growth and withdrawals. It can help you minimize taxes when you withdraw from your IRA for income in retirement. There are income limitations and withdrawal rules.
If you’re age 59½ or older and have owned your account for at least 5 years,1 you can withdraw money—contributions plus earnings—from your Roth IRA without paying any taxes or penalties.2
A rollover is when you move money from a previous employer plan into an individual IRA. If you have Roth 401(k) assets, you can roll over those assets into a Roth IRA, tax-free.
If you have pre-tax 401(k) savings, you can still roll over those assets into a Roth IRA. However, since Roth IRA contributions are made with already-taxed dollars this would be considered a "Roth conversion." If you choose to convert your 401(k) to a Roth IRA, you're likely to owe taxes on those assets.
A Roth conversion moves money from a pre-tax retirement account, like a traditional IRA or 401(k), to a Roth IRA. After the conversion, you're likely to owe taxes on the converted amount. Once your assets are in the Roth, they can grow and be withdrawn tax-free in retirement.
A Roth IRA can be a great tool to save for retirement. You need qualifying earned income to contribute to a Roth IRA and your contribution eligibility may vary according to your income. After you open your Roth IRA, you can contribute to it by transferring money from your bank account. Once the money is in your IRA, you’ll want to allocate your assets into investments like mutual funds, ETFs, stocks, or bonds. If you leave the money in your settlement fund, it won't have as much potential to grow over time.
If you’re age 59½ or older and have owned your account for at least 5 years,1 you can withdraw money—contributions plus earnings—from your Roth IRA without paying any taxes or penalties.2
If you take money out before meeting withdrawal requirements, you’ll likely owe a 10% penalty tax in addition to ordinary income taxes on your earnings.
No, Roth IRA contributions aren’t tax deductible.
Yes, you can have both. Having both a 401(k) and a Roth IRA can maximize your savings, providing tax benefits now and in the future. Why? With a 401(k), you don't pay taxes now, but you do later. With a Roth IRA, you pay taxes now, but not later. This helps hedge against uncertain tax brackets in retirement.
Yes. As long as your child has qualified earned income that are within the IRS income limitations, they can contribute to a Roth IRA.
1The 5-year holding period for Roth IRAs starts on the earlier of: (1) the date you first contributed directly to the IRA, (2) the date you rolled over a Roth 401(k) or Roth 403(b) to the Roth IRA, or (3) the date you converted a traditional IRA to the Roth IRA. If you're under age 59½ and you have one Roth IRA that holds proceeds from multiple conversions, you're required to keep track of the 5-year holding period for each conversion separately.
2When taking withdrawals from an IRA before age 59½, you may have to pay ordinary income tax plus a 10% federal penalty tax.
3If you inherit a Roth IRA, you must take RMDs, but they're tax-free as long as the original account owner held the account for at least 5 years
4For the ten-year period ended March 31, 2025, 6 of 6 Vanguard money market funds, 70 of 100 Vanguard bond funds, 21 of 23 Vanguard balanced funds, and 173 of 192 Vanguard stock funds—for a total of 270 of 321 Vanguard funds—outperformed their peer group averages. Results will vary for other time periods. Only funds with a minimum quarter-, one-, three-, five-, or ten-year history, respectively, were included in the comparison. (Source: LSEG Lipper) Note that the competitive performance data shown represent past performance, which is not a guarantee of future results, and that all investments are subject to risks. For the most recent performance, visit our website at www.vanguard.com/performance
You may wish to consult a tax advisor about your situation.
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