1. Tax-free growth
The money you invest in a Roth grows tax-free, so you don’t have to worry about reporting investment earnings—the money your money makes—when you file your taxes. For comparison, if you invest in a nonretirement account, your earnings are subject to federal, state, and local taxes each year.
2. Tax-free withdrawals in retirement
If you’re age 59½ or older and have owned your account for at least 5 years,* you can withdraw money—contributions plus earnings—from your Roth IRA without paying any penalties or taxes. So even if you take a lump-sum withdrawal in retirement, your income won’t be affected. This is a valuable benefit because your income impacts how much you pay in taxes—including the taxation of Social Security benefits—as well as Medicare Parts B and D premiums.
3. You decide when, if, and how to take withdrawals
Unlike a traditional IRA, a Roth IRA has no lifetime required minimum distribution. However, you can take out what you contribute at any time, free and clear. It's smart to contribute to your Roth IRA and let compounding—when your contributions generate returns—work its magic until you need to take a withdrawal. But if you need to take distributions from your Roth IRA, that's okay too. Even if you withdraw your contributions, that money generated tax-free earnings while it was invested in your account. And those earnings will be yours to withdraw (also free and clear) when you're retired.
However, you'll still be subject to IRA annual contribution limits, so you can't "replace" the money you withdrew and contribute the maximum amount to your IRA in the same contribution year.
What’s next?
Roth IRA owners
Save as much as you can, and keep your contributions invested for as long as you can. Even if you need to tap into them, you’re still saving for retirement.
Don't have a Roth IRA yet?
Learn more about Roth IRAs. Then open an account to see for yourself why so many investors love them.