Roth IRA Basics: Rules, Contribution Limits, and How They Work
Understanding Roth IRA basics is an important step in building a strong retirement plan. A Roth IRA can offer tax-free growth, flexibility, and long-term tax advantages, but only if it is used correctly and in the right context.
This guide explains what a Roth IRA is, how Roth IRAs work, contribution and income limits, and when this type of account may make sense as part of a broader financial strategy.
What Is A Roth IRA?
Roth IRA basics: A Roth IRA is an individual retirement account funded with after-tax dollars that allows qualified withdrawals to be taken tax-free in retirement.
Unlike traditional IRAs, Roth IRAs do not provide an upfront tax deduction. Instead, the benefit comes later. If you follow the IRS rules, both your contributions and investment earnings can be withdrawn tax-free.
How A Roth IRA Works
To understand Roth IRA basics, it helps to break the process down step by step:
You contribute money you have already paid taxes on
You invest those funds inside the Roth IRA
Investments grow without being taxed
Qualified withdrawals in retirement are tax-free
Once you reach age 59½ and your Roth IRA has been open for at least five years, you can withdraw both contributions and earnings without taxes or penalties.
Because Roth IRAs do not require required minimum distributions during your lifetime, they are often used strategically alongside other retirement accounts.
Roth IRA Contribution Rules and Limits
Earned Income Requirement
To contribute to a Roth IRA, you must have earned income such as wages, salary, or self-employment income.
Roth IRA Contribution Limits
For 2026, Roth IRA contribution limits are:
$7,500 per year
$8,600 per year if you are age 50 or older
These limits apply across all IRA accounts combined.
Roth IRA Income Limits
Roth IRAs are subject to income limits that may reduce or eliminate your ability to contribute directly.
For 2025:
Contributions begin to phase out around $153,000 for single filers
Contributions are fully phased out at around $168,000
Married couples filing jointly have higher income thresholds
Why Roth IRAs Are Valuable
One of the biggest advantages of a Roth IRA is tax certainty.
You pay taxes today, and qualified withdrawals in retirement are tax-free. This can be especially valuable if you expect your income to grow over time or believe tax rates may be higher in the future.
Additional Roth IRA benefits include:
The ability to withdraw contributions at any time without taxes or penalties
No required minimum distributions during your lifetime
Added flexibility for estate and legacy planning
Roth IRA Income Limits and Backdoor Roth Options
If your income is too high to contribute directly, you may still have options through a strategy known as a Backdoor Roth IRA.
A Backdoor Roth IRA typically involves:
Making a non-deductible contribution to a traditional IRA
Converting that balance to a Roth IRA
While legal, this strategy comes with important tax considerations, especially if you already hold pre-tax IRA assets. Without careful planning, it can trigger unexpected taxes.
Roth IRA Strategy Tips
Roth IRA Basics for Early-Career Savers
Roth IRAs are often most effective when tax rates are relatively low
Starting early allows compound growth to work over decades
Even modest contributions can grow significantly over time
Roth IRA Strategies for High Earners
Roth IRAs can still play a role through thoughtful planning
Many high earners prioritize pre-tax savings during peak income years
Coordinating multiple account types helps improve long-term tax efficiency
The Bottom Line On Roth IRA Basics
A Roth IRA does not offer an immediate tax deduction, but it can provide something just as valuable: tax-free income in retirement.
When used as part of a coordinated financial plan, a Roth IRA can help reduce future tax risk, increase flexibility, and support long-term confidence in your retirement strategy.
Ready To Put Roth IRA Basics Into Action?
Understanding Roth IRA basics is only the first step. Brooklyn Fi works with professionals, founders, and families to build tax-aware financial plans that evolve as life and income change.