Roth IRA

A Roth IRA is a US individual retirement account. IRA means individual retirement arrangement. You put in money you have already paid tax on.

You cannot deduct what you put in from your taxes, unlike a traditional IRA. But qualified withdrawals later are tax free, and you never have to take the money out.

A withdrawal is qualified when it comes at least 5 years after your first Roth IRA contribution. It must also be made at age 59½ or later, or for a few other reasons, such as disability or a first home.

Why it matters

Money in a Roth IRA can grow for many years, and qualified withdrawals pay no tax on that growth. There is a yearly limit on how much you can put in. People with higher incomes can put in less, or nothing at all.

A worked example

Linh puts $5,000 into a Roth IRA at age 30. By age 60, it has grown to $20,000. Her first contribution was more than 5 years ago, and she is over 59½. So she can take out all $20,000 tax free.