Roth IRA
Also: Roth IRA, Roth individual retirement account
An individual retirement account funded with after-tax dollars. Qualified distributions of principal and earnings are tax-free after age 59 1/2 and a five-year clock. 2025 direct contribution limit is $7,000 ($8,000 age 50+), phased out at higher income.
A Roth IRA is an IRC Section 408A account funded with after-tax dollars. Principal can be withdrawn any time tax-free. Earnings qualify for tax-free distribution after the account owner reaches 59 1/2 and has held any Roth IRA for at least five years. For 2025 the contribution limit is $7,000 ($8,000 with age-50 catch-up), with direct contributions phased out between $150,000 and $165,000 MAGI for single filers and $236,000 to $246,000 for married filing jointly. Above the phase-out, direct contributions are zero, but the backdoor Roth is available.
Example: a single engineer earning $155,000 MAGI is 50% into the phase-out. Her direct contribution limit is $3,500 rather than $7,000. She files a $3,500 direct contribution and uses the backdoor Roth for an additional $3,500.
Common mistake: making a direct Roth contribution above the MAGI limit and discovering the excess at filing. Excess contributions accrue a 6% annual penalty until removed with earnings.
Roth IRAs matter at every year, at rollovers from 401(k) and mega backdoor Roth conversions, and at estate transfers where Roth dollars pass tax-free to heirs.