Roth IRA
After-tax contributions; qualified withdrawals can be tax-free (income limits apply)
A Roth IRA is funded with after‑tax dollars. If you meet the holding and age rules, qualified withdrawals (including earnings) can be tax‑free. Eligibility to contribute directly is limited by income.
The core idea (in plain English)
You pay taxes now so you can potentially pay no taxes later on qualified withdrawals.
Contributions vs. earnings (important distinction)
- Contributions (what you put in) often have more flexible withdrawal rules.
- Earnings have additional requirements to be tax‑free.
Example — contribution access (concept)
- You contribute $7,000 over time.
- Your account grows to $9,200.
- You may be able to withdraw up to $7,000 under ordering rules; withdrawing earnings may trigger taxes/penalties if not qualified.
Common pitfalls
- Contributing when ineligible due to income limits.
- Confusing contribution withdrawal rules with earnings rules.
Quick mental checklist
If you qualify and want future tax-free flexibility, a Roth IRA is often a high-priority account.
Official resources
Educational only. Always confirm eligibility, limits, and plan rules with IRS guidance or plan documents.