One of the most popular ways to save for retirement is in a Roth Individual Retirement Account. Roth IRAs were first made available in 1997, after they were championed by former Senator William V. Roth of Delaware.
What Is a Roth IRA?
Tax-wise, a Roth IRA is like a Traditional IRA in reverse. It may help to compare the two.
In a Traditional IRA, as well as in a 401(k), most people get tax deductions for contributing dollars up to certain limits every year. The account accumulates funds over time, generating earnings tax-deferred. When it’s time to retire, the full amount of the distribution is taxable at your marginal tax bracket at that time. Using simple math, if your tax bracket at retirement is 24% and you distribute $100 from your Traditional IRA, you will keep $76. Contributions are made before tax.
#1: A Roth IRA Has Tremendous Tax Advantages
By contrast, in a Roth IRA or Roth 401(k), you get no tax deductions up front when contributing. The Roth IRA is a tax-deferred retirement account within which you can purchase various investments — stocks, bonds, mutual funds, exchange-traded funds (ETFs), and more. But when you retire and need income from a Roth, all your distributions — earnings plus contributions — come out tax-free. At that same 24% tax bracket, you distribute $100 from your Roth IRA and receive $100 without a haircut from Uncle Sam. Contributions are made after tax.
You may contribute up to $7,500 into a Roth per year (2026). If you are age 50 or older, add $1,100 to that for catch-up contributions, bringing the total to $8,600. These contributions are after-tax, so you’ll get no tax deduction going in. The key: Roth distributions are tax-free once you’ve attained age 59½. Before then, your contributions can always come out tax-free, but there may be tax on earnings. So here’s the trade-off: a little pain today for much pleasure later on.
Raise your hand if you think taxes will be higher in the future than they are now! That’s a safe bet. This is the beauty of a Roth. Generally speaking, a Roth IRA is best suited for those with a long time horizon — the younger you are, the better.
Roth IRA Income Phase-Out Limits (2026)
To contribute, you first must pass the IRS Modified Adjusted Gross Income (MAGI) test. You need earned income to participate. You also have to make less than the phase-out threshold:
- Single filers: Phase-out begins at $153,000 MAGI; no contribution permitted above $168,000
- Married filing jointly: Phase-out begins at $242,000 MAGI; no contribution permitted above $252,000
- Married filing separately (lived with spouse): Ineligible above $10,000 MAGI — forget about it
- Married filing separately (did not live with spouse): Phase-out begins at $153,000, same as single filers
Why Should I Have a Roth IRA?
Bottom line — it’s a huge potential tax savings. Here’s a scenario using simple math comparing what you can pocket in a Traditional IRA versus a Roth IRA:
Assumptions: – $400 monthly contributions – 7% average annual return, compounded monthly – 30-year time horizon – 24% marginal tax rate at retirement
After 30 years, both accounts grow to $487,988.39. At a 24% marginal tax rate, you keep only $370,871 from the Traditional IRA. You keep all $487,988 from the Roth IRA. You just saved yourself nearly $117,117!
#2: The Roth IRA Is About Deferred Gratification
In real life, no one is going to distribute an entire IRA at once — you’d draw from it as needed. This illustration is only to make the point: the tax savings is huge in the distribution phase. So you have to ask yourself: Is the tax deduction available to me now in the Traditional IRA worth it in the long run?
When saving for the future, if you meet the IRS eligibility requirements, do yourself a favor and choose the IRA registration that best meets your needs. Simple decisions early on — like contributing to a Roth IRA — can potentially save you hundreds of thousands of dollars in the long run.
For further reading: 2 Things You Need to Know About the Roth IRA, and Roth Conversions.
