How is a Roth IRA taxed?

The core deal

• Contributions: already-taxed dollars → not deductible
• Growth: tax-free inside the account
• Withdrawals (qualified): tax-free, both contributions and earnings

2026 contribution limits

• Under 50: $7,000
• 50+: $8,000 (catch-up)

Income limits (2026, approximate)

• Single: full contribution under ~$150K, phased out by ~$165K
• Married filing jointly: full contribution under ~$236K, phased out by ~$246K

Above these thresholds, consider a backdoor Roth (contribute to traditional IRA, then convert).

Withdrawal rules

Contributions (basis)

Always tax-free and penalty-free, any time, any age.

Earnings

Qualified (tax-free, no penalty) if both:

• Account is 5+ years old (5-year rule)
• You're 59½+, disabled, or a first-time homebuyer (up to $10K), or deceased

Non-qualified earnings withdrawals: taxed as ordinary income + 10% penalty

Roth vs Traditional IRA

| Feature | Traditional | Roth |

|---|---|---|

| Contributions | Pre-tax (deductible) | After-tax |

| Growth | Tax-deferred | Tax-free |

| Withdrawals | Taxed as income | Tax-free if qualified |

| Required Minimum Distributions | Yes, at age 73 | Never during owner's lifetime |

| Best for | Higher tax bracket now than in retirement | Lower tax bracket now than in retirement |

When a Roth makes sense

• You expect higher taxes in retirement
• You want tax-free inheritance for heirs
• You want withdrawal flexibility (no RMDs)
• You're early in your career and in a low bracket