This calculator estimates the balances of Roth IRA savings and compares them with regular taxable account. It is mainly intended for use by U.S. residents. For calculations or more information concerning other types of IRAs, please visit our IRA Calculator.

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A Roth IRA is a type of Individual Retirement Arrangement (IRA) that provides tax-free growth and tax-free income in retirement. The major difference between Roth IRAs and traditional IRAs is that contributions to the former are not tax-deductible, and contributions (not earnings) may be withdrawn tax-free at any time without penalty. Roth IRA was first introduced and established by the Taxpayer Relief Act of 1997 and is named after Senator William Roth.

Roth IRA accounts can be opened at many different institutions, from the largest, most well-known financial companies, to online-only investment companies and financial service firms. The IRS regulates all of these institutions, and all of them must meet certain requirements, but each can still have its own differentiating perks.

Roth IRA Contributions

• Made using after-tax dollars.
• Not tax-deductible. However, there is a tax credit, the Saver's Tax Credit, on IRS Form 8880 that can be claimed for up to 50% on the first $2,000 in contributions.
• Contributions can be withdrawn tax-free at any time without penalty. However, earnings withdrawn may be subject to tax and/or penalty if withdrawn before the account holder is 59½ years old or if the account is less than five years old.
• People with incomes above certain thresholds cannot qualify to make Roth IRA contributions. For the 2026 tax year, the threshold is anything above an adjusted gross income of $168,000 (up from $165,000 in 2025) for those filing as single or head-of-household. For those who are married and filing jointly, the amount is increased to an adjusted gross income of $252,000 (up from $246,000 in 2025). Furthermore, to qualify to make Roth IRA contributions, filers must have earned income (i.e. wages, tips, bonuses, self-employment income) in the year contributions are made.
• The contribution limit in 2026 for those aged 49 and below is $7,500. For those aged 50 and above, the limit is $8,600.
• Contributions for a given tax year can be made to a Roth IRA up until taxes are filed in April of the next year.

Roth IRA Distribution Details

• Direct contributions can be withdrawn tax-free and penalty-free anytime.
• Concerning Roth IRAs five years or older, tax-free and penalty-free withdrawal on earnings can occur after the age of 59 ½.
• Withdrawals on earnings from Roth IRAs that are less than five years old are subject to both taxes and penalties. However, given a number of situations (listed below), it is possible to avoid a penalty, but not the taxes, on accounts less than five years old as long as any one (or more) of the conditions below is met. For accounts older than five years old, these same conditions apply and result in a tax only if none of the conditions are met, or neither a tax nor a penalty if any one of the conditions is met.
  • The account holder is 59 ½ or older.
  • The account holder becomes disabled.
  • The money is being used
    • for a first-time home purchase up to a $10,000 lifetime maximum.
    • to pay for qualified education expenses.
    • to pay the beneficiary after the death of the account holder.
    • to pay for unreimbursed medical expenses or health insurance during unemployment.
• There is no required minimum distribution (RMD) for Roth IRAs (unlike those required for traditional IRAs or 401(k)s). Roth IRAs are the only tax-sheltered retirement plans that do not impose RMDs.

Pros of Roth IRA

Free withdrawals on contributions: Common retirement plans such as 401(k)s and traditional IRAs do not allow tax-free or penalty-free withdrawals until retirement, which for many, is usually decades in the future. However, because contributions to Roth IRAs are made using after-tax dollars, the contributions (but not the earnings) can be withdrawn at any time tax-free and penalty-free.

Liquidity–account holders can use their Roth IRA accounts as a source of emergency funds. Because withdrawals on contributions are tax-free and penalty-free, money can be withdrawn at will. However, if an account holder decides to withdraw their contribution after the annual contribution limit has been met, they cannot re-contribute that same amount within the same tax year. Under these circumstances, any contributed amount would be treated as a regular investment in addition to, rather than as part of the Roth IRA.

Tax-Free Retirement Income: Distributions or withdrawals during retirement are not taxed because the taxes were already paid upfront.

Many investment options: Roth IRAs are available from most large financial institutions. Most, if not all, investment options are only limited by what is offered through each financial institution.

Not reported on FAFSA: For parents, an advantage of the Roth IRA is that the funds are not subject to reporting on the Free Application for Federal Student Aid, or FAFSA. This is highly beneficial because it does not reduce the federal aid that their children can receive for higher education. In addition, contributions can be withdrawn later to pay for qualified education expenses without it being counted as a reportable asset on the FAFSA form.

Heir-friendly: Because contributions are already taxed, when an heir inherits a Roth IRA, required distributions will not be taxed. Surviving spouses receive the same benefit, but they are not required to take distributions immediately. Also, because there are no taxes owed on Roth IRA contributions, setting aside as much as possible in a Roth IRA can help reduce the size of a taxable estate, leaving more money for heirs.

Tax diversification in retirement: Retirees are required to pay taxes on distributions from retirement plans such as a 401(k) or traditional IRA, as well as for Social Security. Retirees can strategize just how much they take from these taxable income sources. Roth IRA distributions can also be used in cases where the use of other income sources would bump a person into a higher tax bracket (because they don't count as taxable income).

Cons of Roth IRA

Taxes are paid upfront–Contributions are made with after-tax dollars.

Low contribution limit–The annual IRA contribution limit for the 2026 tax year is $7,500 for those under the age of 50 or $8,600 for those 50 and older. In comparison, the 401(k) contribution limit is $24,500 a year.

Income limit–The income limit disqualifies high income earners from participating in Roth IRAs. As mentioned before, the limits are adjusted gross incomes of $168,000 for individuals or $252,000 for married couples filing jointly in 2026. Anyone with earnings above these figures cannot contribute to Roth IRA accounts. It is possible, though not simple, for these individuals to contribute to a traditional IRA and then convert it to a Roth IRA.

Does not reduce taxable income–Because only after-tax dollars go into Roth IRAs, there is no initial taxes reduction on taxable income. However, low- and middle-income taxpayers can use the Saver's Credit for tax savings between 10% and 50% of the first $2,000 contributed to a Roth IRA. This tax credit is non-refundable.

Minimum holding period–Tax-free withdrawals on earnings in retirement cannot be made unless funds in the account have been held for at least five years, though this only applies to people who start Roth IRAs near retirement. The point at which this period begins is largely dependent on whether the distributions are qualified or non-qualified. For qualified distributions, this period begins the first day of the first year in which the Roth IRA was funded. For non-qualified distributions, there are separate five-year periods for each Roth IRA conversion. Each begins the first day of the year in which the conversion is made.

Charitable donations–Account holders that plan on leaving their assets to charitable organizations would benefit less if most of their funds were placed in a Roth IRA. Because charities are tax-sheltered entities, contributions with after-tax dollars will be lower than contributions from tax-deferred retirement plans such as traditional IRAs or 401(k)s.

Converting Traditional IRAs into Roth IRAs

The IRS allows people to convert a traditional IRA into a Roth IRA, which a person may want to do under certain circumstances.

• People who can't directly contribute to a Roth IRA due to the income limits can move funds they have in a Traditional IRA into a Roth IRA, regardless of income.
• Traditional IRA account holders can roll as much money as they want from an existing traditional IRA into a Roth IRA, ignoring the yearly contribution limits.
• Similar to choosing between a tax-deferred or tax-sheltered account, if there is reason to believe that income tax will increase in the future, converting a traditional IRA to a Roth IRA will relieve the payment of high future taxes.
• While traditional IRAs have required minimum distributions starting at 73 years old or later when they officially retire, Roth IRAs don't. Therefore, a person who expects to live longer may want to convert their existing traditional IRA into a Roth IRA in order to start distributions at a later age.

This is sometimes referred to as a "backdoor Roth IRA." Fortunately, there are no income limits regarding conversions. There are three different ways to go about a conversion. The following are some conversion methods:

Method 1 – Same trustees

The easiest method will be to make a transfer from a traditional to a Roth IRA within the same financial institution that holds the funds.

Method 2 – Different trustees

There are many reasons why using the same financial institution may not be ideal, such as the availability of different mutual funds, perks of different financial institutions (unrelated to federal Roth IRA rules and regulations), better customer service, or more intuitive software. In most cases, the receiving institution handles the details of the transfer, as they are required to request the funds from the current institution, which sends a check. If the traditional IRA account consists of individual stocks that the account holder doesn't want to sell, the current institution will send stock certificates to the new one, which will then credit assets to the IRA account.

Method 3 – 60-day rollover

Another method is to do a 60-day rollover, which directly delivers the funds inside a traditional IRA by check, then rolls it into a Roth IRA account. However, this course of action has to be completed within 60 days of the traditional IRA distribution. If not, the amount of the distribution, minus any non-deductible contributions, will be taxable in the year received. On top of that, the IRS will assess a 10% early distribution tax penalty, and the conversion will ultimately not take place. The IRS may waive the 60-day requirement if the failure to meet the time limit is due to events such as casualty, disaster, or anything beyond reasonable control.

Considerations before Making a Conversion

• Make sure there are sufficient funds outside of an IRA to pay income tax on the conversion. Using any IRA money instead to pay taxes will result in a loss of tax-free gains.
• Make sure there is sufficient income from non-retirement account sources to support the desired lifestyle in retirement.
• Generally, the younger a person is, the more they have to benefit from the tax-free growth in retirement plans. However, if contributing near or in retirement, make sure that funds have enough time to grow to offset the initial payment of taxes. Keep in mind that the account must mature at least five years to avoid taxation on earnings.
• Paying the income tax on a conversion with money from the sale of appreciated assets can result in having to pay a capital gains tax.
• Required Minimum Distributions, or RMDs, cannot be converted into Roth IRA funds.
• The IRS limits rollovers to once per year per IRA account.