What is a Roth IRA in plain English?
How the Roth IRA differs from a 401(k), who should use it, and the contribution limits.
Theo Russell
February 13, 2026
The basic deal
You contribute money you've already paid tax on (after-tax dollars). The money grows tax-free, and withdrawals in retirement (after age 59½) are tax-free.
Compare to a Traditional IRA or 401(k): you contribute pre-tax dollars, money grows tax-deferred, but you pay tax on withdrawals in retirement.
Why it's a good deal
If you're young or in a low tax bracket now, paying tax up front is cheaper than paying it on a much bigger amount in retirement.
Also: you can withdraw your contributions (not the growth) at any time without penalty. It's flexible enough to double as a backup emergency fund.
Limits and access
2025 limit: $7,000/year ($8,000 if 50+). Income limits exist (single filers under $161,000 can contribute fully).
If you make too much, the 'backdoor Roth' workaround exists. Talk to a tax pro for that.
People also ask
Roth or Traditional?+
Roth if you expect to be in a higher tax bracket in retirement. Traditional if you expect lower (e.g., very high earners now).
Can I have both a 401(k) and a Roth IRA?+
Yes — and you should. 401(k) up to your employer match, then max the Roth IRA, then back to 401(k).
What can I invest in inside a Roth IRA?+
Stocks, bonds, mutual funds, ETFs — basically anything. Most people just buy a target-date fund or a total-market index.