What Is a Roth IRA?
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What Is a Roth IRA?
A Roth IRA is a type of individual retirement account (available in the U.S.) that you fund with money you've already paid tax on. In exchange, qualified withdrawals in retirement — including all the investment growth over the years — are completely tax-free, provided you meet the account's age and holding-period rules.
Roth vs Traditional IRA
The core difference comes down to when you pay tax. With a traditional IRA, contributions may be tax-deductible now, but withdrawals in retirement are taxed as ordinary income. With a Roth IRA, you get no upfront tax deduction, but qualified withdrawals later are tax-free. Roth IRAs also have income limits restricting who can contribute directly, and unlike traditional IRAs, they don't require minimum withdrawals starting at a certain age, giving more flexibility in retirement planning.
Who Does It Typically Suit?
A Roth IRA is often considered by people who expect to be in a similar or higher tax bracket in retirement than they are now — for example, younger workers earlier in their careers, since paying tax on contributions today at a lower rate can be more efficient than paying tax on a much larger withdrawal later. It also appeals to people who want flexibility, since contributions (though not earnings) can generally be withdrawn without penalty at any time. This article is general educational information, not personalised financial advice — anyone considering a Roth IRA should speak with a qualified financial advisor about their specific situation.