Updated on January 27, 2021
Roth IRAs allow individuals to make contributions with money they’ve already paid taxes on (after-tax), and your money can grow tax-free, with tax-free withdrawals in retirement.
This means that unlike other investment or savings accounts where you pay tax on the interest or dividends, the gains from a Roth IRA are not subject to tax.
To keep it simple, think of Roth accounts as “tax-me-now” accounts — you pay taxes before putting the money in, but then you generally get to withdraw it tax-free.
The IRS limits the tax-advantages of Roth accounts to people earning below a certain amount. To use a Roth in this way, your taxable income cannot exceed $139,000 in 2020 ($140,000 in 2021) if you’re single, or $206,000 ($208,000 in 2021) if you’re married and filing jointly.
Contribution limits start at $6,000 and begin phasing out or decreasing at $124,000 and $196,000, respectively, in 2020, and $125,000 and $208,000 in 2021.