The Advantages of a Roth IRA
The Roth IRA retirement plan was named after the person who came up with it – Senator William V. Roth. It is similar to a regular IRA, but it has several fundamental differences:
- contributions to a Roth are not tax-deductible,
- in a Roth account, money grows completely tax-free (see below),
- you can contribute to a Roth IRA regardless of age (since 2020, age no longer limits contributions to a regular IRA either),
- during the owner’s lifetime there is no requirement to liquidate a Roth account, unlike a traditional IRA, which has to be gradually emptied after reaching the age for required minimum distributions (currently 73).
Read IRS Publications 590-A, Contributions to Individual Retirement Arrangements (IRAs), and 590-B, Distributions from Individual Retirement Arrangements (IRAs), which can be downloaded online at www.irs.gov/publications/p590a and www.irs.gov/publications/p590b. In Polish, you will find more in the book “Amerykańskie emerytury” (“American Pensions”).
Who Can Contribute to a Roth
In 2026 you can contribute up to $7,500 per person to a Roth IRA, plus $1,100 for people over fifty – the same as for an IRA. The Roth IRA is reserved for people with moderate incomes. In 2026, single taxpayers can contribute the full amount to a Roth IRA if their modified Adjusted Gross Income is below $153,000 a year. Between $153,000 and $168,000, the allowed contribution gradually phases down to zero. For married couples filing jointly, the limits for 2026 are $242,000 and $252,000, respectively.
When You Can Take Money Out of a Roth
A Roth account offers much more flexibility than a traditional IRA.
You can take out the money you contributed to a Roth at any time, without taxes or penalties. The first in, first out rule applies here, which means your own contributions come out first.
The earnings in a Roth IRA (interest, dividends, capital gains), however, should stay in the account until you reach age 59.5 and until the account has existed for at least 5 years. Note: a given amount does not have to sit in the Roth for 5 years; only the first contribution has to have been made five years earlier. The conclusion: it pays to open a Roth as soon as possible.
If you want to close your Roth before age 59.5, you will have to pay a 10% penalty on the earnings in the account, unless, as with a traditional IRA, special circumstances apply: the taxpayer’s disability or death, or when you want to use the money to buy a first home, pay for education, cover large medical bills, etc.
A Roth IRA for Investors
The main purpose of an IRA or Roth IRA is saving money for retirement. Yet few young people know that both accounts are excellent for… investors, and even speculators. If you trade stocks and make many trades, at the end of the year you have dozens or even hundreds of transactions that you have to report to the taxman. If you made those trades in an IRA or Roth account, you do not have to report them, because these accounts are tax-free. That is why it is worth contributing as much as possible to them every year.
The second reason a Roth is attractive is that you can treat it almost like a savings account, since you can always withdraw your contributions without tax consequences. Just remember that money is easy to take out but hard to put in, because in 2026 the limit is only $7,500 a year (plus $1,100 for people over fifty).
A Roth for Asset Protection
Another important feature of a Roth account, as well as a traditional IRA, is that they are protected from creditors in the event of bankruptcy or a court judgment. Moreover, since there is no requirement to liquidate a Roth during the owner’s lifetime, it is excellent for passing wealth on to your family.
A Roth and College Financial Aid
Parents should know that money accumulated in retirement accounts (including a Roth IRA), whether it belongs to the parents or to the student, does not have to be reported on the Free Application for Federal Student Aid (FAFSA). Individual colleges, however, have the right to ask about retirement account balances on other forms and count them as assets of the parents or the student.
As you can see, a Roth account is best for people who do not qualify for a tax deductible IRA. You can have both a Roth and an IRA at the same time, provided that your combined contributions do not exceed the annual limit (in 2026, $7,500 plus $1,100 for a person over fifty).
Updated October 2026.
