What‘s a Roth IRA?
A Roth IRA is a retirement account you fund with money you’ve already paid taxes on, so qualified withdrawals in retirement are generally tax-free. You contribute after-tax dollars now, your investments can grow inside the account, and — if you follow the rules — you don’t pay federal income tax on that growth when you withdraw it after age 59½. Eligibility and contribution amounts depend on your income and tax filing status.
How does a Roth IRA work?
A Roth IRA gives investors a way to set money aside to grow over the long term for retirement — with a different tax treatment than a traditional retirement account. You pay taxes on your contributions now, and qualified withdrawals of both contributions and earnings are generally tax-free in retirement, when you may be in a higher tax bracket. (For the pre-tax alternative, see What’s a Traditional IRA.)
Because a Roth IRA is designed to be held until retirement, there can be taxes and penalties if you withdraw earnings before age 59½ — with some exceptions, covered below.
Roth or Traditional?
A Roth may make sense if you expect your tax rate in retirement to be higher than today’s; a Traditional IRA may make sense if you expect it to be lower. Your situation can be more nuanced — compare the two side by side.
Put your retirement investing on auto-pilot. You can open Traditional, Roth, and SEP IRAs on M1. Choose the one that fits your strategy.
Roth IRA contribution limits and income rules (2026)
Two things determine whether — and how much — you can contribute to a Roth IRA:
- You must have earned income. You must have taxable compensation — like wages or self-employment income — at least equal to the amount you contribute. The dollars themselves can come from any source, so gifted money is fine as long as your earned income covers the contribution.
- Your income and filing status set your limit. The IRS sets an annual contribution limit and phases out how much higher earners can contribute based on modified adjusted gross income (MAGI) and filing status.
For 2026, you can contribute up to $7,500 across all of your IRAs combined — or $8,600 if you’re age 50 or older (a $1,100 catch-up). How much you can put into a Roth specifically then depends on your income and filing status:
| Filing status (2026) | MAGI phase-out range | Above the range |
| Single or head of household | $153,000–$168,000 | Can’t contribute directly |
| Married filing jointly | $242,000–$252,000 | Can’t contribute directly |
| Married filing separately (if you lived with your spouse) | $0–$10,000 | Can’t contribute directly |
Within the phase-out range, the amount you can contribute is reduced; below it, you can contribute the full amount. Because these figures are adjusted periodically, confirm the current limits and phase-out ranges on the IRS contribution-limits page and IRS Publication 590-A before you contribute. For a fuller breakdown, see IRA contribution amounts.
You also have flexibility on timing: you can generally contribute for a given tax year up until the federal tax-filing deadline the following spring.
If you earn too much to contribute directly, one approach some higher earners use is a backdoor Roth IRA: making an after-tax contribution to a Traditional IRA and then converting it to a Roth. It carries specific tax and reporting rules — including the pro-rata rule, which can create a tax bill if you hold other pre-tax IRA money — and may not suit every situation. Consider consulting a tax professional.
Roth IRA withdrawal rules: when can you take money out?
One feature sets the Roth IRA apart: because you’ve already paid tax on your contributions, you can generally withdraw your own contributions at any time without taxes or penalties.
Earnings are treated differently. Withdraw them before age 59½ and you may owe income tax plus a 10% early-withdrawal penalty.
There are exceptions where the 10% early-withdrawal penalty may not apply, including:
- A first-time home purchase (up to a $10,000 lifetime maximum)
- Qualified higher-education expenses
- Birth or adoption expenses
- Certain unreimbursed medical expenses, or health insurance premiums while unemployed
In addition, if the account is part of your estate when you pass away, a distribution to a beneficiary generally wouldn’t incur the early-withdrawal penalty.
The Roth IRA five-year rule (there are actually two). Two separate five-year clocks can affect your withdrawals:
- On earnings: your account generally must be open five years before earnings can be withdrawn tax-free (alongside meeting an age or other qualifying condition).
- On each conversion: a separate five-year clock applies to every Roth conversion before that converted amount can come out penalty-free.
Because these rules are nuanced, the IRS Roth IRA distribution rules and a tax professional are the authoritative sources for your situation. See also Early withdrawals from your IRA.
How does a Roth IRA grow over time?
Money in a Roth IRA grows through compounding — your contributions and any investment returns can generate returns of their own over the years between now and retirement — and because you’ve already paid tax on your contributions, qualified withdrawals of that growth are generally tax-free.
It helps to separate what’s certain from what isn’t. Your contributions are the certain part: at the 2026 limit of $7,500, contributing the maximum for 30 years means you’d put in $225,000 of your own money. Any growth on top of that is the variable part — it depends entirely on how long you stay invested and your actual investment returns, which vary and are not guaranteed.
To model different contribution amounts, retirement ages, and savings targets, try M1’s retirement calculator.
To see how different rate-of-return assumptions change the picture, the U.S. Securities and Exchange Commission’s compound interest calculator is a regulator-provided option.
You can also read about different types of investing strategies.
How to open a Roth IRA
You can open a Roth IRA with M1 in a few minutes. Three steps:
- Open and fund the account.
Transfers from a linked bank account to your M1 Invest account typically complete within one business day.
- Choose your investments.
Individual stocks, ETFs, index funds, or other available securities.
- Automate it.
M1 can automatically reinvest dividends and incoming cash — designed to help keep your strategy on track without constant oversight.
You can compare M1’s retirement accounts, including Traditional, Roth, and SEP IRAs, and see how a brokerage account differs in Brokerage account vs. IRA. Brokerage products and IRAs are offered by M1 Finance LLC, member FINRA/SIPC.
The M1 bottom line
A Roth IRA account is a great option to begin your long-term investing journey. You can invest in the stocks, ETFs, index funds and other securities you believe are going to grow over time — with no applicable taxes in retirement.
However, if you don’t qualify for a Roth IRA, a traditional IRA or taxable brokerage account are alternatives to consider for your investing strategy. (Read more about the difference between these accounts.)
Frequently asked questions about Roth IRAs
A Roth IRA is a retirement account you fund with after-tax money. Your investments can grow inside it, and qualified withdrawals after age 59½ are generally tax-free.
The IRS sets an annual contribution limit across all your IRAs combined — for 2026, $7,500, or $8,600 if you’re 50 or older — and reduces or eliminates the amount higher earners can contribute based on income and filing status (for 2026, the direct-contribution phase-out runs $153,000–$168,000 for single filers and $242,000–$252,000 for married filing jointly). Confirm the current figures on the IRS contribution-limits page. Limits and phase-out ranges are set by the IRS and change periodically.
You can generally withdraw your own contributions at any time without taxes or penalties. Withdrawing earnings before age 59½ may trigger income tax and a 10% penalty, with exceptions such as a first-time home purchase or qualified education expenses. See the IRS distribution rules. Withdrawal treatment depends on your situation and IRS rules.
Neither is universally better. As a general rule, a Roth may fit if you expect a higher tax rate in retirement than today, and a Traditional IRA if you expect a lower one — but other factors matter. Compare them in Traditional IRA vs. Roth IRA. The right choice depends on your individual circumstances.
Higher earners past the IRS phase-out may be limited or ineligible to contribute directly. Some investors use a backdoor Roth IRA — an after-tax Traditional contribution converted to a Roth — which has specific tax and reporting rules, including the pro-rata rule, and may not suit every situation. A tax professional can help you assess whether it fits your situation.
Updated July 26, 2026
Investing involves risk, including the possible loss of principal. This content is educational and is not personalized investment, tax, or legal advice. M1 does not provide tax advice; consult a qualified professional about your situation. Tax figures and rules referenced are set by the IRS and change periodically — verify current figures at IRS.gov.
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