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A Roth IRA is a beneficial retirement planning tool, and there are several reasons why you may want to implement it into your financial strategy. While there is no up-front tax break for investing in a Roth IRA, once you invest, you get the benefit of tax-free growth and tax-free withdrawals, when done properly, which can be especially advantageous if you end up in a higher tax bracket during retirement.
To open a Roth IRA account, you must first determine your eligibility. Next, you need to choose a Roth IRA provider, gather the necessary documentation, and decide which investments to include. Finally, you need to schedule your contributions.
Key Takeaways
- Roth IRAs provide the benefit of tax-free growth: The money you invest is left over from income on which you paid tax, so you do not get a tax deduction for Roth IRA contributions. But once the money is invested, you get the advantage of tax-free growth. Depending on how early you start and the types of investments you use in your Roth, the compounding effects over time can generate substantial gains.
- You can withdraw Roth IRA contributions tax-free at any time and age. Furthermore, you can withdraw Roth IRA earnings tax-free after you’ve owned that or any other Roth IRA for at least five years and you reach age 59½. Tax-free withdrawals in retirement can be especially beneficial to any Roth IRA account owner who ends up in a higher tax bracket than they were in pre-retirement.
- You are never required to take a distribution from your Roth IRA. Investing in a Roth can also be a great estate planning tool. Not only are required minimum distributions (RMDs) not required, but you can pass along the account tax-free to your beneficiaries someday. RMD rules do apply to any heirs, but their withdrawals would be tax-free.
How to Open a Roth IRA
Step 1: Determine Your Eligibility
For the 2025 tax year, the modified adjusted gross income (MAGI) limit for Roth IRA contributions has increased. The amount you can contribute to a Roth IRA is limited or potentially phased out in the following tax filing situations:
- Married filing jointly or qualifying surviving spouse, with a modified AGI of at least $236,000 (up from $230,000 in 2024). You can’t make a Roth IRA contribution if your modified AGI is $246,000 (up from $240,000 in 2024) or more.
- Single, head of household, or married filing separately, and you didn’t live with your spouse at any time in 2025, and your modified AGI is at least $150,000 (up from $146,000 in 2024). You can’t make a Roth IRA contribution if your modified AGI is $165,000 (up from $161,000 in 2024) or more.
- Married filing separately is the same for 2025 as it was for 2024—you lived with your spouse at any time during the year, and your modified AGI is greater than $0. You can’t make a Roth IRA contribution if your modified AGI is $10,000 or more.
Income Limits for Roth IRA in 2024 and 2025
| Filing Status | 2024 Modified AGI | 2025 Modified AGI | Contribution Limit |
|---|---|---|---|
| Married filing jointly or qualifying surviving spouse | Less than $230,000 | Less than $236,000 | Up to $7,000 (under age 50) Up to $8,000 (age 50 and over) |
| Married filing jointly or qualifying surviving Spouse | At least $230,000 | At least $236,000 | Reduced amount |
| Married filing jointly or qualifying surviving spouse | $240,000 or greater | $246,000 or greater | $0 |
| Single, head of household, or married filing separately | At least $146,000 | At least $150,000 | Reduced amount |
| Single, head of household, or married filing separately | $161,000 or greater | $165,000 or greater | $0 |
| Married filing separately (lived with spouse at any time during the year) | Greater than $0 | Greater than $0 | Reduced amount |
| Married filing separately (lived with spouse at any time during the year) | At least $10,000 | At least $10,000 | $0 |
Step 2: Choose a Roth IRA Provider
When deciding which brokerage is right for you, it is important to take a holistic look at the financial institution, including aspects such as:
- Fees: Are there yearly maintenance fees? Are there additional fees for trading investments within the Roth IRA? Are there additional fees for advice from a financial advisor?
- Investment options: Does the brokerage offer the types of investments that you are looking for—stocks, bonds, mutual funds, ETFs, alternative investment options?
- Customer service: What are the hours of customer service? Are questions answered by telephone, email, or online chat?
- Additional services: Does the brokerage offer other types of accounts that you may be interested in to help reach your financial goals, such as custodial accounts, educational savings accounts, or even banking options?
- Account amenities: Would you have access to planners, educational materials, or the ability to connect outside accounts to get an aggregate financial picture?
Best Roth IRA Brokers
| Company | Fees | Account Minimum |
|---|---|---|
| Fidelity | $0 for stock/ETF trades, $0 plus $0.65/contract for options trades | $0 |
| Charles Schwab | $0 for stock/ETF trades, $0.65 per contract for options | $0 |
| Wealthfront | 0.25% for most accounts; no trading commission or fees for withdrawals, minimums, or transfers | $500 |
Step 3: Gather the Necessary Documentation
To open a Roth IRA or any type of investment account, you need certain documents and information.
- Identification, such as a driver’s license or state- or government-issued identification
- Social Security number
- Beneficiary information—it is important to have up-to-date beneficiary information on any account or asset that you have so that the person or people you intend will get the proceeds from the account upon your death and any tax benefit that may go along with that inheritance.
- Bank details to fund your account and feed any ongoing, automated contributions that you arrange
Step 4: Decide Which Investments to Include
As with any retirement account, you should choose investments in your Roth IRA that align with your risk threshold and financial goals. Because investments in your Roth IRA enjoy tax-free growth and tax-free withdrawal (when executed according to various rules, investments that have the potential to notch the most gains or generate high dividends are, generally speaking, good choices. However, these types of investments should only be a part of your asset allocation if they also meet your risk tolerance and retirement timeline.
Your risk tolerance indicates how much risk you are willing to take.
- Higher-risk investments include growth-oriented stocks, stock mutual funds, and ETFs.
- Lower-risk investments include bonds, dividend stocks, income funds, money market accounts, and money market funds
Your retirement timeline also affects how aggressively you may want to invest. If you are relatively close to retirement, you may choose lower-risk investments to protect your principal amount, as you don’t have as much time to recover from unexpected drops in the market. If you have a few decades until you retire, holding higher-risk investments can lead to potentially higher returns over time while also giving you sufficient time to rebound from market pullbacks.
Step 5: Schedule Your Contributions
There are a few ways that you can invest in your Roth IRA account:
- Set up automatic investments from your bank or employer: A predetermined amount goes directly from your bank account or paycheck to your Roth account at set intervals until you have reached your maximum contribution level.
- Contribute on a yearly basis: Use money from a source such as an annual bonus or your tax refund to fund your Roth IRA each year.
It is also important to remember that a Roth IRA offers tax-free growth and tax-free withdrawals when done properly, so the younger you are when you start investing in a Roth IRA, the longer you have to take advantage of the compounding effects of the tax-free growth.
The Bottom Line
Regardless of what tax bracket you find yourself in during retirement, investing in a Roth IRA has perks. You do not get any immediate tax deductions for contributing to this type of account, but you do enjoy tax-free growth on your investments and, generally, tax-free withdrawals. If you find that you don’t want or need to take any withdrawals from your Roth IRA, then you can use it as an estate planning tool to pass assets to your named beneficiaries.
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