Roth IRA
An after-tax retirement account where qualified withdrawals, growth included, are untaxed.
Contributions are made from money that has already been taxed, so there is no deduction in the contribution year. In exchange, growth and qualified withdrawals are untaxed, which means the account holder keeps the entire return rather than an after-tax share of it.
Two structural features are less widely known. The original owner faces no required minimum distributions, so the balance can compound past 73 untouched. And contributions, though not earnings, can be withdrawn at any time without tax or penalty, since that money was already taxed on the way in.
Qualified treatment of earnings requires the account to have been open five years and the owner to be 59½ or to meet a specified exception. The five-year clock starts with the first contribution to any Roth IRA, not per account, which makes an early token contribution consequential in a way its size does not suggest.
Worked through
$7,000 a year for 30 years at 7%
Annual after-tax contributions at the 2025 limit, compounded at 7%.
- Contributed
- $210,000
- Growth
- $451,226
- Ending balance
- $661,226
- Tax on the growth
- $0
Growth is 68% of the ending balance. In a traditional account that portion would be taxed as income on withdrawal.
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