Contributions, Withdrawals and the Five-Year Rules Explained

The main Roth IRA rules are simple to state. You need earned income to contribute, you can contribute up to the annual IRS limit as long as your income is below the phase-out range, and qualified withdrawals in retirement are completely tax-free once you are 59½ and the account has been open for at least five years.

Contributions go in with money you have already paid tax on, so there is no deduction today. In exchange, every dollar of growth, whether from dividends, interest or rising prices, can come out tax-free later, and unlike most retirement accounts, a Roth IRA has no required minimum distributions during your lifetime.

This guide covers every Roth IRA rule you need for 2026 and 2027: who can contribute, how much, the income limits, the deadline, the two five-year rules, how withdrawals are taxed, conversions, the backdoor strategy, inheritance rules, and the mistakes that trigger penalties.

Start Here: Learn With FRC

Financial Regulation Courses (FRC) has no stake in where you open your Roth IRA or what you hold in it. FRC sells no investments and earns no commission, so this guide is grounded in how the tax rules actually work.

For video explainers on retirement accounts and investing, the FRC Retail Investing video series covers these topics step by step. Many Roth IRA investors hold low-cost ETFs, and FRC’s ETF Investing for Beginners course explains how to build a portfolio with them.

FRC’s programs and memberships are open to everyone. If you also have a workplace plan, FRC’s guide to how a 401(k) works explains how the two accounts fit together.

What Is a Roth IRA?

A Roth IRA is an individual retirement account funded with after-tax dollars. It was created by the Taxpayer Relief Act of 1997 and is named after Senator William Roth of Delaware, who championed it.

The defining feature is the timing of the tax. With a traditional IRA, you may get a deduction now and pay tax on withdrawals later, while with a Roth IRA, you pay tax now and withdraw tax-free later.

You open a Roth IRA yourself at a brokerage, bank or fund company, not through your employer. Inside it, you can hold a wide range of investments, including stocks, bonds, mutual funds, ETFs and cash.

Rule One: You Need Earned Income

To contribute to a Roth IRA, you must have taxable compensation, such as wages, salary, tips, commissions or net self-employment income. Investment income, rental income, pension payments and Social Security benefits do not count.

Your contribution cannot exceed your earned income for the year. Someone who earns $4,000 from a part-time job can contribute up to $4,000, even though the annual limit is higher.

There is one important exception for married couples. A spouse with little or no income can contribute to a spousal Roth IRA based on the working spouse’s income, as long as the couple files a joint tax return and their combined earned income covers both contributions.

Rule Two: The Annual Contribution Limit

For 2026, the IRS set the total IRA contribution limit at $7,500. Investors aged 50 and over can add a catch-up contribution of $1,100, for a total of $8,600.

This limit is shared across all of your IRAs, traditional and Roth combined. If you put $3,000 into a traditional IRA, you can put no more than $4,500 into a Roth IRA for the same year.

The IRS adjusts IRA limits for inflation and announces the following year’s figures each fall. The official 2027 limits are expected to be confirmed by the IRS in November 2026.

Rule Three: The Income Limits

Roth IRA contributions are limited by your modified adjusted gross income, or MAGI. For 2026, single filers and heads of household can contribute the full amount with MAGI below $153,000, a reduced amount between $153,000 and $168,000, and nothing above $168,000.

For married couples filing jointly, the 2026 phase-out range is $242,000 to $252,000. For married individuals filing separately who lived with their spouse during the year, the range is just $0 to $10,000, which effectively rules out direct contributions for most.

These income limits apply only to direct contributions. They do not apply to Roth conversions, which is the basis of the backdoor Roth strategy explained below.

Worked Example: A Partial Contribution

When your income falls inside the phase-out range, your allowed contribution is reduced in proportion. Take a single filer under 50 with 2026 MAGI of $160,500, which is $7,500 into the $15,000-wide range between $153,000 and $168,000.

That filer is halfway through the range, so the allowed contribution is cut by half, from $7,500 to $3,750. Under IRS rules, the reduced figure is rounded up to the next multiple of $10, and anyone in the range can contribute at least $200.

The remaining $3,750 of the overall IRA limit can still go into a traditional IRA as a nondeductible contribution. Some investors in this position then convert it, using the backdoor approach explained below.

Rule Four: The Contribution Deadline

You can contribute to a Roth IRA for a given tax year until the federal tax filing deadline the following year, usually around April 15. That means contributions for 2026 can be made from January 1, 2026 until the 2027 filing deadline.

Filing extensions do not extend the contribution deadline. If you file for an extension, you still need to make the contribution by the original April deadline.

When contributing between January 1 and the deadline, make sure your brokerage records the contribution for the correct year. FRC’s guide to whether you can contribute to an IRA for the previous year explains how this works.

Rule Five: There Is No Age Limit

There is no maximum age for contributing to a Roth IRA. As long as you have earned income, you can keep contributing at 70, 80 or beyond. Traditional IRAs had an age cap of 70½ until the SECURE Act removed it in 2020.

There is also no minimum age. A teenager with a summer job can open a custodial Roth IRA, managed by a parent or guardian until the child reaches adulthood, and contribute up to the amount of their earnings.

Starting a Roth IRA young can be one of the most powerful financial moves available. Decades of tax-free growth give compound interest an enormous amount of time to work.

How Roth IRA Withdrawals Work

Roth IRA withdrawals follow a set order under IRS rules. Your own contributions come out first, then any converted amounts on a first-in, first-out basis, and finally investment earnings.

This ordering is good news for savers. Because your contributions have already been taxed, you can withdraw them at any time, at any age, with no tax and no penalty.

Earnings are treated differently. They come out tax-free and penalty-free only in a qualified distribution, and otherwise may face income tax and a 10% early withdrawal penalty.

Worked Example: Withdrawing Contributions Early

A 45-year-old has a Roth IRA worth $40,000, made up of $25,000 of contributions and $15,000 of investment growth. An unexpected expense comes up, and she withdraws $20,000.

Because contributions come out first, the entire $20,000 is treated as a return of her own contributions. She owes no income tax and no penalty, even though she is under 59½.

The remaining $5,000 of contributions and all $15,000 of earnings stay invested. If she later withdrew more than her remaining contributions before qualifying, the extra would come from earnings and could be taxed and penalized.

What Makes a Withdrawal Qualified

A qualified distribution must meet two tests. First, at least five tax years must have passed since your first contribution to any Roth IRA, and second, the withdrawal must be made after you reach 59½, or because of disability or death, or for a first-time home purchase of up to $10,000 over your lifetime.

When both tests are met, the entire withdrawal, including all earnings, is free of federal income tax and penalties. This is the core benefit of the Roth IRA.

If you withdraw earnings without meeting both tests, the earnings are generally taxable, and the 10% penalty may apply if you are under 59½. Some exceptions, such as qualified higher education expenses, certain medical costs and up to $5,000 for a birth or adoption, can waive the penalty even though the earnings may still be taxed.

Using a Roth IRA for a First Home

The Roth IRA includes a special allowance for first-time home buyers. Once the account has met the five-year rule, you can withdraw up to $10,000 of earnings over your lifetime, tax-free and penalty-free, to buy, build or rebuild a first home.

The IRS defines a first-time buyer broadly, as someone who has not owned a main home in the past two years. The money can be used for your own home or for that of a spouse, child, grandchild, parent or other close relative.

Because contributions can already be withdrawn freely, a homebuyer can combine their contributions with up to $10,000 of earnings. For a young saver who has been contributing for several years, that can add up to a meaningful part of a deposit.

The First Five-Year Rule: Account Age

The first five-year rule applies to earnings and starts with your first contribution to any Roth IRA. The clock begins on January 1 of the tax year for which you made that first contribution.

That creates a useful quirk. If you make your first contribution in April 2027 for the 2026 tax year, your five-year clock starts on January 1, 2026, giving you more than a year of credit straight away.

The clock runs once for all your Roth IRAs combined. Opening a new Roth IRA at a different firm later does not restart it.

The Second Five-Year Rule: Conversions

A separate five-year rule applies to each Roth conversion. If you convert money from a traditional IRA to a Roth IRA and withdraw the converted amount within five years while under 59½, the 10% penalty can apply to that amount.

Each conversion has its own clock, starting on January 1 of the year of the conversion. Someone who converts in 2025, 2026 and 2027 has three separate five-year periods running.

Once you reach 59½, this conversion rule no longer triggers a penalty. It exists to stop people from using conversions to get around the early withdrawal penalty on traditional IRA money.

Roth Conversions

A Roth conversion moves money from a traditional IRA, or an old 401(k), into a Roth IRA. The amount converted is added to your taxable income for that year, but afterwards it grows tax-free like any other Roth money.

Since 2010, there has been no income limit on conversions, so anyone can convert regardless of how much they earn. Since 2018, conversions can no longer be undone, so the decision is final once made.

Conversions can make sense in years when your income is unusually low, such as early retirement or a career break. Converting gradually over several years can also help avoid being pushed into a higher tax bracket in any single year.

The Backdoor Roth IRA

High earners above the income limits cannot contribute directly to a Roth IRA, but they can use the backdoor route. They make a nondeductible contribution to a traditional IRA, then convert it to a Roth IRA, often soon afterwards.

Because the contribution was made with after-tax money, little or no tax is due on the conversion if it is done quickly. The result is Roth money for someone whose income would otherwise block it.

The main complication is the pro-rata rule, which looks at all of your traditional, SEP and SIMPLE IRA balances when calculating the tax on a conversion. FRC’s guide to the backdoor Roth IRA explains the full process and how to handle existing pre-tax IRA balances.

No Required Minimum Distributions

Traditional IRAs and 401(k)s require you to start taking required minimum distributions at age 73. Roth IRAs have no such requirement during the original owner’s lifetime.

This lets you leave the money invested for as long as you like, and use it only when you need it. Many retirees spend traditional account money first and leave the Roth IRA to keep growing, which can also leave a valuable tax-free inheritance for their heirs.

Since 2024, Roth 401(k) accounts have also been exempt from lifetime required distributions. Before that change, many savers rolled Roth 401(k)s into Roth IRAs specifically to avoid them.

Inheriting a Roth IRA

When a Roth IRA owner dies, the account passes to the named beneficiaries. A surviving spouse can treat the account as their own, keeping all the benefits of a Roth IRA.

Most other beneficiaries must empty the inherited account within 10 years under the SECURE Act of 2019. Withdrawals are tax-free as long as the original owner’s account met the five-year rule.

Certain eligible designated beneficiaries, such as minor children of the owner, disabled or chronically ill individuals, and beneficiaries not more than 10 years younger than the owner, can follow different rules. Keeping beneficiary designations up to date ensures the account passes as intended.

Roth IRA vs Traditional IRA

Both accounts share the same contribution limit, but they reverse the timing of the tax. A traditional IRA may give a deduction now, with withdrawals taxed later, while a Roth IRA gives no deduction now but tax-free qualified withdrawals.

The traditional IRA deduction can be limited if you or your spouse are covered by a workplace retirement plan and your income is above certain levels. Anyone with earned income can still make nondeductible traditional IRA contributions.

The Roth IRA tends to favor people who expect to be in a higher tax bracket later, while the traditional IRA tends to favor people who expect a lower bracket in retirement. FRC’s guide to traditional IRA vs Roth IRA compares the two in detail.

Roth IRA vs Roth 401(k)

A Roth 401(k) is offered through an employer and has a much higher contribution limit than a Roth IRA, with no income limit for contributions. A Roth 401(k) can also receive employer contributions, which SECURE 2.0 now allows plans to make on a Roth basis.

A Roth IRA offers a wider choice of investments and allows you to withdraw your contributions at any time without tax or penalty. It is also fully under your control, independent of any employer.

Many investors use both. FRC’s guide to the order to invest across a 401(k), IRA or brokerage account explains how to prioritize them.

How to Open a Roth IRA

Opening a Roth IRA usually takes a few minutes online with a brokerage firm, bank or fund company. Large providers include Fidelity, Charles Schwab, Vanguard, J.P. Morgan, Robinhood and E*Trade, and most have no minimum to open an account.

You will provide personal details such as your name, address, date of birth and Social Security number, then link a bank account to fund it. When you contribute, select the tax year the contribution is for, especially between January 1 and the April deadline.

Finally, choose your investments, because money deposited into a Roth IRA often sits in a cash sweep account until you buy something. FRC’s guide to how to choose a brokerage account compares the main options.

Moving 529 Plan Money Into a Roth IRA

SECURE 2.0 created a new way to fund a Roth IRA starting in 2024. Money left over in a 529 plan, the tax-advantaged education savings account, can be rolled into a Roth IRA for the 529 beneficiary.

The 529 account must have been open for at least 15 years, and contributions made in the last five years, plus their earnings, cannot be moved. The lifetime maximum is $35,000 per beneficiary.

Each year’s rollover counts against the beneficiary’s annual IRA contribution limit, and the beneficiary needs earned income at least equal to the amount rolled over. For families with unused education savings, it turns leftover money into a head start on retirement.

What to Invest in Inside a Roth IRA

A Roth IRA is an account, not an investment, so the money inside it needs to be invested to grow. Many people open a Roth IRA, fund it and leave the money sitting in cash for years without realizing it.

Because growth inside a Roth IRA is never taxed if the rules are followed, it is often a natural home for investments with the highest expected long-term growth, such as broad stock index funds or ETFs. FRC’s guide to how to invest in the S&P 500 explains one of the most popular choices.

Your mix of stocks, bonds and cash should reflect your timeline and comfort with risk. FRC’s Investing for Beginners guide explains how to build that mix step by step.

Worked Example: The Value of Tax-Free Growth

A 25-year-old contributes $7,500 a year to a Roth IRA and earns an average return of 7% a year until age 65. After 40 years, the account would grow to roughly $1.5 million, of which $300,000 is contributions and about $1.2 million is growth.

In a Roth IRA, all of that growth can be withdrawn tax-free in retirement. In a taxable account, the dividends and gains would have been taxed along the way, and in a traditional IRA, every dollar withdrawn would be taxed as income.

Even someone starting later benefits. A 40-year-old making the same contributions until 65 would build roughly $475,000, still with every dollar of growth available tax-free.

Excess Contributions and How to Fix Them

Contributing more than you are allowed, or contributing when your income is above the limit, creates an excess contribution. The IRS charges a 6% excise tax on the excess for every year it stays in the account.

The fix is to withdraw the excess, along with any earnings on it, before your tax filing deadline, including extensions. The earnings withdrawn are taxable, but the 6% tax is avoided.

Alternatively, an excess contribution can sometimes be recharacterized as a traditional IRA contribution, or applied to a later year’s limit. Catching the problem early keeps the cost small.

Is Your Roth IRA Safe?

A Roth IRA held at a brokerage firm that is a member of the Securities Investor Protection Corporation is protected up to $500,000, including $250,000 in cash, if the firm fails and assets are missing. This protection does not cover losses from falling market prices, which are a normal part of investing.

Roth IRAs at banks may hold FDIC-insured deposits, such as savings accounts or certificates of deposit, up to the applicable limits. Investments such as funds and stocks are not FDIC-insured.

FRC’s guide to whether your money is safe in a brokerage account explains these protections. Before opening an account, confirm the firm is registered and check it on FINRA BrokerCheck.

Common Roth IRA Mistakes

The first mistake is leaving contributions uninvested in cash. Without investing, the account cannot deliver the tax-free growth that makes it valuable.

The second is contributing when your income is too high, creating an excess contribution, and the third is withdrawing earnings before meeting the five-year and age tests. Each can trigger avoidable taxes and penalties.

The fourth is missing the contribution deadline. Unused contribution room for a year cannot be recovered once the deadline passes, so every missed year is lost tax-free space for good.

A Roth IRA Checklist for 2027

Confirm you have earned income and that your modified adjusted gross income is below the phase-out range, or plan a backdoor conversion if it is above. Open the account with a regulated brokerage and set up automatic contributions.

Invest the money in a diversified mix that matches your timeline, rather than leaving it in cash. Make your contribution for the current year as early as you can, and use the period before the April deadline to top up the previous year if you have room.

Keep records of your contributions and conversions, note when your five-year clocks started, and keep your beneficiary designations current. Review the account once or twice a year.

Keep Learning

The Roth IRA rewards investors who understand its rules. Knowing how the limits, five-year rules and withdrawal order work lets you use it with confidence and avoid costly mistakes.

The FRC dictionary is more than a dictionary. It is a library of explainer videos, written explanations and on-page quizzes, so you can open any term, such as retirement planning, and go deeper whenever something is unclear.

FRC’s programs and memberships are open to everyone. Whether you are opening your first Roth IRA or planning conversions in retirement, structured learning turns complex tax rules into decisions you control.

Your Next Step

A Roth IRA lets you invest after-tax money and withdraw it tax-free in retirement, with no required distributions during your lifetime. Contribute within the limits each year, invest the money, respect the five-year rules and the account can become one of the most valuable assets you own.

Check your eligibility, open your account and make your first contribution before the deadline, and let decades of tax-free growth work in your favor.