📈 Roth IRA Projection

A Roth IRA is an individual retirement account funded with after-tax dollars. Your investments grow tax-free, and qualified withdrawals in retirement are also completely tax-free — making it one of the most powerful retirement savings vehicles available. Unlike a Traditional IRA, you pay taxes on contributions upfront but never again on the growth or withdrawals.

For 2026, the Roth IRA contribution limit is $7,500 per year ($8,500 if you are age 50 or older). These limits are set by the IRS and may be adjusted annually for inflation. Income limits also apply — high earners may have a reduced or eliminated ability to contribute directly to a Roth IRA. Note: the total contribution limit applies across all IRA accounts combined (Roth + Traditional).

For 2026, the ability to contribute to a Roth IRA phases out based on your Modified Adjusted Gross Income (MAGI). For single filers, the phase-out begins at $150,000 and you're ineligible above $165,000. For married filing jointly, the phase-out starts at $236,000 and ends at $246,000. If your income exceeds these limits, you may still use the "backdoor Roth IRA" strategy — contributing to a Traditional IRA and then converting it.

The choice depends primarily on your current versus expected future tax rate. A Roth IRA is generally better if you expect to be in a higher tax bracket in retirement than you are today — common for younger earners early in their career. A Traditional IRA is often better if you're in your peak earning years and expect a lower tax rate in retirement. Many financial planners recommend having both to diversify your tax exposure in retirement.

The 5-year rule requires that you have held your Roth IRA for at least 5 tax years before you can withdraw earnings tax-free. This clock starts January 1 of the first year you make any Roth IRA contribution. Importantly, contributions (not earnings) can always be withdrawn at any time without penalty, regardless of the 5-year rule. Conversions have their own separate 5-year rule for penalty purposes.

No. One of the most powerful features of a Roth IRA is that it has no required minimum distributions (RMDs) during your lifetime. Traditional IRAs and 401(k)s require you to start withdrawing money at age 73 (under current law), which can create a large taxable income. The Roth IRA lets your money continue growing tax-free for as long as you want — and can even be passed to heirs tax-free.

You can withdraw your contributions (not earnings) from a Roth IRA at any time, tax-free and penalty-free — there are no restrictions on contribution withdrawals. To withdraw earnings tax-free and penalty-free, you generally must be at least 59½ years old and have held the account for at least 5 years. Early withdrawals of earnings may be subject to income tax and a 10% penalty, with certain exceptions (first home purchase up to $10,000, disability, etc.).

Yes. Having a 401(k) at work does not affect your ability to contribute to a Roth IRA, as long as you meet the income requirements. The contribution limits are independent — you can max out both your 401(k) ($23,500 in 2026) and your Roth IRA ($7,500 in 2026) in the same year. Financial advisors often recommend contributing enough to your 401(k) to get any employer match, then maxing your Roth IRA, then returning to the 401(k).

A backdoor Roth IRA is a legal strategy for high earners who exceed the income limits for direct Roth IRA contributions. The process involves: (1) contributing to a non-deductible Traditional IRA (no income limits), then (2) converting that Traditional IRA to a Roth IRA. You'll owe taxes only on any earnings that occurred between contribution and conversion. Be aware of the "pro-rata rule" — if you have other pre-tax IRA balances, the conversion may be partially taxable.

You can make a Roth IRA contribution for a given tax year up to the tax filing deadline — typically April 15 of the following year (not including extensions). For example, you have until April 15, 2027 to make a 2026 Roth IRA contribution. This gives you up to 15.5 months to fund each year's contribution. When you make the contribution, be sure to specify which tax year it applies to.

Excess Roth IRA contributions are subject to a 6% excise tax for each year the excess remains in the account. To avoid this penalty, you must withdraw the excess contribution (plus any earnings on it) before your tax filing deadline, including extensions. Alternatively, you can recharacterize the excess to a non-deductible Traditional IRA contribution. If you discover an excess after filing, you can apply it to the next tax year's contribution if you have room.

A common assumption is 7% annually, which approximates the S&P 500's historical average return after adjusting for inflation (roughly 10% nominal minus 3% inflation). For a more conservative estimate, 5–6% is often used. Keep in mind that past performance does not guarantee future results, and actual returns will vary year to year. For very long time horizons (30+ years), most financial planners use 6–8% as a reasonable base case.

Compound growth means your earnings generate their own earnings over time. In a Roth IRA, this compounding happens entirely tax-free — you never owe taxes on dividends, capital gains, or interest earned inside the account. Starting early dramatically amplifies this effect. For example, $7,500 contributed at age 22 growing at 7% annually becomes approximately $115,000 by age 65. The same contribution made at age 42 grows to only about $30,000 by age 65 — showing the enormous value of time.

The 4% rule is a widely used retirement guideline (from the Trinity Study) suggesting you can withdraw 4% of your portfolio in the first year of retirement, then adjust for inflation each year. Based on historical market data, this strategy has historically allowed portfolios to last 30 or more years. For example, a $1,000,000 portfolio could support $40,000/year in withdrawals. More conservative retirees use 3–3.5%, especially those planning for a 40+ year retirement.

For younger investors with decades until retirement, most financial advisors recommend a stock-heavy allocation (90–100% stocks) inside a Roth IRA, since the tax-free compounding benefit is maximized by higher-return assets. As you approach retirement, gradually shifting some allocation to bonds reduces volatility. A common rule of thumb is "110 minus your age" as your stock percentage (e.g., at age 30, 80% stocks; at age 60, 50% stocks). Bond interest is especially well-suited for the Roth's tax shelter since it's normally taxed as ordinary income.