Roth IRA rules you should know during tax season — and all year long

Investing in a Roth IRA can be a smart way to save for retirement, but enjoying the tax benefits of a Roth generally takes some patience. That's because you fund these accounts with after-tax contributions, which means you won't be able to deduct your contribution on Form 1040 at tax time, as you can with a traditional IRA.

Nevertheless, many taxpayers prefer the Roth IRA to the traditional IRA because of its long-term tax advantages. Put simply, if you think your tax rate will be higher in the future than it is now — which tends to be true for people who are earlier on their career path — then a Roth can make a lot of sense.

Even if you're not sure what your future tax rate will be, you still might like to have a Roth in your savings account lineup so that you can use it to better manage your annual tax bill in retirement.

Still, a traditional IRA does offer that immediate tax break: If you qualify, you can reduce your taxable income by the amount of your contribution, and thus lower your tax bill. Money in a traditional IRA grows tax-deferred, with no tax owed until you withdraw the money. However, after you make your initial after-tax contribution, a Roth IRA is tax-free forever, so even when you take withdrawals in retirement, you won't owe any tax.

But there are specific rules that govern who is eligible to open a Roth IRA and how much money you can contribute each year.

Roth IRA contribution limits

There are three main rules related to Roth IRA contributions.

1. The first rule of Roth IRA contributions relates to the type of income: You must have "earned income" to be eligible to open a Roth or traditional IRA. You can't contribute to an IRA if your income is from unearned sources, such as investments. If you're paid wages, a salary, tips, professional fees or bonuses, then you're eligible to open an IRA so long as your contributions don't exceed your income.

2. The second rule of Roth IRA contributions is that there's a limit to how much you can contribute, and the maximum amount depends on your age, with people who are 50 or older eligible for catch-up contributions:

3. There's a third rule of Roth IRA contributions: Anyone who has earned income — even a child — can open an IRA, but you can't contribute more than you earned. So if your income is only $1,500 in a given year, then $1,500 is the most you can contribute. In other words, the maximum you can contribute is the lower of your earned income or $7,500 ($8,600 if 50+), in 2026.