JagInsights › Glossary › Roth account
What is a Roth account?
A Roth IRA or Roth 401(k) is funded with money you already paid tax on. Qualified withdrawals later can be tax-free.
A Roth account takes after-tax contributions. If the account meets the IRS rules for a qualified withdrawal, the growth can come out without a second tax bill.
Worked example
You contribute $200 a month to a Roth IRA from take-home pay. Those dollars were already taxed. Years later, a qualified withdrawal of contributions and growth is not taxed again. The IRS sets contribution caps, income limits, and waiting rules. This page does not state this year's cap.
Why it matters
Traditional accounts cut taxes now. Roth accounts cut taxes later, if the rules are met. Neither is automatically better. The difference is when the tax is paid.
Questions people ask
Can I take Roth money out anytime?
Contributions to a Roth IRA can often be withdrawn without tax. Earnings have rules and waiting periods. A Roth 401(k) has different distribution rules. The IRS pages are the source.
Is there an income limit?
Roth IRAs have income limits that change. Roth 401(k) contributions through work generally do not use the same IRA income test.
Should I pick Roth or traditional?
It depends on today's tax rate versus a later one, and on the rest of the budget. This is education, not a recommendation.
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