What is a Roth IRA - 2025 Contribution Limits
The Money Class You Never Got in School
What Is a Roth IRA?
A Roth IRA is a type of retirement account that allows you to contribute money after taxes—and then withdraw it tax-free when you retire. Unlike a 401(k), this is something you open and manage yourself. And it's one of the most powerful tools for young adults to grow wealth over time.
You pay taxes now, and everything you earn inside the Roth grows tax-free forever.
Roth IRA vs Traditional IRA: What’s the Difference?
| Feature | Roth IRA | Traditional IRA |
|---|---|---|
| Contributions | Not tax-deductible | May be tax-deductible (based on income) |
| Withdrawals in Retirement | Tax-free | Taxed as income |
| Required Minimum Distributions (RMDs) | None | Begin at age 73 |
| Best For | People who expect higher taxes later | People who need deductions now |
Roth IRA Contribution Limits 2025
The IRS has set the 2025 Roth IRA contribution limits at:
- $7,000 if you’re under age 50
- $8,000 if you’re 50 or older (includes $1,000 catch-up)
Income Limits for Roth IRA (2025)
Your eligibility to contribute depends on your income:
- Single filers: Full contribution if MAGI is under $146,000; phased out up to $161,000
- Married filing jointly: Full contribution if MAGI is under $230,000; phased out up to $240,000
Use a Backdoor Roth IRA strategy by contributing to a Traditional IRA, then converting it to a Roth.
How to Open a Roth IRA
Most brokerage platforms allow you to open a Roth IRA online in 15–20 minutes. Popular options include:
- Fidelity
- Charles Schwab
- Vanguard
- M1 Finance
What Can You Invest In?
Your Roth IRA is just the account. Inside it, you can invest in:
- Index funds (like the S&P 500)
- ETFs
- Target-date retirement funds
- Stocks and bonds
When Can You Take Money Out?
- You can withdraw your contributions anytime, tax- and penalty-free.
- To withdraw earnings tax-free, the account must be open 5+ years and you must be 59½ or older.
Why Roth IRAs Are Perfect for Gen Z and Gen Alpha
If you're just starting out, chances are you're in a low tax bracket. That makes now the perfect time to contribute to a Roth IRA—because you’re paying low taxes today and avoiding them forever on your investment growth.
Example:
If you invest $3,000/year for just 10 years starting at age 22, and never contribute again, you could still have over $178,000 by retirement (assuming 8% growth). And you can withdraw it all tax-free.
Final Thoughts
A Roth IRA is one of the smartest financial moves you can make in your 20s. It’s flexible, powerful, and puts you in control.
Track your Roth contributions with YNAB (referral link)
You’re in MoneyMode now—plan ahead, invest early, and build the life you want.
