Roth IRA

What a Roth IRA is

A Roth IRA is an account a person opens with a bank, a brokerage or a state program. It is separate from any employer plan. Contributions are not deductible. Earnings come out tax-free once the owner is 59½ and the account has been open for five years, and the original owner never has to take required minimum distributions.

Why it matters to employers

Most state auto-IRA programs, such as CalSavers, put employees into Roth IRAs by default. If you are weighing a state program against a 401(k), the Roth IRA rules set the ceiling on what your employees can save there: $7,500 in 2026 against $24,500 in a 401(k), with no employer match. Higher earners may not be allowed to contribute at all.

For 2027 the contribution limit stays $7,500 ($8,600 at 50 or older), and the income phase-out rises to $158,000 to $173,000 for single filers and $250,000 to $260,000 for joint filers. (IRS Notice 2026-66)

Example with 2026 figures

In 2026 a single employee can contribute the full $7,500 with modified adjusted gross income under $153,000. The allowed amount shrinks between $153,000 and $168,000 and is zero above that. For married couples filing jointly the range is $242,000 to $252,000. The limit is shared across all of a person’s traditional and Roth IRAs.

Common mistakes

• Confusing a Roth IRA with a Roth 401(k). A Roth 401(k) has no income limit and uses the higher 401(k) deferral limit.

• Assuming IRA contributions count against the 401(k) limit. The two limits are separate.

• Contributing above the income limit. Excess contributions are charged a 6% excise tax each year until they are removed.