What Is a Roth IRA and Should You Open One This Summer?

Everyone know it’s a good idea to plan ahead, build a nest egg and save for retirement. But what does saving for retirement actually look like and what’s the best place to start? Read on to learn everything you need to know about the Roth IRA, including considerations on whether you should open a Roth account this summer.  

What Is an IRA? 

IRA stands for Individual Retirement Account. An IRA is a savings or investment account where you can leave your money and let it earn interest. You might choose to invest your IRA funds into stocks, bonds and mutual funds. However, an IRA differs from a traditional savings or investment account in two key ways: 1) you can only deposit a certain amount of money every year, and 2) you won’t pay any taxes on account contributions or earned interest until you retire.  

What Is a Roth IRA? 

With a traditional IRA, you get your tax benefits up front. With a Roth IRA, the tax advantages come after retirement. That’s because a Roth IRA is funded with net earnings, or money that’s already been taxed. Then, after retirement, you’re able to make tax-free withdrawals from the account, assuming certain criteria are met. These criteria include being at least 59½ years old, and having contributed to the Roth IRA for at least five years.  

Why Choose the Roth IRA? 

The Roth IRA is a popular choice for younger professionals still growing their career and their salary. If you’re in a lower tax bracket now, but expect to be in a higher tax bracket upon retirement, paying taxes on your retirement savings sooner rather than later makes good financial sense. The Roth IRA also lets accountholders withdraw contributions at any time, whereas people with a traditional IRA will see a 10 percent penalty if they choose to withdraw earnings or contributions before age 59½. 

How Much Can I Contribute?  

Because of the unique tax advantages offered by IRA and Roth IRA accounts, there are limits on how much you can contribute to these accounts every year. For 2025, the annual limit is $7,000 for people under 50 and $8,000 for people aged 50 and older. Keep in mind that the contribution limits apply to your total IRA holdings: so if you have a Roth IRA and a traditional IRA, you’re limited to $7,000 (or $8,000, if you’re 50 or older) across both accounts.  

Should I Open a Roth IRA? 

There’s rarely a bad time to start saving for retirement, especially if you’re a young professional just beginning to consider your retirement plan. Despite the name, retirement accounts are most certainly not only for older adults! Opening a Roth IRA sooner rather than later means you can maximize tax-advantaged contributions, and there’s never any obligation to contribute—so you might hit the annual limit one year, then contribute a little less money the next.  

What About My 401(k)? 

Many people have both a 401(k) and an Individual Retirement Account. With both accounts, you can enjoy two levels of tax advantage. Many employers also offer matching contributions to a 401(k), which means if you contribute more money to your workplace retirement fund, your employer will do the same. Check in with your employer if you’re unsure what retirement options are available, and depending on what you learn, consider starting that Roth IRA this summer.