A Roth IRA offers tax-free growth and tax-free withdrawals in retirement, making it one of the most powerful retirement savings vehicles. Contributions are made with after-tax dollars, so there is no upfront tax deduction, but qualified withdrawals (after age 59.5 and 5 years) are completely tax-free.
20 steps across 2 sections
1. Direct Roth IRA Setup
- Must have earned income
- 2026 income limits for full contribution: under $153,000 (single), under $242,000 (married filing jointly)
- Reduced contribution: $153,000-$168,000 (single), $242,000-$252,000 (married filing jointly)
- Over these limits? Use the backdoor Roth strategy below
- Choose a brokerage (Fidelity, Vanguard, Schwab, etc.)
- Complete the application with personal information
- Designate beneficiaries
- Link your bank account for funding
- 2026 limit: $7,500 (under 50) or $8,600 (age 50+)
- Fund via lump sum or set up automatic recurring contributions
2. Backdoor Roth IRA (For High Earners)
- Check all Traditional, SEP, and SIMPLE IRA balances
- If you have pre-tax IRA money, the pro-rata rule will make part of the conversion taxable
- Consider rolling pre-tax IRA funds into your 401(k) to clear the way
- Contribute up to $7,500 ($8,600 if 50+) to a Traditional IRA
- Do NOT deduct this contribution on your tax return
- File Form 8606 to document the non-deductible basis
- Request a conversion from your Traditional IRA to your Roth IRA
- Do this as soon as possible (ideally within days) to minimize taxable gains
- The conversion of contributions is tax-free since you already paid tax
- Only earnings between contribution and conversion are taxable
Common Mistakes
- Not checking for pre-tax IRA balances
- Waiting too long to convert
- Not filing Form 8606
- Deducting the Traditional IRA contribution
- Contributing directly to Roth when over income limit
Pro Tips
- The backdoor Roth is completely legal and endorsed by Congress in legislative...
- Roll all pre-tax Traditional/SEP/SIMPLE IRA money into your 401(k) before doi...
- Contribute and convert as early in the year as possible to maximize tax-free ...
- Place your highest-growth investments in Roth accounts — tax-free growth on a...
- Roth IRAs are excellent for estate planning: beneficiaries receive tax-free d...