What Is a Roth IRA?
A Roth IRA (Individual Retirement Account) is a tax-advantaged retirement account where you contribute money you have already paid income tax on. In return, all growth and qualified withdrawals are completely tax-free. Unlike a Traditional IRA, you pay taxes upfront but never again.
How the Roth IRA Works
Step 1: Earn income and pay income tax on it
Step 2: Contribute after-tax dollars to Roth IRA (up to $7,000/year)
Step 3: Invest in halal stocks, ETFs, and funds
Step 4: Investments grow tax-free for decades
Step 5: Withdraw in retirement - $0 tax owed!
Roth IRA vs Taxable Account: 30 Year Comparison
Scenario: $7,000/year for 30 years, 8% annual return
Taxable Brokerage
Total contributed: $210,000
Growth: ~$583,000
Est. tax on gains: ~$87,000
After-tax value: ~$706,000
Roth IRA
Total contributed: $210,000
Growth: ~$583,000
Tax on withdrawals: $0
After-tax value: ~$793,000
Roth IRA advantage: ~$87,000+ saved in taxes!
2024 Contribution Limits
The IRS sets annual limits on how much you can contribute to a Roth IRA. These limits apply to your total contributions across all Traditional and Roth IRAs combined.
$7,000
Under age 50
~$583/month
$8,000
Age 50 and older
Includes $1,000 catch-up
Important Notes
- The $7,000 limit is shared across ALL your IRAs (Traditional + Roth combined)
- You must have earned income at least equal to your contribution
- Deadline to contribute is Tax Day (April 15) of the following year
Income Limits
Unlike a Traditional IRA, the Roth IRA has income limits. If you earn too much, you cannot contribute directly. Your eligibility is based on your Modified Adjusted Gross Income (MAGI).
2024 Income Phase-Out Ranges
Single / Head of Household
- Full contribution: MAGI under $146,000
- Reduced contribution: $146,000 - $161,000
- No direct contribution: Above $161,000
Married Filing Jointly
- Full contribution: MAGI under $230,000
- Reduced contribution: $230,000 - $240,000
- No direct contribution: Above $240,000
If your income exceeds these limits, you are not out of luck. The Backdoor Roth IRA strategy can help.
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