The Roth IRA has one superpower no other account offers: completely tax-free growth AND tax-free withdrawals in retirement. Every dollar it earns from age 25 to 65 grows without the government ever taking a cut. This compounding advantage is enormous over decades.
How It Works
You contribute after-tax dollars (money you’ve already paid income tax on). It grows tax-free. Withdrawals in retirement are completely tax-free. 2025 contribution limit: $7,000/year ($8,000 if 50+). Income limits: single filers phase out at $146,000โ$161,000; married filing jointly at $230,000โ$240,000.
The Math Over 30 Years
$7,000/year for 30 years at 10% average return = $1,145,000 at retirement. Tax owed on withdrawal: $0. In a traditional IRA or 401(k): same math, but you’d owe 22โ32% tax on withdrawals = $252,000โ$366,000 in taxes. Roth saves you a quarter million dollars.
What to Invest in Your Roth
For most people: a total market index fund (FSKAX, FZROX, VTI) in your Roth IRA is the optimal strategy. If you want slightly more hands-on: 60% total market, 30% international, 10% REITs (real estate investment trusts). Avoid bonds in your Roth โ you want maximum growth in this tax-free space.
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