Roth IRA Explained (Like Your Older Sister Would)

If you take one financial action this year, open a Roth IRA. I know that sounds bossy but that's why we're here.

What it actually is

A Roth IRA is a retirement account with tax superpowers. You put in money you've already paid taxes on. It grows. When you take it out in retirement, you pay zero taxes on any of the growth. That's the magic.

Compare that to a regular investment account where you owe taxes on every gain. The Roth is a legal tax loophole and the IRS wants you to use it.

Who can open one

Basically any adult with earned income under about $161K/year (single) or $240K (married). If you're reading this, you probably qualify.

The rules to know

• Max contribution 2026: $7,000/year ($8,000 if you're 50+)
• Deadline: April 15 of the following year (yes, you can still contribute for 2025 until April!)
• Access to your contributions: anytime, tax-free, no penalty (this is huge)
• Access to growth: wait until 59½ or pay a penalty

That fourth point is why I love it: your contributions are always yours. If life explodes, you can pull them out. That safety net makes it beginner-safe.

How to open one in 20 minutes

1. Go to Fidelity.com (or Vanguard or Schwab)
2. Click "Open an account" → "Roth IRA"
3. Fill in personal info, link your bank
4. Transfer $50 to start
5. Buy a fund — this step is what everyone forgets. Money in the account isn't invested. Buy FZROX or a target date fund. Otherwise it's just sitting there.

What to buy inside it

Same rules as any investing account:

• Target date fund (easiest)
• Total stock market index fund (FZROX, VTI)
• A three-fund portfolio if you want to feel fancy

A Roth IRA is a bucket, not an investment. You still have to buy something inside the bucket.

Do this today

If you don't have one, open one. Contribute anything — $25 is fine — just get started. Set up an auto-transfer for next month.

Twenty years from now you're going to thank present-you for this exact tiny decision.