Roth IRA for beginners: what it is, how to open one, and what to put in it

A Roth IRA is the best retirement account most young people never open. It doesn't require an employer. It doesn't require much money. It just requires earned income and the decision to start. Everything that grows inside it — for the rest of your life — comes out tax-free at retirement.

Here's what it is, how it works, and the exact math of what opening one at 22 is worth at 65.

What a Roth IRA actually is

A Roth IRA (Individual Retirement Account) is an account you open yourself at a brokerage — not through your employer. You fund it with money you've already paid income tax on. In return, the IRS lets everything inside the account grow tax-free, and you pay zero taxes when you withdraw it at retirement (age 59½ or later).

Compare that to a traditional 401(k): you get a tax deduction now, but pay income tax on every dollar you withdraw in retirement. With a Roth IRA, the tax is paid once, upfront — and then it's done, permanently, no matter how large the account grows.

The rules you need to know (2026)

At 22 and earning a typical entry-level salary, you almost certainly qualify. Most young people don't have income high enough to trigger the phase-out — that only affects higher earners later in their career.

The verified math: $1,000 now + $200/month starting at 22

Setup: open a Roth IRA at 22, deposit $1,000 as an initial lump sum, then contribute $200/month. Average annual return: 7% (monthly compounding, r = 0.005833/month).

Lump sum $1,000 at 22 grows to:
At 30 (8 yr): $1,000 × (1.07229)^8 = $1,000 × 1.74784 = $1,748
At 40 (18 yr): $1,000 × (1.07229)^18 = $1,000 × 3.51282 = $3,513
At 50 (28 yr): $1,000 × (1.07229)^28 = $1,000 × 7.05936 = $7,059
At 65 (43 yr): $1,000 × (1.07229)^43 = $1,000 × 20.1104 = $20,110

$200/month contributions grow to:
At 30 (8 yr, 96 mo): $200 × (1.74784 − 1) / 0.005833 = $200 × 128.2 = $25,644
At 40 (18 yr, 216 mo): $200 × (3.51282 − 1) / 0.005833 = $200 × 430.9 = $86,174
At 50 (28 yr, 336 mo): $200 × (7.05936 − 1) / 0.005833 = $200 × 1,038.8 = $207,760
At 65 (43 yr, 516 mo): $200 × (20.1104 − 1) / 0.005833 = $200 × 3,276.4 = $655,280

Total (lump sum + monthly contributions):

Total contributions over 43 years: $1,000 + ($200 × 12 × 43) = $1,000 + $103,200 = $104,200. Total balance at 65: $675,390 — all of it tax-free. The account generated $571,190 in tax-free growth on top of the money you put in.

What waiting actually costs you

The single biggest variable in this math isn't the contribution amount — it's the starting age. Run the identical scenario ($1,000 lump sum + $200/month at 7%) starting at three different ages instead of 22, and stopping at the same retirement age of 65:

Compare the 30-year-old's result — $371,717 — to the 22-year-old's $675,390. Both people contributed the exact same dollar amounts on the exact same schedule relative to their own start date. The only difference is 8 years. Waiting from 22 to 30 costs roughly $303,600 in final balance — more than the entire lump sum and years of contributions combined. That gap is not from contributing more money; it's from giving the market fewer years to compound. This is the single strongest argument for opening a Roth IRA the day you have earned income, even with a tiny first deposit.

The flip side works the same way: bumping the monthly contribution from $200 to $300 starting at 22 (same $1,000 lump sum, same 43 years) grows to roughly $1,002,950 by 65 — crossing $1 million from an extra $100/month. Small, sustained increases matter more than most people expect, because every dollar added early gets multiplied by decades of compounding rather than just added once at the end.

401(k) match first, then Roth IRA

If your employer offers a 401(k) with a match, there's a specific order of operations that beats putting everything into a Roth IRA first. A typical match — 100% of the first 3–4% of salary — is an immediate, guaranteed 100% return on that money. No investment anywhere else can promise that.

Example: a $50,000 salary with a 100%-match-on-4% 401(k) means contributing $2,000/year gets you another $2,000/year from your employer, free. Skipping that match to fund a Roth IRA instead means walking away from $2,000 a year in free money — a mistake that's easy to make when a Roth IRA feels like "the better account" on paper.

The order that works for almost everyone: (1) contribute enough to your 401(k) to capture the full employer match, (2) max out a Roth IRA ($7,500/year), (3) go back and add more to the 401(k) if you still have money to invest. This sequencing captures every dollar of free money first, then takes advantage of the Roth IRA's tax-free growth and flexible early-withdrawal rules, then falls back to the 401(k)'s higher contribution limit once the Roth IRA is maxed.

How to open a Roth IRA at Fidelity (step by step)

1. Go to fidelity.com and click "Open an Account." Select "Roth IRA." You'll need your Social Security number, a bank account for funding, and a government ID.
2. Complete the application. Takes about 10–15 minutes. There's no minimum balance required to open.
3. Transfer your initial deposit. Even $50 works. The money will appear in the account in 1–3 business days.
4. Buy FZROX (Fidelity ZERO Total Market Index Fund — 0% expense ratio). Search for it in the account, enter the dollar amount, confirm. The fund covers thousands of U.S. companies in one purchase.
5. Set up automatic monthly contributions. Under "Accounts & Trade" → "Transfer" → "Set up automatic transfers." Choose your amount and monthly date. This is the most important step — automation beats willpower every time.

You now have a Roth IRA investing automatically. You don't need to log in again until you want to increase your contribution or check your balance for motivation.

What to actually put your money in

Buying FZROX (or an equivalent total-market index fund) is the simplest correct answer for most beginners, but it's worth understanding the alternatives so the choice feels deliberate rather than arbitrary:

• A single total-market index fund (FZROX, or a comparable fund at another brokerage): One purchase, instantly diversified across thousands of companies, near-zero expense ratio. The simplest option and a perfectly reasonable one to hold for decades without ever changing it.
• A target-date fund: A single fund that automatically shifts from mostly stocks to a mix of stocks and bonds as you approach a chosen retirement year. Slightly higher expense ratio than a pure index fund, but it removes the need to ever rebalance yourself. Good for people who want to set it up once and never think about allocation again.
• A three-fund portfolio: Splitting money across a U.S. total-market fund, an international fund, and a bond fund, each bought separately in chosen proportions. More control over your exact allocation, but it requires periodically rebalancing back to your target percentages as the funds grow at different rates.

At 22, with decades until retirement, the difference between these three approaches is small. What matters far more is picking one, automating the contribution, and leaving it alone. The most common way beginners lose money isn't a bad fund choice — it's switching funds repeatedly trying to time which one will do better, which resets any progress made and adds cost each time.

What not to do

• Don't pick individual stocks. The research showing that index funds outperform stock pickers over 10+ years is overwhelming. Buy the market, not bets on individual companies.
• Don't over-contribute. If you put in more than you earned (or more than $7,500), the IRS charges a 6% excise tax per year on the excess until you fix it.
• Don't withdraw the growth early. You can withdraw your contributions (not the growth) anytime without penalty. Withdrawing growth before 59½ generally triggers a 10% penalty plus income tax.
• Don't skip a year because the amount feels too small. Even $600 contributed at 22 is worth $600 × 20.11 = $12,066 tax-free at 65. Small amounts at 22 are worth more than large amounts at 42.

If you're also thinking about broader investing strategies beyond the Roth IRA, this post on investing as a student covers the brokerage account setup and what to invest in outside of retirement accounts.

Roth IRA vs. a regular taxable brokerage account

A Roth IRA isn't the only place to invest — it's specifically the best place to invest money you won't need until retirement. A regular taxable brokerage account has no contribution limit, no income restriction, and no penalty for withdrawing at any age, but every dollar of dividends and every sale of a winning investment is taxed in the year it happens.

The practical rule most beginners use: build a small cash emergency fund first (commonly 1–3 months of expenses when you're young and have few obligations), then direct new savings into a Roth IRA up to the $7,500 annual limit, and only after that limit is reached open a taxable brokerage account for additional investing. This order maximizes the amount of money growing completely tax-free before any of it goes into an account where gains get taxed.

One nuance worth knowing: because Roth IRA contributions (not the growth) can be withdrawn any time without penalty or tax, a maxed-out Roth IRA can double as a backup emergency fund in a genuine crisis — money you'd strongly prefer never to touch, but that isn't permanently locked away like a 401(k) would be. That flexibility is one more reason the Roth IRA sits ahead of a taxable account in the funding order.

Why "set it and forget it" beats trying to time the market

A common beginner instinct is to wait for the market to "look cheap" before investing, or to sell to cash the moment prices fall. Both instincts feel protective but tend to cost money over long periods, because a large share of a market's total return over any multi-decade stretch is concentrated in a small number of its single best days — and those best days are impossible to predict in advance and often arrive right after the scariest drops, not after things have calmed down.

The practical version of this for a 22-year-old with an automatic $200/month transfer: the fund buys shares every single month regardless of whether prices are up or down that week. In months when prices are lower, the same $200 buys more shares; in months when prices are higher, it buys fewer. Over decades, this removes the need to guess anything about short-term direction — the math in this article's projections already assumes this kind of steady, uninterrupted contribution schedule, which is exactly what automating the transfer at Fidelity accomplishes.

The 5-year rule, explained with real numbers

There are actually two separate "5-year rules" for Roth IRAs, and mixing them up is a common source of confusion.

Rule 1 — the account-age rule: Your Roth IRA's growth is only tax-free if the account has been open for at least 5 years AND you're 59½ or older. The 5-year clock starts on January 1 of the tax year of your first contribution — not the date you actually made it. So a first contribution made in March 2026 for the 2025 tax year starts the clock on January 1, 2025, effectively giving you an extra year of credit. If you open your account at 22 and don't touch it until 59½, this rule is irrelevant — you'll clear it decades in advance.

Rule 2 — the conversion rule: This one only applies if you convert money from a traditional IRA or 401(k) into a Roth IRA (a "Roth conversion"). Each conversion has its own separate 5-year clock, and withdrawing converted principal before that specific conversion's 5 years are up can trigger a 10% penalty, even though withdrawing regular Roth contributions is always penalty-free. For a 22-year-old opening a plain Roth IRA and contributing directly (no conversions involved), this rule simply doesn't come up.

The practical takeaway for a young beginner: if you're contributing directly to a Roth IRA rather than converting money into one, the 5-year rules are a non-issue as long as you leave the account alone until retirement age. They matter much more for someone doing a backdoor Roth conversion in their 30s or 40s.

What happens to your Roth IRA when you change jobs

A Roth IRA is opened by you, individually, at a brokerage of your choosing — it has no connection to any specific employer. Unlike a 401(k), which lives inside a plan administered by whoever you work for, changing jobs has zero effect on your Roth IRA. You keep contributing to the same account, at the same brokerage, using the same automatic monthly transfer, no matter how many employers you go through over your career.

The one time this gets more involved is if your new employer offers a Roth 401(k) instead of (or alongside) a traditional 401(k). A Roth 401(k) is different from a Roth IRA — it lives inside the employer's plan, usually has a higher contribution limit, and unlike a Roth IRA has no income phase-out. When you eventually leave that employer, a Roth 401(k) balance can typically be rolled directly into your personal Roth IRA, combining everything into one account you control for the rest of your life.

Frequently asked questions

Can I lose money in a Roth IRA? Yes — the tax-free treatment applies to the account, not to the investments inside it. If the stock market drops, an index fund inside your Roth IRA drops in value along with the market. This is normal and expected over any short window; the projections in this article assume decades of holding through both up and down years, which is what smooths out the average 7% return.

What if I put in too much money by accident? Contact your brokerage before the tax filing deadline and ask to "recharacterize" or withdraw the excess contribution plus any earnings on it. Left uncorrected, the IRS charges a 6% excise tax on the excess amount for every year it remains in the account.

Do I need earned income every single year to contribute? Yes — your contribution in any given year cannot exceed your earned income (wages, salary, self-employment income) for that year. A year with no earned income, such as a gap year, generally means no new Roth IRA contribution room for that year, though your existing balance keeps growing and you can still contribute in the following year once you have income again.

Is a Roth IRA the same as a savings account? No. A Roth IRA is a tax status wrapped around a brokerage account — the money sits in whatever you choose to buy inside it (index funds, in most cases), not in cash. Depositing money into a Roth IRA and never buying anything with it means the cash sits there earning close to nothing, which defeats the purpose. The account has to be funded and then invested.

Can I have both a Roth IRA and a 401(k)? Yes, and most people who have access to both should use both. They have separate contribution limits that don't share room with each other, so maxing out a 401(k) doesn't reduce how much you're allowed to put into a Roth IRA, and vice versa. Using both — capturing the employer match in the 401(k), then filling the Roth IRA, then returning to the 401(k) if there's more to invest — is exactly the order of operations described earlier in this article.

One thing to do before April 15

Roth IRA contributions can be made for the previous tax year up to the tax filing deadline. If you haven't opened one yet and you had earned income last year, you can open an account today and contribute for last year. You potentially get two years' worth of contributions in one move.

The Roth IRA is one of the few places where the government explicitly tells you: put money here, and you will never pay taxes on it again. For a young person with low income and decades of compounding ahead, that offer is extraordinarily valuable. The only requirement is to take it.