Once you open a Roth IRA, the account itself doesn’t do anything until you invest the money inside it. A surprising number of people contribute to a Roth IRA and leave the cash sitting there uninvested, missing out on years of tax-free growth. The real question behind “what to do with a Roth IRA” is how to choose investments, keep contributing strategically, and understand the rules that govern when and how you can use the money.
Invest the Money Inside It
Contributing to a Roth IRA is only the first step. The contribution lands as cash, and it stays as cash until you actively buy investments. If your balance has been sitting in a money market or settlement fund earning almost nothing, that’s your sign to put it to work.
The biggest advantage of a Roth IRA is that your investments grow completely tax-free, and qualified withdrawals in retirement are also tax-free. That makes it an ideal place for investments you expect to grow significantly over time, since you’ll never owe taxes on those gains. Here are the most common options:
- S&P 500 index funds or ETFs: These hold shares of more than 500 of the largest U.S. companies in a single fund. They’re broadly diversified, carry low expense ratios (the annual fee the fund charges), and have historically delivered solid long-term returns. Popular examples include the Vanguard S&P 500 ETF (VOO), the SPDR S&P 500 ETF (SPY), and the Fidelity 500 Index Fund (FXAIX).
- Total stock market index funds: Similar to an S&P 500 fund but with exposure to mid-size and small companies too, giving you even broader diversification across the entire U.S. market.
- Target-date funds: You pick the fund closest to your expected retirement year, and the fund automatically shifts from stocks to bonds as that date approaches. This is a solid “set it and forget it” option if you don’t want to manage your own asset mix.
- Bond index funds: Funds like the Vanguard Total Bond Market ETF (BND) or the iShares Core U.S. Aggregate Bond ETF (AGG) add stability to a portfolio. Younger investors typically hold a smaller share in bonds, while those closer to retirement hold more.
- Growth-oriented funds: Nasdaq 100 index funds, like the Invesco QQQ Trust (QQQ), concentrate on large technology and growth companies. They can deliver higher returns but come with more volatility.
A simple, effective approach for most people: put the bulk of your Roth IRA into one or two low-cost index funds and add bonds as you get closer to retirement. If you don’t want to think about rebalancing at all, a single target-date fund handles everything.
Choose How You Want to Manage It
You have two basic approaches to running your Roth IRA, and neither requires a traditional financial advisor.
With a self-directed brokerage account at a firm like Fidelity, Schwab, or Vanguard, you pick your own investments and manage your portfolio yourself. You pay no management fee beyond the expense ratios on the funds you choose, which for index funds can be as low as 0.03% per year. This gives you full control over what you buy and when you rebalance.
A robo-advisor automates the process. You answer questions about your goals and risk tolerance, and the platform builds and rebalances a diversified portfolio for you using algorithms. Robo-advisors typically charge an annual advisory fee on top of the fund expense ratios. The fees are lower than a human advisor, but they do add up over decades. This option works well if you want a hands-off experience and don’t feel confident picking investments yourself.
Maximize Your Contributions
For 2026, you can contribute up to $7,500 to a Roth IRA, or $8,600 if you’re 50 or older. The goal is to contribute as much as you can each year, ideally the full amount, because you can’t go back and make up for years you missed.
Your ability to contribute depends on your modified adjusted gross income (MAGI). Single filers can contribute the full amount with a MAGI below $153,000. The contribution phases out between $153,000 and $168,000, and you can’t contribute directly at all above $168,000. For married couples filing jointly, the full contribution is available below $242,000, with a phaseout between $242,000 and $252,000.
If you can’t contribute all at once, set up automatic monthly transfers. Contributing $625 per month gets you to the $7,500 limit by year’s end, and automating it means you won’t have to remember. Many brokerages let you set up automatic investments too, so the money goes straight into your chosen funds without you touching it.
Understand When You Can Withdraw
One of the most useful features of a Roth IRA is flexible access to your money. You can withdraw your contributions (the money you put in, not the growth) at any time, for any reason, with no taxes and no penalties. This makes the Roth IRA a surprisingly good backup emergency fund, though ideally you’d let everything keep growing.
Withdrawing earnings is where the rules get stricter. To pull out investment gains completely tax-free and penalty-free, the withdrawal must be “qualified,” which requires meeting two conditions: you must be at least 59½ years old, and at least five years must have passed since January 1 of the year you first contributed to any Roth IRA. That five-year clock starts with your very first Roth IRA contribution and applies across all your Roth accounts, so opening a new one doesn’t reset it.
There are a few exceptions that let you withdraw earnings before 59½ without penalty. You can use up to $10,000 in earnings (a lifetime cap) toward buying or building your first home. Earnings can also be withdrawn penalty-free if you become permanently disabled. Outside of these exceptions, early withdrawals of earnings face income tax plus a 10% penalty.
Use It for Tax-Free Retirement Income
Unlike a traditional IRA or 401(k), a Roth IRA doesn’t require you to take minimum distributions at any age during your lifetime. You can leave the money growing tax-free for as long as you want, withdrawing only when you need it. This makes a Roth IRA a powerful tool for managing your tax bill in retirement.
In practice, many retirees use their Roth IRA strategically. In years when they need extra income (to cover a large medical bill, a home repair, or a trip), they pull from the Roth instead of a traditional account. Since Roth withdrawals don’t count as taxable income, they don’t push you into a higher tax bracket or increase the taxes on your Social Security benefits. Keeping a Roth IRA as your “last bucket” to tap in retirement can save you significant money over time.
Consider It as a Legacy Tool
Because there are no required distributions during your lifetime, a Roth IRA can also serve as an inheritance vehicle. If you don’t need the money, you can pass the entire account to your beneficiaries, and the growth remains tax-free to them as well.
The rules for inherited Roth IRAs depend on who inherits. A surviving spouse can treat the Roth IRA as their own and continue letting it grow with no required distributions. Minor children, disabled individuals, chronically ill beneficiaries, and anyone not more than 10 years younger than the original owner qualify as “eligible designated beneficiaries” and can stretch distributions over their life expectancy.
Most other beneficiaries, such as adult children, fall under the 10-year rule. They must withdraw the entire balance by December 31 of the year containing the 10th anniversary of the owner’s death. The good news is that those withdrawals are still tax-free as long as the original owner’s five-year rule was satisfied. For a non-designated beneficiary like an estate, the timeline is shorter: the full balance must be distributed within five years.
Don’t Let It Sit Idle
The single most costly mistake with a Roth IRA is inaction. Whether that means leaving contributions uninvested, skipping years of contributions, or holding too much cash because you’re unsure what to buy, the result is the same: lost tax-free growth that compounds over decades. If you’re overwhelmed by choices, a single target-date fund or an S&P 500 index fund is a perfectly reasonable starting point. You can always adjust your strategy later, but getting your money invested and growing now matters far more than picking the perfect fund.