American investors are flush with choices in how they save for their retirement. In the late 1990s, Congress created a doozy of a retirement account with the Taxpayer Relief Act of 1997. It’s so good that the government limits who can use it and how much you can contribute yearly.

I’m talking about the Roth IRA. It offers something almost unheard of: A pass on paying taxes on your investment returns.

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Those who use it correctly could retire as Roth IRA millionaires, and the consequences could be generational wealth. Want that to be you? Here are the top four Roth IRA tips investors must know.

1. You pay the taxes now instead of later

It’s not easy to get out of paying taxes on any form of money. Your earned income is taxed, as well as just about any returns when you profit from selling any asset. You still pay some taxes when you use a Roth IRA.

When you contribute to tax-deferred retirement accounts, such as a 401(k) or traditional IRA, you deduct the contributions from your yearly taxable income. After you retire, you pay taxes on any funds those plans distribute. Roth IRAs work backward. You contribute take-home pay, meaning the government has already taxed that money. Additionally, your Roth IRA contributions don’t reduce your taxable income during your working years.

Here’s where the magic happens: Your distributions are tax-free in retirement (assuming you’ve followed all the rules). In other words, your investment gains are also untouched by taxes. That can equate to tens (even hundreds) of thousands of dollars in avoided taxes, as investment returns tend to account for a more significant portion of a portfolio’s value over time, thanks to compounding.

2. Consider your investment strategy carefully

Consider the tax perks of a Roth IRA when deciding what type of assets to invest in. Roth IRAs are very flexible; you can even own individual stocks. Try to think about what could compound the most over time. For example, growth stocks could generate tremendous long-term gains. Wouldn’t it be nice to sell a multibagger and owe zero taxes on your profits? Dividends, which would typically add to your annual tax bill, are another way to use a Roth IRA to your advantage.

Whatever your investing style, stay mindful of the risks you take. Roth IRAs have strict contribution limits, so catastrophic investment losses are tragic because they could set you back years’ worth of contributions.

3. Don’t delay starting, and don’t skip years

As I was saying, Roth IRAs have pretty low contribution limits. Someone can contribute tens of thousands of dollars to their 401(k) plan yearly, but the limit on a Roth IRA is only $7,000 if you’re younger than 50. Those 50 or older can contribute an additional $1,000, bringing their annual limit to $8,000.

That means you’re leaving money on the table each year you skip contributing or don’t contribute up to the allowed limit. It takes about 30 years to hit $1 million if you contribute $7,000 annually and earn a 10% annualized return on your money. Want to be a Roth IRA millionaire? Make each dollar count.

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4. Know your limits and your backdoor options

The government doesn’t want everyone to have a Roth IRA. There are income limits to keep high earners out.

Based on your modified adjusted gross income (MAGI), your allowed Roth IRA contributions for individual filers begin phasing out at $150,000 to $165,000 in 2025. Rules prohibit individuals earning more than $165,000 from directly contributing. For married couples filing jointly, the 2025 phase-out range is $236,000 to $246,000. Couples earning over $246,000 are prohibited from contributing.

Make too much money? That’s a good problem. But worry not, for not all hope is lost. High earners can contribute to a traditional IRA and then convert it to a Roth, a technique known as the backdoor Roth IRA. Want to go a step further? A mega backdoor Roth IRA uses a similar method but involves maxing out your 401(k) contributions.

Of course, these things can get complicated, so be sure you’re following the proper rules and regulations, and don’t hesitate to ask a tax professional for advice if needed.

A Roth IRA can be a lucrative retirement account. You can retire as a millionaire and pay minimal taxes on your fortune. If you maximize your allowed contributions, keep at it, and use the Roth IRA’s tax perks to your benefit, you could have the retirement of your dreams.

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