What is a Roth IRA?

A Roth IRA (Individual Retirement Account) is a tax-advantaged retirement savings account where contributions are made with after-tax dollars, but all qualified withdrawals in retirement are completely tax-free — including earnings. This is the opposite of a Traditional IRA, where you get a tax deduction now but pay taxes on withdrawals later.

2026 Roth IRA Contribution Limits: $7,000/year if under age 50, $8,000/year if age 50 or older (the extra $1,000 is the "catch-up contribution").

Roth IRA Growth Formula

Future Value = PMT × [((1+r)^n - 1) / r] × (1+r) where PMT is annual contribution, r is annual return rate, and n is number of years. All growth is tax-free at withdrawal.

Real-Life Example: $7,000/Year for 35 Years

Starting at age 30 and contributing $7,000/year to a Roth IRA invested in an S&P 500 index fund (8% average return), you accumulate $1.16 million by age 65. You contributed $245,000 total. The remaining $911,000 is tax-free investment growth — which you withdraw in retirement without paying a single dollar in federal income tax.

Roth IRA Income Limits for 2026

Roth IRA vs Traditional IRA — Which is Better?

Roth IRA wins when: you expect to be in a higher tax bracket in retirement than now, you are young (more years of tax-free growth), or you want flexibility (Roth contributions can be withdrawn anytime penalty-free). Traditional IRA wins when: you are in a high tax bracket now and expect to be in a lower one in retirement, or your income exceeds Roth limits (use Backdoor Roth conversion instead).

Benefits of a Roth IRA

• Tax-free withdrawals: Zero federal income tax on qualified distributions in retirement
• No Required Minimum Distributions (RMDs): Unlike Traditional IRAs, you never have to withdraw from a Roth IRA during your lifetime
• Contribution flexibility: You can withdraw your contributions (not earnings) any time without penalty
• Estate planning: Heirs inherit tax-free growth
• No age limit: You can contribute at any age as long as you have earned income

How Much House Can I Afford? — The 2026 Framework

The answer depends on four variables: your gross income, existing monthly debt payments, down payment amount, and the current mortgage interest rate. Lenders use the debt-to-income (DTI) ratio as the primary affordability metric, but you should also apply personal financial judgment — qualifying for a loan and being comfortable with the payment are different things.

The Two DTI Rules Lenders Use

Front-end DTI (housing ratio): Your monthly housing cost (principal + interest + property taxes + homeowners insurance + HOA) should not exceed 28% of gross monthly income. On a $100,000 annual income ($8,333/month), maximum housing payment = $2,333/month.

Back-end DTI (total debt ratio): Total monthly debt payments (housing + car + student loans + credit cards) should not exceed 43% of gross monthly income. With $500/month in existing debt, the remaining maximum housing payment = $8,333 × 43% − $500 = $3,083/month.

Lenders use the lower of the two limits. The 28% front-end rule is often the binding constraint.

Real-Life Example: $100,000 Income, 7% Rate, $50,000 Down

Max housing payment (28% rule): $8,333 × 28% = $2,333/month. Property taxes and insurance at 1.5% of home value ≈ $515/month on a $400K home. Remaining for P+I = $2,333 − $515 = $1,818/month. At 7% / 30 years, this supports a loan of ~$273,000. With $50,000 down: maximum home price ≈ $323,000. This shows why affordability has dropped significantly as rates rose from 3% (2021) to 7%+ (2023-2026).

The True Cost of Homeownership

How to Buy More House on the Same Income

• Pay off debt first: Every $100/month in eliminated debt payments adds ~$15,000 to your home buying power.
• Larger down payment: 20%+ eliminates PMI and reduces monthly payment.
• Improve credit score: A 760+ CIBIL score qualifies for the best mortgage rates — often 0.5%–0.75% lower than a 680 score, saving tens of thousands over the loan.
• Choose a 15-year loan: Rates are typically 0.5%–0.75% lower, though monthly payments are higher.