In recent years, the Roth IRA (individual retirement account) has skyrocketed in popularity with Americans looking to squirrel away a nest egg. A valuable supplement to any retirement portfolio, a Roth IRA accrues earnings on a tax-deferred basis; the earnings are tax-free if you meet certain requirements. To top it off, contributions to a Roth IRA are discretionary, which means you get to decide when you want to deposit money in your account.

Although the Roth IRA shares many similarities with the traditional IRA, there are a few key differences between these two retirement accounts. Unlike a traditional IRA, your contributions to a Roth IRA are not tax deductible. However, once you start taking qualified distributions from a Roth IRA, you will not be taxed on the withdrawals. Lastly, unlike traditional IRAs, Roth IRAs do not have required minimum distributions (RMDs) during the account owner's lifetime.

These advantages may explain why Roth IRAs have quickly surpassed traditional IRAs in the United States. In 2013, investors made $6 billion of contributions to Roth IRAs as opposed to just $4.61 billion of deposits to traditional IRAs. Roth accounts are especially popular with young American workers. Nearly a quarter (24%) of Roth IRA contributions are made by investors between the ages of 25 and 34 as compared to only 7.5% of traditional IRA deposits.

Keep reading to learn how a Roth IRA works after retirement.

No matter how old you are, you can continue to contribute to your Roth IRA as long as you're employed and earning income – whether it's a regular paycheck or 1099 income for contract work. (This differs from a traditional IRA, which does not allow contributions after you reach 70½ years old, even if you have earned income.)

The moment you retire and stop earning compensation, you can no longer make contributions to a Roth IRA. However, it is possible for your spouse to establish and fund a Roth IRA on your behalf if you are no longer earning income. Because Roth IRAs cannot be held as joint accounts, the spousal Roth IRA must be held separately from the Roth IRA of the person making the contributions.

You can withdraw contributions from your Roth IRA at any time and for any reason without the threat of taxes or penalties. However, you cannot withdraw from Roth IRA earnings until you're at least 59½ years old and the account has been open for five years or longer. If you do tap into earnings before this time, you will likely have to pay taxes and penalty fees on the withdrawals. (Roth IRA withdrawals typically come from contributions first. You cannot begin taking distributions from Roth IRA earnings until you've withdrawn all contributions.)

Yet if certain conditions are met, it is possible to take tax- and penalty-free withdrawals (aka qualified distributions) from your Roth IRA earnings before you turn 59½. For example, if you were to use the distributed assets to purchase, build or rebuild your first home for yourself or a qualified family member, this would be considered a qualified distribution. (This is limited to $10,000 per lifetime.) You may also take qualified distributions from your Roth for qualified higher-education expenses or if you become disabled. Lastly, in the event of your death, the amounts distributed to your designated Roth IRA beneficiary are not subject to taxes. (For more, see How To Use Your Roth IRA As An Emergency Fund.)

On the other hand, if you take a non-qualified distribution that does not meet these requirements, you'll have to cough up income taxes and/or the 10% early-distribution penalty. The of a non-qualified distribution determines the applicable tax treatment.

Once you turn 59½, you can start taking tax-free withdrawals from your Roth IRA (as long as it's been five years since you established and started funding the account). These distributions are tax-free because you already paid taxes on the money used to make Roth IRA contributions. This can be a huge benefit in retirement when you are no longer earning income. Additionally, tax rates could be much higher by the time you retire – so it's probably better to pay them up front.

Because there are no required minimum distributions with a Roth IRA, you may choose to leave the account untouched as long as you live. Why would you do such a thing? So you can leave money behind for your heirs. Because you've prepaid the taxes on the Roth IRA, your beneficiaries won't be hit with a big tax bill when they receive income from the account. This allows you to leave a stream of tax-free income to your children, grandchildren or other heirs that can be stretched out over their lifetime. While heirs are subject to RMDs on inherited Roth IRAs, these distributions generally remain tax free.

There's no question that a Roth IRA offers some extremely valuable benefits after retirement. Not only can you take tax-free qualified distributions from a Roth, but you also don't have to worry about required minimum distributions during your lifetime. This means you can leave a tax-free stream of income behind for your heirs. To learn more about the advantages and tax implications of a Roth IRA, talk to a financial advisor or a tax professional.

See also: The Best Strategies to Maximize Your Roth IRA.