The 3 Myths of the Roth IRA

The Roth IRA is often hailed as the ultimate retirement account, but it’s not always quite as perfect as people make it out to be. Here are three common myths—and the reality behind each of them.

1) It’s Always a Good Idea to Open and Fund a Roth

Many people assume that Roth contributions (or conversions) are always the best choice. As we’ve gone over before, there is never an always in personal finance. If you’re currently in a low tax bracket, a Roth can be a great idea, as “odds are”, you’ll be in a higher bracket down the road; but if you’re already “down the road”, then the advantages of pre-tax accounts, when you might be at the height of your earning power, tend to outweigh the post tax funding option of the Roth. That said, once you retire, you might find yourself back in a low bracket, and the Roth conversion strategy might be worth your consideration to avoid RMDs even further down the road.

2) You Can Always Take Back Contributions Anytime

I continue to be worried by how many people write to me and tell me that they would never contribute to a Roth because it’s a retirement account and you can’t touch the money until 59.5yo, or you have to “wait 5 years” to do so. Both false for direct Roth contributions. Your contributions (but not the earnings/gains) can be withdrawn tax and penalty free at any time, as they’re already post tax. That’s good news that you can, but it doesn’t mean that you should….IT’S A RETIREMENT ACCOUNT. Keep Out. If you’re looking for tax-advantaged options without penalties, just use the taxable brokerage account, hold investments for over a year, and pay the 15-20% cap gains tax rate vs. your ordinary income tax rate. 

3) There’s an Income Limit—Well, Sort Of

Technically, Roth IRAs have income limits ($150,000 for single filers /$236,000 for MFJ in 2025 to make full contributions), but the “backdoor Roth” loophole allows high earners to contribute via a traditional IRA (no income limit) and convert. (There is literally a “convert” button on most traditional IRA landing pages now). However, as we saw above, conversions aren’t always wise if you’re in a high bracket, so make sure you consult with your CPA/tax attorney and NOT with some random guy who walks through the woods in Vermont talking about finance. 

To close, Roth IRAs are powerful, and I do believe we should all have access to a post tax account for tax optimization, but they’re not a one-size-fits-all solution. Smart tax planning, like we went over last week,—not just automatic contributions—leads to real wealth.

As always, hope some of this proves somewhat thought-provoking.

Tyler