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4 Myths About Roth Accounts

Jan 20

4 min read

Summary/TL;DR

Contrary to popular belief, Roth retirement accounts are accessible to every taxpayer (with earned income) who cares to make them. Nobody makes too much money to contribute to a Roth, and almost anybody can contribute up to $30,000 (or more) every year. Furthermore, employer matching is rarely denied on Roth contributions to employer sponsored retirement plans. Finally, Roth accounts are not only for those who believe they will be in a lower tax bracket in retirement!


Introduction

Roth retirement accounts are some of the most powerful long-term savings vehicles available, but myths about their accessibility pervade the internet and unnecessarily discourage many from taking advantage of them. In today’s post, I’ll discuss 4 of the most common myths that I encounter and set the record straight.


Myth 1: You make too much money to contribute to a Roth

News flash: nobody makes too much to contribute to a Roth! As long as you know what you’re doing, you can make contributions to Roth accounts in numerous ways.


Roth Employer Retirement Accounts

The vast majority of employers who have retirement plans (401(k), 403(b), 457(b), etc) allow their participants to contribute to the accounts on a Roth basis. Unlike Roth IRAs, which have income phaseouts and will be discussed below, there are no income phaseouts preventing one from contributing to a Roth 401(k), 403(b), or 457(b)! These accounts also have a much higher contribution limit than IRAs, capping out at $23,500 in 2025, plus an additional $7,500-11,500 “catch-up” contribution, depending on your age.


Some employers will also allow after-tax contributions to their plan, opening the door for what’s called a mega-backdoor Roth conversion, which I’ve discussed in detail here. Depending on your plan’s characteristics, you can contribute beyond the $23,500 contribution limit on an after-tax basis and immediately convert it to Roth! As long as it’s allowed by your plan, this can also be done regardless of your income.


Backdoor Roth IRAs

Unlike employer retirement accounts, Roth IRAs do have an income phaseout of $165,000 for single taxpayers and $246,000 for married taxpayers in 2025. There is a way around these phaseouts, however, that’s not known by nearly as many people. You can contribute to a Traditional IRA, regardless of your income, and immediately convert it to Roth! This type of transaction is known as a backdoor Roth IRA, which I’ve written about here. Unlike contributing to a Roth employer retirement plan, there are some extra rules and nuance to be aware of when making backdoor Roth IRA contributions, so don’t attempt to make one without professional assistance.


Myth 2: Your employer doesn’t match on your Roth 401(k) contributions.

Your employer almost certainly does match your Roth 401(k) contributions! It is extremely rare for a 401(k) plan to be administered this way, as it makes no difference to the employer whether or not participants contribute pre-tax or Roth.


What is true, however, is that the employer match will be considered pre-tax. Technically, the SECURE Act 2.0 allows participants to request that their employer make matching contributions on a Roth basis if their plan allows, but this is yet to be widely available. The advantages of this would also be questionable in many circumstances, as the participant would have to pay taxes on the employer’s matching as the contributions are made. Regardless, you still shouldn’t allow this misunderstanding to discourage you from contributing to your employer’s Roth if it’s appropriate for your goals and circumstances!


Myth 3: You should only contribute to Roth if you’ll be in a lower tax bracket in retirement.

This is one of the most annoying myths that I encounter, as it gets things completely backwards. A tax-diversified retirement portfolio with a healthy Roth allocation can help you pay less in taxes on your social security, pay 0% in long-term capital gains taxes, make tax-free Traditional IRA distributions, and even pay less in health insurance premiums in the years before Medicare eligibility. If you mistakenly avoided saving in Roth accounts solely because you were in a higher tax bracket while you were working, your ability to engage in any advanced tax planning while in retirement narrows considerably. In other words, saving into a Roth gives you the flexibility required to be in the lowest tax brackets in retirement.


Finally, when your beneficiaries inherit your pre-tax accounts, they will be forced to liquidate the account over the course of 10 years and pay taxes on the entire balance. Inheriting a Roth IRA, however, will save their entire inheritance from taxation (except in rare cases where the estate tax is incurred).


Myth 4: You can only contribute a few thousand dollars per year to your Roth IRA

As discussed in the first myth above, most employer retirement accounts allow participants to contribute to their account on a Roth basis. The maximum allowable contribution into these accounts is typically $23,500 (in 2025) plus an additional $7,500 for those over the age of 50 (or $11,500 for those aged 60-63). In other words, between your employer’s retirement account and Roth IRA (which has a maximum contribution limit of $7,000-8,000 depending on your age), you can contribute between $30,500-43,000 to Roth accounts, depending on your age. And you can add another $46,500 to these numbers if your employer’s retirement account allows mega-backdoor Roth IRA conversions to be made.

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