Roth This Way - Ep #84

Welcome to episode 84 of the One for the Money podcast. This episode airs on April 15 which means it’s the tax filing deadline. Now no one likes paying more taxes than they have to, and a great way to accomplish this is by using a Roth Retirement account. In this episode, I’ll share how everyone can have a Roth.

In the tips, tricks, and strategies portion, I will share a tip on how for the same amount of money it may make more sense to complete a Roth conversion than a Roth contribution.

In this episode...

• What is a Roth Retirement Account? [1:56]
• Direct Roth IRA Contributions [2:46]
• Roth 401ks, SIMPLE IRAs, and SEP IRAs [3:44]
• Roth Conversions [7:36]
• Backdoor Roth IRAs & Pro-Rata Rule [8:36]

I remember years ago a coworker of mine shared with me that she and her husband hoped that their income would one day be high enough that they would no longer be eligible to contribute to a Roth IRA. It’s true, that certain individuals, can make too much income to contribute to a Roth IRA. But in this episode, I will share how everyone, regardless of their income level can contribute to a Roth IRA or put differently, how everyone can Roth this way. Okay, that was pretty bad but I had to try.

But first, it would be helpful to provide a brief explanation of what exactly a Roth retirement account is and how they came about. A Roth retirement account is merely a retirement account on which you invest monies on which you already paid taxes. Because you are contributing money after it’s been taxed all of the growth and all of the distributions are 100% tax-free (provided you follow the required distribution rules; age 59.5, etc). These are a fantastic way for individuals to build a tax-free bucket of money that they can utilize in retirement that won't have any taxable implications.

Roth IRA Contributions

The first way to contribute to a Roth IRA is to make direct Roth IRA contributions. For the 2025 tax year, individuals who earn less than $150,000 or married couples who earn less than $236,000 can contribute directly to a Roth IRA. For those under 50, they can contribute $7000 and for those 50 and older they can contribute $8000. Roth IRAs are a fantastic way to build a tax-free bucket of money for retirement. I set these up for my wife and me early in our marriage and I’m so glad I did. These can be especially great for kids as well. I call them Kid Roths and I’ve set these up for our three boys. That way they can benefit from decades of compound growth. If you are early in your career it can be a great time to invest in a Roth IRA.

Roth 401ks/Simple IRAs and SEP IRAs

Roth 401ks/Simple IRAs and SEP IRAs are another great way for anyone regardless of income level to contribute to a Roth investment account. For whatever reason, Roth 401ks, Simple IRAs, and SEP IRAs have no income limits like Roth IRAs do. So regardless of one's income, they can contribute to a Roth 401k. Roth 401ks are great for lower earners as they can allow you to put away even more money on a tax-free forever basis. Individuals can put up to $23,500 in 2025 and for those 50 and older they can put away an extra $30,500. Oddly enough, for those specifically between the ages of 60-63 they can put away $34,750. Why especially those ages, not sure, you’ll have to ask Congress.

Roth Simple IRAs have lower contribution limits namely $16,000 for those under 50 and $19,500 for those 50 and older. Roth SEP IRA limits are based on a percentage of one's income.

These all are great vehicles where individuals can put a lot more money away on a tax-free forever basis. These can make a lot of sense for individuals in their lower-income years such as those early in their career or for those that are late in their career when they are working part-time prior to retirement.

However, these can also...