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The Five Myths of Roth

May 19, 2020

The main single from Queen's second album was a song that would become a future staple of live shows, the Seven Seas of Rhye. This article is entitled The Five Myths of Roth. While not nearly as cool as that song, hopefully this article is informative to you.

  1. If my income is too high, I cannot contribute to a Roth IRA. Note that if your income is above $139,000 as a single filer or $206,000, married filing jointly, then you cannot directly contribute to a Roth. However, you can contribute to a non-deductible IRA each year and convert to a Roth IRA. Conversion of non-deductible contributions is not taxable and there are no longer income limits on conversion as there was in the past.


  1. If I have other IRAs, I can set up a separate conversion IRA to handle this "backdoor Roth IRA contribution" each year. Unfortunately, all IRAs are considered in the calculation of the taxability of the conversion, so your conversion may be more taxable than you think.


  1. My 401(k) plan at work offers a Roth option, but I cannot contribute because my income is too high. There are no income limits on Roth 401(k) contributions. Any plan participant, regardless of income, can contribute to Roth 401(k).


  1. Cash value life insurance is better than Roth as a tax-free accumulation vehicle. While cash value life insurance may have some benefits for tax-free accumulation, see our article on Cash Value Life Insurance, Roth offers the most flexibility and control over cost, investments, etc
  2. I should contribute to my traditional deductible 401(k) because of the tax benefits and not to the Roth 401(k). Although this very well may be true depending on your facts and circumstances, note that withdrawals from traditional, deductible 401k’s/IRA’s are taxable. Also, as a result of the SECURE Act of 2019, non-spousal beneficiaries must now withdraw all pre-tax 401k/IRA proceeds within 10 years of inheritance.  Note that with Roth accounts, all distributions are tax-free, there are no required minimum distributions, and there is no 10-year withdrawal requirement for inheritance.


We hope you've found this information useful! For more information and detail on Roth in general, see our Roth 401(k) vs Roth IRA article.