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Divorce the IRS

Welcome to Divorce the IRS, the Retirement Income Planning Podcast—built for people who want to pay the least amount of taxes possible and create retirement income that actually lasts. Inspired by Jimmy Miller’s bestselling book Divorce, the IRS, this show takes you behind the scenes of the tax rules, retirement strategies, and planning decisions that can quietly determine how much of your money you keep.

The truth is, taxes aren’t just “something you deal with later.” The U.S. tax code is massive, confusing by design, and full of traps that can hit hardest right when you need your money most. From 401(k)s and IRAs to Social Security and Medicare, many common “smart moves” can turn into expensive surprises—like required minimum distributions, Medicare surcharges, the widow’s penalty, and other retirement tax time bombs most people don’t see coming until it’s too late.

With 20+ years of experience as a global wealth manager, Jimmy breaks these topics down in a clear, practical way—so you can plan proactively, avoid unnecessary taxes, and build a retirement where your delayed gratification finally pays off. Subscribe so you never miss an episode, and remember: this podcast is for general education only and isn’t legal, tax, or investment advice—always consult a qualified professional for guidance specific to your situation.

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Divorce the IRS

The Roth IRA Rules Everyone Needs to Understand

May 07, 2026 • James Miller

0:00 | 8:37

Most people know Roth accounts are “tax-free.”

But very few people actually understand the rules that make them so powerful.

In this episode of The Divorce the IRS Podcast, we continue building on the concept of the “ideal number” and explore one of the most important wealth-building tools available: the Roth IRA.

We break down the key Roth IRA rules everyone should understand, including contribution limits, income restrictions, withdrawal ordering rules, and the all-important five-year rule that can determine whether your growth comes out tax-free or not.

You’ll learn why Roth accounts are fundamentally different from traditional pre-tax retirement accounts, and why tax-free growth can dramatically change your long-term financial outcome. Unlike tax-deferred accounts, Roth accounts allow your money to grow without creating a future tax liability hanging over your retirement.

This episode also explains some of the biggest Roth misconceptions people have, including confusion around contribution eligibility, investment options, and the mistaken belief that high earners cannot benefit from Roth strategies.

We also discuss the flexibility Roth IRAs provide, including the ability to withdraw contributions at any time without taxes or penalties, and why simply opening a Roth account, even with a very small contribution, can start an important five-year clock that may benefit you later.

If your goal is to build tax-free wealth and create more control over your future retirement taxes, understanding these foundational Roth rules is essential.

And this is just the beginning.

In the next episode, we’ll dive into one of the most popular advanced Roth strategies available today: the backdoor Roth.

In This Episode

• The difference between Roth IRAs, Roth 401(k)s, and Roth 403(b)s
• Why Roth accounts are truly tax-free, not tax-deferred
• The Roth IRA five-year rule and why it matters
• Roth contribution limits and income phaseouts
• How Roth withdrawal ordering rules work
• Why contributions can be withdrawn tax and penalty-free
• Common Roth misconceptions people get wrong
• Why opening a Roth IRA early can be a smart move

What’s Coming Next

• How the backdoor Roth strategy works
• Legal ways high earners can still utilize Roth accounts
• Advanced Roth conversion and shifting strategies
• How to move more money into the tax-free bucket over time

SPEAKER_00 0:01

Welcome to the Divorce the IRS Podcast, the retirement income planning podcast designed specifically for those who want to pay the least amount of taxes possible and build a retirement income that lasts. Inspired by the best-selling book, Divorce the IRS, you get to go behind the scenes with financial planner, author, and speaker Jimmy Miller. Learn how to set yourself up to pay the least amount of taxes in retirement when you'll need your money the most. And now, here's your host, Jimmy Miller.

SPEAKER_01 0:27

Welcome. Welcome to episode 19 of the Divorce the IRS podcast. In the last episode, we dove into the concept of the ideal number, which is just the right amount of money in your pre-tax accounts. Once you know your ideal number and have a plan on how to arrive at that number by the correct age, it's time to figure out how to get the rest of your money into the tax-free bucket so you can divorce the IRS on the day you retire. Now, the tax-free accounts that will be utilized most heavily by the most people are the Roth IRA and Roth 401k. Some people may also utilize health savings accounts as well as cash value life insurance as a tax-free tool, which we'll discuss in more detail in future episodes. But for now, let's learn a little bit more about Roth accounts and some unique strategies you can use to shift or divert more of your assets and income into this tool. The Roth IRA has been around since 1998, and it was named after William Roth, a former Delaware senator. They're pretty straightforward accounts that anyone can get money into, one way or another. There are several types of Roth accounts, including the Roth 401k, the Roth 403B, and the personal Roth IRA. Let's start by looking at some of the basic rules you should know about personal Roth IRAs. First, they can only be directly contributed to with earned income. So if you or you and your spouse don't have a job, you can't contribute directly to a Roth IRA. But both spouses of a married couple can contribute even if only one spouse is working, as long as the working spouse earns enough money to cover the contributions. Remember that the contributions have to come from earned income. So interest, dividends, pensions, passive income, and most retirement income won't count as earned income and can't be used to contribute to a personal Roth IRA. Second, they need to be open for at least five years before the growth or interest can be withdrawn tax-free. Even if you're 59.5 years old or older, this is referred to as the five-year rule. Third, the amount you can contribute directly changes periodically. In 2025, the contribution limit was $7,000 a year, unless you're over 50 years old, in which case you could deposit up to $8,000. Now, in 2026, someone under 50 years old can contribute up to $7,500, and those over $50 can contribute $8,600. These contribution limits are designed to rise over time with inflation. Fourth, almost all brokerage firms, both physical and online, offer Roth IRAs. Most banks and investment companies also do. It's easy to open up a personal Roth IRA. Fifth, you can't contribute directly to a personal Roth IRA if you earn too much. In 2026, the limit for singles is $168,000 of modified adjusted gross income. And for married couples, the limit is $252,000. There is a phase out on how much of the maximum you can contribute as you approach these limits, which you should be aware of as well. However, there are legal ways around this rule, and we'll discuss these strategies like the backdoor Roth, the Mega Backdoor Roth, and Roth conversions in the next three episodes of this podcast. Sixth, you can withdraw your contributions from a Roth account at any time, even before you're 59 and a half, without taxes or penalties. This is because your contributions were put in after tax, and you are allowed to take this money back out should you need to at any time. Now, I wouldn't recommend taking your contributions out of your Roth account before you need retirement income, but just in case you absolutely need to, know that you can. This is one of the biggest benefits of a Roth IRA. Seventh, the order in which money comes out of a Roth IRA is very specific and set by the IRS. When you do start to take money out of your Roth IRA, the first money that is withdrawn for tax purposes is always going to be the money that you contributed directly. As we mentioned already, this money comes out at any time without taxes or penalties. Once you have withdrawn all the money you contributed, the next dollars withdrawn will come from any money that was Roth converted, if any, which we'll discuss in detail in an upcoming episode. The last dollars to come out of a Roth IRA will always be the growth, things like interest, dividends, and capital gains in the account. Eighth, Roth accounts grow tax-free for you, not tax deferred. This is important because it allows you to save money from the IRS. When you earn a dollar in a pre-tax account, like a traditional IRA or traditional 401k, the dollar earned isn't all yours. It's going to be split with the IRS one day when you take that dollar out of your account at whatever your ordinary income rate is going to be the year that you take it out. When you earn a dollar in your Roth account, it's going to be all yours and not split with the IRS. If you keep it in there for at least five years and you're at least 59 and a half years old or older when you take it out, the IRS isn't going to have a lien on your Roth IRA in retirement, which is a beautiful thing. Now, when working with people on their financial plans, I find the most important of all these rules is the second one, the five-year rule. You need to have your Roth IRA open for at least five years to take any growth from the Roth tax-free, which is known as a qualified distribution. This five-year clock starts on January 1st of the year you make your first contribution to a Roth IRA. Any Roth opened at any time in your life starts this important clock. If you have never had a Roth IRA, you should consider opening one just to start this clock. Even if you only contribute $1 to your new Roth, it counts. Once the five years have been satisfied, you never have to worry about this rule again. One of the Roth misconceptions I often run into is people asking what the interest rate on a Roth is or shopping around for the Roth IRA that pays the most interest. It is important to understand that a Roth account is only an account, and what you choose to put into that account is up to you. What you put into the account will dictate the growth rate of the account, not the Roth account itself. You can choose to put a myriad of different investments inside of your Roth account, from CDs and savings accounts to stocks, bonds, ETFs, and mutual funds. You can also put precious metals, commodities, and even real estate into your Roth IRA if you'd like. The other prevalent misconception I run into a lot is people telling me that they make way too much money to be able to contribute to a Roth account. And while it's true that there are income limits on being able to contribute directly into a personal Roth IRA, anyone can contribute, regardless of income, to a Roth 401k account. Also, there are legal ways around the contribution limits that just about anyone can take advantage of. This strategy, also known as the Backdoor Roth Strategy, is what we're going to cover in the next episode. So stay tuned to learn everything you need to know about the Backdoor Roth Strategy.

SPEAKER_00 8:00

Want even more ideas, tools, and resources on how to navigate to financial life? Check out all the resources on the Divorce the IRS website at divorce-the-IRS.com or the Bayabub Wealth website at bailbubwealth.com and subscribe to the blog to stay up to date on issues affecting retirement income planning. Don't forget to subscribe to the podcast so you never miss an episode. Bayabub Wealth and Bayabut Wealth Abroad are DBAs of Bayabwealth LLC, a Florida registered investment advisor. This podcast is designed for general education purposes only and shouldn't be taken as legal investment or tax advice. You should seek out a qualified tax professional or licensed financial advisor to determine what is best for your personal situation.