5 Things You Need to Know About Roth IRAs (Before You Open One)

Everyone talks about Roth IRAs like they’re magic — but few people explain what they actually are, who they’re best for, and when they make sense.

In this episode, we break down the Roth IRA in plain English: how it works, why it was created, who it benefits most, and the key rules you need to know before contributing.

We cover:

• What a Roth IRA is — and why it’s named after Senator William Roth
• 2026 Roth IRA contribution limits and income phaseouts
• Why earned income matters
• The difference between a Roth IRA, Traditional IRA, Roth 401(k), and Traditional 401(k)
• Why Roth 401(k)s can be useful for higher earners
• What a backdoor Roth is — and why it is not a DIY loophole
• Why Roth IRAs can be powerful for young earners, women with changing income paths, and long-term tax planning
• How Roths can help with retirement flexibility, estate planning, and tax diversification

A Roth IRA is not right for everyone — but understanding how it works can help you make smarter decisions about your future.

Because it’s not just about saving for retirement.

It’s about giving your future self options.

If you've got a question, a topic suggestion, or just want to say hi, shoot us an email at TracyByrnesWealth@gmail.com!

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X: @TracyByrnes
Instagram: @TracyByrnesWealth

Transcript

SPEAKER_00 0:03

Hey everyone, and welcome to Women, Wealth, and What Matters. I'm Tracy Burns, Financial Advisor, MBA, CDFA, which actually is a certified divorce financial analyst. And of course, vice president of women and investing at Labonthal Global Advisors. I've spent like my entire career covering the markets and taxes and money. And now my mission is to help women take control of theirs. Because here's the truth you don't need complicated strategies, you don't need jargon. You just need someone to speak clearly, like no acronyms. No acronyms allowed. Today we're talking about something you have heard a lot about. The infamous Roth IRA. What the heck is it? Everyone says you need one, but very few people explain why. Who's it for? And when does it actually make sense? Because all things are not for all people, right? There's a reason there's 4,000 different sizes of jeans. And by the way, gene shopping is my the nemesis. I just, that is the worst thing on the planet. That's another podcast. Before we dive in, please check out our previous podcasts. My what some of my favorites, five money terms. Everyone thinks they understand, but they don't. Five things your tax return is trying to tell you. If you filed or didn't file yet, that would be me. Um look at your tax return, use it as a planning tool. And finally, five ways to stay calm when the headlines get loud. Maybe the headlines have calmed down these days, as we are for reference, May 2026. That said they could get loud at any minute. We all know that. The president tweets in the middle of the night on the toilet. That's what he does. All right, today we're going to talk about the Roth. Five things you need to know about this Roth IRA. First of all, what the heck is it? And who is it named after? Believe it or not, it was named after someone. There is somebody out there with the last name Roth. IRA, individual retirement account. Y'all know what that is by now, right? It's that simply means it's a retirement account that you open for yourself, not through your employer. Now, a Roth IRA was named after our fine senator, William Roth, who helped create this product in the 1990s. The idea was very simple. Save for retirement by giving them a different kind of tax benefit. That was his thought. So here's the easiest way to understand it. You put in after-tax dollars in this account. So you get paid, they take taxes out, then you take that money, put it in this Roth IRA. It grows over time. If you follow all the rules, when you take it out later, everything is tax-free. All of it, tax-free. Imagine that. Like being like in your 70s and just starting to take money out of this Roth thing and not paying a damn dime on it. You pay taxes now, so you don't have to pay later. That is the magic of the IRA, uh, Roth IRA. Okay, now we're gonna dive into the details. So, first, this is the only nitty-gritty numbers part. So just stay with me here. We need to know the income limits, the contribution limits. These are the numbers you need to know because if you don't meet these qualifications, you probably could go watch the Food Network and do have a better use of your time. Roth IRA, simple concept, all right? After tax dollars grows tax-free, you take the money out tax-free later. But we have to meet some limits here. Okay, contribution limit for 2026, $7,500 if you are under age 50. If you are over age 50, you get a little extra kick because many of us, I say us, myself included, are behind the eight ball. $8,600 if you're age 50 or older. That's a that's that catch-up contribution that they've decided to give us, which is good. And if you could do it, you should. Now, one important thing here is this IRA limit is a combined amount. So if you have a traditional IRA already and you're thinking about a Roth, the whole thing in aggregate, you cannot put more than $7,500 in if you're under 50, uh, 86 if you are 50 or older. Combined. Okay, that's the contribution limit. Now we talk about the income limits again, 2026. Single head of household. You can make that full IRA contribution if your adjusted gross income, right? So it's that number on your tax return after you put in your wages and stuff. It's under $153,000. Now I get it, that's kind of low, especially if you're older and you've been working a lot of years. Okay, so once your income hits $153,000, your ability to contribute starts to phase out, which basically means the allowable amount starts to decrease a little bit. Until you hit $168,000 or more, then you can contribute at all. So you're gonna see get a sense of where I'm going here because this is a product for lower income people in the lower income phases of their life. For 2026, I'll say it again: single filers, 153,000, you get the full contribution. 153 to 168, it's a partial. Once you hit $168,000 or more, you do not get to contribute to the Roth. Married couples, filing joint, $242,000 is your full contribution. As a married filing joint couple, 242 to 252, you get that partial. And then once you hit 252,000, as a married filing joint couple, you don't get to contribute to the Roth. Make sense? Married filing separate, you know your rules are different. Like it's very restrictive. It only goes up to like 10 grand. Check with your accountant. Odds are good it's not even gonna work for you. One other big thing here is you need earned income. Okay, so what that means wages, salary, self-employment, income. Money you actually earned does not mean investment income. If you only have dividends and interest or you're living off that portfolio income, none of that counts. You cannot contribute to a Roth without that word earned income. But the cool part here is if you have a kid that earns money, he or she can open and contribute to a Roth. The thing is, though, if your kid only earns $3,000 from that summer job mowing lawns, which by the way, kids don't do that anymore, and they should. They'd be better people for it. That said, they could only contribute what they earned. They earned three grand working at some food store as a checkout person. They can only contribute $3,000. They cannot contribute the full $7,500. Only up to what they earn. Those of you that have offices, employ your kid. Do it, and pay them $7,500. You'll all be grateful in the long run. Huge opportunity for kids, young adults with earned income. Now we have to address this other question. Can I contribute to a Roth IRA if I have a 401k at work? Resounding yes, do it. Again, income limitations. Having a 401k does not automatically stop you from contributing to a Roth. What matters for the Roth IRA is your income. If you are eligible based on your income, go get them. Now I understand too. If you're a young kid making 100 grand living in Manhattan, you don't have 14 cents. And so everything I'm saying is moot here. Try, try, try, try. That's all you could do. If you are eligible based on the income limits, please try. Contribute to your 401k, contribute to a Roth. Now, if your income is too high for a direct IRA contribution, your Roth conversation may not be dead in the water here. There are strategies. I'm sure maybe you've heard about this backdoor Roth IRA thing. And we'll get to that in a minute. The tax rules are there. They're potentially complicated. This is not one of those DIY moments here where you just go and do things. Talk to your accountant, talk to your tax preparer. There may be options for you. There may also be a Roth option inside your workplace plan. If you are employed and you have a 401, please go to HR or go to somebody and ask if there is a Roth 401 option. There's a Roth 403B option out there. The Roth 401k is the Roth version of your workplace retirement. You contribute again after tax dollars today. So you will not get a tax break today, but your money will grow tax-free. Qualified withdrawals later come out tax-free. But the Roth 401Ks do not have the same income limits as a regular Roth. Does that make sense? Roth 401, Roth regular. The Roth 401K does not have the same incomes. They follow the same uh rules as your regular 401 or 403B, which is phenomenal to the moon. So for 2026, an employee contribution limit for a 401k, 403B, even those 457 federal thrift plans out there. $24,500. A lot of money. Again, you could put that in a Roth 401k. How cool is that? I straight up, I told my kids to do this. My kids are young, they're in their 20s. Max out that Roth 401k while you can. If you're age 50 or older, you generally can actually do that additional $8,000 ketchup contribution. Your ages 60 to 63, that ketchup contribution, I think, is $11,250, uh $250 for 2026. Again, note this is a combined number. Okay. So if you say to yourself, I want a little bit of a tax break today, so I'm gonna put some money in a 401k and then I'm gonna put some in the Roth and pay tax Roth 401k and pay taxes on it now. Phenomenal idea. That is tax planning. That is smart. But note that your combined contribution to both of those things, $24,500 in 2026. That's it, as a person under 50. If you can split it, I would split it, think about it, talk to someone. It doesn't have to be an all or nothing thing. You can create a blend. You can take a little break, you can push some off, whatever you want, but just know you have options. This is planning. And one more important note a Roth 401k is still inside a workplace plan, right? So you're limited to those investment options that that plan offers. You still need to look at the fees, the choices, and whether the plan has some good low-cost options. If it doesn't, that's a whole nother story, right? Then the tax benefit goes away, quite frankly. So don't assume everything in your account is good just because it's a raw 401k. Employer matching contributions may be handled differently as well. So ask all these questions, but ask them. The big takeaway here, ask them. Know how much you could contribute, whether your income allows it, and whether you have earned income. And finally, if you have a workplace plan, man, that is a home run. I did not have that as a kid. And by the time the Roth came out, I was like too far along in my retirement savings that it just didn't make sense. It is a gift for younger people right now. One other thing, quick note, I'm gonna mention it. I'm not gonna get into the details here is this notion of a backdoor Roth. Hire earners who make too much money to contribute to a Roth IRA. Sometimes use this strategy. Basically, what they do is they make a non-deductible contribution to a regular IRA. That means they pay tax on the contribution to the deductible IRA. Then they convert that into a Roth. That is all out there. Talk to your accountant again, talk to your accountant, say, I'm a high earner. Can I do a backdoor uh Roth IRA? Should I? Maybe, maybe it's a good idea, maybe it's not. Same with a Roth conversion. That's when you have a traditional IRA existing and you convert it to a Roth. So you have this IRA lingering, life changes, you may meet in a position where you're in a lower tax income bracket. Talk to your accountant, talk to your preparer, talk to someone, your financial advisor. Is this the right time? It may make sense for me to pay tax on this money today so that down the line, I'm just taking money out and taking it to the golf course and not paying a dime. Required minimum distributions at age 73 on an IRA still exists, we will get to, but it may make sense before you hit those required minimum distributions to consider converting your traditional to a Roth for a lot of different reasons, which we're gonna talk about. Talk to your accountant though, use all those words back to our IRA, Roth conversion, ask if they're right for you. Okay, now speaking of, who are Roth IRAs right for? Because everyone seems to think you should have one. It's not really true. Roth IRAs tend to be especially valuable for people who are in lower tax brackets today and expect to be in higher tax brackets later. You make that makes sense, right? You're gonna pay tax while you're in a lower bracket today, and then when you retire and you're making gobs of money because your self-employed business hit it, you're gonna pull this money out and you're not gonna pay a damn dime to the government. I'd love that. But that's why the traditional IRA was originally created moons ago, because the logic being we're gonna push all, you're you're doing really well now. You're you're you're an earner, right? Back in the day, you like took a job, you know, you went to work for IBM and you never left. You did all the things and you contributed to an IRA or a 401k. And the notion being when you retire, all those years of earning are gonna go away and your tax bracket's gonna fall to the floor. So now's the time to pay tax on that money you've been saving. Maybe. But the times have changed a lot, right? A lot of us are doing things and gonna still be making money. That's me knocking wood. When I'm old. So if your tax rate is low today, this could be a great time to contribute. You're basically saying, I'm gonna pay tax now while my rate's lower, so future me can take this money out and go do whatever the heck I want. Go buy myself the Ferrari or fund my kids to uh buy, pay for my grandchild's wedding. Who the heck cares? Won't pay a dime on it. Roth IRAs are so powerful for young earners. If you're just starting a career, if you have a kid that's coming out of college and starting a job, which by the way, next podcast, all for the college kids, but encourage them to look into this Roth 401k option, Roth IRA option. Your salary may grow over time, and then they you move into this high-paying role and you start all these things, you get promoted. It's all fabulous, and that's fine. And you might eventually make more too much money and not be able to contribute. But if you did it as a young person, you lock in today's lower tax rate, that money can grow tax-free. I just love it. A 24 five year old, let's say, my son, who starts contributing to a Roth has something his 55-year-old mother does not have. And I would say, um, other than me having a lot more wrinkles than my son. And his yeah. Um he has time, but I don't. I don't have nearly as much time for him. He has time for the money to compound, time for the investments to recover if the market goes up and down, time for that tax regrowth to really matter. So use the Roth, young people, just consider it. Roths are not just for young people, though, I have to tell you. They're incredibly valuable for people, women in particular, changing income paths. And here's the thing women's financial lives are often not linear. My career path looks like an outline of the Grand Tetons. You get you need dramamine to follow it, by the way. But on all those lows, had that Roth been around in my life, I would have made some serious considerations. Women step out of the workforce. We raise kids, we reduce hours for aging parents, we re-enter after divorce, start a business later in life. Yes, we do. Or we have lower income years followed by higher income years. Look, it's it's a it's a bouncing ball, I'm telling you. But those lower income years, if we think smartly, create planning opportunities. If your income is temporarily lower, that may be a smart time to contribute to a Roth. Even consider a conversion, depending on your situation. So talk to your advisors. Am I paying taxes now at a lower rate than I may face later? If the answer is yes, talk to someone, it might be worth considering. A Roth is not a retirement account, it's a flexibility tool. So take advantage of it. Okay, real quick, the difference between a Roth IRA and a traditional IRA, how do you decide which one to put money into? Well, let's put the Roth IRA into context. Roth IRA is not the only retirement account with the word Roth attached to it, right? You have a traditional IRA. We've talked about the Roth. Then we have a traditional 401k, we have the Roth 401k, and now all of a sudden your head's spinning. There's like all these things. What the hell do I do? Again, it comes down to when do I want to pay taxes? Traditional IRA, traditional 401k is the traditional pre-tax break now. So tax break now, pay taxes later when I'm old and ready to go, I don't know what, buy the house in Hawaii that I've been wanting for. That's not really true, but with a traditional IRA or a traditional 401k, tax break today. Think of traditional and today. TT. Traditional tax break today. You put money in before taxes, you get the deduction on your tax return today. It may lower your taxable income today. Then when you take it out in retirement, you pay taxes on those withdrawals. You pay income tax, not capital gains tax, regular income tax. So you take that withdrawal almost as a salary. Make sense? Okay. Roth IRA. You pay tax now. Tax-free later. Roth IRA, you contribute money that you've already paid taxes on. So you get your little W 2, they take their taxes, they pay the government, all the things, whatever you have left is what you contribute. No deductions today. No deductions on your tax return. There's no line on your tax return for a Roth IRA. But that money grows tax-free, you follow the rules, you get these qualified withdrawals later. That's it. It's pretty simple. So then you decide: do I need a tax break today? Or am I good? Can I manage? And just wait for it and take it later. If you can wait for it and take it later, it's the way to go. And if you're still under the income limits, it's 100% the way to go. Talk to your employer, ask about that Roth 401k, Roth 403B. Actually, they're out there. Consider using both if you don't know what to do then. Just split it. The goal is not to guess perfectly, the goal is just to give your future self some options. And finally, my fifth point here is they're so powerful. And why? Let's just talk quickly about why these Droths are so powerful. I've said 4,000 times now it's tax-free income later in life. Amazing. Pull it out, don't pay taxes, buy the Ferrari. The second, Roth IRAs do not require minimum distributions during an owner's lifetime like an IRA does. Let's talk about this. With a traditional IRA, the IRS eventually says, you old person, you have to start taking money out. Generally, it's around age 73. And then there's a calculation that figures how much based on your balance that you have to take out every year. You take that amount out, that's when you pay taxes on it. As I said, it's like you're taking a little salary, right? You're not forced. But the big difference and the important difference with the Roth is you are not forced to take withdrawals while you are alive. Like literally, you can fund this Roth and not touch it. Again, gives you more control. You are not forced to start doing anything at 73. Maybe you're doing great. And maybe it's like when you get to 83 that you really start to need some money. That's fine. Take it then. You're not forced to do anything. That's the beauty of it. There's more flexibility, more control, potentially more planning power. Which leads to the third and fabulous perk of a Roth IRA in my world, my favorite, the estate planning piece. Because my point that you can fund this thing, leave it, you don't have to touch it. You can then pass it on to your heirs. And then they get that money tax-free. What? It's like such a gift. Since you don't have to withdraw, you just let it go. Your kid inherits it, and he or she gets that money without paying a dime. Come on. That's good planning. That is good planning. All right, finally, the fourth perk is your, of course, your tax diversification. We talked about this. You don't want all your retirement money in one tax bucket. You got choices. You got some tax-free money, taxable money, all the things. Helps in the planning. And finally, finally, financial planning, choices give you freedom. I've said this before, I'll say it again. Let's just tap real quick on when it might not be a good idea to have a Roth. A Roth does not make sense if you're in a high tax bracket today. If you're in a high tax bracket today, you're obviously earning too much money to be in there anyway. A Roth may not make sense today if you really need the tax deduction today, right? If cash flow is tight, you might want that tax deduction because you're going to take home less money if you use a Roth when you're a kid. And I know this, right? My daughter lives in Manhattan. It was a tough conversation because she's using after-tax dollars to fund that Roth 401k, but that means there is less money to go towards rent and food, which is basically when you live in Manhattan as a kid out of college, the only thing you could afford. So tough conversation because if she just did a regular 401k, she'd have more take-home pay. It's worth it in the end. Um if you're not eligible and the workaround is too complicated, meaning the Roth conversion or the backdoor, it's just not worth it. Don't stress about it. This is all just part of the strategy, it's all part of the conversation. But I want you to be comfortable with the lingo because it's just a bunch of vocabulary words. So now that you understand them, you can go and have smart conversations. It is a very powerful tool, but it is not right for everyone. Nothing is. Trust me. That's why they always say there's somebody, there's a prince charming out there for everybody. Whoever he or she may be. All right, in closing, a Roth IRA is not complicated. It is just a different way to pay taxes. I hope this didn't confuse you more. I hope you get it. If you don't, please, please, please, you know where to find me. TracyBurnsWealth.com at TracyBurns on LinkedIn. Ask questions. You don't need to know everything. You just need to understand your options. I've said this so many times. Stay consistent. Just ask the questions. Understanding is more important than anything else. Please consider it. And if you have kids, just throw the words in their faces. Go ask about the Roth. Go ask about the Roth 401k. All right, speaking of kids, next time we are going to talk about them. We're going to help them. I have had kids graduate from college and they go to work and they don't know what to do or what to sign up for or how many deductions to take, all the things, we're going to hit that next week for them because they need to start off on the right foot and not like wake up in five years and realize they were underwithheld or something like that. That gets expensive. That's a mistake. We don't want that. All right, you can always find us on Spotify, Apple Podcasts, Amazon Music, and of course YouTube. And as I said, if you want to consider continue this conversation, you have any questions, tracyburnswelp.com at TracyBurns on LinkedIn. I am always here if you need me. This stuff is not complicated. It's just vocabulary words. And we just had a great vocabulary lesson. So you're good. I'll see you next time. Labenthal Financial Services, Inc. is a FINRA registered broker dealer. The content of this podcast is intended for informational purposes only and is not intended to be investment advice. The views expressed in this podcast are subject to change based on market and other conditions. Information about the qualifications and business practices of Labenthal Global Advisors LLC is available on the SEC's website at www.advisorinfo.sec.gov. Information about the qualifications and business practices of Labenthal Financial Services Inc. and its representatives can be found on FINRA's brokercheck website, which is brokercheck.finra.org.