The Only Reasons To Ever Contribute To A Roth IRA

Government Pork SpendingDisadvantages Of A Roth IRA: Not All Is What It Seems” ignited a flurry of responses from people who have already been contributing to a Roth IRA, which I will address in this post.

One of the main things people have learned is that the government manipulates individuals into forking over more money than they otherwise should due to gross mismanagement of their own budget. Massive deficit? Let’s announce this huge “benefit” to allow people to convert their pre-tax retirement funds into a Roth IRA! We’ll raise the spectre of higher tax rates to get more people to bite.

It’s sometimes daunting to go against the government because they employ some of the smartest people on Earth to keep themselves in power while keeping the rest of us dependent on their largess. But I’m here to help you fight back and live a better life.

If you contribute to a Roth IRA or convert your pre-tax retirement accounts into a Roth IRA, you aren’t going to be damned to hell. You’re just not maximizing your wealth over time. I’m a rational person who likes to see both sides of the story. So let me share with you the only legitimate reasons why one should ever contribute to a Roth IRA.

For those of you who already have a RothIRA account, what you are about to read probably makes so much sense you might feel a little bad. But don’t worry. The number one solution when you are in a hole is to stop digging and slowly climb out.


1) You’ve maxed out your 401(k) already. If you’ve contributed $18,000 to your 401(k) and $5,500 to your traditional IRA (only possible for individuals making under $60,000 or married couples making under $95,000), then go ahead and contribute to a Roth IRA for tax diversification purposes. This is a trick statement because once you’ve maxed out your traditional IRA of $5,500, you can no longer contribute to a Roth IRA. What you can do is split the $5,500 between a traditional and a Roth to diversify your tax liability. Even if I tell you that tax rates aren’t going up for the middle class because greedy politicians need the middle class to keep them in power, I don’t know for 100% certainty that people making less than $200,000 a year won’t see higher taxes in the future.

2) You’re in the 25% marginal income tax bracket or lower. If you earn under $89,350, you are at most in the 25% marginal federal income tax bracket. The 25% tax bracket ranges from an income of $36,900 to $89,350. (The 28% tax bracket is from $89,350 – $186,350 and the 33% tax bracket is from $186,350 – $405,100). It’s not good enough to just be in the 25% tax bracket or less, because you are in the absolute sweet spot of middle class America where you will likely never be a target for income tax increases. You must also be absolutely BULLISH about your income prospects. If you are a young person who is a superstar at your firm with income visibility over $89,350 then feel free to contribute up to $5,500 to a Roth IRA now because you will be completely creamed by the IRS in the future. If you are a late bloomer who is finally on track to maximizing your potential, then contribute to a Roth IRA. Just don’t forget to continue maxing out your 401(k) during this time.

3) You’re going to make over $129,000 or your spouse is getting a big raise. After you make over $129,000 as an individual or $191,000 as a married couple, you can’t contribute to a Roth IRA. It is still unknown how the government comes up with such arbitrary amounts, independent of location. Don’t they know that San Francisco is much more expensive than Des Moines? Contributing to a Roth IRA is particularly useful for those who are on the hunt for sugar mammas or sugar dads. If your prey actually proposes, then contribute as much as you can during the engagement before it’s too late.

4) You think World War III is on the horizon. If you think world leaders no longer respect the United States’ might (e.g. Russia taking over Crimea, Ukraine) and plan to invade, conquer, and bomb neighboring countries around the world, you should consider: 1) withdrawing all your money and keeping it under a mattress, 2) make sure your savings accounts are no larger than $250,000 for an individual or $500,000 for a married couple to comply with the FDIC guarantee amount, 3) sell equities and keep cash, 4) or contribute to a Roth IRA because the government will likely raise taxes on everyone to fund a long war. I still think if you make under $200,000, you’re relatively safe. However, with an expense as large as World War III, the government may have no choice but to raise taxes on people paying 25% or less.

5) You feel tremendous guilt for not paying your fair share. Let’s say you’re having a guilty conscience for not paying enough taxes because you either cheated on your taxes for years, run a cash only business with two sets of books, mooched off the government longer than you should have, or feel so bad taking advantage of all the loopholes, then go ahead and contribute to a Roth IRA. I’ve spoken to a lot of the 47% who don’t pay income taxes during my time off from Corporate America, and a couple have admitted they feel bad that 100% of the tax burden is paid for by only 53% of the people. Many of my 47% friends have side jobs that are cash only and never pay taxes.

6) You’re undisciplined and expect to have a lot of problems in your life. You may have the best intentions of saving for your retirement, but you know that you have poor discipline when it comes to money. Perhaps your experiences as a relapsing cigarette smoker or drinking alcohol have given you doubt about never needing to raid your retirement accounts. Maybe you’ve got outstanding debts that must be paid or else goons will visit you in the parking lot and break your kneecaps. Who knows. The “good” thing about a Roth IRA is that you can withdraw the money you put in penalty free, just not the earnings. The only times you might be able to get away with the early withdrawal penalty before 59.5 is if for college expenses, medical expenses greater than 7.5% of your adjusted gross income, or paying for a first-time home purchase (up to $10,000).

7) You have inside information knowing that Roth IRAs will get favorable treatment. Let’s say you work in the US Treasury and overhear that the government plans to pilfer all 401(k) and traditional IRA accounts by raising taxes on withdrawal rates and extend the penalty free age of withdrawal from 59.5 to 69.5. You’ve seen draconian measures executed with bank deposits in Greece in 2013 so you have no doubt America can do the same. You also hear that anybody who contributes to a Roth IRA will get a one-for-one dollar match and get two votes to raise taxes on others to benefit yourself. Clearly you should contribute all you can to a ROTH IRA until the government changes its mind again.

8) You live in one of the no state income tax states. Federal income tax is one thing, state income tax is another. If you live in Texas, Washington, Florida, Alaska, Nevada, South Dakota, Wyoming, or New Hampshire, it is less of a sin to contribute to a Roth IRA because you aren’t paying any state income taxes. Everybody else should figure out a way to retire in one of the seven no income tax states and then start withdrawing pre-tax retirement funds.

9) Someone is paying you to promote a Roth IRA. Money makes people do anything. If some organization is going to pay you to promote the Roth IRA then I guess you’re better off than others who don’t have the same money making opportunities. If you can earn more promoting the Roth IRA than what you can earn from the returns of your Roth IRA, then you would be a fool to ignore all the wrong reasons for contributing to a Roth IRA in order to pad your bank account. Be especially aware of financial advisors or CFPs who aggressively push the Roth IRA without providing other benefits besides tax free growth and gains. Make sure pitchmen practice what they preach. (See Questions To Ask Before Hiring A Financial Advisor)

10) You are an income tweener. If your income is between the deductible IRA max and Roth max ($60,000 – $114,000 for individuals) and you can afford it, making a Roth contribution could make sense. For those over the Roth income max, you can do a “backdoor” Roth contribution – by making a non-deductible contribution to a traditional IRA and then converting it to a Roth.



As you can see from the chart, if you make over $129,000 as an individual or $191,000 as a married couple, you can no longer contribute the maximum $5,500 to your Roth IRA. The government deems any income above such amounts is enough for you to find alternative retirement savings options besides the 401(k). Fair enough for the majority of Americans. Not so much for folks who live in cities where the median priced single family home is over $1 million dollars.


Mathematically speaking, the most taxes you will pay on a $5,500 contribution is roughly $2,150 ($7,650 X 28% tax bracket). You can’t contribute to a Roth IRA if you make higher than a 28% tax bracket ($189,000) as you see in the chart above. So for those of you who think you’ll be making more than $189,000 a year in retirement and are afraid to pay a 33% or higher federal tax rate, good luck to you. I’ll be petting my unicorn before we go off on a ride in the clouds.

Even if you do end up making over $189,000 as an individual or $226,850 as a married couple in retirement to reach the 33% marginal tax bracket, the most extra you will have to pay is 5% (33% – 28%) when you withdraw money from your 401(k) or traditional IRA. That’s $382 for each $5,500 pre-tax contribution. $382 is hardly a big deal at all because you’re living large in retirement while feeling good you didn’t feed a wasteful and corrupt government for all these decades.

If the choice is between not saving anything at all and saving in a Roth IRA, then definitely save in a Roth even if you haven’t funded your 401(k). But now that you’ve read this post, please just max out your 401(k) and traditional IRA instead of contributing to more government waste. Hold on to your money for as long as possible. Never give up until the very end!


Analyze your investments for excessive fees. Whether you have a Roth IRA or a traditional IRA, I would sign up for Personal Capital to run your retirement funds through their Investment Checkup tool for free. You’ll get a snapshot of how much in portfolio fees you’re paying a year and how you can optimize your portfolio based on your risk tolerance. I found out I was paying $1,700 a year in fees I had no idea I was paying!

Definitely also run your numbers through their newly launched Retirement Planning Calculator. They use real data that you’ve linked to produce as realistic a future financial scenario as possible to see how you’re doing. You can adjust the various expense and income variables to see the different results. Check out a sample output below and see if you can get to excellent shape as well!

Retirement Planning Calculator

Sample retirement planning calculator results

There is no better free online tool that has helped me stay on top of my finances more than Personal Capital. It’s important to aggregate all your accounts to get an entire overview of your net worth to make proper changes. It only takes a minute to sign up.

Updated for 2H2015 and beyond

Sam started Financial Samurai in 2009 during the depths of the financial crisis as a way to make sense of chaos. After 13 years working on Wall Street, Sam decided to retire in 2012 to utilize everything he learned in business school to focus on online entrepreneurship. Sam focuses on helping readers build more income in real estate, investing, entrepreneurship, and alternative investments in order to achieve financial independence sooner, rather than later.

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  1. rick says

    I’ve read most of the posts and am a little confused. I am military and have a traditional TSP account. When the roth was offered I already had a sizeable amount in the traditional account. If I started the roth while lowering my investment into the traditional account wouldn’t I be losing out on the compounding power of the already large balance. It seems contributing more to the traditional would be the better option so I could make the most on the already accrued amount. If I was just starting out or was maxing out the traditional then maybe I’d go with the roth.

    • Matt says

      Your choice of future investments will not impact the compounding of the investments you have today. Ignoring the tax differences, the two accounts will add up to the same amount as if you had continued contributing to the one account.

      In reality, the Roth may look smaller if you put the same pre-tax dollars into it (meaning, a reduced after-tax amount) but it will be worth more, because you will pay no taxes on the withdrawal. (and, assuming your tax bracket is the same when you are withdrawing, it would give you the same net money, too, either way)

      My argument for the Roth has always been exactly for your situation–nobody knows what the tax situation will be in 20 or 30 years, so the best defense is diversification: having some pre-tax and some post-tax money.

  2. Jason says

    There hasn’t been a discussion to my knowledge of a backdoor Roth. I am in the situation where I cannot invest in a traditional IRA because of my income level. I max out my 401(k)and then do a backdoor Roth. I had a traditional IRA through Vanguard and converted that to my active 401(k) at my current employer. My current 401(k) allows me to set up a brokerage account option that I pay $100 a year for so that I can invest in anything at super low expense ratios. I wouldn’t recommend someone moving their Vanguard IRA to an active 401(k) unless they have great low expense ratio options. I now have only a Roth IRA with Vanguard and my 401(k) with my employer. This allows me to convert my traditional IRA investment to a Roth IRA without paying any conversion taxes on my traditional IRA gains. Doing a backdoor Roth is a great option for high income people as you don’t pay taxes on this investment when you retire and start pulling this money out.

    • APerson says

      I would get a second opinion on this. If it sounds too good to be true, it probably is. You don’t want to get nailed on this and end up losing all of your retirement savings to penalties assessed in an audit.

      • Matt says

        A backdoor Roth conversion is a legitimate loophole. When you do this, you generally want to immediately convert the account, so that you do not build up taxable investment gains before converting. (taxes are owed on gains from the account, but since you aren’t eligible for a Roth, you are also not eligible for a pre-tax contribution. Your after-tax contribution is not taxed again) However, if you already have other traditional IRA accounts, then the conversion will take into consideration all IRA accounts together, not just your backdoor contribution. (essentially, the IRS treats it as if you have converted proportionally from each account you have)

        However, this rule does not apply to traditional 401(k) accounts. So one way to enable yourself to take advantage of the conversion without being subject to taxes on the gains in your other accounts is to roll over your IRA into your current employer’s 401(k). (Your employer may or may not allow this. Generally, it is only allowed for active employees–but call your plan’s custodian and ask, to be sure) Once you have all your pre-tax money in a 401(k), then you can pull this trick without worry or tax consequences.

        Disclosure: I am not a tax professional, but I have utilized this tactic in the past. You should ask your accountant or tax preparer, as they are the only ones other than yourself who know your specific situation.

  3. K-man says

    I have a couple problems with this article.

    1) I would imagine items 2 and 3 on your list encompass a pretty large percentage of the population; thus, making the Roth a smart move for what is likely a majority of people.

    2) You still downplay the benefits of a Roth. Even for the people not encompassed by your points 2 and 3, there exist many favorable attributes of a Roth over a Traditional. The flexibility to withdraw and contribute at various stages in life is far greater.

    3) It’s not a bad idea to have a traditional and a Roth because it hedges against uncertainty in the future. Although some of us may pretend to know what the tax landscape of the country will be in 20+ years, we don’t.

    • says

      That’s fine. And also, I don’t think you have to justify your reasons for contributing to a Roth IRA. First of all, America needs more contributing tax payers. Second of all, contributing is better than not contributing.

      I’ve just chosen not to contribute and to defer taxes as much as possible. Everybody has their own decision. At the end of the day, look at your net worth for your age, and see if you are on track. If you are not on track, then you’ve got to change.

      • K-man says

        Well, the personal decision to pursue a phd has caused #2 on your list to make it definitely seem justified to have a Roth in my case. That is, it’s saving me taxes. However, my general point is that the Roth probably is good for a large percentage of individuals.

        Question: Is your blog geared specifically towards people in top 1% (or top 5%) of the wealth and/or income distribution, because if it is targeted at a very specific audience I could see some of it making good sense? My main issue is that the article seems to be making a lot of general statements that are only true in specific circumstances.

        • says

          Ahhhh, getting a PhD explains so much now. Thanks for sharing! I considered a PhD in Communications, and decided to pass at the end b/c of the stark reality that it would be difficult to find a good professor job and tenure at a decent institution. I wasn’t smart enough. Also, as you know, the earnings during the PhD period is quite low.

          Have a read of this post: Should I Get A PhD? Life After The Private Sector, and let me know your thoughts!

          My blog is targeted towards people who want to achieve financial freedom sooner, rather than later with the ultimate goal of helping people achieve happiness. Hence, those who are getting a PhD are probably not my target audience since a PhD is a long detour, unless they are getting a physician/medical PhD.

          • K-man says

            I mean, I’m pursuing a PhD because I’ve always wanted to work in academia and it’s really the only way to get there; however, I’d be lying if I said I would pursue one regardless of the expected monetary outcome.

            Am I excluded from the target audience on the basis that I have more than one variable (money) that enter into my life decision making? Or, am I still included because money enters into the equation for me, personally?

            • says

              It depends on what you’re looking for. I like to cut through money’s mysteries because the media has done a great job in manipulating the public. And if you look who writes mass media articles, they are by journalists who have never worked in finance, haven’t reached financial freedom, or write things they don’t understand e.g. write about housing when they down own a home.

              FS is a place to broaden people’s minds and allow people to think for their own.

              Everybody is always so enthusiastic about their careers and education in the beginning. Then, once they get into the real world, things change. Energy changes. Life changes. We all grow older.

              How older are you, and how many years did you work before pursuing your PhD?

  4. bbswim says

    your earnings are tax free. For someone in their twenties, it makes sense to contribute to a Roth since ALL OF YOUR EARNINGS will be tax free. This is the advantage a Roth provides, even if you’re paying taxes initially.

    • RockyMtnHigh says

      Thank you for posting this!

      Personal Finance 101 would recommend utilizing Roth accounts to protect taxable proceeds upon sale of the equity.

      I would much rather pay income tax today on $5,500 than 20-50 years from now when the account is worth $1,000,000’s.

  5. Alex says

    I have little over 600 K in traditional IRA, investing 20% (1200 per month) of my salary to my job 401 k (just started this year with a new job). I also have a bank account with little over 150 K in it that doing nothing right now bc of interest rates are so low. I’ve got about 10 years till retirement. Would it be smart to start taking max amount (12,000 for me and my wife) every year for the next 10 years from my bank (after tax money) and invest them into the Roth? Thank you very much for the reply.

  6. Josh says

    I presume you also don’t propose that people take advantage of the new clarity around converting after-tax 401k contributions to Roth IRA? I make $150k a year and my wage-related income will probably be about that amount adjusted to inflation for the rest of my career and it has been for the last several years as well. So I have a bit extra money that I’ve been thinking about dumping in some after-tax 401k contributions to convert in-plan immediately following each pay period (my plan allows this)

    Each year I max-out my 401k Pre-Tax, then max out my Roth with Backdoor contribution. Although I have a very good 401k plan with Vanguard with really low institutional fees (negotiated by my great employer) on most funds, I can’t trade in individual securities. I can do so in my Roth IRA and have made $45,000 profit in the past year alone doing this. If I was trading that in a regular after-tax account, I’d owe short-term capital gains. Instead, I get a tax-deferral.

    I live in California.

  7. $iddhartha says

    I know this is pretty much covered in the rules above, but I don’t think the point was made strong enough…

    I agree with the insinuation that the deferral of taxes is best, but I think that relative to the general public there is a higher percent chance that a financial blog reader SHOULD be contributing to a Roth or a “backdoor” Roth IRA.

    1) You’ve maxed out traditional (non-Roth) 401k
    2) Your income level is too high to be eligible for a traditional deductible IRA

    A high percentage of financial blog readers fulfill these two requirements. In essence, you’ve already lost the ability to defer tax so why not stuff some cash where it can grow tax-free?

      • says

        I wish I could contribute to a Traditional IRA, but due to MAGI income limits (and due to the fact that I do have a 401k to contribute to at work), I cannot.

        If you have a 401k to contribute to at work, there’s a fairly low income threshold for being ALSO able to contribute to a traditional IRA. (MAGI below $61k for individuals, $98k for married couple). For a lot of folks, the Traditional IRA’s not an option. When that’s the case, the Roth is often the best of the remaining choices.

        Since the Roth income limits are much higher, I contribute to a Roth IRA simply because it provides tax advantages compared to investing in a taxable account. (i.e. – avoiding capital gains and taxes on dividends.) I can also rebalance my portfolio within a Roth to bring my investments back into my asset allocation, without suffering capital gains. (So, I suppose there’s an added benefit of being able to more efficiently rebalance.)

        The idea that contributing to a Roth somehow results in more taxes paid is not true for me — probably not for a lot of people.

        • Lynne says

          I’m in the same boat as you are. I too am maxing my 401K then maxing a Roth. I’m hedging my bets and figure it’s better than spending the dough on stuff I don’t need.

          For the same reason as you had, I chose a Roth over a taxable account since rebalancing would not incur taxes, and a Roth gives me flexibility when planning distributions after retirement. I am already in a fairly high tax bracket so there’s no reason to incur more unnecessarily.

          Once my mortgage is paid off I expect to contribute that extra money to a taxable account, whose investments will be chosen with an eye towards tax efficiency.

          Somewhere soon thereafter I hope to retire!

  8. Kirk says

    When considering a Roth IRA, I’ve always wondered what the folks in Washington will do if they replaced the income tax with a national sales tax. Taxing at the point of spending money instead of making money could be double taxation for money in a Roth. Would Washington offer some sort of credit? Have you heard anything from those who are for a flat sales tax?

  9. PAE says

    The Roth can be a very helpful vehicle for GREATLY reducing AGI and therefore taxes after age 70 if you max out your SS by delaying it. If you are 55 or older and have not filed for SS yet, you MUST read this white paper ; If you are much younger, read it anyway and be informed and maybe help YOUR OWN parents make the right decision. Too many of the articles here assume you are too old to care or do anything in life at 70. I got news for you..if you die before then, well you’re dead, so it doesn’t matter as long as you took care of your responsibilities. But planning around early death is seriously negative thinking! But if you’re alive and vibrant, it will matter a GREAT DEAL. 70 is nothing if you’ve lived a healthy life, and you may have to provide for you AND a spouse for 15 -20 years PAST 70. You younger people REALLY have a warped image of “old” age.

  10. Wendy says

    Hello, if someone is in Chapter 13 bankrupcy but is allowed in contributing to a Roth IRA through their employer, what kind of twist does that bring to it all? Is it better in BK to change to a pre-tax plan if you actually owe taxes as part of the bankrupcy? I’m interested to hear your thoughts…Any replys are welcome

  11. Jim says

    Some of this is luck. I purchased AAPL in 2000 for my Roth IRA. All that growth will be tax free. (Unless the laws change.)

    I’m in my mid-60s. At 70 1/2 I’ll need to begin RMD withdrawals from my IRA. I considered converting some of my IRA to Roth IRA annually for the next five years because I expect my heirs to be in a higher tax bracket than me. However, my calculations show break-even (for me) at age 93. Might be best to do nothing.

    OTOH, if congress pushes thru the idea requiring inherited IRAs to be distributed within 5 years, conversions will significantly reduce future taxes.

  12. Ryan says

    You fail to mention that people that make of 129K can still put the max into the IRA by using a loop hole. People can fund the 5500 of after tax dollars into a traditional IRA and then convert it into their Roth IRA.

  13. Steven Pietila says

    I don’t agree. First, you are assuming our government will be less corrupt in 20 or 30 years, and so paying taxes then will be more rewarding. That argument doesn’t hold water.

    Secondly, those of us with kids and a mortgage have several write-offs. In retirement, I won’t have kids and I won’t have a mortgage. I also benefit from being able to file jointly. In retirement it is likely that I or my wife will be filing as single at some point. The RMD’s and inherited IRA’s will be less desirable. A Roth IRA makes the most sense for flexibility in retirement.

  14. Ken says

    Interesting article. I’m a tweener, maxing the 401k, maxing a ROTH IRA and saving additional income. I’ve only recently been able to save this much after paying off student loans and having the GF move in. It’ll probably only be a couple more years until my income phases me out of the ROTH so it won’t be a very big piece of my pie. I’m thinking less than $50k will be put into the account.

  15. Jason says

    @Ken – income is not a barrier to contributing to a Roth IRA. Anyone can do it no matter the income level. If your income is above the direct contribution limit then just do a “backdoor” contribution. First contribute to a traditional (non-tax deductible) IRA, then immediately convert the money to a Roth IRA (your broker will have a special form for this).

    NOTE: when doing this there could be tax implications if you have any tax-deductible IRA’s. If so then you have to consider this total amount when doing the conversion. If you don’t have any tax-deductible IRA’s then the conversion is a slam-dunk!

  16. Chris says

    I’m betting Sam doesn’t have any children…

    Perhaps the single easiest way to setup your kids for retirement is establishing Roth IRAs for each child early in life. Early meaning age 8 or thereabouts. The only restriction is the contributions have to be earned income, so it helps to have a family business or some other legitimate means of funding it.

    Federal and state taxes are effectively zero on the income needed to max out the Roth. Throw in $5,500 annually for ten years (Age 8 through Age 17). Plug it into an investment calculator with conservative returns (6-8%) for 50 years.

    Stand back in amazement at the astounding returns. Congratulations – you’ve added another multi-millionaire to the family without anyone putting another penny into the Roth account over the next five decades.

  17. says

    Oops, just saw that you did point that out in item #1. Sorry ’bout that my friend! :-)

    That’s what I get for reading it on my phone while doing homework with the kiddos.


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