Updated: Sep 27, 2022
Did you know that Roth IRA was not created until 1997? The Roth 401(k) was not introduced until 2006?
Many of the tools and planning strategies of today, just like the Roth, are created by legislation passed by Congress and therefore are always at risk of being changed, reduced, or eliminated.
Both Roth IRAs and Roth 401(k)s offer tax-free growth to the investments in the accounts for as long as they are held. This is an enormous financial benefit that is often not fully appreciated. Individuals who make and invest contributions now can enjoy thousands of dollars of tax-free growth that translates to greater financial flexibility.
With swelling federal deficits these amazing tax-free benefits may not always be around or may have greater eligibility restrictions in the future. That is why I encourage clients to utilize tax-advantaged accounts now to the extent possible.
Married couples under age 50 are each able to contribute $6,000/year to a Roth IRA before they file their tax returns if their income (MAGI) is below 208K for 2021.
There are no income restrictions on making Roth 401(k) contributions. A common misconception.
Individuals who are already maxing out their retirement plan contributions could potentially consider a back-door Roth strategy or making additional after-tax contributions to their work plan (mega back-door Roth). Both of these were almost eliminated in proposed legislation in 2021.
GuidePoint Financial Planning - Reston Financial Planning
Ryan Phillips, CFA, CFP® is the founder of GuidePoint Financial Planning. He is passionate about helping busy families plan, save, and invest for their financial future. Contact him today if you are interested in learning more about the benefits of working with a fee-only (no-commission) financial planner.