All Things Roth

Maura Schauss |

By Todd Youngdahl, CFP® at Washington Wealth Advisors

Retirement planning is far from simple. While that may seem like a blatant understatement, it’s especially true when you start looking at all your options and try to determine what is right for you. Each of your many options has pros and cons, unique opportunities, and various fees. While you know you need to invest, it can be challenging to decide what the best choice is for you and your unique situation.

Today, we’re focusing on the Roth and the opportunities it can provide to investors.

Roth 401(k)s and 403(b)s

We’re all familiar with traditional 401(k) and 403(b) accounts. A Roth 401(k) and Roth 403(b) are employer-sponsored retirement savings plans similar to a traditional 401(k) or 403(b). However, the main difference is that you fund it with after-tax dollars instead of pre-tax dollars.

An employer-sponsored Roth 401(k) and 403(b) plan enables you to defer up to $20,500 of your salary per year (or $27,000 if you are age 50 or older due to the catch-up provision). Your funds grow tax-free for retirement, and you won’t pay taxes when you start taking distributions as long as the withdrawal is a qualified distribution. Please note that these contribution limits apply to the total contributions to all of your 401(k) and 403(b) accounts.

One of the biggest benefits of a Roth 401(k) or 403(b) is that you can contribute to a retirement account that provides tax-free income regardless of your adjusted gross income. As there aren’t income limitations on Roth 401(k) or 403(b) contributions, higher income earners can invest in one to earn tax free income rather than contribute to and convert a traditional IRA into a Roth IRA. This can make a Roth 401(k) or 403(b) a good option for an individual who doesn’t qualify for a Roth IRA but would like to generate a tax-free retirement income. Additionally, you can also take a hybrid approach with your 401(k) or 403(b) where you can contribute a portion of your deferral to Roth and the other to Traditional.

Roth IRAs

When it comes to your retirement, IRAs are one of the most widely used investment vehicles. IRAs are retirement accounts that are separate from your employment, which tends to simplify things. IRAs can be invested in just about anything but life insurance and collectibles, so there aren’t as many restrictions as 401(k) plans which limit you to a preselected group of investment choices.

Unlike the tax-deferred traditional IRA, with a Roth IRA you pay all taxes up front (your contributions are made with after-tax dollars). The perk is that you receive tax-free withdrawals in retirement (after the age of 59½). When you decide to withdraw the money, you don’t have to pay taxes on any of the growth.

Another significant difference is that there are no required minimum distributions (RMDs). You can leave your money in the account to grow forever, instead of being required to start taking withdrawals (and stop contributions) at age 70½ as you would with a traditional IRA account. This allows you to use a Roth IRA as an estate planning tool to provide tax-free income for grandchildren and future generations.

Roth Conversions

The one caveat to a Roth IRA is that in order to qualify, you must fall in certain income categories. In tax year 2022, if you make more than $144,000 as an individual or more than $214,000 as a married couple filing jointly, you’re not eligible to contribute directly to a  Roth IRA.1

However, anyone can convert a Traditional IRA into a Roth through a conversion. There are multiple reasons to consider a Roth conversion.

  • For one, there are no income limitations when you convert. If you are not eligible for a Roth initially, you can pay the taxes to convert your traditional IRA to a Roth and still reap the benefits.
  • Secondly, you do not have to take required minimum distributions (RMDs) from a Roth at 70 ½ like you would with a traditional IRA. Because of this benefit, your money can grow tax-free as long as you’d like and can be an excellent way to leave a legacy for your heirs.

Pro Rata Rule Related to Conversions

When considering a conversion, don’t forget about the pro rata rule. In the simplest of terms, this is a rule used to determine how much of your conversion is taxable if you have pre-tax and after-tax dollars in your Traditional IRA(s). A financial advisor can help you better understand the pro rata rule and how it impacts your conversion or distribution.

What Makes Sense for Me?

Should you invest in a Roth 401(k), traditional, or both? Are you eligible for a Roth IRA? Should you convert your traditional IRA into a Roth IRA?

There are a lot of questions to address when you’re planning for retirement, and since everyone’s situation is unique, there’s no one single answer for everyone. The type of IRA, 401(k), or 403(b) that is best for you depends on your personal situation and preferences.

When making important financial decisions like this, it always helps to talk to an experienced professional who can help you understand your options and the implications of different choices. If you’d like to discuss some of these questions further, we’d be happy to help you review your options to determine which is most appropriate for your goals and situation. To set up a meeting, book some time using our online calendar, call our office at 703.584.2700 or email





Washington Wealth Advisors is a fee-only registered investment advisory firm serving busy families, executives, women building wealth, and small business owners. We provide Wealth Advisory Services—financial planning coupled with asset management—guided by a personalized investment strategy based on each client’s unique goals. Our fiduciary approach, independent advice, and proactive investment management help to support our clients’ overall financial peace of mind.