Tag Archives: Roth IRA

The Roth Conversion Windfall Problem

People worry about taxes on traditional retirement accounts. 

During the owner’s lifetime, those worries are largely unfounded. On my YouTube channel I’ve demonstrated that even those with surprisingly large traditional IRAs are likely to pay modest effective tax rates during their own retirements. 

Spreadsheets tell us the chances we will pay high taxes on our own traditional retirement accounts are rather low.

Inherited Traditional IRA Tax Concern

Spreadsheets also tell us that in many, though certainly not all, cases, our heirs are likely to pay a higher tax rate on our retirement accounts than we will. 

Picture an 80 year old retired married couple. In order for a dollar of their required minimum distribution (RMD) to be subject to a 24% federal income tax rate, their taxable income in 2026 would need to be at least $211,401. In order for a dollar of their RMD to be subject to a 32% federal income tax rate, their taxable income would need to be at least $403,551.

In a world with a high standard deduction, an additional standard deduction, a senior deduction, and qualified charitable distributions, these levels of taxable income are relatively uncommon for married retirees. 

During the owner’s life, RMDs go on top of Social Security income and investment income such as interest income. RMD percentages are quite modest. For those 75, the required distribution is only approximately 4.07 percent of the prior year-end account balance. It rises to 4.95 percent at age 80 and 6.25 percent at age 85.

For those inheriting traditional IRAs (beneficiaries), high levels of taxable income are more common. With inherited IRA distributions over the 10 year window on top of W-2 salary and bonuses, it is very possible Junior will pay tax rates on Mom and Dad’s IRAs in excess of the tax rates Mom & Dad paid on their RMDs. 

For the beneficiary, in most years the inherited IRA distribution is likely to be 10 percent or more of the inherited IRA starting balance to smooth out the taxes paid over the 10 year window. 

The Inherited Traditional IRA Concern Remedy

The potential remedy for the inherited IRA concern is easy: Roth conversions during the owners’ lifetimes. 

On a spreadsheet we can easily justify this remedy. Perhaps Mom and Dad would pay a 22 percent marginal statutory federal rate on Roth conversions. Such conversions might reduce their senior deduction, increasing the effective federal income tax on the conversions from 22 percent to 24.64. 

The potential 2.64 percent “surtax” is created by every dollar of Roth conversion reducing the senior deduction by 12 cents on the dollar. Multiplying 12 cents on the dollar by a 22 percent statutory rate gets us to 2.64 percent. 

Imagine Mom and Dad’s adult children all pay a marginal tax rate of 32 percent. Mom and Dad doing Roth conversions at a 24.64 percent effective tax rate would, intergenerationally, save the family 7.36 cents on the dollar in federal income taxes (32 minus 24.64). 

Thus, assuming relatively high income beneficiaries, the spreadsheet says “Yes” when it comes to owner Roth conversions for the beneficiary’s benefit. 

The Windfall Problem with Roth Conversions

Spreadsheets are great. But they should be ignored if following them disregards common sense.

Those using spreadsheets to argue Roth conversions are necessary to avoid higher beneficiary taxes on inherited IRAs argue that retirees not experiencing a financial windfall should pay more in taxes to benefit future beneficiaries experiencing a financial windfall.

Spreadsheets matter in financial planning.

Personal profiles matter much more. 

Financial planning should ask “who benefits?” and, generally speaking, steer benefits to those in the family in most need of them. Adult children beneficiaries enjoying a financial windfall tend to need much less in financial benefits than those not enjoying a financial windfall. 

Retirees funding their living expenses from their IRAs and 401(k)s are living off their own assets. Retirement accounts are not a windfall to them. Rather, those accounts are their deferred career earnings and growth thereon.

Inherited retirement accounts are a financial windfall for beneficiaries. They stack on top of other resources, including W-2 income and the beneficiary’s own accumulated financial wealth. 

Why should someone not enjoying a financial windfall do financial planning for the benefit of someone enjoying a financial windfall?

Why should retirees pay additional taxes for the future benefit of their adult children who will receive a financial windfall?

This is not to say wealthy, elderly parents should not do Roth conversions to benefit their adult children as future retirement account beneficiaries. It is to say Roth conversions for the benefit of adult children who will experience a financial windfall are not necessary. 

I am not opposed to some wealthy retirees making a value judgment that intergenerational tax arbitrage is desirable. For those making such a value judgment who can afford to pay the taxes, great, do Roth conversions for the benefit of the next generation.

But to say such planning is necessary ignores the reality that Roth conversions done for the benefit of the next generation require sacrifice by those not enjoying a financial windfall for the benefit of those who will enjoy a financial windfall. 

Extra Note: You might be asking, “But Sean, what about my ne’er-do-well adult child? Shouldn’t I do Roth conversions for their benefit? They will need my retirement account.” The odds are very good that the ne’er-do-well beneficiary would pay a low tax on the retirement account, since they have little other income. A parent’s Roth conversion might hurt the beneficiary by increasing rather than decreasing the effective tax rate on the parent’s retirement account and reducing the amount of taxable assets the ne’er-do-well beneficiary inherits, since some of the parents’ taxable assets are used to pay the income taxes on what might ultimately be inefficient Roth conversions from an intergenerational perspective. 

Conclusion

Those arguing Roth conversions to reduce taxes on inherited traditional retirement accounts are desirable ignore the Roth conversion windfall problem. It is illogical to say that those not enjoying a financial windfall need to pay more tax for the benefit of those enjoying a financial windfall. 

FI Tax Guy can be your financial planner! Find out more by visiting mullaneyfinancial.com

Follow me on LinkedIn at @SeanWMullaney

This post is for entertainment and educational purposes only. It does not constitute accounting, financial, legal, investment, or tax advice. Please consult with your advisor(s) regarding your personal accounting, financial, legal, and tax matters. Please also refer to the Disclaimer & Warning section found here.

Roth IRA Distributions in Early Retirement

I recently presented “Back to the Future: Is Your FI Journey Stuck in 2017” for the ChooseFI Los Angeles chapter–coming soon to the San Diego ChooseFI chapter!

It struck me that back in 2017, most in the Financial Independence community would have said “let that Roth IRA grow tax free for as long as possible!”

Is that wise in 2026? 

I believe that for some early retirees, spending Roth IRAs in early retirement may be the optimal path. Cody Garrett explored this in our recent book, Tax Planning To and Through Early Retirement. 

I figure it is good to explore this topic in additional depth on my blog. An example will illustrate just how powerful Roth IRA withdrawals can be for some early retirees. 

Funding Year-End Expenses in Early Retirement

Picture Linus and Sally. Both turn 58 in 2026. They are retired, live in San Diego, California, and have no dependents. Linus and Sally are on the “Second Lowest Cost Silver Plan” all year as their ACA medical insurance. 

Through November 2026 they fund their living expenses by selling mutual funds in their taxable account. These sales, through November, have triggered $70,000 of capital gains. They also estimate that by the end of the year they will have $10,000 of total interest and dividend income.

Linus and Sally need $10,000 to fund their December living expenses. They are considering two options for getting that $10,000 from their portfolio.

Option 1 is selling $10,000 of mutual funds taxable accounts. This sale would trigger a $6,000 long-term capital gain. 

Option 2 is withdrawing $10,000 from one of their Roth IRAs. Due to having previously made annual contributions to Roth IRAs (and/or having done the Backdoor Roth IRA), they have plenty of accessible Roth IRA basis such that the $10,000 withdrawal would be entirely tax and penalty free. 

Which option should Linus and Sally choose to fund their December expenses?

The Premium Tax Credit

Linus and Sally are subject to three “taxes” that function like an income tax. They are:

  • Federal income tax
  • California state income tax
  • Premium Tax Credit

To be clear, the Premium Tax Credit is not a tax. Rather, it is a mechanism to run a personal expense (medical insurance premiums) through the Internal Revenue Code.

As a result, the Premium Tax Credit behaves very much like an income tax.

However, there is one feature of the Premium Tax Credit that we must consider in additional detail: the 400% of federal poverty level cliff. 

For Americans with income from 138 percent of the federal poverty level up to and through 400% of the federal poverty level, the Premium Tax Credit functions largely like an income tax. As income rises, the Premium Tax Credit is ratably and progressively reduced. However, the second one has income a dollar more than 400 percent of the federal poverty level, the Premium Tax Credit plunges (goes off the cliff) to $0. 

For a married couple, this could easily mean the loss of over $10,000 of Premium Tax Credits.

The 2026 return of the 400% of federal poverty level cliff means that Roth IRA withdrawals in early retirement are more important than ever!

Roth IRA Distributions and the Premium Tax Credit

Let’s explore the results when Linus and Sally pursue Option 1. This funds their December expenses with the sale of $10,000 of brokerage account mutual funds. It trips a capital gain of $6,000.

After this capital gain, Linus and Sally have an adjusted gross income (and MAGI) of $86,000, consisting of $70,000 of prior capital gains, $10,000 of interest and dividends, and the December capital gain of $6,000.

At $86,000 of MAGI, Linus and Sally qualify for no Premium Tax Credit, as their MAGI is 407 percent of the federal poverty level. 

If, instead, Linus and Sally fund their December living expenses with a $10,000 Roth IRA distribution, their adjusted gross income and their MAGI is $80,000 ($70,000 of capital gains plus $10,000 of interest and dividends). This leaves their income at 378 percent of the federal poverty level. 

At this level of income, Linus and Sally qualify for a $15,469 Premium Tax Credit. 

Roth Distribution Optimization

Option 2 is a Roth Distribution optimization play. 

In Linus and Sally’s 70s and 80s, it may be the case that a Roth distribution avoids a 24% or 32% federal income tax. That’s a good Roth distribution outcome.

But the $10,000 December Roth IRA distribution in 2026 avoids an effective federal tax of 257.82 percent!

Isn’t that the best time to take a Roth distribution?

Maximizing Premium Tax Credits with Roth IRA Distributions

It’s time to start thinking about ways to optimize Roth distributions. Enrollment in an ACA medical insurance plan may be the time to optimize Roth IRA distributions. ACA enrollees are subject to potential federal and state income taxes and potential diminution of the Premium Tax Credit.

What makes the diminution of the Premium Tax Credit issue particularly compelling in 2026 and beyond is the return of the 400 percent of federal poverty level cliff for Premium Tax Credits. 

For many of those retired prior to age 65, controlling income to avoid the 400 percent of federal poverty level cliff has become a compelling planning objective. Going off the cliff can easily cost a married retired couple $10,000 or more in Premium Tax Credits.

Having a tax free source to draw upon for living expenses in the early stages of an early retirement might be much more important than having a tax free source to draw upon later in retirement, as Linus and Sally’s example illustrates. 

Additional Resources

The taxation of “early” Roth IRA distributions tends to be very favorable. I blogged about the tax treatment of Roth IRA distributions in these two articles. 

Roth IRA Withdrawals

The Taxation of Roth IRA Distributions

Conclusion

Who doesn’t love a large tax free balance in a Roth IRA? Nevertheless, it is important to remember that balance exists to support retirees.

For many retirees, particularly those on an ACA medical insurance plan, the Roth IRA may best support them in the early part of their early retirement. 

FI Tax Guy can be your financial planner! Find out more by visiting mullaneyfinancial.com

Follow me on LinkedIn at @SeanWMullaney

This post is for entertainment and educational purposes only. It does not constitute accounting, financial, legal, investment, or tax advice. Please consult with your advisor(s) regarding your personal accounting, financial, legal, and tax matters. Please also refer to the Disclaimer & Warning section found here.

Can You Find the Hidden Roth IRA?

Perhaps you have a Hidden Roth IRA.

You might be thinking “No way. I did not lose track of a Roth IRA!”

The Hidden Roth IRA is not a lost retirement account. 

Rather, the Hidden Roth IRA is a Roth IRA that hides inside traditional IRAs and traditional 401(k)s. 

How can a Roth IRA hide in a traditional retirement account? It turns out tax free distributions (essentially, a Roth IRA) from traditional retirement accounts occur more often than you would think.

This article searches for Hidden Roth IRAs. You’ll be surprised how often retirees can benefit from the Hidden Roth IRA.

The Standard Deduction and the Hidden Roth IRA

We live in an era of a rapidly growing standard deduction. 

The standard deduction is to the Hidden Roth IRA what the flux capacitor is to time travel. 

The standard deduction makes the Hidden Roth IRA possible!

Increasing the standard deduction, as the One Big Beautiful Bill did, greatly expanded the Hidden Roth IRA. 

It gets even better. Through 2028, the senior deduction expands the Hidden Roth IRA for many age 65 and older. The new nonitemizers’ charitable deduction effectively increases the standard deduction by $1,000 per person for Americans with some charitable inclinations. 

Senator Cory Booker has recently proposed a significant increase in the standard deduction which would help many retirees enjoy the benefits of the Hidden Roth IRA.

Golden Years Hidden Roth IRAs

The “prime time” of the Hidden Roth IRA is one’s mid-to-late 60s, particularly the 66th through 69th birthday years.

In today’s environment, a married couple in their mid-to-late 60s could take more than $45,000 annually from traditional IRAs and have the “taxable” income fully offset by the available standard deduction, additional standard deduction, senior deduction, and potentially the nonitemizers’ charitable deduction. 

During the Golden Years, there are no required minimum distributions (RMDs). There’s no Premium Tax Credit on the table, so controlling income for PTC optimization is not a consideration. Further, Social Security can be delayed until age 70, resulting in increased annual payments, potentially reducing volatility in one’s 70s and 80s. 

Yes, the Golden Years Hidden Roth IRA mostly or fully goes away once the couple claims Social Security. Social Security benefits are ordinary income that soak up the standard deduction and senior deduction, reducing or fully eliminating their ability to shield traditional IRA/401(k) distributions from federal income taxation. Nevertheless, for multiple years of one’s retirement well into five figures can come out of traditional IRAs as a tax free Hidden Roth IRA. 

The Golden Years Hidden Roth IRA is the best Hidden Roth IRA, in my opinion. But it’s not the only Hidden Roth IRA. 

72(t) Payment Plans and the Hidden Roth IRA

Some retirees will get a jump start on the Hidden Roth IRA. Early retirees starting a 72(t) payment plan naturally tend to get the benefit of the Hidden Roth IRA.

Prior to the One Big Beautiful Bill, I did a YouTube video about this concept using the then-current 2025 numbers. Even prior to the OBBB expansion of the standard deduction, a married couple on a 72(t) payment plan could have more than $25,000 a year in a Hidden Roth IRA.

72(t) payment planning naturally marries with the Hidden Roth IRA. In most cases, I strongly favor mostly or fully spending down taxable account assets prior to initiating a 72(t) payment plan. Having spent down the taxable assets, it’s difficult for early retirees to incur significant income other than the 72(t) payment itself. 

This naturally clears the path for the 72(t) payment to enjoy the benefit of the Hidden Roth IRA. Those benefits can last for the better part of two decades in an extreme case such as the one posited in this YouTube video. 

Married Couples Taking RMDs

In today’s environment, many taking RMDs will enjoy the Hidden Roth IRA. Why?

Most 70-something and 80-something’s main sources of income are Social Security and retirement account distributions. 

Let’s consider average and median wealth and income statistics. The average monthly Social Security benefit, as of January 2026, is $2,071. Multiply that by 12 months and 2 spouses and you get $49,704 in Social Security per year. 

Median retirement account balances for those 75 and older as of 2022 was just $130,000.

Let’s round up those numbers for an 80 year old couple, Sal and Sophia. Assume $70,000 in total Social Security, $2,000 of interest from an online savings account, and $24,752 in RMDs from $500,000 in traditional IRAs. That’s a retired couple well above Social Security average benefits and median retirement account balances. 

Does this above-the-median married couple enjoy the benefits of the Hidden Roth IRA while taking RMDs?

You betcha!

How much? 

Of that $24,752 RMD, $24,410 is a Hidden Roth IRA!

This YouTube video demonstrates how Sal and Sophia, with a half million traditional IRA, can have all or almost all of their RMD be tax free. That demonstrates the power of the Hidden Roth IRA. 

I’ve found that it’s possible that a married couple taking RMDs on a $1 million traditional IRA could enjoy the benefit of a Hidden Roth IRA to a small degree in 2026. See this YouTube video for some numbers. 

The Hidden Roth IRA is a real phenomenon for many Americans taking RMDs. Based on the Social Security and retirement account statistics, it is very possible the majority of married couples taking RMDs can benefit from the Hidden Roth IRA.

Singles and Widows Taking RMDs

The benefits of the Hidden Roth IRA are not reserved only for married retirees. Singles and widows can also benefit. This is true even for many single/widowed retirees with above average Social Security income and above median retirement account balances.

On my YouTube channel I discussed an 80 year old single person with a half million traditional IRA and $40,000 of annual Social Security income. She enjoyed the benefit of an $8,660 Hidden Roth IRA. 

Yes, singles and widows tend to enjoy much less when it comes to the Hidden Roth IRA. But even those widows with above average Social Security and above median retirement account balances can enjoy a degree of Hidden Roth IRA benefits.

Inherited Traditional IRAs and the Hidden Roth IRA

One thing people fear is the taxes on inherited IRAs. The 10 year payout rule is viewed as a detriment to leaving heirs traditional IRAs. At first blush, taxing a large traditional IRA within 10 years seems to create a huge tax problem.

But will it really be a problem?

Consider many inheritors of large traditional IRAs. They themselves might already be retired or might decide to retire because of the large inheritance.

I ran through one such scenario on my YouTube channel. It may be the case that even a $2 million inherited traditional IRA could enjoy significant Hidden Roth IRA benefits for some or all of the 10 year payout window.

Implications of the Hidden Roth IRA

The Hidden Roth IRA has several important implications for financial planning. 

All of the below tactics and considerations are offered as educational insights. They are not offered as advice for you or any other individual’s situation. There are times when retirees would wisely want to avoid the below tactics. 

But, if all else is equal, in a general sense the Hidden Roth IRA makes the below tactics more appealing. 

Spend Down Taxable Accounts First

The first is that spending down taxable accounts first in retirement is very attractive, particularly for the early retiree. Part of the reason the Hidden Roth IRA can be so significant is the lack of other income hitting one’s annual tax return. 

Spending down taxable assets first has several advantages, including potentially setting up years of enjoying the Hidden Roth IRA later in retirement. 

Limit Ordinary Income in Retirement

A second implication is it is desirable to limit ordinary income hitting tax returns in retirement. There are various ways to achieve this. For example, holding bonds in traditional retirement accounts takes bond interest income off our tax returns. Consideration should be given to rolling pensions into IRAs to reduce annual ordinary income payouts earlier in retirement. 

Delay Social Security

Delaying claiming Social Security increases future monthly benefits. It also keeps Social Security income off one’s tax returns in their 60s, increasing the runway available to the Hidden Roth IRA.

RMDs are Not Harmful for Many Retirees

Consider Sal and Sophia. They are required to take a $24,752 RMD, almost all of which is tax free. A forced tax free distribution in one’s 70s or 80s is not harmful. Many Americans will enjoy the benefit of the Hidden Roth IRA on a portion of their RMDs. 

Yes, many affluent retirees taking RMDs will not get the benefit of the Hidden Roth IRA. Even for them, RMDs tend not to be all that harmful. 

Why would a couple like Sal and Sophia ever do a Roth conversion if most, if not all, of their RMDs while they are both alive benefit from the Hidden Roth IRA? 

Resource

I’m aware of only one book that discusses the phenomenon of the Hidden Roth IRA. In Tax Planning To and Through Early Retirement, Cody Garrett and I discuss the Hidden Roth IRA in the context of drawdown planning. 

Conclusion

Do you like Roths? If so, one of the best ways to have a Roth is to contribute to a traditional 401(k) at work. In retirement, some of that account may be distributed tax free as a Hidden Roth IRA. 

Many Americans will enjoy the benefit of the Hidden Roth IRA. The Hidden Roth IRA hides inside “taxable” traditional retirement accounts such as IRAs and 401(k)s. 

Planning such as spending taxable accounts first in retirement and reducing ordinary income hitting one’s tax return can increase the benefits of the Hidden Roth IRA.

FI Tax Guy can be your financial planner! Find out more by visiting mullaneyfinancial.com

Follow me on LinkedIn: @SeanWMullaney

This post is for entertainment and educational purposes only. It does not constitute accounting, financial, investment, legal, or tax advice. Please consult with your advisor(s) regarding your personal accounting, financial, investment, legal, and tax matters. Please also refer to the Disclaimer & Warning section found here. 

Roth 401(k) vs Roth IRA

Many ask the question: should I contribute to a Roth 401(k) or contribute to a Roth IRA? Below I discuss why, in the vast majority of cases, I strongly favor Roth IRA contributions over Roth 401(k) contributions. 

Roth Accounts

Who does not love tax free accounts? The Roth, properly distributed, can create tax free income.

The Roth is becoming particularly attractive for the early retiree trying to optimize Premium Tax Credits. Yes, you can potentially fund pre-65 retirement expenses from traditional retirement accounts or sales of taxable account assets. But (with uncommon exceptions) both trigger taxable income, increasing the possibility of going over the 400 percent of federal poverty level cliff. 

Roth IRAs

Roth IRAs are an individual account and can be established at a plethora of financial institutions. Most working taxpayers qualify to make annual contributions to a Roth IRA. However, the ability to make an annual contribution to a Roth IRA phases out at certain income levels and is completely eliminated at $168,000 (single) or $252,000 (married filing joint) of modified adjusted gross income (2026 numbers). 

The maximum annual contribution to a Roth IRA is $7,500 (if under age 50) or $8,600 (if age 50 or older) (2026 numbers). 

Annual contributions can be withdrawn from the Roth IRA at any time for any reason tax and penalty free. Thus, Roth IRAs can perform double duty as both a retirement savings vehicle and as an emergency fund. This is an advantage of Roth IRAs over Roth 401(k)s. 

Of course, considering their tax free growth, it is usually best to keep amounts in a Roth IRA for as long as possible, particularly during one’s working years. 

Roth 401(k)s

Roth 401(k)s are a workplace retirement plan. Contributions can be made through payroll withholding. 

The Roth 401(k) does enjoy some advantages when compared to its Roth IRA cousin. First, there is no income limit to worry about. Regardless of income level, an employee can contribute to a Roth 401(k). Second, the contribution limits are much higher than the contribution limits for Roth IRAs. As of 2026, the annual Roth 401(k) contribution limit is $24,500 (under age 50). Those aged 50 and older by year end qualify for additional catch-up contributions. 

The Roth 401(k) is not a good account for emergency withdrawals. Withdrawals occurring prior to both the account holder turning 59 ½ years old and the account turning 5 years old generally pull out a mixture of previous contributions and taxable earnings.

Roth 401(k) vs Roth IRA

So which one should workers prioritize? Contributions to a Roth 401(k) or contributions to a Roth IRA?

To help us answer that question, let’s consider a young couple pursuing financial independence:

Stephen and Becky are both age 35, married (to each other), and pursuing financial independence. They both would like to retire at least somewhat early by conventional standards. They each have a W-2 salary of $110,000. They have approximately $2,000 of annual interest and dividend income. They claim the standard deduction of $32,200 in 2026. At this level of income, they have a 22 percent marginal federal income tax rate. Stephen and Becky each have access to a traditional 401(k) and a Roth 401(k) at work. They would like to maximize their retirement plan contributions. 

How should Stephen and Becky allocate their retirement plan contributions? Should they contribute to a Roth 401(k) and/or to a Roth IRA?

To my mind, the best play here is to contribute to a Roth IRA ($7,500 each) and contribute to a traditional 401(k) ($24,500 each). Stephen and Becky should not contribute to a Roth 401(k). 

There is a significant tax opportunity cost to making a Roth 401(k) contribution: the ability to deduct a traditional contribution to a 401(k). Remember, the Roth 401(k) shares the $24,500 annual contribution limit with the traditional 401(k). Every dollar contributed to a Roth 401(k) is a dollar that cannot be contributed to a traditional 401(k). 

Contrast the significant tax opportunity cost of making a Roth 401(k) contribution to the tax opportunity cost of making a Roth IRA contribution: practically nothing. 

Stephen and Becky have no ability to deduct a traditional IRA contribution because of their income level and the fact that they are covered by a workplace retirement plan. Thus, they aren’t losing much, from a tax perspective, by each making a $7,500 annual Roth IRA contribution. 

For Stephen and Becky, the idea is to Pay Tax When You Pay Less Tax. As I’ve explored on my YouTube channel, it’s frequently the case that retirees are lightly taxed. The odds are that Stephen and Becky will pay the most tax when they are working. Thus, the better path is likely to be to take the tax deduction (the traditional 401(k) contribution) during their working years and then pay tax on traditional retirement accounts in retirement.  

Trade Off Profile

The trade off profile of the traditional 401(k) versus Roth 401(k) tilts towards the traditional 401(k) contribution.

Every dollar contributed to a Roth 401(k) is a dollar that could not have been tax deducted into a traditional 401(k).

The opposite is true when it comes to IRAs. Every dollar contributed to a Roth IRA is not a dollar that could have been deducted into a traditional IRA in many cases due to the relatively low income limits many face on the ability to deduct a traditional IRA contribution.

If I’m going to do Roth, don’t I want to do the Roth that does not sacrifice a tax deduction? 

Situations Where the Roth 401(k) Contributions Make Sense

Generally there are four situations where choosing to contribute to a Roth 401(k) makes sense. In these situations, the tax rate arbitrage play available to Stephen and Becky isn’t available. 

In the first three situations below, a Roth 401(k) contribution is likely preferable to a traditional 401(k) contribution. As compared to a Roth IRA contribution, (a) the first contributions should generally be to the Roth 401(k) to secure the employer match, and then after that, (b) generally both the Roth 401(k) and the Roth IRA work well. To my mind, the emergency-type fund feature of the Roth IRA is probably the tiebreaker in favor of making the next contributions to a Roth IRA.

Transition Years

Think about a year one graduates college, graduate school, law school, or medical school. Usually, the person works for only the last half or last quarter of the year. Thus, they have an artificially low taxable income (since they only work for a small portion of the year). Why take a tax deduction for a contribution to a traditional 401(k) in such a year, when one’s marginal federal income tax rate might only be 10 percent?

End of career wind downs where one reduces workload, and thus, taxable income, can be a great time to switch to the Roth 401(k) for retirement contributions. 

Transition years are a great time to make Roth 401(k) contributions instead of traditional 401(k) contributions. 

Mini-Retirements

Taking a year-long mini-retirement beginning February 1st? January 401(k) contributions might be best made to the Roth 401(k) instead of the traditional 401(k).

No Hope

Picture a charismatic franchise NFL quarterback. He’s got a $50M plus annual NFL contact, endorsement deals, business ventures, and likely a long TV career after his playing days are done. For him, there is no hope ( 😉 ). He will probably be in the top federal income tax bracket the rest of his life. He might be well advised to “lock-in” today’s low (by historical standards) 37% federal income tax marginal tax rate by choosing to contribute to a Roth 401(k) instead of to a traditional 401(k).

High Earners’ Catch-Up Contributions

This isn’t a question of “traditional versus Roth” preference. It’s a question of the tax law.

Starting in 2026, those making more than $150,000 in prior-year W-2 wages from an employer cannot make catch-up contributions to a traditional 401(k). Their catch-up contributions must be made to the Roth 401(k). 

Sure, this rule takes away a valuable tax deduction. But having Roth money going into retirement is not a bad thing. Those high earners with cash flow sufficient to make Roth catch-up contributions should consider doing so. 

Additional Resource

Cody Garrett and I did a deep dive on all things retirement planning, including Roth retirement accounts, in Tax Planning To and Through Early Retirement, available on Amazon and many other online sources. 

FI Tax Guy can be your financial planner! Find out more by visiting mullaneyfinancial.com

Follow me on LinkedIn: @SeanWMullaney

This post is for entertainment and educational purposes only. It does not constitute accounting, financial, investment, legal, or tax advice. Please consult with your advisor(s) regarding your personal accounting, financial, investment, legal, and tax matters. Please also refer to the Disclaimer & Warning section found here. 

Roth IRA Withdrawals

The Roth IRA is 28 years old as of 2026 (its birthday was January 1st). Yet there is still confusion about the rules applicable whenever someone withdraws money from a Roth IRA prior to turning 59 ½. This blog post attempts to correct some misconceptions on the taxation of nonqualified Roth IRA withdrawals.

Roth IRA withdrawals are becoming more important for early retirees facing the 400 percent of federal poverty level cliff which can eliminate thousands of dollars of Premium Tax Credits. Keep reading to find out how tactical Roth withdrawals in early retirement can help enhance Premium Tax Credits. 

Roth IRAs: The Basics

A Roth IRA is a tax-advantaged account that generally offers tax-free growth for invested amounts. Taxpayers receive no upfront tax deduction for putting money into a Roth IRA. If properly executed, taxpayers can withdraw money from a Roth IRA entirely tax and penalty free, and can enjoy years of tax-free growth on the amounts invested in a Roth IRA.

Roth IRA Funding

How does one move money into a Roth IRA? There are three ways.

Annual Contributions

Generally speaking, if your income is below certain limits, you can contribute up to the lesser of $7,500 or your earned income (2026 limits) to a Roth IRA. If you are aged 50 or older, the limits are the lesser of $8,600 or earned income (2026 limits). 

Conversions

Amounts can be converted from traditional retirement accounts into a Roth IRA. Any taxpayer can convert amounts from a traditional retirement account to a Roth IRA. There are no restrictions based on level of income and/or having had earned income. 

Conversions are taxable in the year of the conversion. 

There are several reasons you might want to do a Roth IRA conversion. One might be the anticipation of paying tax at a higher rate in the future. The planning concept is to “lock in” the lower tax rate in the year of the conversion rather than tomorrow’s (anticipated) higher tax rate, and to get all of the earnings on the contribution out of income taxation.

Unlimited Roth IRA conversions form the backbone of the Backdoor Roth IRA planning concept. 

Note that inherited traditional IRAs cannot be converted to Roth IRAs.

Transfers from Workplace Retirement Accounts

A third way to get money into a Roth IRA is by using workplace retirement accounts. Amounts in Roth 401(k)s and other workplace Roth accounts can be transferred into a Roth IRA. Generally, it is best to use direct “trustee-to-trustee” transfers to accomplish this. 

Further, after-tax contributions in workplace retirement plans can be directly transferred to Roth IRAs, as discussed in Notice 2014-54. 

The ability to transfer after-tax contributions into a Roth IRA has facilitated the use of the Mega Backdoor Roth IRA planning technique. 

Roth IRA Withdrawals: The Confusion

You may have heard that you cannot take money out of a Roth IRA if the account is not 5 years old without paying tax and a penalty. Not true!

There are not one, but two, five (5) year rules applicable to Roth IRAs. But neither one of them prohibit you from taking money out of a Roth IRA you have previously contributed through annual contributions. First, I will illustrate the default Roth IRA withdrawal rules, and then I will discuss the two 5 year rules. 

Quick Thought: Most of this blog post addresses situations where the taxpayer does not qualify for a qualified distribution. Generally, a taxpayer fails to qualify for a qualified distribution if he or she has not attained the age of 59 ½, and/or if he or she has not owned a Roth IRA for 5 years. The advantage of a qualified distribution is that it is automatically tax and penalty free. 

Roth IRA Withdrawals: The Layers

Here is the default order of distributions that come out of a Roth IRA. These are the rules that apply in cases where the taxpayer does not qualify for a qualified distribution. All Roth IRAs (other than inherited Roth IRAs) the taxpayer owns are aggregated for purposes of determining his or her Roth IRA layers.

First Layer: Tax-free return of Roth IRA contributions

Second Layer: Roth IRA conversions (first-in, first-out)

Third Layer: Roth IRA earnings

Each layer must come out entirely before the subsequent layer is accessed.

Here’s a brief example:

Example 1: Samantha opened her only Roth IRA in 2018. Samantha has made three prior $5,000 contributions to her Roth IRA (one for each of 2018, 2019, and 2020). She also made a $5,000 conversion from a traditional IRA to a Roth IRA in 2018. In 2021, at a time when her Roth IRA is worth $30,000 and Samantha is 50 years old, she takes a $10,000 withdrawal from her Roth IRA. All $10,000 will be a recovery of her previous contributions (leaving her with $5,000 remaining of previous contributions). Thus, the entire $10,000 distribution from the Roth IRA will be tax and penalty free.

The Roth IRA contributions come out tax and penalty free at any time for any reason! The 5 year rules have nothing to do with whether a taxpayer can recover their previous Roth IRA contributions tax and penalty free!

For those wanting to dig deeper into the tax law, please refer to this blog post and this technical slide deck discussing why the Roth IRA contributions are distributed tax and penalty free regardless of the 5 year rules. 

Note that aggregation rules always apply. In making an analysis like the one provided in Example 1, one must account for all their Roth IRAs and treat all of their Roth IRAs as a single Roth IRA to determine their own Roth IRA layers. Roth 401(k)s and inherited Roth IRAs are not included in the analysis. 

5 Year Rule for Roth IRA Earnings

The first five-year rule for Roth IRAs applies only to a withdrawal of earnings from a Roth IRA. If the account owner has not owned a Roth IRA for at least 5 years, the earnings withdrawn from the account are subject to ordinary income tax (and possibly a penalty). 

Example 2: Joe is 62 years old in 2024. He has owned a Roth IRA since 2021. In 2024, after having made $14,000 in prior annual contributions to his Roth IRA, he withdrew $17,000 from the Roth IRA. Because Joe has not owned a Roth IRA for 5 years, the withdrawal is not a qualified distribution. Joe recovers his first $14,000 tax free as a return of contributions. The next $3,000 of earnings is taxable to Joe as ordinary income (because of the first five-year rule). Because Joe is over age 59 ½, he does not owe the ten percent penalty on the distribution. If Joe had not attained the age of 59 ½, he would owe the 10 percent penalty on the $3,000 of earnings he received. 

5 Year Rule for Roth IRA Conversions

There is a five-year rule applicable to taxable money converted from a traditional retirement account to a Roth IRA (what I will colloquially refer to as the “second five-year rule”). The idea behind the second five-year rule is to protect the 10% early withdrawal penalty applicable when someone has a traditional retirement account. Here is an illustrative example.

Example 3: Milton has $100,000 in a traditional IRA, no basis in any IRA, and is age 50. If he were to withdraw $1,000 from his traditional IRA (assuming no penalty exception applies), he would owe (in addition to ordinary income tax) a $100 penalty (ten percent) on the withdrawal. 

Okay, but what if Milton first converts that money from a traditional IRA to a Roth IRA (assume Milton has no other balance in a Roth IRA)? Would that get him out of the 10 percent penalty? No, it won’t, because of the second five-year rule.

Example 4: Milton has $100,000 in a traditional IRA, no basis in any IRA, has no Roth IRAs, and is age 50. In September 2024, he converts $1,000 to a Roth IRA. In October 2024, he withdraws $1,000 from that Roth IRA. Because of the five-year rule applicable to Roth IRA conversions, Milton will still owe the $100 penalty on the withdrawal from the Roth IRA. 

Had Milton waited until 2029 or later, he would not have owed the penalty on the withdrawal of that $1,000.

The 5 Year Rule for Roth IRA Conversions and the Backdoor Roth IRA

The Backdoor Roth IRA is subject to the second five-year rule, but the penalty effect turns out to be very minor (or non-existent) if the Backdoor Roth IRA has been properly executed.  

Conversions, the second layer of the Roth IRA stack, come out first-in, first out. Further, the taxable amount (potentially subject to the 10 percent penalty upon withdrawal) of any one particular Roth IRA conversion comes out first within the conversion amount. Thus, the second layer (the conversion layer) can be composed of several mini-layers.

Here is a quick example:

Example 5: Denzel made $6,000 nondeductible traditional IRA contributions on January 1, 2019 and January 1, 2020. On February 2, 2019 and February 2, 2020, Denzel converted the entire balance of the traditional IRA ($6,010 each time) to a Roth IRA. As of December 31, 2019 and December 31, 2020, Denzel had $0 balances in all traditional IRAs, SEP IRAs, and SIMPLE IRAs.

In 2021, at a time when Denzel is 35 years old and has made no other contributions or conversions to a Roth IRA, he withdraws $3,000 from his Roth IRA. The first $10 of the withdrawal will be from the taxable amount of his 2019 Roth conversion, and thus, will be subject to the 10 percent penalty as it violates the second five-year rule (Denzel will owe $1 in penalties). The next $2,990 is attributable to the non-taxable portion of his 2019 Roth conversion, and as such, will not be subject to the 10 percent penalty. None of the $3,000 will be subject to ordinary income tax. 

Penalty Exceptions

From time to time you will hear things such as “you can withdraw only $10,000 from a Roth IRA for a first-time home purchase.” Does that mean everything else discussed above does not apply?

Fortunately, the answer is no! 

So what is the $10,000 rule getting at? It is getting at amounts withdrawn from a Roth IRA that would otherwise be subject to the penalty (and possibly income taxes — see The Super Exceptions below). 

There are several penalty exceptions applicable to taxable converted amounts and earnings that are withdrawn from a Roth IRA in a nonqualified distribution. But the penalty exception rules generally apply on top of the usual layering rules, not instead of the usual Roth IRA layering rules. 

In a discussion on social media, I used a version of the following example.

Example 6: Jane Taxpayer, age 30, has had a Roth IRA since 2017. In 2020, she withdraws $30,000 from her Roth IRA to acquire her first home, and has never used traditional IRA and/or Roth IRA money for such a purchase. She has previously made $20,000 in annual contributions to the Roth IRA. The first $20,000 of the withdrawal is a tax-free return of those contributions (see the layers above). The next $10,000 is out of earnings (see the layers above). This $10,000 is taxable to her as ordinary income. But, because of the $10,000 “qualified first-time homebuyer distribution” exception, she does not owe the 10 percent penalty on the withdrawal of those earnings.

In this case, withdrawals used to fund certain home purchases can qualify for a penalty exception (the first-time homebuyer exception is subject to a $10,000 cap). Please visit this website for a list of the possible penalty exceptions applicable to withdrawals from a traditional IRA and a Roth IRA.

The Super Exceptions

If the taxpayer is relying on the disability, age 59 ½, death, or qualified first-time home purchase penalty exceptions, the earnings also come out income tax free so long as the taxpayer has owned a Roth IRA for five years. See slide 5 of the above referenced technical slide deck. 

As applied to Jane Taxpayer in Example 6 above, if she had owned a Roth IRA since any time in 2015 or earlier, the distribution of $10,000 of earnings would not only have been penalty free, it would have also been income tax free. 

60 Day Rollovers

A taxpayer might take money out of a Roth IRA and then reconsider. Perhaps he or she wants the money to grow tax-free. Or perhaps the taxpayer dipped into earnings and the distribution is not a qualified distribution, meaning that it will likely be subject to ordinary income tax and possibly the ten percent penalty. 

He or she might be able to roll the money back into the Roth IRA. However, the tax rules allow only one 60 day rollover every 12 months. The IRS has a website here discussing some of the issues. 

Because of the one-rollover-per-year rule, I generally advise against doing 60 day rollovers unless you need to. Generally, it is best to avoid them, and then have the option available as a life raft if money somehow comes out of a Roth IRA (or other IRA) when it should not have. Note that Roth conversions are excepted from the once-every-12-months rule. Those wanting to do so could do a Roth conversion every day if they were so inclined. 

Required Minimum Distributions

There are no required minimum distributions from a Roth IRA during the owner’s lifetime. 

Early Retirement Tax Planning

Starting in 2026, the dreaded 400 percent of federal poverty level cliff is back when it comes to claiming Premium Tax Credits against ACA medical insurance premiums. The cliff can easily cost a retired married couple over $10,000 a year in early retirement. 

This greatly increases the desirability of reducing income in early retirement. But early retirees still need to live.

Wouldn’t it be great if there was a source of funds for living expenses that is entirely tax free? Roth IRAs can be that source! 

The Roth IRA withdrawal ordering rules are so favorable that it is likely many early retirees can access thousands of dollars from their Roth IRA to fund their retirement and keep income very low. 

For those retirees younger than age 59 ½, their Roth basis (in a general sense, the combination of their historic annual contributions and their taxable Roth conversions that at least 5 years old less any previous withdrawals) can be withdrawn tax and penalty free to fund living expenses in a manner that does not increase income for Premium Tax Credit determinations. 

For those retirees who are both 59 ½ and have held any Roth IRA for at least 5 years, the only thing they can take from a Roth IRA is a qualified distribution which is always entirely tax free. 

Many retirees on ACA medical insurance plans will want to consider tactically taking Roth IRA withdrawals to limit their modified adjusted gross income (MAGI) and increase their Premium Tax Credit. 

FI Tax Guy can be your financial planner! Find out more by visiting mullaneyfinancial.com

Follow me on LinkedIn: @SeanWMullaney

This post is for entertainment and educational purposes only. It does not constitute accounting, financial, investment, legal, or tax advice. Please consult with your advisor(s) regarding your personal accounting, financial, investment, legal, and tax matters. Please also refer to the Disclaimer & Warning section found here.

Five Phases of Retirement: Sean’s Presentation at the 2025 Bogleheads Conference

I presented Tax Planning for the Five Phases of Retirement at the October 2025 Bogleheads Conference in San Antonio, Texas.

Highlights of the presentation include, but are not limited to, the following:

Tailored Taxable Roth Conversions (TTRCs) 7:48

The Hidden Roth IRA 13:20

Might Half Your Income Be Tax Free in Retirement? 19:43

7 Ways to Mitigate RMDs 25:09

The Widow’s Tax Trap 28:43

The Real Job of a Retirement Account 33:20

Airplane! and Tax Planning 42:38

HSA PUQME Planning 47:57

I hope you enjoy it!

If you like this sort of analysis, there’s a whole bunch more in the book Tax Planning To and Through Early Retirement, which Cody Garrett, CFP(R) and I wrote in 2025.

Please let me know what you think about the presentation in the comments.

FI Tax Guy can be your financial planner! Find out more by visiting mullaneyfinancial.com

Follow me on LinkedIn: @SeanWMullaney

This post and the presentation (including Q&A) in the YouTube video are for entertainment and educational purposes only. They do not constitute accounting, financial, investment, legal, or tax advice. Please consult with your advisor(s) regarding your personal accounting, financial, investment, legal, and tax matters. Please also refer to the Disclaimer & Warning section found here.

IRA Basis Isolation Revisited

Basis in IRAs is a funny thing. It necessitates the Pro-Rata Rule, one of the least understood tax rules affecting financial planning. IRA basis creates all sorts of confusion, making traditional IRAs less user friendly. 

Further, the value of basis in a traditional IRA is whittled away by inflation. Basis is generally the undistributed prior after-tax (or nondeductible) contributions in the IRA. Since basis might be distributed or converted years, perhaps decades, after the contribution, and is not increased for inflation, its value diminishes the longer it exists. 

Thus, basis isolation techniques gain attention. The idea is to use the basis in an advantageous way to (1) harvest it prior to its value being eroded away by inflation and (2) move basis amounts into Roth IRAs relatively tax free. 

Basis Isolation Techniques

The most basic basis isolation technique is a properly done Backdoor Roth IRA. IRA basis is created and quickly used to move money into Roth IRAs. The basis is fully used before inflation can erode its value.

The Backdoor Roth IRA is a simple tactic that, employed over many years, can be tremendously beneficial. It has very little downside risk and is relatively simple to implement. 

Another basis isolation tactic is the qualified charitable distribution (“QCD”). This one is even easier than the Backdoor Roth IRA. QCDs do not take IRA basis when transferred to a charity. Thus, distributions the taxpayer receives and/or Roth conversions attract more of the available IRA basis to reduce the taxable amount. A small IRA basis benefit, but still helpful. 

What about situations where someone has (1) significant basis in an IRA and (2) significant pretax amounts in an IRA? Now we have complexity, risk, and opportunity. The tactic I wrote about which could be useful in this situation is the Basis Isolation Backdoor Roth IRA.

The Basis Isolation Backdoor Roth IRA does the following:

  1. Cleans up IRA basis and uses it before inflation reduces its value. 
  2. Creates a Roth IRA the owner can use for tax free withdrawals in retirement. 
  3. Reduces future required minimum distributions (“RMDs”) by reducing the size of a traditional IRA. 

I believe advisors and IRA owners need to proceed with caution when it comes to the Basis Isolation Backdoor Roth IRA. What initially looks incredibly attractive may turn out to be an unattractive planning technique.

Note that some 401(k) and other qualified plans do not accept roll-ins of IRAs. Some other plans only accept roll-ins of a certain type of IRA, a “conduit IRA.” A conduit IRA is an IRA comprised only of old 401(k)s, 403(b)s, governmental 457s, and other qualified plans and the growth thereon. Thus, plans requiring that the rolled-in IRA be a conduit IRA cannot be used to facilitate isolation of IRA basis created by old nondeductible traditional IRA annual contributions, since the growth on nondeductible traditional IRA contributions is not eligible to be moved over to such plans. 

Basis Isolation Backdoor Roth IRA Examples

To analyze whether employing a sophisticated IRA basis isolation technique is advisable, I’m going to present two examples. These examples will illustrate when I favor and when I disfavor using the Basis Isolation Backdoor Roth IRA. 

Example 1: Basis Isolation Backdoor Roth IRA into a Large Employer 401(k)

April, age 48 in 2026, works for Apple Inc. She is a participant in their 401(k) plan. In 2022 through 2026 her adjusted gross income was such that she qualified for neither a deductible annual contribution to a traditional IRA nor an annual contribution to a Roth IRA. In 2022 she contributed $6,000 to a traditional IRA. In 2023 she contributed $6,500 to a traditional IRA. In 2024 she contributed $7,000 to a traditional IRA.

All of these contributions were nondeductible. In 2025 April learned about the Backdoor Roth IRA and the Pro-Rata Rule. Thus, she did not make any contributions to a traditional IRA for 2025. 

April is planning on retiring in five years. She has a sizable balance in her 401(k). Her taxable brokerage account is worth $100,000, and her traditional IRA is worth $100,000, consisting of (1) the three nondeductible contributions ($19,500 total), (2) a $20,000 401(k) rollover from a former employer plan and (3) investment growth on both 1 and 2. April has no Roth IRAs or health savings accounts.

Only for sake of this analysis, assume Apple’s 401(k) both accepts all IRA roll-ins (other than IRA basis) and offers satisfactory low-cost investment options. 

April proceeds as follows:

Step 1: In May 2026, April contacts her IRA custodian and splits her $100,000 traditional IRA into two IRAs. The first is $19,700 invested in a money market account (her basis amount of $19,500 plus a small $200 round up). This IRA is the Leave Behind IRA. The second IRA (IRA 2) is worth $80,300 and can be invested in whatever April desires.

Step 2: April works with the Apple 401(k) plan and her IRA custodian to arrange a direct trustee-to-trustee transfer of IRA 2 from the traditional IRA to April’s Apple 401(k) account. 

Step 3: After the completion of Step 2, April converts the entire Leave Behind IRA (now worth $19,900 due to interest accruing on the money market fund) to a Roth IRA. Due to IRA basis isolation, only $400 of the $19,900 is taxable to April on her 2026 federal income tax return. 

Steps 1 through 3 are the Basis Isolation Backdoor Roth IRA. 

Step 4: April executes the two steps of a 2026 Backdoor Roth IRA, getting another $7,500 (plus a small amount of interest) into her Roth IRA.

Step 5: April ensures that as of December 31, 2026, she has $0 balances in all traditional IRAs, traditional SEP IRAs, and traditional SIMPLE IRAs. 

I’m drafting this at the end of the Winter Olympics. Recall that many of the figure skaters make the “heart sign” gesture after their skates. You can feel free to picture me making the heart sign gesture when thinking about April’s Basis Isolation Backdoor Roth IRA. 

Why do I like this basis isolation play for April? Let me list the reasons.

Reason One: Helpful to April in early retirement. Recall that April intends to retire at age 53. Recall further that April has just $100,000 in a taxable brokerage account and no Roth IRA or HSA. Steps 1 through 4 create approximately $27,500 in Roth IRA basis that April can access in early retirement prior to age 59 ½ without tax or penalty. Further, the Basis Isolation Backdoor Roth IRA opens up the Backdoor Roth IRA for the last five years of her career, allowing her to create even more Roth IRA basis that can help fund early retirement advantageously from a Premium Tax Credit perspective and an income tax perspective.

Reason Two: Relatively modest IRA transfer. April moves approximately $80,000 of pretax IRA money. Any movement of pretax IRA money involves, however small, an element of risk. While $80,000 is not a tiny sum, it is also not a huge sum. It’s not the lion’s share of April’s wealth. Execution risk is mitigated in April’s case by the modesty of the sum moving into the Apple 401(k).

Reason Three: Using a large employer 401(k). Unless you work at Apple, you, like me, have little insight as to the contours and compliance record of Apple’s 401(k). Regardless, we would be absolutely shocked if we woke up tomorrow morning and read that the IRS and/or the Department of Labor challenged Apple’s 401(k) plan qualification. 

Why? Disqualifying Apple’s 401(k) plan would create problems for thousands of voters. Congressmen from multiple Congressional districts, and perhaps even Senators, would strongly question the IRS and/or the Department of Labor about the issue. We know the motivations of the IRS and Department of Labor in this regard. They have every incentive to avoid significant headaches and work with Apple to get to a place where Apple’s 401(k) qualifies as a 401(k). 

None of this is to cast aspersions at IRS and/or Department of Labor personnel. It’s simply acknowledging reality. How often do you look to stir up a hornet’s nest at your place of work? 

As discussed above, I have absolutely no knowledge or opinion about the qualification of Apple’s 401(k) and/or the quality of the investments in it. I simply raise possibilities and discuss pivotal actors’ motivations to explore planning where one uses a workplace 401(k) to facilitate an IRA basis isolation transaction. 

Helping fund early retirement. Relatively low risk of transferring pretax amounts. Parking assets in a stable, established, large employer 401(k) to achieve the objective.

April’s Basis Isolation Backdoor Roth IRA is quite attractive, in my opinion. 

Example 2: Basis Isolation Backdoor Roth IRA into a Solo 401(k)

Jack, age 66 in 2026, and his wife, Becky, also age 66 in 2026, retired two years ago. Jack made $80,000 of nondeductible traditional IRA contributions over the years. With rollovers of prior large employer 401(k)s, today Jack’s traditional IRA is worth $2 million. Jack is very happy with the financial institution holding the traditional IRA and the investments offered by that institution. 

Jack and Becky currently live off taxable brokerage accounts, currently worth $1 million. Becky also has $500,000 in a traditional IRA with no basis. Neither Jack nor Becky has a Roth IRA or an HSA. 

Jack is interested in isolating his $80,000 traditional IRA basis and getting it into a Roth IRA. He’s heard about the Solo 401(k) and is intrigued. He concocts an idea. He will drive for Lyft part time for three months. Doing so brings in $3,000 of revenue. After expenses and a deduction for half of his self-employment taxes, he has $2,000 of net profit.

Jack proceeds as follows:

Step 1: Jack takes the position that he has self-employment income in 2026 and thus opens a Solo 401(k). He makes a maximum $2,000 employee deferral contribution for 2026.

Step 2: In August 2026, Jack contacts his IRA custodian and splits his $2 million traditional IRA into two IRAs. The first is $80,200 invested in a money market account (his basis amount of $80,000 plus a small $200 round up). This IRA is the Leave Behind IRA. The second IRA (IRA 2) is worth $1,920,000 and can be invested in whatever Jack desires.

Step 3: Jack works with the Solo 401(k) plan custodian and his IRA custodian to arrange a direct trustee-to-trustee transfer of IRA 2 from the traditional IRA to Jack’s Solo 401(k) account. 

Step 4: After the completion of Step 3, Jack converts the entire Leave Behind IRA (now worth $80,500 due to interest accruing on the money market fund) to a Roth IRA. Due to IRA basis isolation, Jack takes the position that only $500 of the $80,500 is taxable to him on his 2026 federal income tax return. 

Steps 2 through 4 are the Basis Isolation Backdoor Roth IRA. 

Step 5: Jack ensures that as of December 31, 2026, he has $0 balances in all traditional IRAs, traditional SEP IRAs, and traditional SIMPLE IRAs. 

Jack’s Basis Isolation Backdoor Roth IRA makes me feel the way my New York Jets fandom has in recent years. For those unaware, the Jets currently have the longest streak of missing the playoffs in North American major sports. 

Why do I disfavor this basis isolation play for Jack? Let me list the reasons.

Reason One: No help solving retirement funding issues. Jack and Becky’s retirement is well funded. Unlike April, they do not need to control income for Premium Tax Credit purposes. Jack and Becky are currently living off taxable accounts. As I have previously discussed, they may pay practically no federal income tax doing so. 

Why are Jack and Becky moving a large account and doing sophisticated distribution planning when they already have years of paying hardly any federal income tax?

Reason Two: Large IRA transfer. Jack moves approximately $1.92M of pretax IRA money. Any movement of pretax IRA money involves, however small, an element of risk. $1.92 million is the lion’s share of Jack and Becky’s financial wealth. Execution risk on a $1.92 million transfer of assets already in a satisfactory location, a traditional IRA with a liked institution, is not something I favor successful retirees affirmatively planning into. 

Reason Three: Using a Solo 401(k). Compare the IRS disqualifying Jack’s Solo 401(k) with disqualifying Apple’s Solo 401(k). No Congressman is reaching out to the IRS if they disqualify Jack’s Solo 401(k). Further, the success of Jack’s strategy depends on him successfully maintaining his Solo 401(k) in the future. Rocket science? No. But guaranteed? Also, no. 

Is Jack’s Solo 401(k) Valid? 

Contributions of Self-Employment Income

I strongly question whether Jack would have a valid Solo 401(k) in this fact pattern. Consider the Congressional intent behind Solo 401(k)s. Solo 401(k)s allow the self-employed to make significant contributions of self-employment income to retirement accounts. Solo 401(k)s solve for the problem of the self-employed not having access to large employer 401(k) plans. 

Jack’s use of a Solo 401(k) is hardly reflective of the intent behind the Solo 401(k). Jack accumulated years of retirement account contributions in a traditional IRA. He had no need for the Solo 401(k) to accumulate and maintain retirement savings. Further, about a tenth of a percent of the Solo 401(k) balance is funded by “self-employment income.” About 99.9 percent of the balance of Jack’s Solo 401(k) has nothing to do with self-employment. 

These numbers indicate that Jack’s Solo 401(k) has little to do with contributions of self-employment income to save for retirement. 

Is Jack Self-Employed?

As I discussed on page 24 of this article, one needs self-employment to have a Solo 401(k). I strongly question whether Jack’s Lyft driving qualifies as self-employment allowing him to open a Solo 401(k). 

Consider making the case to respect Jack’s Lyft activities as “self-employment.” How is a retired person self-employed? What do Jack and Becky live off of? Accumulated retirement assets or Lyft income? That Jack and Becky live off their retirement savings and not off Jack’s Lyft income is instructive in determining whether that income comes from an activity sufficient to be considered a business to allow Jack to have a Solo 401(k). 

IRA Basis Isolation and Solo 401(k) Stuffing

I’m not shy when I see the IRS in a weak position. In this article, I strongly argue the IRS has a very weak position if they attempt to enforce the literal terms of Notice 2022-6 governing 72(t) payment plans. 

I’m also not shy in acknowledging situations where the IRS may have a strong position. When it comes to stuffing Solo 401(k)s for distribution motivated reasons, I believe the IRS has a strong position. I previously wrote about this when it comes to stuffing a Solo 401(k) for Rule of 55 planning. See pages 24 through 26 of this article. 

I believe the IRS would have a high likelihood of success were they to challenge the validity of Jack’s Solo 401(k). Can you imagine taxing a $2 million traditional IRA through an attempted rollover into an invalid Solo 401(k) just to get $80,000 into a Roth IRA?

After considering Solo 401(k) stuffing in the contexts of both the Rule of 55 and the Basis Isolation Backdoor Roth IRA, I’ve come up with Mullaney’s Solo 401(k) Distribution Planning Principle: 

Do not use a Solo 401(k) for distribution planning. 

Solo 401(k)s can be distributed out of (as I argue in this article), but I disfavor using them to facilitate sophisticated distribution planning such as a Basis Isolation Backdoor Roth IRA. 

Fortunately, Solo 401(k)s remain a great option for accumulation planning for the fully self-employed. 

Tax Planning and New Businesses

I disfavor tax planning that necessitates the starting of a business to achieve retirement tax benefits. 

Picture a financial planner, Jill, recommending to Jane, a self-employed lawyer, that she opens a Solo 401(k). Jill’s recommendation does not necessitate Jane starting a business. Jill simply is recommending a potentially advantageous tactic that Jane’s preexisting business opens the door to. 

Contrast Jane’s preexisting business with Jack’s new “business” of Lyft driving. There are legitimate Lyft businesses operated by thousands of Americans. But in Jack’s case, his Lyft activity does not strike me as likely to be considered a trade or business sufficient to open a Solo 401(k). 

Even if the Lyft activity is a sufficient trade or business, why do tax planning that requires changes in lived experience when the retiree is already financially successful? 

Basis Isolation Backdoor Roth IRA Planning

Factors I view as favorable indicators that the Basis Isolation Backdoor Roth IRA may be a good planning tactic:

  • Need for Roth basis in early retirement
  • Relatively modest pretax amounts in traditional IRAs
  • Possibility of opening up several years worth of Backdoor Roth IRAs
  • Rolling pretax amounts into a large employer 401(k) with good investment selections

Factors I view as indicative that the Basis Isolation Backdoor Roth IRA should be disfavored:

  • No compelling need for Roth basis in early retirement
  • Significant pretax amounts in traditional IRAs
  • No ability to do future Backdoor Roth IRAs
  • Rolling pretax amounts into a Solo 401(k)
  • The necessity to start a business to achieve a tax benefit in retirement
  • Confusion surrounding the actual amount of IRA basis, since IRA basis cannot be rolled into a 401(k) or other workplace retirement plan

The above are my opinions. None of this should be read as advice for you or anyone else. Further, none of this should be read as to say any previously implemented planning in this regard is “wrong.” Rather, all this is intended to provide is my views as to what is desirable and what is not desirable from a planning perspective. 

FI Tax Guy can be your financial planner! Find out more by visiting mullaneyfinancial.com

Follow me on LinkedIn: @SeanWMullaney

This post is for entertainment and educational purposes only. It does not constitute accounting, financial, investment, legal, or tax advice. Please consult with your advisor(s) regarding your personal accounting, financial, investment, legal, and tax matters. Please also refer to the Disclaimer & Warning section found here.

The Spousal IRA

Is earned income required to contribute to an individual retirement account (an “IRA”)? If you’re married, it may not be, thanks to the Spousal IRA. 

The Spousal IRA is a great opportunity for families to build financial stability, and perhaps get a juicy tax deduction, even if only one of the spouses work outside of the home. It can help families save for the future, qualify for Premium Tax Credits, and prioritize important goals such as raising children.

IRA Basics

There are two types of IRAs that most working Americans can consider. I did a primer about them here.

A traditional IRA offers tax-deferred growth and the possibility of a tax deduction for contributions. While distributions from a traditional IRA in retirement are taxable, many will find that traditional IRA distributions in retirement are only lightly taxed. 

A Roth IRA offers no tax deduction on the way in, but features tax-free growth and tax-free withdrawals in retirement. 

Both can be a great way to build up tax-advantaged wealth for retirement.

IRA Contribution Limits

The limit on IRA contributions for 2025 is the lesser of $7,000 or earned income ($8,000 or earned income if you are age 50 or older in 2025). The limit on IRA contributions for 2026 is the lesser of $7,500 or earned income ($8,600 or earned income if you are age 50 or older in 2026). Remember that traditional IRAs and Roth IRAs share that contribution limit, so a dollar contributed to a traditional IRA is a dollar that cannot be contributed to a Roth IRA and vice-versa. 

IRA Contribution Deadlines

Generally speaking, the deadline to contribute to either a traditional IRA or a Roth IRA is April 15th of the following year. The deadline cannot be extended even if the taxpayer files for an extension to file their own tax return. On rare occasions the IRS may provide a very limited exception to the April 15th IRA contribution deadline. 

The Spousal IRA

For purposes of having earned income allowing one to make an IRA contribution (tradition and/or Roth), a non-working spouse can use their spouse’s earned income for purposes of making either (or both) a traditional IRA or a Roth IRA contribution.

Here is an example:

Joe and Mary are married. Joe has a W-2 job and Mary does not. Mary can make an IRA contribution (a Spousal IRA) based on Joe’s W-2 earned income. 

The Spousal IRA can be used to increase tax-advantaged retirement savings. It can also be used to strategically optimize tax deductions. Many W-2 workers are covered by a workplace 401(k) plan. Thus, based on low income limits, it is difficult for them to deduct a traditional IRA contribution. 

However, when one is not covered by a workplace retirement plan, it is much easier to qualify to deduct a traditional IRA contribution. It is often the case that a Spousal IRA will offer a potential tax deduction when the working spouse is not able to deduct a traditional IRA contribution. 

IRA Contributions to Increase Premium Tax Credits

For early retirees, planning for the Premium Tax Credit in order to save thousands of dollars on ACA medical insurance premiums can be a challenge. This is particularly true in 2026 with the return of the 400 percent of federal poverty level cliff. A dollar of income over the 400 percent of federal poverty level cliff could cause a married couple $10,000 of Premium Tax Credits.

One tool in the tool box of those with side hustles or part time jobs in early retirement is the deductible traditional IRA contribution. An example can illustrate how a married couple could use deductible traditional IRA contributions, including a deductible spousal IRA contribution, to qualify for thousands of dollars of Premium Tax Credits. 

Larry and Cheryl, both age 55, are retired in 2026. They have capital gains, interest, and dividends in 2026 of $80,000. Cheryl works part time and earns $20,000 in W-2 income. She is not covered by a workplace retirement plan. 

Larry and Cheryl’s $100,000 of adjusted gross income puts them above 400% of the 2025 federal poverty level ($84,600). However, they can each make a deductible $8,600 traditional IRA contribution. Larry’s deductible traditional IRA contribution is a Spousal IRA. 

Those deductible contributions lower Larry and Cheryl’s adjusted gross income to $82,800, allowing them to qualify for thousands of dollars of Premium Tax Credits for 2026. 

Split-Year Spousal IRA Contribution Example

As I write this, the 2026 tax return season (for 2025 tax returns) is about to get started. Now’s the time to be thinking about 2025 IRA contributions if you have not yet made one!

There’s still plenty of time to contribute to an IRA (traditional or Roth) for the year 2025. Some of that planning might involve strategically employing a Spousal IRA. Here’s an example:

Mark and Theresa, both age 41, are married and have three children. They live in California. Mark works a W-2 job and Theresa does not have earned income. Mark is covered by a 401(k) at work. Their modified adjusted gross income (“MAGI”) for 2025 is $200,000. This puts them in the 22% marginal federal income tax bracket and the 9.3% marginal California income tax bracket. They have made no IRA contributions for either of them for 2025 going into tax season. 

It is early April 2026 and Mark and Theresa are about to file their tax returns. They see they have $9,000 in cash available to use to make 2025 IRA contributions. What they might want to do is contribute $7,000 to a 2025 deductible traditional IRA for Theresa (a Spousal IRA) and the remaining $2,000 to a 2025 Roth IRA for Mark, since he cannot deduct a traditional IRA contribution. By prioritizing a tax deduction, Mark and Theresa save $2,191 on their 2025 income taxes. 

The Spousal IRA as a Backdoor Roth IRA

The Spousal IRA can be executed as a Backdoor Roth IRA. Here is an example:

Jack and Betty, both age 42, are married. Jack works a W-2 job and Betty does not have earned income. Jack is covered by a 401(k) at work. Their MAGI for 2026 is $265,000 and thus neither of them qualify to make a regular annual contribution to a Roth IRA. 

Assuming Betty has no balances in traditional IRAs, SEP IRAs, and SIMPLE IRAs (and thus does not have a Pro-Rata Rule problem), Betty can contribute $7,500 to a nondeductible traditional IRA and then convert that amount (plus any growth) to a Roth IRA. Doing so uses a Spousal IRA to implement a Backdoor Roth IRA. 

Spousal IRA Tax Return Reporting

To report a deductible traditional Spousal IRA contribution, the amount of the contribution must be reported on Schedule 1, line 20, filed with the couple’s annual federal income tax return. 

To report a nondeductible traditional Spousal IRA contribution, the amount of the contribution must be reported on Part I of the Form 8606.

There is no required federal income tax return reporting for a Roth Spousal IRA contribution. However, such contributions should be entered into the tax return software to help determine the potential eligibility for a retirement savers’ credit. 

Conclusion

The Spousal IRA creates a great opportunity for married couples to save for retirement and possibly gain access to valuable tax deductions. It can help married couples focus on important priorities such as child rearing and still make significant contributions to retirement accounts. For the early retired with small amounts of earned income, it can help reduce income in order to qualify for a Premium Tax Credit or increase the amount of a Premium Tax Credit. 

FI Tax Guy can be your financial planner! Find out more by visiting mullaneyfinancial.com

Follow me on LinkedIn at @SeanWMullaney

This post is for entertainment and educational purposes only. It does not constitute accounting, financial, legal, or tax advice. Please consult with your advisor(s) regarding your personal accounting, financial, legal, and tax matters. Please also refer to the Disclaimer & Warning section found here.

The Widow’s Tax Trap and RMDs

People worry about taxation in retirement. In particular, they worry about the taxation of required minimum distributions (RMDs), especially after the death of a spouse. Widows find themselves in the single tax brackets after decades of enjoying the more favorable married filing jointly tax brackets. 

Widows and widowers finding themselves as single taxpayers is often referred to as the Widow’s Tax Trap. 

RMDs require taxable withdrawals from traditional retirement accounts such as IRAs and 401(k)s. But just how bad are they when a widow or widower is in the Widow’s Tax Trap?

Let’s unpack just how bad the combination of the Widow’s Tax Trap and RMDs is for an 81 year-old widow with a very tax inefficient structure: almost $3.7 million of her approximately $4.5 million of financial wealth in a traditional IRA.

My experience tells me many financial planners and gurus will tell you this is a terrible outcome. That $3.7 million traditional IRA is infested with taxes!

But is it really?

81 Year-Old Widow in the Widow’s Tax Trap

I put together an analysis of an affluent widow in the Widow’s Tax Trap. Let’s call her Jane. Her traditional IRA causes her to have an RMD of almost $190,000. Wow!

Grab the tax analysis file here!

To be fair, most Americans will never have a $3.7 million traditional IRA and/or a $190K RMD. But I analyze them to demonstrate “what if the widow is highly inefficient from a tax perspective?”

What are the federal income tax rates on that feared RMD? 

Isn’t it remarkable that an 81 year-old widow with almost $3.7 million in a traditional IRA has more of her RMD taxed in the 12 percent tax bracket than in the 32 percent tax bracket?

Despite all the fear of taxation of RMDs, that’s the reality when it comes to a very affluent, very inefficient 81 year-old widow. 

Some might say “but what about IRMAA?” “What about the net investment income tax?”

Yes, Jane pays IRMAA of approximately $6,500 in two years because of her RMDs. And yes, the RMDs trigger approximately $500 of net investment income tax.

But do either of these have any impact on Jane’s lived experience and financial success?

Absolutely not!

The government scores some Garbage Time Touchdowns on Jane by collecting some IRMAA, some net investment income tax, and some income tax in the 32 percent bracket. 

A Garbage Time Touchdown is a late in the game touchdown scored by a team that will lose the game regardless of the touchdown. As a New York Jets fan, sadly I’m an expert in Garbage Time Touchdowns.

Jane has some tax inefficiencies that are just Garbage Time Touchdowns.

Think about the lifetime arc of Jane’s taxes in today’s tax planning world:

  • As a single individual, Jane likely deducted workplace retirement plan contributions at a 22, 24, or 32 percent rate. Win versus the IRS!
  • As a married couple, Jane and her husband likely deduct into workplace retirement plans at a 22 or 24 percent rate. Win versus the IRS!
  • In early retirement, they live off taxable accounts and do not do Roth conversions. They may pay nothing in federal income tax! Win versus the IRS!
  • Once taxable accounts are depleted, traditional retirement account distributions could have benefitted from the Hidden Roth IRA. Win versus the IRS!
  • Even RMDs are likely subject to the 12 percent and 22 percent brackets while they are both alive. Win versus the IRS!
  • As a widow, the relatively minor tax inefficiencies creep in. These are Garbage Time Touchdowns. 

This arc, which eschewed Roth 401(k) contributions and taxable Roth conversions, screams “Jane wins a blow out victory over the IRS” over the course of her lifetime. 

Sure, at the end Jane gave up some Garbage Time Touchdowns to the IRS, but not after decades of defeating the IRS. 

What’s more important than winning the spreadsheet is lived experience. Notice that Jane paying 32 percent on about six percent of her RMD has $200K of after-tax cash flow? 

In order for the Widow’s Tax Trap to bite hard, the widow generally has to have about $200K or more of after-tax cash flow.

The taxes bite when widows can most afford them!

Watch me break down the tax analysis of our 81 year-old widow on YouTube.

Roth Conversions to Avoid the Widow’s Tax Trap

Should Jane and her husband have done taxable Roth Conversions in retirement to avoid the widow paying 32 percent federal income tax on some of her RMDs?

Here vocabulary becomes very important. Yes, some taxable Roth conversions taxed at 22 percent or 24 percent could have been beneficial. But they were hardly necessary.

Outside of cases where taxable Roth conversions create enough required income to qualify for a Premium Tax Credit, taxable Roth conversions are not necessary. 

Yes, there are times where large taxable Roth conversions can be beneficial in that they mitigate harmful effects of the Widow’s Tax Trap. But the analysis above shows that the harmful effects of the Widow’s Tax Trap aren’t all that harmful for the vast, vast, vast majority of Americans. This is true even those with most of their financial wealth in traditional retirement accounts. 

Why would Jane and her husband prioritize large scale taxable Roth conversions to avoid having six percent of her RMDs as a widow being subject to the 32 percent tax bracket? 

Further Reading

The tax planning landscape has changed. One resource that puts aside the fear and realistically tackles today’s tax and retirement planning landscape is Tax Planning To and Through Early Retirement, a book I’m proud to have co-authored with Cody Garrett. 

FI Tax Guy can be your financial planner! Find out more by visiting mullaneyfinancial.com

Follow me on LinkedIn: @SeanWMullaney

This post is for entertainment and educational purposes only. It does not constitute accounting, financial, investment, legal, or tax advice. Please consult with your advisor(s) regarding your personal accounting, financial, investment, legal, and tax matters. Please also refer to the Disclaimer & Warning section found here.

2026 Backdoor Roth IRA Timing

Merry Christmas and Happy New Year!

The Christmas season (ending January 11th this year) coincides with the beginning of personal finance’s Backdoor Roth IRA season. 

Many readers look forward to New Year’s Day not to watch the Rose Bowl but rather to contribute to a traditional IRA, the first step of the Backdoor Roth IRA. 

The question then becomes: how long should I wait to do the second step of the Backdoor Roth IRA, the conversion of the traditional IRA contribution and any small growth to a Roth IRA?

Below I discuss my views on the matter as they apply to 2026 Backdoor Roth IRAs. 

Backdoor Roth IRA Timing Concerns

The Backdoor Roth IRA involves three accounts and two steps. First, the investor transfers money from a bank account (A) to a traditional IRA (B) as a regular annual contribution to the traditional IRA. Second, the investor converts the entire traditional IRA balance to a Roth IRA (C).

Written out logically, the Backdoor Roth IRA sequence is as follows:

A→B→C

The question is “do we respect the transfer to B or do we disregard the transfer to B and say, instead, that there was a single transfer from A to C?

Michael Kitces, in 2015, wrote an article stating that he was, at that time, concerned that, if the Roth conversion step was done close in time to the traditional IRA contribution, the transfer to the traditional IRA would be disregarded. For high income individuals, this would create an excess contribution to a Roth IRA subject to a 6% annual penalty.

I do not share his concern. My perception is that most financial planners, financial advisors, and tax return preparers also do not share his concern. 

My Approach

I wrote a detailed blog post stating that I do not believe the step transaction doctrine invalidates the Backdoor Roth IRA. Of particular note is Section 408(d)(2)(B), which provides that all IRA distributions (including Roth conversions) during the year are aggregated into a single distribution. 

This rule tells us that timing within the year is irrelevant for determining tax treatment. Why would a judicial doctrine change the Backdoor Roth IRA’s tax treatment based on a timing concern when the Code itself says timing is irrelevant? 

Favored Backdoor Roth IRA Timing

Here is my favored approach: Make the traditional IRA contribution at any time during a particular month and then wait until the following calendar month to do the Roth conversion step. Usually the traditional IRA is invested in a low yielding stable cash or cash equivalent type of asset, creating a small bit of income in between the two steps. 

Here is how that plays out with an example:

Keith, age 47, wakes up on New Year’s Day 2026 and contributes $7,500 to a traditional IRA invested in a money market fund. On February 2, 2026, when the traditional IRA has grown to $7,525, he converts all of it to a Roth IRA. 

Yes, Keith could have converted the $7,500 to a traditional IRA on January 2, 2026. I would strongly argue that he has a good Backdoor Roth IRA in that scenario.

But my favored approach is for him to wait until February. Why not? What’s the downside to my favored approach? Practically none. My favored approach increases Keith’s taxable income by $25, which is obviously no big deal. It also buys Keith a bit more protection against the step transaction doctrine concern (which, admittedly, I believe to be a minimal concern). 

Backdoor Roth IRA Diligence

Allow me to touch on two important diligence points when doing the Backdoor Roth IRA.

The first is to ensure that as of December 31st of the year of any Roth conversion step (so 2026 in Keith’s example), it is important to have $0 (or close to $0) in all traditional IRAs, SEP IRAs, and SIMPLE IRAs. For more discussion as to why that’s important, see this post. 

Second, it is important to properly complete the Form 8606 and file it with the annual federal income tax return. This post has an example of how a Form 8606 is completed to reflect a Backdoor Roth IRA. 

Further Reading

In early 2026 many Americans will find they made too much to have made their 2025 Roth IRA contribution. Having contributed in 2025, they now need to remedy the overcontribution. Further, they may still want to do a Backdoor Roth IRA for 2025 in 2026, what I refer to as a Split-Year Backdoor Roth IRA. 

Read here to find out my favored approach when facing this situation. 

FI Tax Guy can be your financial planner! Find out more by visiting mullaneyfinancial.com

Follow me on LinkedIn at @SeanWMullaney

This post is for entertainment and educational purposes only. It does not constitute accounting, financial, legal, investment, medical, or tax advice. Please consult with your advisor(s) regarding your personal accounting, financial, legal, investment, medical, and tax matters. Please also refer to the Disclaimer & Warning section found here.