TRANSCRIPT
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#73 - Roth IRAs and Retirement: What You Need to Know
Introduction
Eric Blake: On today’s show, we are going to talk all about Roth IRAs—what they are, how they work, and why they may be one of the most powerful tools for your retirement planning.
Welcome to another episode of The Simply Retirement Podcast, where we want to empower and educate women to live your retirement on your terms.
I’m your host, Eric Blake, practicing retirement planner with over 25 years of experience, and Founder of Blake Wealth Management. And I would not be the man I am today without the women in my life.
Roth IRAs are a tremendously valuable tool, especially if you are now filing single, or you might be at some point in the future—which, statistically, often turns out to be women. Knowing exactly what a Roth is, and how to use it effectively, can potentially help you keep more of your money and reduce tax surprises.
Wendy McConnell: I’m good. How are you?
Eric Blake: Perfect. I started to make the title of this show, Everything Wendy Wants to Know About Roth IRAs. How’s that?
Wendy McConnell: I love the idea of Roth IRAs, and I’ve been wanting to transfer some of my holdings into a Roth. But then it’s like, okay, well then you have to pay the taxes, and you have to do this, you have to do that. So this is great. I’m very much looking forward to it.
Eric Blake: You just like tax-free. That’s what it is.
Wendy McConnell: I know. I know. Tax-free is good.
Eric Blake: Exactly. So basically, here’s what we want to do. By the time we get through this episode, I want to make sure we’ve identified:
What a Roth is and the basics of Roth taxation.
Why Congress emphasizes Roth IRAs and how that actually helps us.
Why tax diversification matters.
How Roth IRAs can help you avoid hidden tax traps—like higher tax brackets and higher Medicare premiums.
The four ways to fund a Roth account.
And finally, how to take money out of your Roth to ensure it is actually tax-free.
I’ve also put together a free Roth IRA toolkit that makes everything we are going to cover today easier to apply to your own plan.
The Basics of Roth IRAs
Eric Blake: First, many people do not realize that Roth IRAs were first established in 1997 by Senator William Roth. That’s where the name comes from.
One of the most common questions I get is:
“How much can I earn in a Roth IRA?”
It’s important to understand that a Roth IRA is not an investment itself. A Roth IRA is a tax-advantaged account type.
The way I describe it is like this: think of a Roth IRA as an umbrella.
The umbrella (Roth IRA) protects your money from Uncle Sam.
Underneath that umbrella, you choose your investments—stocks, bonds, mutual funds, exchange-traded funds (ETFs), CDs, or savings accounts.
The Roth IRA itself does not generate returns. The investments inside the Roth determine your growth.
Wendy McConnell: So is it like the 401(k), but just with after-tax money?
Eric Blake: Correct. 401(k) is an account type. Roth is an account type. What you invest in determines your rate of return.
You could buy the same stock in three different accounts:
Pre-tax 401(k)
Taxable brokerage account
Roth IRA
The only difference is how the money gets in there, and what the tax consequences are when the money comes out.
Comparing Roth Accounts with Brokerage Accounts
Wendy McConnell: What is the difference between a Roth and an individual brokerage account? Why would someone choose one over the other?
Eric Blake: Great question. Here’s how I would compare them:
Brokerage Account: No age restrictions, no required distributions. You can access the money anytime, which makes it more flexible if you’re saving for short-term goals.
Roth IRA: You must wait until age 59½ for tax-free withdrawals, and the account must be at least 5 years old. However, the benefit is that withdrawals can be completely tax-free.
Wendy McConnell: After age 59½, can you still put money into a Roth?
Eric Blake: Yes, as long as you have earned income.
Contributing to a Roth IRA
Eric Blake: Let’s walk through how most people contribute to a Roth. When we say “after-tax contributions,” here’s what we mean:
You receive your paycheck as a W-2 employee.
Taxes are already withheld.
The remaining income is deposited into your bank account.
From there, you contribute to your Roth IRA.
So when we say Roth contributions are made with “after-tax dollars,” that means you’re investing money that has already been taxed.
Wendy McConnell: Okay, that makes sense. So as opposed to the 401(k), where the money goes in before taxes are withheld.
Eric Blake: Exactly. And that’s why 401(k)s have required minimum distributions (RMDs). Uncle Sam wants his money at some point.
But with a Roth, the contributions have already been taxed, so when you take them out—if you meet the rules—they come out tax-free.
Could Congress Take Away Roth Benefits?
Eric Blake: One question I get all the time is:
“This sounds too good to be true. Will Congress eventually take Roth benefits away?”
Here’s what I tell clients:
Congress tends to focus on short-term tax revenue.
They want taxable income this year.
That’s why they encourage Roth contributions—it generates tax revenue now.
With the SECURE Act and SECURE Act 2.0, Congress has expanded Roth opportunities, not reduced them. For example:
Roth 401(k)s no longer have required distributions.
Employer matches can now go to the Roth side of your 401(k).
Business owners can use Roth SIMPLE IRAs and Roth SEP IRAs.
So the trend has been more Roth access, not less.
Wendy McConnell: But what if five years from now they do change it?
Eric Blake: Nothing is ever permanent. Tax laws change. But the advantage we have is being able to plan ahead—looking 5, 10, or 20 years into the future—while Congress looks at the short term.
The Importance of Tax Diversification
Eric Blake: When people talk about diversification, they usually mean stocks vs. bonds vs. cash. That’s important, but just as important—maybe even more—is tax diversification.
Here’s why:
If all your money is in a pre-tax 401(k), every withdrawal is taxable.
That means you have no tax control.
If tax rates rise, every dollar you pull out is taxed at that higher rate.
This can also increase Medicare premiums and the taxation of Social Security benefits.
But if you have money spread across three buckets—pre-tax, Roth, and taxable brokerage—you have flexibility. You can choose where to pull income from depending on your tax situation.
Wendy McConnell: So it’s about having options.
Eric Blake: Exactly. Options give you flexibility. That’s what Roth accounts really provide.
Hidden Tax Traps
Eric Blake: Let’s talk about some hidden tax traps Roth IRAs can help avoid:
Required Minimum Distributions (RMDs): Traditional IRAs and 401(k)s force you to take withdrawals at age 73 or 75. Roth IRAs don’t.
Tax Bracket Creep: Without Roth savings, you may get pushed into higher tax brackets.
IRMAA Surcharges: Higher income can trigger extra Medicare premiums. Roth withdrawals don’t count against you.
Social Security Taxation: Roth withdrawals do not count toward provisional income, so they won’t increase how much of your Social Security is taxed.
Wendy McConnell: So ideally, you could balance withdrawals—some from pre-tax, some from Roth—to stay in control?
Eric Blake: Exactly. I often call it “filling the brackets.” Take just enough pre-tax withdrawals to stay within your tax bracket, and then use Roth for the rest.
Tax Diversification and Flexibility
Eric Blake: When people think about diversification, most of the time they are focused on investments—how much is in stocks, bonds, or cash. That’s important, but in my opinion, tax diversification is just as important, if not more.
Here’s why:
If all of your money is in a pre-tax 401(k), every dollar you withdraw is fully taxable.
You have no tax control.
If tax rates rise in the future, you’ll pay more in taxes on every dollar withdrawn.
Higher taxable income can also increase your Medicare premiums and the taxation of Social Security benefits.
If instead, you have money across multiple “buckets”—pre-tax accounts, Roth accounts, and taxable brokerage accounts—you have options. That flexibility allows you to decide which accounts to draw from depending on your tax situation each year.
Wendy McConnell: So it’s really about having choices.
Eric Blake: Exactly. Options equal flexibility. And flexibility is what gives you the control to manage your taxes in retirement.
Hidden Tax Traps Roth IRAs Can Help Avoid
Eric Blake: Roth IRAs can be incredibly valuable when it comes to avoiding hidden tax traps:
Required Minimum Distributions (RMDs): Traditional IRAs and 401(k)s force you to take withdrawals at age 73 or 75. Roth IRAs don’t.
Tax Bracket Creep: Without Roth savings, you may be pushed into higher tax brackets. Roth withdrawals give you more control.
Medicare IRMAA Surcharges: Higher taxable income can trigger extra Medicare premiums. Roth withdrawals don’t count toward this.
Social Security Taxation: Roth withdrawals do not count toward provisional income, which helps reduce the taxation of Social Security benefits.
Wendy McConnell: So ideally, you could take some money out of pre-tax accounts and some out of Roth accounts to keep things balanced?
Eric Blake: Exactly. I often call this “filling the brackets.” For example:
Let’s say you’re in the 12% tax bracket. You might take just enough from pre-tax accounts to stay under the top of that 12% bracket.
Then, instead of being pushed into the 22% bracket, you pull the rest of your income from Roth accounts.
That way you maximize the lower tax bracket without spilling into the higher one.
Real-Life Flexibility
Eric Blake: At some point in retirement, you are going to call me and say, “I need $25,000.” Maybe it’s for something fun like a world trip, maybe for a medical expense, or even buying an RV.
The difference between withdrawing that money from a pre-tax bucket versus a Roth bucket can be huge:
From a pre-tax account, you may have to withdraw $65,000 or $70,000 just to net $50,000 after taxes.
From a Roth account, you simply withdraw $50,000—and it’s tax-free.
That flexibility is priceless when unexpected needs arise.
Ways to Fund a Roth IRA
Eric Blake: Now, let’s talk about the different ways you can fund a Roth account. There are four main options:
Contributions:
Funded with after-tax dollars from your paycheck.
Contribution limits for 2025: $7,000 under age 50, $8,000 age 50 or older.
You must have earned income to contribute.
Conversions:
Move money from a pre-tax IRA into a Roth IRA.
You’ll owe taxes on the converted amount now, but it grows tax-free afterward.
Great to use when you’re in a lower tax bracket.
Rollovers:
If you have a Roth 401(k) from an employer, you can roll it into a Roth IRA when you retire or change jobs.
This can give you more flexibility in investment choices and distribution planning.
Backdoor Roths:
For higher-income earners who can’t contribute directly due to income limits.
Strategy: contribute to a traditional IRA (non-deductible), then convert immediately to a Roth IRA.
This one is complex—always consult a tax professional before attempting it.
Wendy McConnell: What did you call that last one?
Eric Blake: A backdoor Roth. It sounds fun, right? But it’s tricky, so please talk to a financial or tax advisor first.
Distribution Rules and the Five-Year Clock
Eric Blake: One of the most important things to understand about Roth accounts is the distribution rules, especially what’s called the five-year clock.
Here’s how it works:
For your Roth contributions to be tax-free, the account must be open for at least five years.
You must also be at least age 59½ for tax-free withdrawals.
So, if you start contributing at age 50, you need to wait until age 55 to meet the five-year rule—and also be 59½ before everything is fully tax-free.
Roth conversions have their own separate five-year clocks for each conversion. That’s why I encourage everyone to start your clock as early as possible. Even if you can only put in $50 or $100, get the clock ticking.
Wendy McConnell: When’s the best time to plant a tree, Eric?
Eric Blake: Twenty years ago.
Wendy McConnell: The second-best time is today.
Eric Blake: Exactly. Start your Roth clock today.
There’s also a little trick with the five-year rule. You always have until April 15 of the following year to contribute for the prior year. So, if you make your 2025 contribution in April 2026, your clock still starts in January 2025.
Order of Distributions
Eric Blake: Another important rule is the order of distributions when taking money out of a Roth:
Contributions come out first.
These are always tax- and penalty-free, regardless of age.
Conversions come out second.
These may be subject to penalties if withdrawn too early.
Earnings come out last.
These are subject to both taxes and penalties if you don’t meet the five-year and age rules.
So, if you need to access Roth money before age 59½, you can still take out your contributions without penalty or tax.
Key Takeaways
Eric Blake: To wrap up, here are the big takeaways from today’s discussion on Roth IRAs:
A Roth IRA is not an investment, it’s an account type—think of it like an umbrella that shields your investments from future taxes.
Roth contributions are made with after-tax dollars, but withdrawals can be completely tax-free if rules are followed.
Congress has expanded Roth opportunities because they generate short-term tax revenue, which means more flexibility for you in the long run.
Tax diversification is as important as portfolio diversification—Roth accounts give you flexibility and control in retirement.
Roth IRAs help avoid hidden tax traps like RMDs, higher brackets, IRMAA surcharges, and Social Security taxation.
There are four ways to fund a Roth: contributions, conversions, rollovers, and backdoor strategies.
Always be mindful of the five-year rule and the order of distributions to protect the tax-free status of your money.
Wendy McConnell: Got it. That makes sense.
Eric Blake: Perfect. And remember, start your Roth clock as soon as you can.
Conclusion
Eric Blake: At the beginning of the episode, I mentioned the free Roth IRA Toolkit that I’ve made available. It’s designed to make everything we covered today easier to apply to your own plan. These tools include flowcharts and guides to help you answer key questions:
Can I contribute to a Roth IRA this year?
If I take money out, will it be tax-free?
Should I consider a Roth conversion?
Does a backdoor Roth make sense for me?
You can find the toolkit at thesimplyretirementpodcast.com. It will also be linked in the summary of this episode.
As always, if you have a question, a topic idea, or a retirement challenge you’d like me to cover in a future episode, visit thesimplyretirementpodcast.com/askeric.
Wendy McConnell: Yay, thank you.
Eric Blake: Thank you so much for tuning in, and a big thanks to Wendy. I’m glad we finally got to do your episode.
As always, please don’t forget to like, follow, and share the show. Until next time, remember—retirement is not the end of the road. It’s the start of a new journey.
Content here is for illustrative purposes and general information only. It is not legal, tax, or individualized financial advice; nor is it a recommendation to buy, sell, or hold any specific security, or engage in any specific trading strategy.
All investing involves risk including loss of principal. Results will vary. Past performance is no indication of future results or success. Market conditions change continuously.
Information here is provided, in part, by third-party sources. These sources are generally deemed to be reliable; however, neither Blake Wealth Management nor RFG Advisory guarantee the accuracy of third-party sources. The views expressed here are those of Blake Wealth Management. They do not necessarily represent those of RFG Advisory, their employees, or their clients.
This commentary should not be regarded as a description of advisory services provided by Blake Wealth Management or RFG Advisory, or performance returns of any client. The views reflected in the commentary are subject to change at any time without notice.