Our Roth Regrets: The Roth IRA Strategy We Wish We’d Built

It’s fair to say there are several things we’d do differently if we were to go back and save for early retirement all over again, because we didn’t do this perfectly by any means. (Fast does not equal perfect. Fast mostly just means you have a high income, and anyone who tells you otherwise is selling something.) There are the things we’d do differently if we were starting right now, but the biggest thing we’d change no matter when we were saving and no matter what the markets were doing at that point is do a better job of saving money in Roth IRA accounts.

Yes, we have Roth regrets. Roth envy. Roth remorse.

And there’s not a damn thing we can do about it (mostly). But you can learn from our mistakes and do better!

Quick primer on Roth rules for those whose memories are a little fuzzy. Unlike virtually all other tax-advantaged retirement accounts in the U.S., Roth IRAs (and Roth 401(k)s, for the rare employees whose companies offer them) are funded with post-tax dollars. So you don’t get an income tax break when you contribute like you do with your 401(k) and traditional IRA, but when you start taking distributions, both your contributions and all the glorious earnings come out tax-free, assuming you’re 59 1/2 or older.

Roths are also the only tax-advantaged account that don’t have required minimum distributions, so if you intend to pass some of your money on to children or a charitable cause, Roths let you hold onto all that value for as long as you want, unlike others that require you to start taking money out and get taxed on it at age 70 1/2. But perhaps the best part about Roths is that you can take out the money you’ve contributed at any age with zero penalty. (Assuming you originally contributed it to your Roth and didn’t convert it from another account.) However, despite all this goodness, Roth IRAs are not directly available to higher earners.

I’ve been quite adamant in my belief that we should all be planning pretty conservatively for early retirement — much more conservatively than the 4% rule, in part because the rule may prove too aggressive in the future, and in part because our spending will almost certainly go up as we get older (ahem, health care costs are increasing at more than three times the rate of inflation currently, and that’s without any ACA repeals that could happen anytime and would drive premiums up even higher).

That hasn’t changed. I’m still not a fan of the approach of thinking of your whole retirement as one big phase and using a big chunk of your traditional retirement funds before you get to traditional retirement age. That’s not looking out for future you.

But there’s no reason you can’t build a solid Roth strategy and look out for future you.

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