In early April, the Trump Administration unveiled its “Liberation Day” tariff plan, and it came as quite a shock, with the scope and severity of
Roth Asset Basics
Published Date : April 30, 2025
“Should I contribute to a Roth IRA? How can I contribute to a Roth IRA?” Before answering those questions, we need to define what Roth assets are. The difference between a Roth IRA and traditional IRA is that Roth contributions are made with after-tax assets, and any growth on assets inside the Roth is tax-free. Withdrawals from Roth accounts are also tax-free once you reach age 59½ and meet a 5-year aging rule. That makes Roth accounts, both IRAs and 401(k)s, very attractive for those in a low tax bracket or with a long-time horizon. Roth accounts also are not subject to required minimum distributions, giving owners more flexibility in growing these balances and building generational wealth.
There are several ways to contribute to Roth accounts. The right one for you depends on how much you earn, cash flow, time horizon or whether your employer offers a Roth 401(k). If you are within certain modified adjusted growth income limits set forth by the IRS, you can simply open a Roth IRA account and contribute to it directly. For 2025, those income limits are:
- Single Tax Filer: Contributions phase out between $150,000 and $165,000.
- Married (filing jointly): Contributions phase out between $236,000 and $246,000.
If you fall below these earnings limits, you can contribute up to a maximum of $7,000 in 2025 ($8,000 if you’re over age 50) or 100% of your earned income, whichever is less. The deadline to contribute to a Roth IRA for tax year 2025 is
April 15, 2026. For young people starting out, contributing to a Roth IRA in the early earnings years can be quite attractive as you’re generally in a lower tax bracket and have many years of investment growth ahead of you. Over time, even small contributions can really add up.
If your employer offers a 401(k), you may have the option of making Roth 401(k) contributions. In 2025, you can contribute up to $23,500 through payroll deductions (with an additional $7,500 for those 50 or older). These are after-tax contributions, and any growth within the Roth account is generally tax-free.
If your income is higher than the contribution limits for a Roth IRA, don’t worry! Another option is a backdoor Roth IRA, although this is a more complicated way to contribute. To avoid pitfalls and unintended consequences, be sure you are familiar with all the steps and consult a professional tax advisor on how the taxes will work for you.
- Make a non-deductible IRA contribution (a maximum of $7,000 or $8,000 if you’re age 50 or older
in 2025) into a traditional IRA account. - Convert the amount to a Roth IRA account.
Where it gets complicated is calculating how much tax you will owe. Since you are contributing after-tax money to the traditional IRA, one would assume you have satisfied your tax obligation for the Roth conversion. If you have pre-tax assets in any other IRA—401(k) accounts are excluded—the IRS requires you to calculate the pro-rata amount of your contribution, that is pre-tax versus after-tax. While this may sound like a double tax on the Roth contribution, that’s not accurate. The IRS simply wants the saver to pay a pro-rata amount based on pre-tax IRA assets. You’re paying tax now versus when you would take a normal IRA distribution if you had not converted those assets to a Roth. Again, because of the complexity of the tax equation, be sure to check with your CPA or tax advisor for guidance.
If you’re thinking about making Roth contributions but are unsure of how to proceed, please contact your Wealth Manager.
Sources: Schwab, IRS, Vanguard, Fidelity
Articles and Commentary
Information provided in written articles are for informational purposes only and should not be considered investment advice. There is a risk of loss from investments in securities, including the risk of loss of principal. The information contained herein reflects Sand Hill Global Advisors' (“SHGA”) views as of the date of publication. Such views are subject to change at any time without notice due to changes in market or economic conditions and may not necessarily come to pass. SHGA does not provide tax or legal advice. To the extent that any material herein concerns tax or legal matters, such information is not intended to be solely relied upon nor used for the purpose of making tax and/or legal decisions without first seeking independent advice from a tax and/or legal professional. SHGA has obtained the information provided herein from various third party sources believed to be reliable but such information is not guaranteed. Certain links in this site connect to other websites maintained by third parties over whom SHGA has no control. SHGA makes no representations as to the accuracy or any other aspect of information contained in other Web Sites. Any forward looking statements or forecasts are based on assumptions and actual results are expected to vary from any such statements or forecasts. No reliance should be placed on any such statements or forecasts when making any investment decision. SHGA is not responsible for the consequences of any decisions or actions taken as a result of information provided in this presentation and does not warrant or guarantee the accuracy or completeness of this information. No part of this material may be (i) copied, photocopied, or duplicated in any form, by any means, or (ii) redistributed without the prior written consent of SHGA.
Video Presentations
All video presentations discuss certain investment products and/or securities and are being provided for informational purposes only, and should not be considered, and is not, investment, financial planning, tax or legal advice; nor is it a recommendation to buy or sell any securities. Investing in securities involves varying degrees of risk, and there can be no assurance that any specific investment will be profitable or suitable for a particular client’s financial situation or risk tolerance. Past performance is not a guarantee of future returns. Individual performance results will vary. The opinions expressed in the video reflect Sand Hill Global Advisor’s (“SHGA”) or Brenda Vingiello’s (as applicable) views as of the date of the video. Such views are subject to change at any point without notice. Any comments, opinions, or recommendations made by any host or other guest not affiliated with SHGA in this video do not necessarily reflect the views of SHGA, and non-SHGA persons appearing in this video do not fall under the supervisory purview of SHGA. You should not treat any opinion expressed by SHGA or Ms. Vingiello as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of general opinion. Nothing presented herein is or is intended to constitute investment advice, and no investment decision should be made based solely on any information provided on this video. There is a risk of loss from an investment in securities, including the risk of loss of principal. Neither SHGA nor Ms. Vingiello guarantees any specific outcome or profit. Any forward-looking statements or forecasts contained in the video are based on assumptions and actual results may vary from any such statements or forecasts. SHGA or one of its employees may have a position in the securities discussed and may purchase or sell such securities from time to time. Some of the information in this video has been obtained from third party sources. While SHGA believes such third-party information is reliable, SHGA does not guarantee its accuracy, timeliness or completeness. SHGA encourages you to consult with a professional financial advisor prior to making any investment decision.
Other Posts By This Author
- – Caring for Our Feline and Canine Companions
- – End-of-Life Planning
- – Another Update to Inherited IRA Distribution Rules
- – A Finfluencer Said So—It Must be True!
Related Posts
Recent Posts
