Roth IRAs are like the Swiss Army knife of retirement savings accounts. They’re versatile, flexible, and come with undeniable perks, most notably, tax-free growth and tax-free withdrawals in retirement. For retirement savers, young professionals, and high earners, Roth IRAs represent an excellent opportunity to build a future financial foundation. But as fantastic as they are, they’re not foolproof.

Without careful planning, it’s surprisingly easy to fall into traps that could derail your retirement goals. Below, we’ll break down some of the most common pitfalls, including how to avoid them, and how to make the most of your Roth IRA.

The Most Common Roth IRA Pitfalls

Excess Contributions

What It Is:

Excess contributions occur when you contribute more to your Roth IRA than the IRS allows for the year.

Why It Happens:

• Miscalculating annual contribution limits (like not accounting for employer-sponsored plans).
• Overlooking income-related phaseout thresholds.
• Contributing to an account (often on behalf of a child) in excess of  their "earned income" during the year.

How to Fix It:

• Withdraw excess contributions promptly to avoid penalties. The IRS imposes a 6% annual penalty on any excess left unaddressed.
• Re-characterise the contribution into a traditional IRA, and then convert it back into a Roth through the Backdoor Roth strategy.

Nerd Note: Leaving excess contributions in your Roth IRA can result in a 6% penalty every year until the issue is corrected. Withdraw promptly to save your money!

Ignoring Income Thresholds (and the Solution – Backdoor Roth IRA)

The Issue:

High earners often phase out of Roth IRA eligibility based on income. For instance, single filers earning above $165,000 in 2025 don’t qualify for ANY direct Roth IRA contributions. Married couples can lose eligibility if their combined income exceeds $246,000.

Even worse, if you’re married and filing separately while living with your spouse, the limit drops to an astonishingly low $10,000!

The Fix:

Many high earners successfully bypass this issue using a Backdoor Roth IRA. Here’s how it works:

1. Contribute to a traditional (non-deductible) IRA.
2. Convert those funds into a Roth IRA.
3. Voilà! You’ve sidestepped income restrictions.

And here’s the good news, anyone with earned income can use this strategy.

Nerd Note: Roth IRA income thresholds have increased over time. For 2024, the limit for individuals rose by 35% compared to 2016. Yet, high earners still benefit most from Backdoor Roth conversions.

Life Events That Can Affect Roth IRA Contributions

Personal milestones often bring financial surprises, and your Roth IRA might be one of them.

Marriage

While marriage is often celebrated, it can push well-earning couples above contribution thresholds. Say hello to unexpected ineligibility if your combined income starts exceeding $236,000.

Adapting: Couples should discuss the Backdoor Roth strategy early on, especially if both partners are high earners.

Nerd Note: Marriage brings many financial benefits, but for Roth IRAs, it’s a game-changer. Dual high-income couples lose eligibility once they cross the combined income limit.

Divorce

Divorce can shift you into a new income bracket, potentially reducing your Roth IRA eligibility. For instance, moving from “married filing jointly” to “single” can lower your income limit from $246,000 to $165,000.

Adapting: Post-divorce, re-evaluate your financial strategy to determine whether a Backdoor Roth is now a better fit.

Income Jumps

Promotions, bonuses, or moving into a high-paid role can quickly push you over income limits. For example, new attending physicians transitioning from residency often see their incomes soar, taking them from eligible to ineligible in a single tax year.

Adapting: Plan proactively if you know an income jump is on the horizon. Start Backdoor Roth contributions at the beginning of the year to avoid mid-year surprises.

Married Filing Separately

Opting for this status might make sense when pursuing Public Service Loan Forgiveness (PSLF). But beware, it also dramatically lowers Roth IRA income thresholds to $10,000.

Adapting: Understand that the Backdoor Roth IRA becomes invaluable for those filing separately.

Best Practices for Managing Your Roth IRA

Stay Ahead of Contribution Limits

• Regularly check the IRS announcements for changes in income thresholds or contribution limits
• Automate contributions to avoid accidentally exceeding the limit.

Tax Optimization and Planning

•  Coordinate with a financial advisor to ensure Roth contributions align with your broader retirement and tax strategies.
• Avoid missing deadlines for recharacterisation or Roth conversions.

Proper Record-keeping

• Maintain detailed records of all contributions, conversions, and withdrawals.
• Use apps or tools to stay organised.

Practical Tip: Consider software that tracks retirement accounts and provides tax-friendly reporting features to avoid any surprises during audits or tax filing.

Preventing Mistakes Before They Happen

Proactive financial planning is the best way to avoid hiccups with your Roth IRA. Regularly review your income, filing status, and contribution amounts. Enlist the help of a tax advisor or financial planner when significant life changes arise.

Real-Life Example: Lisa and John, both physicians, normally qualified for direct Roth contributions. But after John’s bonus pushed their annual income above $235,000, they pivoted to a Backdoor Roth strategy. By discussing options with their advisor early, they avoided nearly $2,000 in penalties for excess contributions.

A Future-Proof Retirement When Done Right

Roth IRAs offer unparalleled benefits for retirement savers. Tax-free growth, flexible withdrawals, and no required minimum distributions make them a standout choice for many. But like any financial vehicle, they require thoughtful management and an understanding of potential challenges.

Whether you’re a young professional exploring your first contribution, a high earner considering a Backdoor Roth, or adapting to life changes like marriage or a career jump, proper planning is essential.

At HealthyFP, we’re here to guide you every step of the way. Connect with our experts today to discuss personalized strategies designed to help you make the most of your Roth IRA and achieve the retirement you deserve.