The Roth IRA is a powerful investment tool that offers tax advantages and the potential for long-term wealth accumulation. More people are becoming aware of the importance and advantages of contributing to a Roth IRA. However, like any financial strategy, it’s essential to navigate the landscape carefully to maximize its benefits.
In this article, I’ll walk you through seven common Roth IRA mistakes, updated with 2025 and 2026 rules, and how to avoid them so you can harness the full potential of your Roth IRA.
Mistake One: Not investing your Roth contributions.
A Roth IRA is just an account—it’s not an investment by itself. I often see people contribute and then leave the money sitting in the default money market fund. That’s like hiking to the summit but stopping 10 feet from the panoramic view.
Why it matters: While money markets are yielding decently now, rates will likely fall when the Federal Reserve cuts interest rates. Leaving contributions in cash sacrifices the compounding you get from stocks, bonds, or diversified funds.
How to fix it: As soon as your contribution clears, set an auto-invest into a low-cost total-market index fund, target-date fund, or a diversified mix aligned with your risk tolerance and time horizon.
Mistake Two: Opening a Roth with a bank.
I don’t have anything against banks. I use a bank. The downside of opening a Roth IRA with a bank is that it most likely is going to sit in a savings account or a Certificate of Deposit (CD). Just as with mistake number one above, this one will also not have very high earnings. If your objective is to grow your Roth, you can’t take advantage of tax-free earnings when you don’t have any earnings.
Why it matters: You can’t maximize tax-free growth if your money isn’t actually invested in growth assets.
How to fix it: Open your Roth IRA at a brokerage firm or robo-advisor that lets you invest in a wide range of assets, mutual funds, ETFs, stocks, or bonds.
Mistake Three: Contributing when you’re not eligible
Eligibility for direct Roth contributions depends on your Modified Adjusted Gross Income (MAGI) and filing status. Exceeding limits leads to penalties.
2025 Roth IRA income limits:
Single/Head of Household: full if MAGI < $150,000; phase-out up to $165,000; ineligible ≥ $165,000
Married filing jointly: full if MAGI < $236,000; phase-out up to $246,000; ineligible ≥ $246,000
2026 Roth IRA income limits:
Single/HOH: full if MAGI < $153,000; phase-out up to $168,000
Married filing jointly: full if MAGI < $242,000; phase-out up to $252,000
If you over-contribute, remove the excess (plus earnings) by the tax-filing deadline (including extensions) to avoid the 6% excise tax each year.
Fix: Check your income before making a contribution. If you’re over the limit, use a Backdoor Roth IRA instead.
>> Related: Want to know if you can make a Backdoor Roth IRA contribution? Find out here!
Mistake Four: Withdrawing before retirement without knowing the rules
Roth IRA withdrawal rules have nuances:
Contributions: Always tax and penalty-free to withdraw.
Earnings: Tax- and penalty-free only if you’re 59½+ and your Roth IRA is at least 5 years old.
Conversions: Each conversion has its own 5-year clock before you can withdraw without penalty (even if over 59½).
Penalty exceptions (still may owe income tax on earnings): First-time home purchase ($10,000 lifetime), birth/adoption ($5,000 per parent), qualified education expenses, certain medical costs above the AGI threshold, health insurance while unemployed, and disability.
Best practice: Let your Roth IRA grow as long as possible to maximize tax-free compounding.
Mistake Five: Overlooking the benefits of a spousal IRA
If you’re married filing jointly and one spouse has little or no earned income, you can fund a Roth IRA for that spouse, assuming your household has sufficient earned income.
2025 limits: $7,000 each under age 50; $8,000 each age 50+
2026 limits: $7,500 each under age 50; $8,600 each age 50+
Fix: Don’t assume only one spouse can save in a tax-advantaged account. Use the spousal IRA if it makes sense.
Mistake Six: Misunderstanding inherited Roth IRA rules
Under the SECURE Act (2019) rules:
Most non-spouse beneficiaries must withdraw the account by December 31 of the 10th year after the owner’s death (10-year rule).
Unlike traditional IRAs, Roth IRA owners have no lifetime RMDs, so non-spouse beneficiaries often don’t need annual RMDs in years 1-9, but the 10-year deadline still applies.
Spouse beneficiaries have more options (treat as own, roll over, remain beneficiary).
Penalty for missed RMDs: Generally 25% of the amount not withdrawn (may reduce to 10% if corrected in time).
Fix: Make sure your beneficiaries understand the timing and rules so there are no surprises.
Mistake Seven: Forgetting to add your beneficiaries
Another common Roth IRA mistake is forgetting to designate primary and contingent beneficiaries for their accounts.
Assigning both primary and contingent beneficiaries is crucial for your IRA accounts. Without designated beneficiaries, the distribution of your assets may be subject to probate if something were to happen to you. Probate can lead to prolonged delays, increased costs, and unnecessary inconveniences for your loved ones.
It’s not only about naming beneficiaries initially; regular reviews are equally important. Life circumstances can change, and it’s essential to update your beneficiaries accordingly.
How to fix it:
- Name both primary and contingent beneficiaries.
- Review them after major life events.
- Consider adding per stirpes if you want a deceased child’s share to pass to their children.
Quick Reference: 2026 Roth IRA Facts
- Contribution limit: $7,500 (or $8,600 if 50+).
- Income limits: Single < $153,000 for full; MFJ < $242,000 for full.
- Withdrawal rules: Contributions anytime; earnings tax-free after age 59½ + 5 years; conversion 5-year penalty clock applies.
- Inherited Roth IRA: 10-year rule, usually no annual RMDs.
Don’t make these Roth IRA mistakes!
Avoiding these seven common mistakes is a key step toward building a secure retirement and maximizing tax-efficient wealth accumulation. Stay proactive, keep your Roth invested, respect the eligibility and distribution rules, and revisit your strategy as tax laws change.
If you feel uncertain about your Roth IRA strategy, especially as we move into 2026, consider consulting with a fiduciary financial advisor. They can help align your contribution strategy, investment choices, and long-term goals.
If you’re interested in a comprehensive financial plan, schedule a free discovery call with one of our fee-only financial planners today.
Common FAQs
1. What are the Roth IRA contribution limits for 2025 and 2026?
For 2025, you can contribute up to $7,000, or $8,000 if you’re age 50 or older.
For 2026, the limits increase slightly: $7,500 for those under 50 and $8,600 for those 50+.
2. What are the income limits for a direct Roth IRA contribution in 2025 and 2026?
For 2025:
Single/Head of Household: full contribution under $150,000 MAGI; phased out to $165,000
Married filing jointly: full contribution under $236,000 MAGI; phased out to $246,000
For 2026:
Single/HOH: full contribution under $153,000 MAGI; phased out to $168,000
Married filing jointly: full contribution under $242,000 MAGI; phased out to $252,000
3. What happens if I contribute to a Roth IRA when I’m not eligible?
If you exceed the income limits and contribute anyway, the IRS charges a 6% excise tax each year the mistake remains. You can fix it by removing the excess contribution (plus earnings) before your tax-filing deadline, including extensions.
4. When can I withdraw money from my Roth IRA without taxes or penalties?
Contributions: Anytime, tax- and penalty-free
Earnings: Tax- and penalty-free once you are 59½ or older and your Roth IRA has been open for at least 5 tax years
Conversions: Each conversion has a separate 5-year penalty clock if you are under 59½
5. Do inherited Roth IRAs require RMDs?
Most non-spouse beneficiaries must empty an inherited Roth IRA by December 31 of the 10th year after the original owner’s death. They typically do not need to take annual RMDs in years 1–9. Spouse beneficiaries have more flexible options.
6. Can my spouse contribute to a Roth IRA if they don’t have earned income?
Yes. As long as you file married filing jointly and your household has enough earned income to cover both contributions, you may fund a spousal Roth IRA for a non-earning or low-earning spouse.
7. What’s the biggest mistake people make with Roth IRAs?
One of the most common mistakes is contributing to a Roth IRA and never investing the money. Leaving funds in cash means you’re missing decades of potential tax-free compounding.
Alvin Carlos, CFP®, CFA is a fee-only financial planner, in Washington, D.C. He has a Master’s degree in International Relations from SAIS-Johns Hopkins. Alvin is the founder of District Capital, a financial planning firm designed to help professionals in their 30s and 40s maximize their money and retire by 55, through holistic financial planning and research-driven investing. Schedule a free discovery call today.
