Strategic Planning Considerations with Roth Accounts

Let's start with a true or false statement.

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True or false: if you make too much money, you can't use a Roth account.

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The answer is false. And the fact that so many high-earning physicians believe otherwise is costing them a valuable planning tool.

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Roth accounts have been perplexing investors since they were first introduced in 1998. The confusion is understandable, because there isn't one Roth account — there are two, and they follow very different rules. Let's walk through both, and then get to the more interesting question: not whether you can use a Roth, but when you should.

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What a Roth account actually is

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In its simplest form, a Roth account is a special type of retirement account that lets you make after-tax contributions, invest those contributions in the market, and never pay tax on the growth again. Earnings, dividends, interest — none of it is taxed a second time. It grows tax-free into retirement.

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That's the appeal. You pay tax once, up front, at a rate you know today, instead of paying an unknown rate on a much larger balance decades from now.

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The Roth IRA — where the income limit myth comes from

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The Roth IRA is the version most people know, and it's the source of the confusion. It has real income limits:

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• Income phase-outs. Single or head of household with MAGI above $168,000, or married filing jointly above $252,000, and you can't contribute.
• Contribution limits. $7,500 if you're under 50, $8,600 if you're 50 or older.
• Earned income requirement. You must have compensation at least equal to your total contribution.
• Withdrawals. Contributions can come out at any time, tax- and penalty-free. Earnings come out tax-free after age 59½, as long as the account has been open at least five years.

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There's also a meaningful bonus at the back end: Roth IRAs are not subject to required minimum distributions. Pre-tax IRAs and retirement accounts are — RMDs exist to force pre-tax money out of your accounts so the government can finally tax it. A Roth IRA has no such requirement. The money can stay invested for as long as you like.

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Most physicians clear those income thresholds early in their careers, hear "you make too much," and stop there. That's the mistake.

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The Roth 401(k) — no income limit at all

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In 2006, the Roth was introduced as a component of employer retirement plans. 401(k)s, 401(a)s, and similar accounts can now have a Roth account associated with them — and the rules are very different.

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The first and most important difference: there is no income phase-out on a Roth 401(k). It doesn't matter if you make a million dollars a year. If you want to direct money into the Roth component of your 401(k), you can.

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Here's how the two compare for 2026:

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One rule worth flagging: if your income is above $150,000, your catch-up contributions must go into the Roth portion of your 401(k). That's not optional. Which means a significant number of physicians are already funding a Roth account — some without realizing it.

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A small move that pays off later: start the five-year clock now

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When you eventually leave your employer, you have the option to roll your Roth 401(k) into a Roth IRA. That's usually the right move, because it takes RMDs off the table entirely.

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But remember the five-year rule: Roth earnings come out tax-free after age 59½ only if the account has been open at least five years. The clock is tied to your Roth IRA, not your Roth 401(k).

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So open a Roth IRA in advance — even with a token amount, if you're eligible — so the five-year requirement is already satisfied by the time you roll your Roth 401(k) over. It's a small piece of housekeeping today that removes a real constraint later.

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To Roth or not to Roth?

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Now for the more interesting question. Establishing that you can use a Roth is different from deciding that you should.

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The primary goal is simple to state: pay the tax on Roth contributions or conversions when your tax rate is at its lowest. Everything else is a matter of figuring out when that is. Which means asking yourself a handful of questions:

• What's my current marginal tax rate — my tax bracket?
• What's my current effective tax rate — total tax paid divided by taxable income?
• At what age do I plan to retire?
• At what age do I plan to start receiving Social Security? (Social Security income is taxable.)
• At what age do my required minimum distributions begin? Depending on your birth year, that's somewhere between 73 and 75 — and when they start, your income goes up whether you want it to or not.
• Do I believe future tax rates will be higher or lower than they are today?
• Am I comfortable paying tax at a certain rate even if I turn out to be wrong about future rates?

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That last one matters more than people expect. A Roth decision is partly a bet on future tax policy, and you want to be at peace with the outcome either way.

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The Roth conversion window

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Here's the pattern we see most often in practice, and it's the reason a Roth contribution isn't automatically the right answer for a high-earning physician.

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You may want to wait on making contributions to a Roth 401(k) if all of the following are true:

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• You're in the highest tax brackets today.
• You and your spouse plan to retire in your early 60s.
• You have ample savings outside your pre-tax accounts to cover your cost of living.
• You plan to wait until at least full retirement age — possibly 70 — to claim Social Security.

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In that scenario, your taxable income falls dramatically the moment you stop working. If you're earning half a million dollars a year, retire at 62, and have no other income sources yet, your tax rate drops off a cliff. That gap — after your paycheck ends but before Social Security and RMDs begin — is the Roth conversion window. It can run for many years, and it's often the cheapest opportunity you'll ever have to move pre-tax dollars into a Roth.

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Which frames the decision nicely:

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Would you rather contribute to a Roth at a 25% effective rate while you're working, or convert at a 12% effective rate once you're retired?

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For a lot of physicians, waiting and converting is worth considerably more than contributing today. For others — particularly those earlier in their careers, or those who expect meaningful income to continue in retirement — contributing now is the better call. The answer depends on your numbers, not on a rule of thumb.

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Where to go from here

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Two takeaways. First, don't assume a Roth is off the table because of your income — the Roth 401(k) has no income limit, and if you earn over $150,000, your catch-up contributions are already going there. Second, the fact that you can contribute doesn't mean this year is the right year. Map out your conversion window before you decide.

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For the last decade, Dolan Capital Advisors has been in the business of helping physicians with their investments and financial planning, with the mission of simplifying your finances and reducing your stress. We currently manage over $200 million in assets. We have a fiduciary relationship with all of our clients at all times, and we are a fee-only firm, which means our only source of compensation is our clients.

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Questions about how a Roth fits into your plan? Reach out and schedule a complimentary conversation.