What They Do Differently and How You Can Work Toward the Same Goal
People who have over a million dollars in Roth accounts did not get there by accident. They did not stumble into it, and they were not simply lucky. When we work with clients who have large Roth balances, one thing stands out immediately. They were intentional.
Roth money does not magically appear. There are only a few ways money ever gets into Roth accounts, and understanding those paths is the first step toward building meaningful tax free wealth.
If you prefer to watch instead of read, you can check out the full YouTube video where I walk through this topic in detail.
How Money Actually Gets Into Roth Accounts
There are only two ways money gets into Roth accounts. You either contribute directly to Roth, or you convert traditional money into Roth. That is it.
Let’s start with contributions.
For Roth IRAs, the contribution limits are $7,500 if you are under age 50 and $8,600 if you are age 50 or older. Even if you consistently max out Roth IRA contributions, that alone usually does not create a Roth millionaire.
Now let’s look at the Thrift Savings Plan.
With the TSP, federal employees can direct contributions into the Roth option. The contribution limits are $24,500 if you are under age 50, $32,500 if you are age 50 or older, and for those ages 60 to 63, there is a special catch up that allows contributions up to $35,750. All of that money can go to Roth.
That is powerful.
However, when we meet with most federal employees, the reality looks very different. Many have $10,000 or $20,000 in Roth TSP and maybe a small Roth IRA on the outside. The vast majority of their retirement savings is still in traditional accounts.
That is why Roth conversions matter so much.
Why Roth Conversions Are Usually the Key
If the goal is to become a Roth millionaire, Roth conversions are usually what gets you there.
A Roth conversion is when you move money from a traditional account into Roth and pay the taxes today so the money can grow tax free forever. This is where planning becomes critical.
When we help clients with Roth conversions, we always start with the tax return. We look at the tax bracket they were in last year, where they are likely to land this year, and how much room remains in their current bracket.
For example, if someone is in the middle of the 22 percent tax bracket, the question becomes how much additional income they can recognize before spilling into the next bracket. That gap is the opportunity for a Roth conversion.
IRA Roth Conversions Versus TSP Roth Conversions
Historically, Roth conversions were only available inside IRAs. More recently, the TSP has said they are allowing Roth conversions as well.
There is an important difference.
Inside the TSP, taxes cannot be withheld from the conversion. That means the tax bill must be paid from another source. For many people, that inconvenience becomes a roadblock.
With an IRA, there is more flexibility. Ideally, taxes are paid from money outside the retirement account, which makes the conversion more efficient. In reality, most people do not have a pile of cash set aside just to pay conversion taxes.
So what often happens is this. Traditional money is converted, most of it goes into Roth, and a portion is used to pay taxes. When done intentionally, this can still be an effective strategy.
The Importance of Getting the Amount Right
Roth planning is about precision.
If you convert too much in one year, you push yourself into a higher tax bracket and overpay taxes. If you convert too little, you are not meaningfully changing the outcome.
Converting $20,000 a year may feel productive, but for many households it does not move the needle.
This is what we mean by threading the needle.
For some people, filling up the 12 percent tax bracket makes sense. For others, the 22 percent bracket. For some, even the 24 percent bracket. We rarely see situations where going above that makes sense because most people will be lower than 32 percent in retirement.
This is not guesswork. It is math combined with tax planning.
Why Roth Money Changes Retirement Planning
A million dollars in a traditional account is not really a million dollars. How much of it is yours depends on future tax rates.
A million dollars in Roth is different. Every dollar belongs to you.
There are no required minimum distributions. The money grows tax free. Distributions are tax free. And if the rules are met, the money is tax free for your heirs as well.
Those rules are straightforward. You must be over age 59 and a half, and you must have had a Roth IRA for at least five years.
That clarity makes retirement planning far simpler. When you know exactly how much of your money is truly yours, decisions become easier and stress is reduced.
A Question Worth Asking Your Advisor
If you are working with an advisor, here is a question worth asking.
When you met with them last year, did they ask for your tax return? Did they review it? Did they help you plan Roth conversions intentionally?
Many advisors do not provide this level of tax focused planning.
And if you are doing this on your own, it is worth asking whether this is how you want to spend your time. Most people would rather finish their career strong, enjoy retirement, travel, spend time with family, and see grandkids than spend evenings trying to optimize tax brackets.
Final Thoughts
Becoming a Roth millionaire is retirement altering. It simplifies planning, reduces stress, and removes uncertainty around future taxes. It takes planning, precision, and in most cases, guidance from someone who understands both federal benefits and tax strategy.
If you would like help with Roth conversions, tax planning, and coordinating your federal retirement benefits, visit http://christycapital.com and click Talk to an Advisor. We would love to talk with you.
And if you want to watch the full breakdown, be sure to check out the YouTube video where I walk through this strategy step by step.
My name is Mel Stubbs, and I look forward to helping you plan with confidence.
