Contributing to a Roth Individual Retirement Account (Roth IRA) or other Roth-based retirement account will be one of their top resolutions for 2026, U.S. compliance, operations and technology managers at Wall Street’s fund management firms and wirehouses told FinOps Report.
The goal is to earn as much tax-free income as possible for retirement, courtesy of the Internal Revenue Service (IRS). As of January 1, taxpayers can start investing some of their earnings into a Roth IRA for the 2026 tax year. The maximum contribution a taxpayer can make will be USD$7,500 for anyone under 50. For anyone over 50, the amount will be USD$8,600 which includes a USD$1,100 catch up. For those preferring to rely on installments, the USD$7,500 will represent a weekly payment of about USD$145, a biweekly payment of about USD$190 or a monthly payment of about USD$625. For those investing USD$8,600, the amount will come to about USD$166 a week. USD$332 biweekly, or USD$717 a month.(Contributing early in the year gives money more time to grow).
The current administration’s One Big Beautiful Bill, (OBBB) according to the law firm Katten Muchin Rosenman, does not specifically address Roth retirement accounts. However, within the 900-page document are two provisions relevant for those at least 65 years old and for those under 18. Starting with the 2025 tax year and ending after 2028, taxpayers are eligible for an additional USD$6,000 annual income tax deduction. (There are phase outs depending on income). Beginning June 1,2026 U.S. citizens under the age of 18 will be eligible for a new tax-advantaged savings account which the US government will fund with a one-time amount of USD$1,000 for children born between January 1, 2026, and December 31, 2028. Beginning July 4, 2026, parents, relatives, and employers can make an annual contribution to the account of no more than USD$5,000 combined. (Of the USD$5,000 no more than USD$2,500 may come from an employer). The new accounts for children will not affect the contribution limit for traditional or Roth IRAs for working children under the age of 18. The investments in the minor’s account must be limited to mutual funds and exchange-traded funds (ETFs) tracking the S&P 500 or another index with mostly U.S. equities. The accounts are locked until the child hits 18 at which point the funds may be used for qualified expenses such as education, buying a first home, or starting a business.
Roth IRAs have taken on greater importance as Wall Street executives grow worried about whether they will have sufficient funds with which to retire. Social Security is only designed to replace about 40 percent of pre-retirement income, and research shows that retirees need 70 percent to 80 percent of their pre-retirement income to maintain their standard of living. Fifteen of 20 C-level executives contacted by FinOps Report were concerned they would outlive their savings. Only seven had Roth IRAs or other Roth-based accounts. However, the remainder were considering contributing to a Roth IRA or other Roth-based account in 2026. “I’m anticipating my household expenses and cost of living will increase when I retire, so I need to save a lot more from now,” said one C-level executive at a mega East Coast bank.
Adults aren’t the only ones able to own a Roth IRA. Minors (those under the age of 18, 19, or 21 depending on the U.S. state) can also do so, if the account is opened by an adult– typically a parent or other family member and controlled by an adult until the minor reaches the age of majority. (The age of majority in most U.S. sates is 18; in Alabama and Nebraska it is 29, while in Mississippi and Puerto Rico it is 21). The account must be funded with “eligible income” which means earnings from formal employment or self-employment such as babysitting, washing cars, pet walking, mowing lawns, or acting. The contribution limit for a minor is the same as for an adult. For children who do not file taxes, a written log of the earnings must be kept in case the IRS asks questions.
Roth IRAs
The Roth IRA, started for tax year 1998 as part of the Taxpayer Relief Act of 1997, is one of two individual retirement accounts. The other is a traditional Individual Retirement Account (IRA). Although financial advisors typically recommend a taxpayer invest in a Roth IRA if projected income is higher during retirement, there is still a huge benefit to investing in a Roth IRA regardless of one’s tax bracket. The IRS will not tax any of the amounts withdrawn after a taxpayer reaches 59 1/2 and has held the Roth IRA for at least five years. For even a one-time contribution of US$7,500 which could reach USD$100,000 at the time of withdrawal based on savvy investment strategy, the tax savings will be substantial. Using the highest tax bracket of 37 percent, the tax savings will amount to USD$37,000 while for a tax bracket of 22 percent the savings will be USD$22,000. By contrast, because money invested in an IRA is pre-tax and can be deducted from one’s income to reduce one’s tax burden, all amounts withdrawn after 59 1/2 are taxable.
Yet another benefit of investing in a Roth IRA, say financial advisors, relates to estate planning. Unlike traditional IRAs, where taxpayers must eventually withdraw funds, owners of Roth IRAs are not obligated to do so. That means they can leave the entire amount to beneficiaries who can also withdraw funds tax-tree. The only caveat is that the owner of the Roth IRA must have held the account for at least five years. The five-year timeclock begins January 1 of the tax year for which a taxpayer made the first contribution. If one were to inherit a Roth IRA from a family member on July 1, 2026, yet the first Roth IRA contribution from the original owner was not made until December 1, 2024, the beneficiary would have to wait until January 1, 2029 to withdraw any funds tax-free.
New York State has just become the twentieth U.S. state to enact a “work-and-save program.” The others most often cited are California and Oregon. New York-based employers with at least 30 employees who don’t offer a qualified retirement savings program to their workers will be required to enroll them in a state-sponsored Roth IRA under the New York State Secure Choice Retirement Savings Program. The phase-in period begins on March 18, 2026. While enrollment is automatic, workers can opt out of the program at any time or increase their contribution each year. The New York State-provided Roth IRA is portable, meaning employees can contribute to it if they move jobs. Businesses that are expected to register for the program will be notified by the state which will provide access codes.
Corporate Roth 401(k)
A personal Roth IRA isn’t the only way to accumulate tax-free income for retirement. Some employers also offer Roth 401(k) plans in which contributions are taxed going into the account, but withdrawals are tax-free as is the case with a Roth IRA. Unlike personal Roth IRAs, Roth 401(k) plans which were made available beginning January 2026 as part of the Economic Growth and Tax Relief Reconciliation Act (EGTRRA) of 2021 do not have a maximum cap on earned income. Anyone can invest in a Roth 401(k) as long as the type of plan is offered by one’s employer. From 2013 to 2022, the share of retirement plans that give employees a Roth option grew from 58 percent to 89 percent, according to the most recent data available from the Plan Sponsor Council of America. As a result of the Secure 2.0 Act of 2022, the IRS no longer requires owners of Roth 401(k)s to withdraw a minimum amount each year after they reached the age of 73. Some workplace plans also allow employees to convert from a traditional 401(k) to a Roth 401(k). However, taxpayers must pay taxes on the converted amount.
For the 2026 tax year, a U.S. taxpayer can contribute up to USD$24,500 for a Roth 401(k) if under the age of 50 and up to USD$32,500 if at least 50 years old thanks to an USD$8,000 “catch-up” contribution. For those between 60 and 63 years of age there can be a “super catch-up” contribution of an additional USD$3,250, bringing the total contribution up to USD$35,750. Employers can also contribute to a Roth 401(k) by matching employee contributions up to a certain percentage or U.S. dollar amount or by making elective contributions that don’t depend on employee contributions. The limit of employee and employer contributions combined for the 2026 tax year can be USD$72,000 or 100 percent of employee compensation in 2026, whichever is less. Workers aged 50 or older can add a USD$8,000 catch up contribution for a total of USD$80,000.
A U.S. taxpayer can contribute to both a traditional 401(k) and a Roth 401(k) in the same tax year as long as an employer offers both options. The maximum total amount an employee can contribute to both for the 2026 tax year will be USD$24,500. Under the Secure 2.0 Act, a taxpayer from 60 to 63 years of age can contribute an even higher “catch-up” contribution of USD$11,250 for bringing the maximum total contribution allowable to USD$35,750. A U.S. taxpayer, wanting to maximize tax-advantaged growth, can also contribute to both a Roth 401(k) and a Roth IRA in the same year with no maximum amount for both; each account will have its own annual contribution limit. However, a Roth IRA typically allows investors more flexibility of investments than a Roth 401(k). If a taxpayer doesn’t have enough money to max out contributions to both a Roth 401(k) and a Roth IRA, financial experts recommend maxing out the Roth 401(k) first to receive the benefit of a full employer match.
The Expat Provision
A U.S. citizen living abroad can have both a traditional and/or a Roth IRA. However, if a U.S. taxpayer had an existing IRA before moving abroad, the taxpayer may not be able to add to an IRA while overseas, according to Greenback Expat Tax Services, a Grandville, Michigan tax preparation firm specializing in expatriates. Whether or not one can contribute to a traditional or Roth IRA when living outside of the U.S. depends on one’s foreign income and any exclusions and deductions taken which include the foreign earned income exclusion (FEIFE) or foreign housing exclusion (FHE). The goal of the FEIFE and FHE is to reduce the U.S. tax burden from foreign earned income from those living overseas. “If all of the foreign earned income were to be excluded from U.S. taxes using an FEIFE, the U.S. citizen would not be eligible to invest in an IRA because there would be no income left over after the exclusion,” wrote Greenback Expat Tax Services in a recent article. An existing U.S. IRA can also not be rolled over into a foreign pension plan, because rollovers can only occur within U.S. domestic plans.
For the 2026 tax year, the maximum earned income abroad that can be used for FEIFE will be USD$132,000 for an individual or USD$164,000 for a married couple filing jointly. Earned income includes wages, salaries and professional fees, but not income from investments, rentals, or pension plans. To be eligible for an FEIFE, a U.S. citizen must pass the physical presence test, which means living in the foreign country for at least 330 full days during a 12-month period. A U.S. citizen cannot spend more than 35 days living in the U.S. Otherwise the FEIFE will be forfeited. (Most expatriates who qualify for the FEIFE are also eligible for the FHE).
Solo Roths
For Wall Streeters who either have their own businesses– serving as accountants, consultants, public relations and marketing executives– or outsourced chief compliance officers– a Solo Roth 401(k) is an option. There are no income limits to participate. The Solo Roth 401(k) works similar to a Roth IRA in that potential earnings can grow tax-free and may even be withdrawn tax-free. Anyone owning their own business can contribute to a Solo Roth 401(k) as long as there are no eligible employees other than the owners and their spouses. There can be both employer and employee contributions. Employer contributions can be tax-deductible as a business expense. The Roth 401(k) contribution limit for 2026 is USD$24,500 for employee contributions and USD$72,000 for employee and employer contributions combined. There can also be an additional USD$8,000 catch-up contribution to those between the ages of 50 and 59 and those over 64. For those between the ages of 60 to 63, the catch-up contribution can amount to USD$11.250. Because solo Roth IRAs and solo Roth 401(k) have separate contribution limits, there is no combined contribution limit for both. contribution limits.
Taxpayers have plenty of investment choices for a Roth IRA and a Roth 401(k); they include certificates of deposit, money-market funds, ETFs, mutual funds, stocks, bonds and cryptocurrency. The type of investment selected typically depends on one’s risk appetite, rather than age. For taxpayers relying on a conservative capital preservation strategy, dividend-paying ETFs are a recommended choice. A recent survey report entitled “ETFs 2029” published by accounting and global consultancy giant PwC showed that assets under management for global ETFs grew a record 27 percent in 2024 to reach USD$14.6 trillion at year-end. Global ETF inflows exceeded mutual fund inflowed for the third consecutive year. The study projected that the value of assets under management from ETFs would rise to USD$26 trillion by 2029. There are some advantages of ETFs over mutual funds. As a basket of securities that tracks or seeks to outperform an underlying index, ETFs have continuous pricing. Therefore, there is greater certainty about the price to be received at the point of purchase or sale. By contrast, the purchase or sale of a mutual fund can only be done at the end of the business day after the net asset value is struck. ETFs also have a far lower cost structure than mutual funds. In addition to annual fees, the later charge 12(b)1 fees to pay for marketing and selling the funds, redemption fees to discourage short-term trading, and/or up-front sales fees. Dividends earned from ETFs can either be taken in cash, reinvested in the same ETF or another ETF, or a combination of the two choices.
Capitalizing on ETF popularity in recent years, asset managers are debuting more of their mutual fund strategies as ETFs through several strategies. Fifty-six mutual funds were converted to ETFs in 2024, while others have opened an ETF “clone” of a specific mutual fund which allows investors to choose from the mutual fund or ETF version of an investment strategy. In addition, more than 80 asset managers have asked the U.S. Securities and Exchange Commission (SEC) for permission to launch an ETF share class of their existing mutual fund portfolios; in this case the ETF would be another share class and share the same portfolio as mutual fund investors. The SEC approved the first application for an ETF share class from Dimensional Fund Advisors on September 29, 2025.
Calculating MAGI
Contributing to one’s Roth IRA does come with two important caveats. The first is that the income must be earned. That means it cannot include payments of dividends or interest, alimony, child support, unemployment benefits, Social Security, or cash gifts. Earnings from corporate salaries or self-employment can be used. The second caveat is that one’s income cannot exceed a certain threshold. Calculating if one falls under the cap can be complicated because it is based on Maximum Allowable Gross Income (MAGI), a figure not found on any tax form. MAGI is typically higher than Adjusted Gross Income (AGI), because a number of deductions can be added. Those include a traditional IRA contribution, interest from a student loan, and excludable savings bond interest.
For tax year 2026, the income phase-out range for taxpayers making contributions to a Roth IRA who are covered by a workplace retirement plan will be between USD$153,000 and US$168,000 for singles and heads of households. For married couples filing jointly, if the spouse making the contribution to a Roth IRA is covered by a workplace retirement plan, the phase out range is increased to between US$129,000 and US$149,000. For a spouse who is not covered by a workplace retirement plan and is married to someone who is covered, the phase-out range will be between USD$242,000 and USD$252,000. For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range will not be subject to an annual cost-of-living adjustment. It is between USD$0 and USD$10,000.
Backdoor Roth IRAs
The IRS’ obvious intent of capping a taxpayer’s MAGI for determining eligibility to invest in a personal Roth IRA account is to prevent the ultra-wealthy from taking advantage of the tax break. However, there is still an indirect way of addressing the cap on MAGI. A taxpayer can contribute to a traditional IRA and convert the IRA into a Roth IRA through the “back-door.” As a rule of thumb, the only tax owned will typically be on any gains made from the time the traditional IRA is opened until the time the funds and/or assets are invested into a Roth IRA. Those gains will be taxed as ordinary income. There will still be no tax owed on any withdrawals from the Roth IRA. However, even the “back-door” approach comes with some strings attached known as the “Pro-Rata Rule.” That means that individuals having made tax deductible pre-tax contributions in a traditional IRA might get hit with a tax bill if they convert those funds to a Roth IRA. The Pro-Rata Rule requires one to consider all of the IRA accounts as a single entity when calculating tax liability for an IRA conversion to a Roth IRA.
Yet another way of contributing indirectly to a Roth IRA is a “Mega Back-Door IRA.” It is considered a superior version to a Back-Door IRA in that it allows high-income earners to contribute more to a Roth account than the standard limits through a two-step process. First, there must be a contribution to a 401(k) and then funds can be transferred to either a Roth IRA or a Roth 401(k). Whether the Mega Back-Door Roth strategy can be done depends on whether it is allowed in one’s workplace retirement plan. If there is a Roth option in one’s 401(k), one can convert after tax 401(k) amounts to a Roth 401(k), a strategy known as an in-plan Roth conversion. If permitted by one’s 401(k) , one can also roll after-tax amounts to a Roth IRA.
Regardless of the type of Roth retirement account a taxpayer opens or whether an account is created from converted funds, one thing is certain. Taxpayers must take an active role to maximize its value. The IRS has provided an easy way to accumulate additional income for retirement tax-free. The ultra-wealthy have profited from the tax-perc since Roth retirement accounts were allowed. There is no reason other Americans shouldn’t as well. As more Americans are living longer, it stands to reason, they will have to strongly consider preparing for retirement a lot earlier and a lot wiser.
The information provided in this article should not be construed as offering financial, legal, or tax advice. Consult with a professional before making any decisions. This article will be the first in a series dedicated to personal finance.
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