The Roth IRA is another retirement vehicle that will allow firefighters to have a more than comfortable retirement. The Roth IRA is a post-tax retirement plan. This means that we will use post tax dollars to make our contributions. Compare this to our 457b retirement plan which uses pretax dollars. The main advantage of the Roth IRA is that our earnings get to grow tax free. Which means that when we go to make withdrawals after age 59 1/2, our distributions can be taken out tax free as long as the account has been open longer than 5 years. Anytime we can grow our money without paying taxes, we must take advantage of that. This great retirement vehicle does have limitations based on income or more specifically your modified adjusted gross income. If you make a certain amount of money over the stated amounts, your max contribution gets phased out. Until the max salary limit is met, then you are unable to contribute. Now don’t get too discouraged, there is another legal option which allows you to contribute to your Roth IRA called the “back door” Roth option. But that topic will be addressed in a future post. Attached is a picture of the 2023 max salary limits.
| if your filing status is… | And your modified AGI is… | Then you can contribute… |
| married filing jointly or qualifying widow(er) | < $218,000 | up to the limit |
| married filing jointly or qualifying widow(er) | > $218,000 but < $228,000 | a reduced amount |
| married filing jointly or qualifying widow(er) | > $228,000 | zero |
| married filing separately and you lived with your spouse at any time during the year | < $10,000 | a reduced amount |
| married filing separately and you lived with your spouse at any time during the year | > $10,000 | zero |
| single, head of household, or married filing separately and you did not live with your spouse at any time during the year | < $138,000 | up to the limit |
| single, head of household, or married filing separately and you did not live with your spouse at any time during the year | > $138,000 but < $153,000 | a reduced amount |
| single, head of household, or married filing separately and you did not live with your spouse at any time during the year | > $153,000 | zero |
The 2023 max contribution limit is $6500.00. If you are over 50 years old the max contribution is $7500.00. We can contribute to 2022’s Roth IRA by April 18, 2023. Other key details are that the minimum age that we can start withdrawing to get our tax-free earnings is age 59 1/2. Also, you must have owned your account for over 5 years to get the tax-free advantage. Another benefit is that there are no employer plan restrictions on our Roth IRA. This means that we can take our contributions out whenever we want. Compared to a Roth 457 which does not allow you to take your contributions out until you separate employment or turn age 59 1/2. The Roth IRA is possibly the greatest way to build tax free wealth. Attached is a chart showing what a 30-year-old firefighter who starts maxing out their Roth IRA will have at age 59 1/2 tax free. This example shows how important it is to understand compound interest and the importance of paying ourselves first to invest in assets and not liabilities. Having over a million dollars in a tax-free account seems pretty amazing, especially on top of our pension and 457b.
