30+ Myths About IRA and Roth IRA

There are many misconceptions about IRAs and Roth IRAs. Let’s clear up some of the most common ones:

👤 Eligibility & Who Can Contribute

❌ Myth #1: Non-working spouses cannot contribute to an IRA/Roth
✅ Truth: Married couples filing jointly can fund IRAs/Roths for both spouses, as long as there’s enough household earned income.

❌ Myth #2: Only W-2 jobs qualify for IRA/Roth contributions
✅ Truth: Any earned income — from W-2 employment, self-employment, side jobs, or contractor work (1099) — makes you eligible to contribute.

❌ Myth #3: Kids are not eligible for IRA/Roth
✅ Truth: Kids with earned income (W-2 or 1099) can contribute to a Custodial IRA/Roth.

❌ Myth #4: You can’t contribute to an IRA if you didn’t pay taxes last year
✅ Truth: What matters is earned income, not whether you owed tax. Even with zero tax liability, you can contribute.

❌ Myth #5: You can’t contribute to an IRA if you’re retired✅ Truth: Since 2020, there’s no age cap. If you (or your spouse) have earned income, you can contribute.

❌ Myth #6: You can’t contribute to both a Traditional IRA and a Roth IRA✅ Truth: You can contribute to both, as long as your total combined contributions don’t exceed the annual IRS limit ($7,000/$8,000 for 2025).

❌ Myth #7: You can’t have an IRA if you already maxed out a 401k
✅ Truth: You can contribute to both. Your ability to deduct Traditional IRA contributions may be limited if you or your spouse are covered by a workplace plan and your income is high, but the account is still allowed.

❌ Myth #8: Contributing to a Roth 401k means you can’t contribute to a Roth IRA
✅ Truth: You can contribute to both. The Roth 401k has its own separate limit ($23,500 for 2025, plus catch-up if age 50+), while the Roth IRA has its own limit ($7,000 / $8,000). Your eligibility for a Roth IRA still depends on income (MAGI), but having a Roth 401k doesn’t block you.

❌ Myth #9: Having a 401k disqualifies you from contributing to an IRA
✅ Truth: Having a 401k doesn’t block IRA contributions. It only affects whether Traditional IRA contributions are deductible at higher incomes.

❌ Myth #10: Having a 401k disqualifies you from contributing to a Roth IRA
✅ Truth: Roth IRA eligibility depends only on income (MAGI) limits, not on whether you have a workplace retirement plan. In fact, pre-tax 401k contributions reduce your MAGI, which can increase your chances of qualifying for direct Roth IRA contributions. And even if your income is too high, the Backdoor Roth strategy is still available.

❌ Myth #11: Self-employed people can’t use retirement plans (or Roth)
✅ Truth: If you have self-employment income, you often have more retirement options, not fewer. In addition to Traditional and Roth IRAs, the self-employed can open a Solo 401k or SEP IRA, which allow much higher contribution limits than workplace 401k plans. Some Solo 401ks even allow the Mega Backdoor strategy.

💰 Contribution Limits & Deadlines

❌ Myth #12: You can only contribute $6,000 to a Roth IRA
✅ Truth: The annual Roth IRA contribution limit is $7,000 if you’re under 50, and $8,000 if you’re 50 or older. Beyond this, other accounts (like 401k) and strategies (Roth Conversions, Mega Backdoor) can greatly expand Roth funding.

❌ Myth #13: The maximum Roth contribution is $7,000 (Roth IRA) + $23,500 (Roth 401k)
✅ Truth: Those are just the base 2025 limits. Age 50+ get catch-ups ($1,000 IRA, $7,500 401k). Some plans even allow after-tax + in-plan Roth rollovers (Mega Backdoor), raising Roth funding far beyond standard limits.

❌ Myth #14: The deadline to contribute is December 31
✅ Truth: IRA/Roth contributions for a given tax year can be made up until April 15 of the following year (no extensions allowed). Pre-tax IRA contributions must be reported on your tax return for deductions; after-tax IRA contributions must be reported on Form 8606.

❌ Myth #15: You must finalize Traditional IRA vs Roth IRA decisions before contributing
✅ Truth: Contributions can be recharacterized (Traditional ↔ Roth) up until April 15 of the following year, allowing flexibility. Contributions can also be withdrawn (“returned”) by the same deadline if needed.

❌ Myth #16: Traditional IRAs can only hold pre-tax contributions
✅ Truth: An IRA can contain both pre-tax and after-tax contributions. Earnings are always tax-deferred. To track after-tax contributions, you must file Form 8606.

❌ Myth #17: High-income earners cannot contribute to a Roth IRA
✅ Truth: Direct contributions are limited by income (MAGI). However, the Backdoor Roth strategy works at any income level. Pre-tax contributions to employer plans can also reduce MAGI, sometimes restoring eligibility.

🏦 Withdrawals & Distributions

❌ Myth #18: Roth contributions can only be withdrawn after 5 years
✅ Truth: Your direct Roth contributions (not earnings) can be withdrawn anytime, tax- and penalty-free. Converted amounts (via Roth Conversion or Backdoor Roth) have a 5-year waiting period before they can be withdrawn penalty-free.

❌ Myth #19: Early IRA withdrawals are always penalized
✅ Truth: There are exceptions: qualified education expenses, certain medical costs, up to $10,000 for a first-time home, and more. The 72t rule allows structured early withdrawals. For Roth IRAs, converted amounts can be withdrawn penalty-free after 5 years; earnings are penalty-free at age 59½.

❌ Myth #20: Required Minimum Distributions (RMDs) apply to all IRAs
✅ Truth: Roth IRAs are exempt from RMDs during the original owner’s lifetime. (Beneficiaries, however, may face distribution rules.)

❌ Myth #21: Roth IRAs are always the best choice because withdrawals are tax-free✅ Truth: Roths are great, but not always best. If your tax rate is lower now, use a Roth. If it’s higher now, Traditional may save you more.
💡 Rule of thumb: Pay taxes when it hurts less — Traditional if now, Roth if later.

🔄 Rollovers & Conversions

❌ Myth #22: IRAs can always be rolled into a 401k plan
✅ Truth: Reverse rollovers are possible only if the employer plan allows them, and if the IRA contains no after-tax money. Roth IRAs cannot be rolled into a Roth 401k.

❌ Myth #23: Rollovers and conversions count toward annual limits
✅ Truth: Rollovers and Roth Conversions (from 401k, 403b, IRA, etc.) don’t count against annual contribution limits and have no income restrictions. However, Roth Conversions are taxable in the year of conversion.

❌ Myth #24: You can convert to a Roth only once
✅ Truth: You can do multiple Roth conversions over time. Many people use partial conversions across several years to manage tax brackets.

❌ Myth #25: IRAs are automatically passed to heirs tax-free
✅ Truth: Inherited IRAs aren’t tax-free. Non-spouse heirs usually must drain the account within 10 years. Withdrawals from Traditional IRAs are taxable.

📊 Investment Options & Rules

❌ Myth #26: IRAs only allow stock market investing
✅ Truth: With a Self-Directed IRA (SDIRA), you can invest in alternative assets such as real estate, private businesses, or crypto — though rules and risks are stricter.

❌ Myth #27: IRAs offer the same limited investments as a 401k
✅ Truth: Unlike most 401k plans, IRAs usually give access to a far broader investment menu — stocks, ETFs, bonds, mutual funds, CDs, etc. (unless limited by your custodian).

❌ Myth #28: You can take a loan from your IRA
✅ Truth: Unlike 401k plans, IRAs do not allow loans. You may do a 60-day rollover once per 12 months, but if you miss the deadline, it’s treated as a taxable withdrawal.

❌ Myth #29: You can harvest tax losses inside an IRA
✅ Truth: Losses inside an IRA are never deductible. Tax-loss harvesting only works in taxable accounts.

❌ Myth #30: Wash sale rules don’t apply to IRAs
✅ Truth: They do. If you sell a stock at a loss in a taxable account and rebuy it in an IRA within 30 days, the IRS disallows the loss — gone for good, not just deferred.
📑 IRS Notice 2008–5 confirmed this. Unlike in taxable accounts, you can’t adjust IRA basis to preserve the loss.
💡 Avoid harvesting losses in taxable accounts if you’ll rebuy in an IRA within 30 days — the tax benefit is gone for good.

❌ Myth #31: IRA contributions can come from any money
✅ Truth: Only earned income counts (wages, self-employment). Gifts, inheritance, or passive income (interest, dividends, rental income) do not make you eligible.

❌ Myth #32: The IRS doesn’t know about Roth IRAs
✅ Truth: Some think Roth IRAs fly under the radar because withdrawals can be tax-free. In reality, all contributions and conversions are reported to the IRS, and custodians issue Form 5498 annually.

❌ Myth #33: You can only have one IRA
✅ Truth: You can open multiple IRAs (Traditional, Roth, or both) and even multiple accounts at different custodians. The IRS only limits the total annual contribution, not the number of accounts.

❌ Myth #34: You don’t need to keep records for IRAs
✅ Truth: Custodians report balances and contributions, but you are responsible for tracking basis in after-tax contributions (via Form 8606). Without records, you risk paying taxes twice on the same money.

⚖️ Miscellaneous

❌ Myth #35: IRA accounts are always safe from creditors
✅ Truth: Federal bankruptcy law protects IRAs up to certain limits, but outside bankruptcy, creditor protection depends on state law — and rules vary widely. Don’t assume your IRA is untouchable.

👉 Which of these myths have you heard the most? Did any surprise you — or have you ever believed one yourself? 💡 Share this with someone who still does!