Myths of Roth/IRA

1. Nonworking spouse cannot contribute to IRA/Roth.

A married couple having earned income and filling tax-return as marred filing jointly may open IRA/Roth for both spouses.

2. Only W-2 jobs permit IRA/Roth contributions.

Any earning income from a business, side, or contractor job (on 1099) makes you eligible to open and contribute to IRA/Roth.

3. Kids are not eligible to open IRA/Roth.

Kids having official earned income are eligible to contribute to Custodial IRA/Roth.

4. IRA may hold only pre-tax contributions.

5. Employer-sponsored plans, like 401k, disqualify from contributing to IRA.

If you have earned income, contributions to IRA are allowed (up to certain annual limits).
IRS limits high-income earners (if one of the spouses is covered by employer-sponsored retirement plans) on receiving tax deductions for IRA contributions.

6. High-income earners cannot contribute to Roth IRA.

There are limits on high income (MAGI) for direct contributions to Roth IRA, but Backdoor Conversion to Roth IRA may work for any income level.
Pre-tax contributions to employer-sponsored retirement plans reduce MAGI, which may make you eligible to contribute to Roth.

7. The deadline for contributing to IRA/Roth is the end of the calendar year.

The deadline for contributions to IRA/Roth is 15 April (extensions are not allowed).
Pre-tax contributions to IRA must be reported on tax-return to receive tax deductions.
After-tax contributions to IRA must be reported on Form 8606.

8. Penalty-free withdrawals of the direct contributions from Roth IRA are allowed only after the 5-years period is over.

The direct contributions to Roth could be withdrawn at any time penalty-free.
Roth Conversion (including Backdoor) could be withdrawn penalty-free after 5-year is over from the conversion year.

9. One should estimate with an accountant the tax implication accurately before deciding whether to go with IRA or Roth IRA.

Contributions to Roth/IRA might be canceled before April 15 (tax-period deadline).
Before April 15, IRA contributions could be recharacterized (from traditional to Roth or vice versa).

10. IRA/Roth allows investing in the stock market only.

IRS allows using SDIRA (Self Directed IRA/Roth) for investing in alternative assets, like real-estate, business, crypto, and more.

11. The limit on Roth contributions is $6,000 annually.

50+ years old individuals may contribute to IRA/Roth up to $7,000 a year, subject to certain constraints.
If eligible, one may max out other similar plans, like SEP, solo-401k, 401k.
Roth Conversion and (Mega) Backdoor may allow maxing out Roth-contributions up to very high limits.

12. Early distributions from IRA are always penalized.

There are several exceptions, like paying for education, substantial medical expenses, up to $10,000 for the first home purchasing.
72(t) rule allows penalty-free early withdrawals.
Five years after a Roth Conversion (or after reaching the age of 59.5 years old), the converted amount could be withdrawn penalty-free.

13. IRA/Roth could always be rolled over to 401k

IRA could be rolled over to 401k if the plan allows Reverse Rollovers and if IRA does not contain after-tax money.
Roth cannot be rolled over to Roth 401k.

14. IRA Rollovers and Roth Conversions count toward an annual IRA/Roth contribution.

Rollovers/conversions from qualified retirement plans (401k, 403b, IRA) to IRA/Roth do not count against annual contribution limits.
Rollovers and conversions do not have any income constraints or limitations on the rolled over/converted amount.
Roth Conversion is a taxable event, so the converted amount must be included in your taxable income.