Maxing-Out Your Roth IRA: Checklist included

This article is part of a series. Please enjoy reading the other articles in the series: Your Tax-Advantaged Investing Guide: Start here, 401(k) Contributions Up to Your Employer Match: Checklist included, How HSAs Can Power Financial Independence: Checklist included, Maxing Out Your 401(k) Beyond Your Employer Match: Checklist included, College Savings Plans, 529s, and ESAs: Checklist included.

At Oberdorfer Financial, we believe your money should always be on a mission.

We guide professionals and business owners to financial independence through strategic investment planning. One of the most powerful retirement tools available today is the Roth IRA—a tax-free growth account that allows your money to compound for decades while protecting you from future tax hikes.

If you’re serious about building wealth and maximizing tax-free retirement income, maxing out your Roth IRA every year is a smart move. This article will break down why you should contribute, how to do it, and what to invest in—plus a step-by-step checklist to ensure you get it right.

Why Max Out a Roth IRA?

The Roth IRA is one of the most valuable investment accounts available because it offers:

• Tax-Free Growth: Unlike a Traditional IRA, contributions are made with after-tax dollars, meaning your investments grow completely tax-free.
• Tax-Free Withdrawals: Once you reach age 59½ and have held the account for at least five years, all withdrawals, including investment gains, are completely tax-free.
• No Required Minimum Distributions (RMDs): Unlike a traditional IRA or 401(k), the government never forces you to withdraw money, allowing your portfolio to grow uninterrupted.
• Flexibility: You can withdraw your contributions (not your earnings) at any time, penalty-free, making it a great option for financial flexibility.
• Hedge Against Future Tax Increases: Since contributions are made with post-tax dollars, a Roth IRA protects you from higher future tax rates that could erode your retirement savings.

Who Can Contribute to a Roth IRA?

Before maxing out your Roth IRA, ensure you qualify. Income limits apply, meaning high earners may need to use the Backdoor Roth IRA strategy to contribute. The Modified Adjusted Gross Income (MAGI) are currently:

• For 2025, you can contribute the full amount if:
  
  • You earn $161,000 or less (single filers)
  • You earn $240,000 or less (married filing jointly)
    
• If you earn more than this, you can still contribute using a Backdoor Roth IRA, which involves contributing to a non-deductible traditional IRA and then converting it into a Roth IRA to avoid income limits.
  
• Contribution Limits for 2025:
  
  • $7,000 per year (under age 50)
  • $8,000 per year (if age 50 or older)

Anyone Can Open a Roth IRA—No Employer Required

Unlike a 401(k), which is tied to an employer, a Roth IRA is an individual retirement account that anyone can open and contribute to—regardless of whether their employer offers a retirement plan. All you need is earned income from a job, self-employment, or side business. You can open a Roth IRA with a brokerage firm, a bank, or an investment advisory like Arena Investor, where we can help you manage your investments to align with your financial goals.

What If You Earn Too Much? The Backdoor Roth Strategy

Roth IRAs have income limits that determine eligibility for direct contributions. If your Modified Adjusted Gross Income (MAGI) exceeds the annual limit set by the IRS, you won’t be able to contribute directly. However, high earners still have an option: The Backdoor Roth IRA Conversion.

The Backdoor Roth allows you to contribute to a Traditional IRA first, then convert those funds into a Roth IRA. Since there are no income limits for Traditional IRA contributions, this strategy provides a legal way for higher-income individuals to access tax-free Roth growth.

Here’s how it works:

1. Open a Traditional IRA and make a non-deductible contribution.
2. Wait a few days for the funds to settle (to avoid IRS step-transaction concerns).
3. Convert the Traditional IRA to a Roth IRA (this may create a small tax bill if any gains have accumulated).
4. Invest the Roth IRA funds for long-term tax-free growth.

With the right strategy, nearly anyone can benefit from a Roth IRA, regardless of their income level. Whether you contribute directly or use the Backdoor Roth conversion, you gain access to a tax-free retirement savings vehicle that can compound for decades.

Need help setting up your Roth IRA or executing a Backdoor Roth conversion? At Arena Investor, we guide clients through the process, ensuring their investments align with their financial independence plan. Let’s create a strategy that works for you!

Where Should You Open a Roth IRA?

You can open a Roth IRA at any financial services institutions, such as:

• Fidelity – Great for long-term investors and zero-fee index funds.
• Vanguard – Best for low-cost funds and ETFs.
• Schwab – Offers excellent customer service and a wide range of investments.
• Arena Investor – Have your Roth IRA professionally managed.

Oberdorfer Financial also offers professional investment management for your Roth IRA, ensuring it aligns with your Investor Profile, including your age, goals, risk tolerance, and broader financial picture (such as real estate, business interests, and tax planning).

What Should You Invest in?

Your investment strategy should align with your Investor Profile – important factors such as your age, long-term goals, risk tolerance, and your broader financial picture (net worth, real estate holding, business equity, crypto, and so on). A well-diversified Roth IRA may include:

• Stock Market Index Funds (S&P 500, Total Market, International) – Broad market exposure for long-term growth.
• Dividend Growth Stocks – High-quality stocks that increase their dividends, compounding returns over time.
• Target-Date Funds – Automatically adjust asset allocation based on your retirement timeline.
• Alternative Investments – If suitable, certain real estate funds or alternative assets can be used to diversify.

Example of Roth IRA Growth Over 20 Years

If you max out your Roth IRA every year with a 7% average return, here’s what could happen:

Year 1:
Contributions: $7000
Growth: $490
Total balance: $7490

Year 5:
Contributions: $35,000
Growth: $12,195
Total balance: $47,195

Year 10:
Contributions: $70,000
Growth: $46,764
Total balance: $116,764

Year 20:
Contributions: $140,000
Growth: $193,964
Total balance: $333,964

By maxing out contributions, you could build over $330,000 of tax-free money in just 20 years—without paying a single cent in taxes on your gains.

Roth IRA: Another Powerful Hedge Against Inflation

One of the greatest long-term financial risks is inflation, which steadily reduces the purchasing power of your money over time. Fortunately, a Roth IRA invested in stocks is an excellent hedge against inflation. Historically, the stock market has provided average annual returns of 7-10%, significantly outpacing the 2-3% average inflation rate per year.

This means that over time, a well-invested Roth IRA not only grows but also protects your wealth from being eroded by rising costs. Unlike holding cash or investing in low-yield bonds, stocks tend to appreciate alongside inflation, as companies adjust prices, increase revenues, and grow profits. Many companies also raise dividends over time, further strengthening the inflation-fighting power of your investments. By regularly contributing to your Roth IRA and investing in stocks, you ensure that your retirement savings not only hold their value but continue to grow despite inflation.

At Oberdorfer Financial, we typically recommend a stock-heavy portfolio for younger investors—not just for growth potential, but also as a strategic defense against inflation. As you get closer to Financial Independence or retirement, we gradually adjust your stock-to-bond ratio to reflect your risk tolerance and withdrawal needs. Knowing which stocks and bonds to own, in what proportions, and how to adjust over time is a key part of our professional, fee-only, fiduciary investment management. Let’s build an investment strategy that keeps your wealth growing—while protecting it against the hidden threat of inflation.

Why You Should Avoid Contributing in Early January

It might be tempting to contribute to your Roth IRA as soon as the calendar flips to January, but waiting until later in the year can sometimes be the smarter move. Here’s why:

Not everyone has predictable income. If you’re self-employed, earn commissions, or receive bonuses, your income can fluctuate throughout the year. Even salaried employees can see unexpected changes—job switches, layoffs, promotions, or bonuses that push their earnings higher than anticipated.

By waiting until later in the year to make your IRA contribution, you allow yourself to see where your income actually falls within the tax brackets. While a Roth IRA is usually the best option, there are years when a Traditional IRA contribution could be more beneficial—especially if it lowers your taxable income enough to drop you into a lower bracket.

For example, if your taxable income is hovering near a tax bracket cutoff, contributing to a Traditional IRA instead of a Roth IRA could reduce your taxable income and result in a lower tax rate. This strategy is particularly useful in years where you:

• Experience higher-than-expected income (raises, bonuses, or extra commissions).
• Are close to a tax bracket threshold and want to drop into a lower bracket.
• Need additional tax deductions to optimize your tax liability.

Rather than playing this card too quickly in January, wait and assess your full financial picture by late fall or early winter. This way, you can determine whether it makes sense to contribute to a Roth IRA for tax-free growth or to a Traditional IRA for immediate tax savings.

We help clients make these decisions strategically—aligning contributions with their total financial plan to maximize wealth while minimizing tax burdens. If you’re unsure about which approach is right for you, let’s discuss it.

There is no audio for the checklist. Please refer to the article to use the checklist.

Checklist: Maxing Out Your Roth IRA

To ensure you’re taking full advantage of a Roth IRA, follow this step-by-step checklist.

Step 1: Confirm Eligibility

___ Check your Modified Adjusted Gross Income (MAGI) to ensure you qualify for direct contributions.

____ Use a Backdoor Roth IRA conversion if your income is too high.

Step 2: Open a Roth IRA

___ Choose a financial services institution (Fidelity, Vanguard, Schwab, Arena Investor).

___ Fund your account with an initial deposit.

Step 3: Set Up Contributions

___ Contribute $7,000 ($8,000 if 50 or older) per year.

___ Set up automatic monthly contributions ($583 per month to max out in 2025).

Step 4: Select Your Investments

___ Review investment options* – Your Roth IRA will offer a selection of mutual funds, index funds, and possibly target-date funds.

___ Align your portfolio with your Investor Profile* – Choose investments based on your Investor Profile – key factors such as age, risk tolerance, long-term goals, and your overall financial picture. Arena Investor can help align your 401(k) with your broader financial plan, including real estate and other investments.

*Oberdorfer Financial’s Investment Management offering can professionally manage Roth IRAs for you so you don’t need to make the investment decisions, especially the selection of portfolio holdings, weighting adjustments over time as you grow closer to your goals, and the market ups and downs that challenge one’s decision-making.

*We also offer Portfolio Checkups that are a one-time look at how well your Investor Profile and your actual Investment Portfolio aligns – we then make specific recommendations for which stocks, bonds, funds, etc to buy, sell, or trim to realign a misaligned portfolio.

___ Opt for automatic rebalancing (if available) – This helps maintain your preferred stock/bond mix without manual adjustments.

Step 5: Optimize Your Tax Strategy

___ Keep your Roth IRA fully invested—don’t leave money sitting in cash.

___ Consider Roth conversions from a Traditional IRA (if you have one) to take advantage of tax-free growth.

___ Work with a financial advisor – Arena Investor provides Financial Planning, Investment Management, and integrated Real Estate services to comprehensively understand your entire financial picture and cohesively manage your journey to Financial Independence.

If Oberdorfer Financial Manages Your Roth IRA for You

Managing your retirement investments can feel overwhelming—but you don’t have to do it alone. At Oberdorfer Financial, we align your Roth IRA investments with your entire financial picture, ensuring they work alongside your 401(k), real estate holdings, and overall net worth.

• Professional Portfolio Management – We build and manage your Roth IRA investments with a focus on tax-free growth.
• Investor Profile Alignment – Ensure your Roth IRA reflects your risk tolerance, goals, and financial trajectory.
• Holistic Wealth Strategy – Integrate your Roth IRA with your 401(k), taxable investments, and real estate for maximum growth.
• Guidance Through Market Cycles – Stay on track even when markets fluctuate.

Unlike many advisors who charge high all-in fees (1.65% is what investors tend to pay, not 1% like they think, per Kitces), Oberdorfer Financial offers investment management with clear, straightforward pricing—no hidden fees, no conflicts of interest, just sound investment strategy. We are a fee-only advisory. No commissions, no [fill-in-the-blank] fees.

Final Thoughts: Take Control of Your Future

Maxing out your Roth IRA is one of the smartest moves you can make for tax-free retirement savings. By contributing the maximum amount annually and investing wisely, you can build significant wealth that won’t be taxed in retirement.

We specialize in helping professionals and business owners optimize their investments, ensuring every dollar is working for you.

Thank you for your continued trust in Oberdorfer Financial.

Truly,
The Oberdorfer Financial Team

At Oberdorfer Financial, we help The Ones in The Arena — hardworking men, women, and owners of America. Together, we’ll keep your Money on a Mission.

Schedule a Discovery Meeting here to learn more.