Motley Fool Money (Dec 13, 2025)

Episode: Roth Advice Gone Wrong and Mandatory Roth Catch-Up Contributions in 2026

Host: Robert Brokamp
Guest: Megan Brinsfield, CFP, CPA, President of Motley Fool Wealth Management

Episode Overview

This episode of Motley Fool Money dives into two timely personal finance topics:

• The potential downsides of Roth accounts and when conventional Roth advice can be wrong.
• Mandatory Roth catch-up contributions for high-earning workers over 50, coming in 2026.

Host Robert Brokamp is joined by Megan Brinsfield to dissect scenarios where Roth IRAs/401(k)s aren't always the best choice, explore the big picture of tax planning, and explain new retirement account rules for older, high-income savers.

Key Discussion Points & Insights

1. Market Recap and Year-End Reminders [00:06–03:21]

• Fed Rate Cut:
  • The Federal Reserve’s third rate cut of the year (quarter point); 9–3 vote, largest dissent in six years.
  • S&P 500 rose 0.7% on the news; small-cap value stocks outperformed.
• Required Minimum Distributions (RMDs):
  • Reminder for those over 73 and owners of inherited retirement accounts: Take your RMDs to avoid penalties.
  • “Please, please, please do your future heirs a favor and complete and update the beneficiary designation form for IRAs and 401ks.” — Robert Brokamp [02:47]
• Number of the Week:
  • The NASDAQ 100 has fallen more than 30% in every one of its down years since 1995, but there have only been 5 such years.
  • Average annual return since 1995: 15% for NASDAQ 100 versus 11.1% for the S&P 500.

2. When Roth Advice Goes Wrong: Exploring the Downsides [04:33–16:55]

a. AGI Ripple Effects: More Than Just Taxes [05:10–07:19]

• Higher AGI affects Medicare premiums:
  • Your AGI (adjusted gross income) impacts more than just your tax rate:
    • “Medicare is based on your gross income… Social Security looks back two years to your income at age 63, when you start paying at age 65.” — Megan Brinsfield [05:39]
  • Also impacts eligibility for ACA premiums, student loan repayments, and deductions/credits.
• Big Picture:
  • Roth conversions increase AGI, which can have “downstream effects” beyond immediate taxation.

b. Psychology vs. Math: The ‘Tax-Free’ Mirage [07:21–09:01]

• People overvalue the “tax-free” aspect because of peace of mind:
  • “Having that tax prepaid can feel like a big psychological lift… but we have a progressive tax; you’re not paying just one rate.” — Megan Brinsfield [07:39]
• Don’t give up future low-tax or tax-free income (standard deductions, low brackets) just to fill a Roth now.

c. Limitations of Online Roth Calculators/Tools [09:03–10:58]

• “Retirement calculators” with linear, oversimplified assumptions mislead users:
  • “If you just take a single year and extrapolate it out, it yields subpar results because it doesn’t line up with real life.” — Megan Brinsfield [09:22]
• Overestimating life expectancy (e.g., assuming everyone lives to 100) can make Roth compounding look better (and risk being misleading).

d. Legacy and Charitable Gifting: When Roth Makes Less Sense [10:58–12:25]

• Converting to Roth isn’t wise if your legacy is mostly for charities:
  • “Charities are not paying tax on any of the money that you give them. So there’s no need to prepay tax in that case. It would just be a gift to the government.” — Megan Brinsfield [11:34]

e. Tax Diversification: Spreading the Risk [12:25–14:42]

• Don't just diversify investments—diversify by account types: taxable, tax-deferred, and Roth.
  • “By having funds in each of those tax buckets, you can… build a retirement income stream that fits for each given year.” — Megan Brinsfield [13:20]
• This allows flexibility as your income and needs change (e.g., capital gains harvesting, major purchases, or gifts).

f. Alternative Strategies: Qualified Charitable Distributions (QCDs) and HSAs [14:46–16:55]

• QCDs:
  • Donating RMDs directly to charity allows you to satisfy the requirement without adding taxable income.
    • “You have controlled how much income is hitting your tax return, and achieved a charitable goal as well.” — Megan Brinsfield [15:26]
• HSAs vs. Roth/401(k):
  • Great for younger investors due to triple tax benefit, less advantageous as inheritance assets.
    • “The HSA is not something that’s great to have in your tax diversification buckets at death, whereas Roth IRA is.” — Megan Brinsfield [17:09]
  • May want to alternate years of HSA and Roth contributions.

3. 2026 Mandatory Roth Catch-Up Contributions for High Earners 50+ [19:04–End]

a. New Retirement Contribution Limits for 2026

• IRA limit: $7,500 (+ catch-up: $1,100, if 50+ by end of 2026)
• 401(k)/similar: $24,500 basic limit
• Catch-up:
  • Ages 50–59 or 64+: $8,000
  • Ages 60–63: $11,250

b. New Rule for High Earning Workers

• Requirement:
  • Starting in 2026, if you’re 50+ and earning more than $150,000 from your employer in 2025, catch-up contributions must go into a Roth account.
• Consequences:
  • If you don’t adjust, your first $24,500 will go to traditional (pre-tax) 401(k)—all catch-up switches to Roth (post-tax).
  • Downsides:
    1. “Your after-tax take home pay may drop once contributions switch over to the Roth, which could be a bit of a shock for budgeting purposes if you weren’t planning for it.” — Robert Brokamp [19:44]
    2. Money gets into the Roth later—less time for tax-free growth.
• Advice:
  • Contribute to both traditional and Roth with each paycheck, starting early in 2026, to avoid a last-minute switch.
  • Work with HR/401(k) provider to get contribution math right.
  • Applies only if you want to maximize traditional; if you already contribute all to Roth, nothing changes.
  • Important: If your plan doesn’t offer a Roth 401(k), you can’t make catch-up contributions.

Notable Quotes & Memorable Moments

• On Roth accounts’ downstream AGI effects:
  • “Your income actually has a downstream effect in a lot of different ways… You want to consider all of those things when thinking about a Roth conversion.” — Megan Brinsfield [06:16]
• On the psychology of 'tax-free' Roth money:
  • “You don’t have to think about it again [taxes]... But you actually don’t want to give up future free and low tax rate buckets in your exuberance to prepay that tax and recognize that benefit today.” — Megan Brinsfield [07:47]
• On charitable legacy:
  • “It would just be a gift to the government [to convert to Roth and then leave to a charity].” — Megan Brinsfield [11:39]
• On tax diversification:
  • “By having an accumulated funds in each of those tax buckets, you can really start building a retirement income stream…” — Megan Brinsfield [13:20]
• On new 401(k) Roth catch-up rules for high earners:
  • “If you’ve been contributing the entire amount to a pre-tax traditional account and don’t change it… your after-tax take home pay may drop once contributions switch over to the Roth.” — Robert Brokamp [19:44]

Timestamps for Key Segments

• Fed rate cut, RMDs, beneficiary forms:
  [00:06–03:21]
• Main Roth conversation begins (with Megan Brinsfield):
  [04:33]
• Downsides of Roth conversion on AGI & taxes:
  [05:10–07:19]
• Psychology vs. math of Roth 'tax-free':
  [07:21–09:01]
• Tool/calculator pitfalls:
  [09:03–10:58]
• Charitable legacy scenarios:
  [10:58–12:25]
• Tax diversification strategy:
  [12:25–14:42]
• Qualified charitable distributions & HSAs:
  [14:46–16:55]
• 2026 Roth catch-up rules for high earners:
  [19:04–End]

Summary

This episode delivers a nuanced look at Roth IRAs/401(k)s, emphasizing that “best” isn’t always obvious—even with something as popular as a tax-free retirement account. Robert Brokamp and Megan Brinsfield encourage investors to:

• Carefully examine the full ripple effects of Roth conversions (impact on Medicare, credits, and deductions via higher AGI).
• Recognize Roth’s psychological allure, but acknowledge the importance of tax bracket math and future flexibility.
• Avoid relying solely on simple calculators. Real world is messy!
• Consider legacy and charitable goals—often, a traditional account is better for intended charitable giving.
• Build tax diversification across account types for maximum flexibility in retirement.
• Prepare for new Roth catch-up rules for high earners in 2026, to avoid surprise reductions in take-home pay or missed savings opportunities.

Bottom line:
Roth accounts are powerful tools—but only some of the time, and only in the right situations. Take a holistic view, customize for your situation, and understand how new rules may affect your long-term plan.