The Costly Roth IRA Mistake High-Earning Professionals Are Making, According to Ryan Gomez, CFP®

In a recent LinkedIn post, Ryan Gomez, CFP® highlights a common and potentially costly financial misstep made by high-earning sales professionals: contributing to a Roth IRA despite exceeding income limits. This oversight, he warns, can lead to significant IRS penalties that accumulate annually until corrected.

Gomez, CFP® points out that many Account Executives (AEs) earning upwards of $170,000 per year are inadvertently making this error. He clarifies the IRS income phase-out and contribution limits for Roth IRAs, which for 2026 are set to begin phasing out at $153,000 for single filers and $242,000 for married couples, with no contributions allowed above $168,000 (single) and $252,000 (married).

“One of the biggest mistakes I see AEs making $170k+? Contributing to a Roth IRA, it can cost you $450+ in IRS penalties every year…”

The Ramifications of Excess Contributions

The core of the issue, as explained by Gomez, CFP®, is the concept of an “excess contribution.” When an individual contributes more to a Roth IRA than they are legally allowed based on their income, they are subject to specific IRS penalties. Gomez, CFP® emphasizes the severity and recurring nature of this penalty.

According to Gomez, CFP®:

“The penalty for ‘excess contributions’: -6% excise tax, every year, until it’s corrected -The penalty keeps on being charged every year it sits”

This means that for every year an excess contribution remains in the Roth IRA, the individual faces a 6% excise tax on that amount. For example, if an individual contributes the maximum allowed to an IRA ($7,500 for 2024) and is over the income limit, they could face an annual penalty of $450 (6% of $7,500), as Gomez, CFP® illustrates.

Strategic Solutions for High Earners

Fortunately, Gomez, CFP® outlines clear strategies to rectify and avoid this costly penalty. He stresses the importance of proactive financial planning for high-income earners to ensure compliance with IRA regulations.

Correcting Excess Contributions

For those who have already made excess contributions, Gomez, CFP® advises a timely correction. The primary method involves withdrawing the excess amount, along with any earnings it has generated, before filing taxes for the year the contribution was made. This action can help mitigate or even eliminate the penalty.

The Backdoor Roth Strategy

A more preventative approach, and one that Gomez, CFP® strongly recommends, is the “Backdoor Roth IRA” strategy. This method allows high-income earners to contribute to a Roth IRA indirectly. It typically involves contributing to a traditional IRA, which has no income limitations for contributions (though deductibility may be limited), and then converting the traditional IRA funds to a Roth IRA.

As Gomez, CFP® notes:

“Make sure you have a plan with a Backdoor Roth to avoid this & keep more money in your pocket.”

By utilizing the Backdoor Roth strategy, individuals can effectively bypass the income limitations associated with direct Roth IRA contributions, thereby avoiding the 6% annual penalty and ensuring their retirement savings grow tax-free in a Roth account. Gomez, CFP®’s insights serve as a crucial reminder for high-earning professionals to regularly review their retirement contribution strategies to align with current IRS regulations and optimize their financial outcomes.