There aren’t many drawbacks to having a high income — but being unable to invest in a Roth IRA might be one of them. Are there strategies that allow high-income earners to contribute to this valuable retirement account? Before we delve into that question, let’s consider the rules. In 2023, you can contribute the full amount to a Roth IRA — $6,500, or $7,500 if you’re 50 or older — if your modified adjusted gross income is less than $138,000 (if you’re single) or $218,000 (if you’re married and filing jointly). If you earn more than these amounts, the amount you can contribute decreases until it’s phased out completely if your income exceeds $153,000 (single) or $228,000 (married, filing jointly).
A Roth IRA is attractive because its earnings and withdrawals are tax free, provided you’ve had the account at least five years and you don’t start taking money out until you’re 59½. Furthermore, when you own a Roth IRA, you’re not required to take withdrawals from it when you turn 72, as you would with a traditional IRA, so you’ll have more flexibility in your retirement income planning and your money will have the chance to potentially keep growing. But given your income, how can you contribute to a Roth?
You may want to consider what’s known as a “backdoor Roth” strategy. Essentially, this involves contributing money to a new traditional IRA, or taking money from an existing one, and then converting the funds to a Roth IRA. But while this backdoor strategy sounds simple, it involves some serious considerations.
