Weekend Reading: You Passed Roth IRA Income Limits, Where Should Your Next Dollar Go?
This article appears as part of Casey Weade's Weekend Reading for Retirees series. Every Friday, Casey highlights four hand-picked articles on trending retirement topics and delivers them straight to your email inbox. Get on the list here.
Weekend Reading
Roth IRAs have plenty to offer you; contributions grow tax-free, they don’t have required minimum distributions (RMDs) and you can make withdrawals on your own terms (pending the rules). However, it’s important to note that these accounts cap at a $6,000 contribution for 2022 ($7,000 if you’re age 50+) - And, they come with income limits as soon as you enter the six-figure range.
READ THE ARTICLERoth IRA alternates: You will find more information on how your modified adjusted gross income (MAGI) impacts contribution eligibility here, but if you find yourself in such a position, included are a variety of income limit workarounds or other options to grow your dollars, such as:
📌 A non-deductible traditional IRA: If covered through a workplace retirement plan, you can make non-deductible contributions to a traditional IRA. While this won’t lower taxable income, it will help develop tax-free growth.
📌 Backdoor Roth IRA: As an exception to the Roth IRA income rule, you can utilize a backdoor Roth IRA strategy, which includes opening and contributing to a traditional Roth IRA, then converting those funds to a Roth IRA. Taxes might have to be paid on the conversion, however, depending on how much is already in your Roth IRA, the amount being converted and adjusted gross income.
📌 A Roth 401(k): While this is very similar to a Roth IRA, Roth 401(k) contribution limits are much higher (capped in 2022 at $20,500, plus an extra $6,500 if age 50+). Additionally, there is no income limit.
📌 Boost other retirement accounts: This could include maxing out your traditional, pre-tax 401(k), or considering a mega backdoor Roth, which involves making after-tax contributions, then converting funds to a Roth 401(k).
📌 Fund other goals: Contribute to a health savings account, deposit savings into a 529 plan for your children’s/grandchildren’s future education or build up your “Fun Fund” to be able to go on adventures when the opportunity arises.
The clock is ticking: Your opportunity to take advantage of today’s low tax rates may be limited. While a Roth could be your best option, it might not last forever.