Weekend Reading: You Passed Roth IRA Income Limits, Where Should Your Next Dollar Go?

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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.


Roth 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.