Any advice on what to do if my income is approaching the Roth income limit? It doesn’t feel right to say no to a salary increase, but if it bumps me just over the threshold, is it worth saying no for the year?
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As your income starts to approach the Roth income limit, you may find yourself in a bit of a financial dilemma. The Roth IRA is a popular retirement savings vehicle for many individuals due to its tax advantages, but as your income grows, you may find that you are no longer eligible to contribute to a Roth IRA. So what should you do if you find yourself in this situation?
First and foremost, it’s important to understand the Roth income limit. For 2021, the income limit for contributing to a Roth IRA is $140,000 for individuals and $208,000 for married couples filing jointly. If your income exceeds these limits, you may not be able to make direct contributions to a Roth IRA.
However, there is a strategy known as a backdoor Roth IRA that can allow high-income earners to still take advantage of the benefits of a Roth IRA. With a backdoor Roth IRA, you can make a nondeductible contribution to a traditional IRA and then convert that contribution to a Roth IRA. This allows you to bypass the income limits and still enjoy the tax-free growth and withdrawals that come with a Roth IRA.
Keep in mind that there are some tax implications to consider with a backdoor Roth IRA, so it’s best to consult with a financial advisor or tax professional before proceeding with this strategy. Additionally, if you already have a traditional IRA with pre-tax contributions, the conversion to a Roth IRA may trigger a tax liability.
If the backdoor Roth IRA strategy is not a viable option for you, there are other tax-advantaged retirement savings vehicles to consider, such as a traditional IRA, 401(k), or a taxable brokerage account. While these accounts do not offer the same tax benefits as a Roth IRA, they can still be valuable tools for saving for retirement.
Ultimately, your best course of action will depend on your individual financial situation and goals. It may be helpful to review your overall financial plan with a professional to determine the best strategy for maximizing your retirement savings while managing your tax obligations.
In conclusion, if your income is approaching the Roth income limit, don’t panic. There are still options available to you to continue saving for retirement in a tax-efficient manner. By exploring alternative strategies and seeking guidance from a financial advisor, you can navigate this financial challenge and continue working towards your long-term financial goals.
If I already have a Roth IRA and I'm over the income limit, can I open a new traditional IRA?
Or convert my existing Roth IRA to traditional?
If you have an HSA and are not maxing it out that is an option too.
You just do a regular brokerage account. If you're at that level, you'll be fine. And you still have the back door roth.
This is why if you have access to a 401K/457/403b/TSP, the best thing to do is just hit the Roth IRA contribution maximum for the year. And put the rest into pretax/tax deferred to lower your taxable income. I regret even opening up a Roth IRA now, when I could’ve just done it this way from the jump.
Do a backdoor Roth IRA…
You guys seem to be the only ones that routinely point out the "pro rata" rule anytime backdoor conversions come up. I wish more folks would mention this as I bet so many people aren't aware of it and are doing the backdoor Roth thing when they shouldn't be. I mean, it's so common for folks to roll a 401k into an IRA when leaving a job and that just blows it up, as you said. Yet, it seems like every FIRE YouTuber just always says "make too much money? Backdoor Roth is the answer!".
For a country that loves money so much, y’all make it way too complicated
If I have an existing rollover traditional IRA can I roll that over to the Roth IRA before starting the backdoor process?
Put $23k pretax in 401k and max out HSA if available
Backdoor Roth IRA? That’s what we do….