Roth IRAs can be established and funded for high-income earners by using what is known as the “back door” Roth IRA contribution method. Many high-income earners believe that they can’t contribute to a Roth IRA because they make too much money and/or because they participate in a company 401k plan. Fortunately, this thinking is wrong. While direct contributions to a Roth IRA are limited to taxpayers with income in excess of $140,000 ($218,000 for married taxpayers, 2023), those whose income exceeds these amounts may make annual contributions to a non-deductible traditional IRA and then convert those amounts over to a Roth IRA.
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REVEALED: Best Gold Backed IRA

Many financial experts recommend the use of a Backdoor Roth IRA for individuals who are looking to save more retirement money on a tax-free basis. This strategy is particularly useful for high-income earners who are unable to contribute directly to a Roth IRA. And, for the year 2023 and beyond, a Backdoor Roth IRA may be even more beneficial due to potential tax changes.

First, let’s take a step back and understand what a Backdoor Roth IRA is. A Roth IRA is a retirement account that allows individuals to contribute after-tax dollars which then grow tax-free and can be withdrawn tax-free in retirement. However, there are income limits to contribute to a Roth IRA. In 2021, for example, individuals earning over $140,000 and married couples earning over $208,000 are not eligible to contribute to a Roth IRA.

A Backdoor Roth IRA is a way for high earners to still take advantage of the benefits of a Roth IRA. First, you would contribute to a Traditional IRA, which has no income limits for contributions. Then, you would convert that Traditional IRA into a Roth IRA, thus completing the backdoor process. This strategy allows high earners to bypass the income restrictions on Roth IRA contributions.

Now, let’s talk about the potential tax changes that could make a Backdoor Roth IRA even more attractive in 2023 and beyond. Currently, the US government is facing a significant budget deficit, which has raised concerns about potential tax increases. One proposal that has been put forth is to eliminate the ability to make after-tax contributions to a Traditional IRA.

If this proposal were to go through, it would make the Backdoor Roth IRA strategy the only option for high earners who want to contribute to a Roth IRA. This would make the Backdoor Roth IRA an essential tool for high earners who want to tax-efficiently save for retirement.

In conclusion, a Backdoor Roth IRA can be a great way for high earners to save more for retirement on a tax-free basis. And, for the year 2023 and beyond, potential tax changes could make it even more beneficial as the Backdoor Roth IRA could become the only option for high earners to make Roth IRA contributions. It’s essential to consult with a financial advisor to determine if this strategy is a good fit for you and to ensure that you’re following all the IRS rules and regulations.