What To Do When You’re Over the Roth IRA Income Limits!
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LEARN MORE ABOUT: IRA Accounts
INVESTING IN A GOLD IRA: Gold IRA Account
INVESTING IN A SILVER IRA: Silver IRA Account
REVEALED: Best Gold Backed IRA
If you’re earning too much money and are over the Roth IRA income limits, you may be thinking there’s no way to take advantage of the benefits of a Roth IRA retirement account. That’s certainly not the case, though, and there are several routes you can take when dealing with this issue.
First and foremost, it’s important to ensure you’re actually over the Roth IRA income limits before making any changes. For the 2021 tax year, individuals earning over $140,000 and married couples earning over $208,000 are ineligible to contribute directly to a Roth IRA. If your income exceeds these limits, you’ll need to explore alternate options.
One option is to contribute to a traditional IRA instead. Although there are income limits when it comes to deducting contributions from income taxes, there are no limits on the amount you can contribute each year. You can then convert the traditional IRA funds into a Roth IRA using a process known as a “backdoor” Roth IRA conversion.
To execute a backdoor Roth IRA conversion, first transfer funds from a traditional IRA into a Roth IRA. Depending on your situation, you may need to pay taxes on the converted amount. However, once the funds are in the Roth IRA, they can grow tax-free and be withdrawn without penalty after age 59 1/2.
Another option is to consider a SEP IRA or a Solo 401(k). Both of these retirement accounts have higher contribution limits than a traditional IRA or a Roth IRA, which can be especially beneficial for high earners looking to save large sums of money for their retirement. However, it’s important to note that contributions to these accounts are typically deductible, meaning you’ll pay taxes on the withdrawn funds in retirement.
Finally, it’s worth exploring other investment options outside the realm of retirement accounts. For example, you can consider investing in a brokerage account or pursuing real estate or business investments. These investments can offer the potential for growth and returns over time, even if they’re not included under the umbrella of a tax-advantaged retirement account.
In summary, if you’re over the Roth IRA income limits, there are still several options available to you for retirement savings and investment. While traditional IRAs and backdoor Roth conversions can be viable options, it’s important to consider other investment strategies as well. By considering all your options, you can work toward a secure and comfortable retirement regardless of your income level.
Big ups to everyone working effortlessly trying to earn a living while building wealth. I'm 40(retired worker) and my wife 34. We are both retired with over $3 million in net worth and no debts. Currently living smart and frugal with our money. Saving and investing lifestyle made it possible for us this early even till now we earn monthly through passive incomee.
I contributed $6K January this year into my Roth IRA and now I need to backdoor it because my income is too high. It was dollar cost averaged into a fidelity index fund but I am still at a loss in the account of >$400 from this year, and more $ from the year prior. Do I need to sell off some index funds at a loss to get a $6K cash balance to then recharectorize it to a traditional IRA? I made a traditional IRA to transfer funds. Thank you, I love your videos!
If converting from pre-tax to roth do you need to pay FICA along with the normal income taxes? Could this be a way to avoid FICA?
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This is a problem I hope to have in a few years due to investments.
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When an employer offers both a traditional 401k and a Roth 401k and you participate in both, is there a contribution cap on the Roth 401k, or is the contribution cap applicable to the sum of both plans?
Also a IUL could be a good option as well
The other option is, if you've got a 401k, is to put post-tax dollars into your plan, and then convert THAT money into a roth – aka the "Mega-backdoor Roth" plan. Personally, I did all 3 of these strategies last year….and managed to burn myself by incorrectly applying a (regular-sized) backdoor Roth. Ah, well – lessons learned, and all that.
You quickly glossed over a key piece of information here: you said that the backdoor Roth IRA conversion was a "clean process" "as long as you don't have any other IRA assets." So what if you have a standard tax-deferred IRA already? Are you saying you can't open up a new IRA with after-tax money and perform a backdoor conversion from that new account? I don't understand why that becomes "a tax nightmare" if you are doing the conversion entirely with after-tax money.
I had an IRA account where I accidentally went over the contribution limits. The account was about 90% tax deferred and 10 percent taxable (10% exceeded the contribution limits). Cashing out and reporting to the IRS was pretty simple. A $20000 redemption, for example, was $18000 tax deferred and $2000 regular income. The IRS never complained about my arithmetic.
What to do if you make too much for a Roth IRA? #1 – be happy you make a lot of money lol.
Can we have a video of you guys posing for your YouTube covers? Look super surprised at the camera! Now scared! Now think really hard!!
Yes!!! Exactly the info I need to hear, thanks guys!!