Have you noticed that you can’t make direct Roth IRA contributions once your income gets too high?

Whether you are filing taxes as Single or Married Filing Jointly there are “Income Limits” for who can contribute to a Roth IRA.

However, did you know that Roth 401(k) contributions have NO INCOME LIMITS?

Further, did you know that if you ZERO OUT your Traditional and Rollover IRA accounts, you can make 2-step Roth IRA contributions?

Learn all about Roth IRA and Roth 401(k) contributions in this video.

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Hi, I’m Kaleb. I’m the Founder of Ten Talents. I’m blessed to be regularly featured in CNBC, MONEY, and Business Insider personal finance articles. I’m a CERTIFIED FINANCIAL PLANNER™ (CFP®) Professional based in Parker, Colorado and I’m a fiduciary and fee-only advisor.

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My clients are eyeing retirement decisions, often work at technology companies, or have experienced a sudden money event (inheritance, home sale, business sale, stock IPO, gift).

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Help! I Can’t Make Roth IRA Contributions Anymore (My Income is Too High)

Saving for retirement is a crucial aspect of financial planning, and one popular tool to achieve this is a Roth Individual retirement account (IRA). Roth IRAs offer tax-free growth on investments and tax-free withdrawals in retirement, making it an attractive option for many individuals. However, not everyone is eligible to contribute to a Roth IRA, especially if their income exceeds certain thresholds.

What is a Roth IRA?

A Roth IRA is a retirement savings account that allows individuals to make post-tax contributions, meaning you contribute money that has already been taxed. While you don’t receive any immediate tax benefits like you would with a traditional IRA or 401(k) plan, the real benefit of a Roth IRA comes in retirement when you can withdraw your contributions and earnings tax-free.

Phaseout Limits

To contribute to a Roth IRA, your income must fall below a certain threshold determined by the Internal Revenue Service (IRS). The phaseout limits vary depending on your marital status and filing status. For the tax year 2022, the phaseout limit for single individuals starts at $125,000 and completely phases out at $140,000. For married couples filing jointly, the phaseout limit begins at $198,000 and fully phases out at $208,000.

If your income exceeds the phaseout limit, you are no longer eligible to make direct contributions to a Roth IRA. It can be frustrating to realize that you are no longer able to take advantage of this tax-advantaged retirement account, but there are still alternatives worth considering.

Backdoor Roth IRA Conversion

One option for high-income earners is the Backdoor Roth IRA conversion. This strategy involves making non-deductible contributions to a traditional IRA and subsequently converting it into a Roth IRA. Since there are no income limits on converting funds from a traditional IRA to a Roth IRA, this method allows individuals to indirectly contribute to a Roth IRA.

However, before opting for the Backdoor Roth IRA conversion, it’s essential to consult with a financial advisor or tax professional to ensure that you understand the tax implications and any potential complexities that may arise.

Maximize Other Retirement Accounts

If you find yourself unable to contribute to a Roth IRA due to your income, it’s crucial to maximize contributions to other retirement accounts available to you. Consider contributing to your employer-sponsored 401(k) plan, especially if your employer offers a matching contribution. Contributions to a traditional 401(k) plan are pre-tax, reducing your taxable income for the current year.

Additionally, contributing to a Traditional IRA may still be an option even if it does not offer the same tax advantages as a Roth IRA. While contributions to a Traditional IRA may be tax-deductible depending on your income, withdrawals in retirement will be subject to income tax, unlike the tax-free withdrawals from a Roth IRA.

Explore Taxable Investment Accounts

When your income eliminates eligibility for a Roth IRA, it may be worth considering taxable investment accounts. Although they do not offer the same tax advantages as IRAs, they provide flexibility with no income restrictions or contribution limits. You can invest in a wide range of assets, such as stocks, bonds, and mutual funds, and have the convenience of accessing your funds at any time without penalties.

Seek Professional Advice

If you find yourself unable to contribute to a Roth IRA due to exceeding the income limits, it’s essential to consult with a financial advisor or tax professional. They can help you understand your specific situation, explore alternative retirement savings options, and develop a personalized plan to achieve your long-term financial goals.

While being ineligible to contribute to a Roth IRA can be frustrating, it’s important to remember that there are still plenty of retirement savings options available to high-income earners. The key is to explore alternative strategies and leverage tax-efficient accounts to ensure a secure financial future.