It’s called a Backdoor Roth IRA and there are no limitations!
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A Backdoor Roth IRA is a retirement savings strategy that allows individuals to contribute to a Roth IRA even if their income exceeds the limits set by the IRS. This approach involves making non-deductible contributions to a traditional IRA and then converting those funds into a Roth IRA.

Roth IRAs are popular retirement saving vehicles because they offer tax-free withdrawals in retirement. However, there are income limits that restrict who can contribute directly to a Roth IRA. For 2021, the income phase-out range for single filers is $125,000 to $140,000, and for married couples filing jointly, it is $198,000 to $208,000.

For individuals who earn more than the income limits, the Backdoor Roth IRA offers a way to still take advantage of the benefits of a Roth IRA. Here’s how it works:

1. Make a non-deductible contribution to a traditional IRA: Since there are no income limits on contributing to a traditional IRA, individuals can make non-deductible contributions regardless of their income level. For 2021, the maximum contribution limit for traditional and Roth IRAs combined is $6,000, or $7,000 for those aged 50 and older.

2. Convert the traditional IRA to a Roth IRA: Once the funds are in the traditional IRA, they can be converted to a Roth IRA. This conversion is considered a taxable event, but since the initial contributions were made with after-tax dollars, only the earnings on those contributions will be subject to taxes. It’s important to note that if you have other traditional IRAs with pre-tax funds, the conversion will be subject to the pro-rata rule.

3. Pay taxes on any earnings: If there are any earnings in the traditional IRA at the time of conversion, they will be subject to ordinary income taxes. This is why it’s important to convert the funds as soon as possible to minimize the tax implications.

By utilizing the Backdoor Roth IRA strategy, high-income earners can take advantage of the tax-free growth and withdrawals offered by a Roth IRA. It’s essential to consult with a financial advisor or tax professional before implementing this strategy to ensure that it aligns with your overall financial goals and circumstances.

In conclusion, the Backdoor Roth IRA is a valuable tool for individuals who earn too much to contribute directly to a Roth IRA. By following the proper steps and considering the tax implications, individuals can still benefit from the advantages of a Roth IRA and secure their financial future in retirement.