Get the Benefits of a Roth IRA Even With a High Income

Having a high income can give you a lot of financial advantages. But there can be some downsides, too. One is that your income might limit you from contributing to a Roth IRA. These accounts can give you tax savings, so it’s important to know whether you qualify and what options you have to get similar tax benefits.

What Is a Roth IRA?

A Roth Individual Retirement Account (IRA) is used as a tax-advantaged account that can help you save for your retirement because it is funded with contributions made after-tax. This means your Roth IRA funds have the potential to grow and provide tax-free income during your retirement, making it a popular retirement saving method. 

What’s the Income Cutoff for a Roth IRA?

According to the IRS, the maximum income to contribute to a Roth IRA in 2024 is less than $146,000 (adjusted gross income) for single filers and less than $230,000 for joint filers to contribute the maximum amount. The maximum amount you can contribute is $7,000, or $8,000 if you’re the age of 50 or older.

Do you make too much for a Roth IRA? If you’re a single filer earning $146,000 to $161,000 or a joint filer earning $230,000 to $240,000, you can make a reduced contribution to a Roth IRA based on your income. Whether you are a single filer or a joint filer, be sure to check the maximum contributions published by the IRS each year as they change. 

If a Roth IRA isn’t an option for you, here are some other ways you may be able to get similar tax savings. 

Roth 401(k)

Your employer might offer a Roth 401(k) retirement savings plan. Unlike traditional 401(k) plans, you pay income taxes on the amount you contribute to a Roth 401(k). But you won’t have to pay any more taxes when you withdraw earnings or contributions, as long as you’re at least 59½ years old and you’ve had the account for at least five years.

You can contribute up to $23,000 if you’re under the age of 50 and up to $30,500 if you’re 50 or older, and there’s no upper income limit. 

So, a Roth 401(k) may be a good alternative for how to contribute to a Roth IRA with high income. Keep in mind that you can’t contribute an amount more than your taxable income for the year.

Roth Conversion

A Roth conversion is a process where you move money from tax-deferred retirement plans into a Roth IRA. There’s no income limit. Once you move your money into a Roth IRA, you can’t reverse it and put it back in the tax-deferred account, so it’s important that you are confident with your decision to transfer your money.

Not everyone will benefit from a Roth conversion. It can be a good option if you expect to be in a higher tax bracket after you retire, you hope to leave more money to your heirs or you have a year with a lower-than-usual income that puts you in a lower tax bracket.

If you decide to do a Roth conversion, you may want to move some money each year over several years to reduce the tax impact.

Backdoor Roth IRA

A backdoor Roth is similar to a Roth conversion, in that you are moving money from one type of account to another. But with a backdoor Roth, you move your investments from an after-tax IRA to an after-tax Roth. It’s a way to get around the restrictions on a Roth IRA for high-income earners. 

You may also find the terms “Roth conversion” and “backdoor Roth” used interchangeably to refer to rollovers regardless of the tax status of the account you’re taking money from.

For a backdoor Roth, you contribute money to an after-tax IRA, then roll it into a Roth IRA, or roll over money that’s already in an after-tax IRA into a Roth IRA. You can even convert your entire IRA into a Roth IRA — there’s no contribution limit on these rollovers. 

Where to Make Additional Contributions

While there may be limits on contributing to your Roth IRA, you could still consider making additional premium contributions to an existing life insurance policy. You could also accumulate assets by using an annuity to supplement your retirement income. Make sure to ask your Farm Bureau agent about details!

Explore Retirement Tax Strategies

It can be challenging to know how to maximize your investment growth and minimize your tax expenses. Talk to a Farm Bureau financial advisor for personalized guidance on how to make the most of your investments, for your retirement and your heirs.