Roth IRAs have strict income limits, so if you're a single filer making more than $165,000 in 2025 or married filing jointly and you make more than $246,000, you can't contribute. Fortunately, there are alternative ways to fund retirement accounts if you make too much money to contribute to a Roth IRA. For in♍stance, you could fund an IRA using the backdoor Roth IRA process, fund brokerage accounts, or fund a traditional IRA.

Roth IRA Income Limits for 2025

Every year, the IRS issues eligibility requirements and contribution limits for Roth IRAs. Specifically, the IRS uses your 澳洲幸运5官方开奖结果体彩网:mod꧋ified adjusted gross income (MAGI) to set guidelines.

Here's an overview of Roth IRA income and contribution limits for 2025:

Why Consider a Roth IRA?

Roth IRAs have a distinct advantage that traditional IRAs lack. A Roth IRA is a 澳洲幸运5官方开奖结果体彩网:tax-advantaged account where users fund their account using after-tax income. Once the account has been open for at least five years and the account holder is at least 59½, they won't owe taxes upon withdrawal (even when they might be in a higher tax bracket). This means your money grows tax-free.

Unlike traditional IRAs, Roth IRAs allow you to withdraw from your deposits at any time without being charged fees or taxes. Just be aware that you can't withdraw the earnings on those deposits until retirement.

If you're interested in opening a Roth IRA, you'll need to verify your eligibility with an IRA provider and give them the necessary documents. Then, you'll select your investments and schedule contributions.

How High Earners Can Open a Roth IRA

Traditional IRAs have a well-known loophole that allows investors to convert their accounts to Roth IRAs. This is known as a backdoor Roth IRA. Since you're allowed to convert the account only once per year, you'll typically have to make a large nondeductible contribution to the traditional IRA. Then, you convert the account to a Roth and report the conversion on your taxes for the year. Your funds will grow tax-free in the Roth you moved them to.

If you conti🍌nue to earn more than allowed for Roth IRAs, you can repeat the process every year.

Here are the basic steps you'll need to take to complete the process.

• Open a traditional IRA: Select a financial institution, 澳洲幸运5官方开奖结果体彩网:brokerage firm, or 澳洲幸运5官方开奖结果体彩网:robo-advisor and complete the application process for opening a traditional IRA. Then, make the maximum contribution ($7,000 for 2025 or $8,000 if you're over age 50).
• Open a Roth IRA if you don't already have one: You need a Roth IRA to roll funds into it, so set up an account.
• Convert the account to a Roth IRA: After your contributions are placed in the traditional IRA, transfer them to the Roth. Ideally, you should do this before your contributions begin earning, so you won't have to deal with the taxes on the money.
• Repeat annually: This step is optional based on your income. If you consistently earn more than allowed with a Roth, you may want to do a backdoor Roth every year to grow tax-free income.

Other Alternatives for High-Income Earners

If you don't like the idea of opening a traditional IRA to convert to a Roth, you do have other options:

• Mega backdoor Roth IRA: If you have a 401(k) that allows in-service distributions of post-tax contributions, you can transfer your funds to a Roth IRA or Roth 401(k). Since most 401(k)s don't allow this, you may have to consider other options.
• Traditional IRA: These accounts have no income limits for eligibility, making them a decent option for high-income earners. Note that if you or your spouse has a retirement plan at work and earns over a specific amount, you can't deduct the contributions from your taxes.
• Brokerage accounts: If you want to invest some of your high income, you can open brokerage accounts that allow you to purchase, sell, and trade stocks, bonds, mutual funds, ETFs, and derivatives.

Considerations and Potential Pitfalls

Although a backdoor IRA might seem like a solution for high-income earners, there are some things to consider. First, you won't be able to avoid taxes completely. Remember, you'll be paying taxes on the contributions to the traditional IRA, and you'll be taxed on any earnings when you convert the account to a Roth IRA. Be prepared to have a significantly higher tax bill for the ye🎃ar when you make the conver🅺sion or spread out the conversion process over a few years.

Things might get tricky if your account has a mix of deductible and non-deductible IRAs. Instead of being able to convert the non-deductible part into a Roth, you must convert it at the same time and pay a♉ proportional share of the✅ pre-tax and after-tax dollars.

Alternatives to a backdoor Roth have limitations, too. For example, brokerage accounts don't offer the same tax benefits as retirement accounts, and you'll face a tax bill when you begin withdrawing from a traditional IRA. As for the megabackdoor IRA, this option is limited since few 401(k)s allow in-service distributions of post-tax contributions. To help you select the best investment or retirement option, consult with a financial advisor who can look at your unique situation.

The Bottom Line

High-income earners might not think they have many options for funding retirement accounts. By opening a traditional IRA and converting it to a Roth, high-income earners who are years from retirement can enjoy decades of tax-free growth. This is an even better option if you expect to be in a higher tax bracket at retirement. If you're unsure whether or not it makes financial sense, don't hesitate to reach out to a licensed tax advisor or a financial consultant.