4 Strategies for High-Income Earners to Access a Roth IRA

The Roth IRA is highly regarded as a retirement savings account. While contributions are made with after-tax dollars, Roth IRAs allow for tax-free withdrawals of both contributions and earnings in retirement, provided the account holder is at least 59½ years old and the account has been open for at least five years. Additionally, funds in a Roth IRA can continue to grow tax-free indefinitely during the owner’s lifetime, as they are not subject to the required minimum distributions (RMDs) that begin at age 73 for tax-deferred retirement accounts.

However, there is a limitation: For 2023, only individuals with incomes at or below $153,000 (or $228,000 for married couples filing jointly) are eligible to contribute to a Roth IRA. The contribution limit is $6,500 per year, or $7,500 for those aged 50 or older. This limit is further reduced if your income falls between $138,000 and $153,000 (or between $218,000 and $228,000 for married couples).

For 2024, the income limits for Roth IRA contributions have increased. Individuals with incomes at or below $161,000, and married couples filing jointly with incomes up to $240,000, can contribute to a Roth IRA. Additionally, the contribution limit has risen to $7,000 per year, or $8,000 for those aged 50 or older. However, this limit is reduced if your income falls between $146,000 and $161,000 for individuals, or between $230,000 and $240,000 for married couples.

1. Roth 401(k)

If your employer provides this option, which has no income limits, you can contribute up to $23,000 in after-tax contributions in 2024, or $30,500 if you are 50 or older. Unlike Roth IRAs, Roth 401(k)s have historically required required minimum distributions (RMDs), but starting in 2024, under the SECURE 2.0 Act, annual distributions will no longer be required.

2. Roth Conversion

Individuals with savings in a tax-deferred account, such as a traditional IRA, have the option to convert some or all of that balance to a Roth IRA, paying ordinary income tax on the converted amount. To manage the associated tax burden, it may be beneficial to spread the conversion over multiple years. If your traditional IRA includes both pre-tax and after-tax contributions, the converted amount will be taxable in proportion to the pre-tax value of the account, according to the pro rata rule.

3. Backdoor Roth

If your income is too high to make deductible contributions to a traditional IRA, you can still make after-tax contributions up to the annual limit and then convert them to a Roth IRA. As with all Roth conversions, the pro rata rule will apply.

4. Mega-backdoor Roth IRA

Before proceeding, confirm with your employer’s retirement plan administrator that your plan permits after-tax contributions exceeding the annual contribution limit and allows in-service withdrawals (necessary for the final step below). If these conditions are met:

• First, maximize your regular 401(k) contributions. 
• Next, contribute after-tax dollars up to the overall limit of $69,000 (or $76,500 if you are age 50 or older) in 2024, regardless of income. Note that the rules will change in 2026 under the SECURE 2.0 Act, requiring individuals earning more than $145,000 annually (indexed to inflation) to allocate their catch-up contributions to a Roth 401(k), which means these contributions will be after-tax, although their withdrawals in retirement will be tax-free. 
• Finally, promptly make an irrevocable transfer of the after-tax funds into a Roth IRA, as any earnings accrued before the rollover will be taxable.

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