Where should I put my savings if my income is now too high for a Roth IRA?

My husband and I earn over $193K annually. I have contributed to a Roth IRA through my employee deduction system and also deposited money in an online Roth Account. I just realized that I may not be eligible for the Roth IRA because I earn too high of an income. Do I move the money to a Traditional IRA? Do I disburse all the deposits due to excess contributions? What about previous years?

Retirement Savings, IRAs
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March 2017

Great question. I work with a lot of high-income families and yes, if your Modified Adjusted Gross Income (MAGI) is that high, you cannot make a normal Roth Contribution, but you can make a non-deductible Traditional IRA Contribution and then convert it to a Roth. This is also called a “Back-Door Roth”. There are several things to be careful of, especially the ProRata rule. You can find out more in our free Back-Door Roth Guide and Toolkit:

http://sonafinancial.us13.list-manage.com/subscribe?u=26e44f1c8b78433d53dbe25c3&id=54f798e999

If you make too much for a Normal Roth Contribution, then you make too much for a deductible IRA contribution. If you made some in error in previous years, look to fix right away.

Other options for high-earners to save:

  • Back-Door 401(k) Roth
  • Health Savings Account (HAS)
  • I-Bonds
  • If you have a side gig
    • Solo-401(k)
    • SEP IRA
    • SIMPLE IRA

It does get complicated. Feel free to reach out if needed, we have an hourly service too.

Good Luck!

Mark Struthers CFA, CFP®

March 2017
March 2017
March 2017
March 2017