How can I fund A Roth IRA if my income is too high to make direct contributions?

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September 2016
69% of people found this answer helpful

Great Question,

One way to contribute to a Roth IRA, if you make more income than the limits allow, is to utilize a back-door Roth IRA conversion.

Sound complicated? A little bit, but in theory, this process is actually pretty simple. First thing, although there are income limitations to funding a Roth IRA, there are no income limitations to converting to a Roth IRA. So if you were to contribute to a traditional IRA, which does not have contribution rules that are determined by your income, in theory, you could convert to a Roth IRA and all you have to do is pay taxes on the full amount of the conversion which could be up to $6500 (depending on your age).

Once you have converted your IRA to a Roth IRA you will have to pay taxes on the conversion, but moving forward, your growth and your distributions from the Roth IRA will be tax-free.

The Roth IRA conversion is a commonly used strategy for those that earn an income which is above the asset limits for contributing to a Roth IRA. Here's a great article from here on Investopedia going into a little bit more detail about Roth IRAs and their contribution limits:

This is also a great article with a video from here on Investopedia which goes into some very good detail about Roth conversions that is definitely worth taking a look at:

Good Luck!

-Josh Brein

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