Want to put money into a Roth IRA but earn too much? Use the “backdoor” Roth IRA strategy.
Unlike traditional IRAs, the Roth version has an income threshold. The ability to make a direct contribution to a Roth IRA phases out for single filers with an adjusted gross income between $125,000 and $140,000, for 2021. For joint filers, it phases out between $198,000 and $208,000.
For those with income over those thresholds, you can make nondeductible contributions to a traditional IRA and then later convert the traditional IRA to a Roth IRA. There are no income limits on nondeductible IRAs or conversions to a Roth. Since these contributions are nondeductible and have already been taxed, you can convert the money tax-free.
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
However, if you have deductible contributions in a traditional IRA then only a portion of the funds converted to a Roth will be tax-free. You have to calculate the ratio of your nondeductible contributions compared with the total in the traditional IRA. That percentage will be tax free when you convert.
For example, if you have $10,000 total in your traditional IRA with $1,000 in nondeductible contributions and $9,000 in deductible contributions then just 10% will be tax-free. You must pay your ordinary income tax on the remaining amount.
You could also rollover funds from a 401(k) account into a Roth IRA when you leave a job, if your 401(k) plan allows for this type of transfer. You will owe income taxes at your ordinary rate on any funds you put into your 401(k) pretax.
Once you have converted either a 401(k) or a traditional IRA to a Roth, your withdrawals will be tax-free as long as you are at least 59 ½ and have had the Roth for a minimum of five years. You also won’t have to take required minimum distributions once you hit the age of 72.
-
3 Ways to Stretch the 2026 Social Security COLA For Your BudgetThree steps retirees can take to stretch the Social Security COLA to fit their budgets.
-
How to Keep Your Charitable Giving Momentum Going All YearInstead of treating charity like a year-end rush for tax breaks, consider using smart tools like DAFs and recurring grants for maximum impact all the year.
-
Uber Takes Aim at the Bottom Lines of Billboard LawyersUber has filed lawsuits and proposed a ballot initiative, in California, to curb settlements it claims are falsely inflated by some personal injury lawyers.
-
457 Plan Contribution Limits for 2026Retirement plans There are higher 457 plan contribution limits in 2026. That's good news for state and local government employees.
-
Medicare Basics: 12 Things You Need to KnowMedicare There's Medicare Part A, Part B, Part D, Medigap plans, Medicare Advantage plans and so on. We sort out the confusion about signing up for Medicare — and much more.
-
The Seven Worst Assets to Leave Your Kids or Grandkidsinheritance Leaving these assets to your loved ones may be more trouble than it’s worth. Here's how to avoid adding to their grief after you're gone.
-
SEP IRA Contribution Limits for 2026SEP IRA A good option for small business owners, SEP IRAs allow individual annual contributions of as much as $70,000 in 2025, and up to $72,000 in 2026.
-
Roth IRA Contribution Limits for 2026Roth IRAs Roth IRAs allow you to save for retirement with after-tax dollars while you're working, and then withdraw those contributions and earnings tax-free when you retire. Here's a look at 2026 limits and income-based phaseouts.
-
SIMPLE IRA Contribution Limits for 2026simple IRA For 2026, the SIMPLE IRA contribution limit rises to $17,000, with a $4,000 catch-up for those 50 and over, totaling $21,000.
-
457 Contribution Limits for 2024retirement plans State and local government workers can contribute more to their 457 plans in 2024 than in 2023.
-
Roth 401(k) Contribution Limits for 2026retirement plans The Roth 401(k) contribution limit for 2026 has increased, and workers who are 50 and older can save even more.
