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5 alternatives if you make too much to contribute to a Roth IRA

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Earning a substantial income can help you live a generous life today and save more for your tomorrows. But when it comes to retirement planning, a higher income also can create some roadblocks.

For example, consider the Roth individual retirement account (IRA). These popular savings vehicles have significant tax advantages, but income limits potentially bar high earners from funding them directly.

If you think you make too much for a Roth IRA, you can explore alternative strategies and investment options. We'll cover who can contribute to a Roth IRA and various approaches to optimize your retirement savings if your income exceeds the limits.

Understanding Roth vs traditional IRAs

You can open an IRA through financial institutions like banks and brokerage firms. IRAs can be a good way to supplement that savings you've accrued in an employer-sponsored plan like a 401(k).

You have two types of IRAs to consider: Roth IRAs and traditional IRAs. These accounts each have distinct tax advantages and fall into one of three tax-efficient strategies: "tax now," "tax later" or "tax never."

  • Roth IRAs belong to the "tax now" and "tax never" buckets. Your contributions are made with dollars you’ve already paid taxes on. Additionally, earnings grow tax-free and can be withdrawn tax-free as long as certain requirements are met.1
  • Traditional IRAs offer a different tax advantage and fall into the "tax later" bucket. You generally fund accounts with pretax dollars, and any taxes you pay on the contributions and the earnings are deferred until you begin withdrawals.

Roth IRA eligibility & income limits

While the Roth IRA offers the appeal of tax-free withdrawals, high earners may find they're not allowed to make direct contributions to a Roth account because of IRS income limits. When your adjusted gross income tops a certain amount, depending on filing status, you may only be eligible to contribute a reduced amount to a Roth IRA—or not be allowed to contribute at all.

If you make equal to or more than these limits, you can't contribute anything to a Roth IRA:

Filing status
2023 maximum modified adjusted gross income (MAGI) to contribute to a Roth IRA
2024 maximum modified adjusted gross income (MAGI) to contribute to a Roth IRA
Single or head of household
Married filing jointly
Married filing separately

5 alternative retirement savings options

If you make too much to contribute to a Roth IRA, rest assured that you still can make the most of your financial resources. Here are some options:

1. Use the backdoor Roth IRA strategy

While directly funding a Roth IRA isn't an option for high earners, many people are surprised to learn there is a way for them to indirectly fund a Roth IRA.

Here's how: Open a traditional IRA, make after-tax (nondeductible) contributions, then subsequently convert the account into a Roth IRA. You'll pay tax on any investment earnings that build up before the conversion, but once the money is in the Roth account, earnings compound interest-free.2

This backdoor Roth IRA strategy is sometimes a preferred tactic by financial experts, but the conversion rules and tax law can get complicated if you have existing traditional IRAs. A financial advisor can work with you to assess your specific situation and how tax rules apply to you, then help you determine whether the backdoor Roth strategy is an option.

2. Contribute to a traditional IRA

As mentioned earlier, traditional IRAs are typically funded with pretax dollars, and any taxes you will pay are deferred until you begin withdrawals. That upfront tax advantage can be beneficial if you believe you're in your peak income-earning years and expect to be in a lower tax bracket in retirement.

Your contributions also may be tax-deductible. Yet, this is another instance when a high income can pose a barrier. Your deduction may be limited if you or your spouse are covered by an employer-sponsored plan and your income exceeds certain levels.3

3. Participate in your employer-sponsored retirement plan

There's a lot for high earners to like about 401(k)s and 403(b)s. Anyone who's eligible can contribute regardless of income. You can save a significant amount each year (the 2023 contribution limit is $22,500, the 2024 limit is $23,000, and the catch-up limit is $7,500), and the plans have many of the tax benefits of traditional IRAs. If your employer matches contributions, that free money is a bonus.

Some employers even offer a Roth version of the common retirement plans, like a Roth 401(k), which is like a hybrid of the Roth IRA and its traditional counterparts. The tax advantage will work the same as Roth IRAs.

If the Roth IRA is now out of reach but you had the money earmarked for savings, this is a great time to contribute even more to your employer-sponsored plan and maximize that potential employer match.

4. Save money in a bank account

Another option is to put money that you would otherwise contribute to a Roth IRA into a savings account throughout the year. Deposits are protected by NCUA and FDIC insurance. High yield savings accounts are gaining in popularity and may be an option to consider during high interest rate environments.

With this approach, if your income or status changes and you become eligible to fund a Roth IRA, you easily can access the money for that contribution.

5. Leverage tax-efficient investing

Consider investing in things like stocks, exchange-traded funds (ETFs), municipal bonds or index mutual funds in a brokerage account.

Diversifying your investments among this type of taxable account and tax-advantaged options like IRAs can give you more flexibility and access to your money both before and after retirement.

One possible downside about investments held in taxable accounts is that you may owe capital gains tax if their value increases between the time you buy and sell.

However, taxable accounts enable a tax-reduction strategy that retirement accounts don't: tax-loss harvesting. In a nutshell, this approach enables you to offset capital gains with capital losses to reduce your tax liability.

Talk through your options

As you navigate how to contribute to a Roth IRA with a high income, walk through these alternative strategies with a financial advisor. They can help to tailor your approach around your personal goals, income, retirement objectives, taxes and other considerations at the heart of your financial plan.

1Distributions of earnings are tax free as long as your Roth IRA is at least five years old and one of the following requirements is met: (1) you are at least age 59½; (2) you are disabled; (3) you are purchasing your first home ($10,000 lifetime maximum); or (4) the money is being paid to a beneficiary. Nonqualified distributions of earnings prior to age 59½ may incur a 10% premature distribution penalty and are taxable.

2State tax rules may differ from federal rules governing the tax treatment of Roth IRAs, and there may be conflicts between federal and state tax treatment of IRA conversions. Consult your tax professional for your state's tax rules.

3For 2023, your contribution deduction is reduced if MAGI is between $73,000 and $83,000 on a single return and $116,000 and $136,000 on a joint return. If you're married filing jointly and an active participant in an employer sponsored retirement plan and your spouse is not, the deduction for your spouse's contribution is phased out if MAGI is between $218,000 and $228,000. For 2024, your contribution deduction is reduced if MAGI is between $77,000 and $87,000 on a single return and $123,000 and $143,000 on a joint return. If you're married filing jointly and an active participant in an employer sponsored retirement plan and your spouse is not, the deduction for your spouse's contribution is phased out if MAGI is between $230,000 and $240,000. If you're a married taxpayer who files separately, consult your tax advisor.

Investing involves risks, including the possible loss of principal. The product and summary prospectuses for applicable securities, including mutual funds, ETFs or REITs, will contain more information on investment objectives, risks, charges and expenses. An investor should read the prospectus carefully and consider all features of an investment before investing.

Thrivent and its financial advisors and professionals do not provide legal, accounting or tax advice. Consult your attorney or tax professional.

While diversification can help reduce market risk, it does not eliminate it. Diversification does not assure a profit or protect against loss in a declining market.