Retirement Saving Options for High Income Earners - Education | Financial Buzz

Retirement Saving Options for High Income Earners

High Income, Limits, IRS, Tax DeductionsThe limit the IRS imposes on tax-deductible contributions for IRAs is $69,000 or less for a single person and $115,000 or less for married couples. Roth IRAs are somewhat higher at $127,000 and $188,000, respectively.

If you or your spouse is considered a high-earner, the extra income can often disqualify you from the tax breaks you would enjoy once these two tax-deferred accounts are fully funded. Here are three options you might wish to consider to help lighten your tax burden.

1. Roth IRAs

You fund Roth IRAs with money you pay taxes on at the time of deposit. This means, of course, that you owe nothing when the time to withdraw arrives.

2. Non-Deductible Traditional IRAs

If your income is too high to enable you to take advantage of a Roth IRA, then a non-deductible traditional IRA might be worth utilizing. You fund the IRA with taxable income and you will not be able to deduct your contribution. You will have, however, already paid the taxes on the amount you contributed.

You will still have a tax bill but only on the earnings. That tax bill will be due only after your money has compounded over the years which is something to factor in if you are concerned about that lost tax deduction on your original contribution.

3. Backdoor Contributions to a Roth IRA

The government, in 2010, eliminated the income limits involved for converting a traditional IRA to a Roth IRA. This option requires opening a non-deductible traditional IRA and rolling it over into a Roth IRA. You will only owe money on any earnings and if you convert fast enough, there should be no earnings.

These are three options available for high income earners. You may want to consult with a financial advisor to discuss asset allocation and have them take a good look at your entire investment portfolio. They may have other tax-saving avenues you can take once they have your entire retirement savings picture in front of them.

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