Having a Roth IRA can make a big difference in your retirement. So, what is a Roth IRA?

A Roth IRA is a retirement account that is funded with after tax dollars and offers tax free withdrawals on any gains or earning in the account as long as the account holder is 59 ½ years old or older and has had the account for at least five years.

Who is eligible for this account?

For 2024 individuals who had an income below $161,000 (Married couples filing jointly $240,000) can contribute to a Roth IRA account.

The contribution limits for 2024 have increased to $7,000 per year ($8,000 for people 50+) though that limit is reduced if your income goes between $146,000 and $161,000.

So what are your options if you make more than $161,000 or $240,000 if your married?

1. Roth Conversion – For those who have a tax deferred account, meaning tradition IRA’s or 401(k) plans can convert some or all the balance to a Roth IRA and pay ordinary income tax on the converted amount. Some people choose to spread out the conversion over many years to manage the tax bill, I would consult with a financial advisor or tax professional to help with this process.
2. Roth 401(k) Plan – Some employers offer this option which allows you to contribute to the max limit which is $23,000 or $30,500 if age 50 or older. Which would be after tax dollars going into this account but would allow your money to grow tax free and starting in 2024 you no longer must take annual required minimum distributions (RMD’s) under the SECURE 2.0 Act.
3. Backdoor Roth – So your income is too high to make deductible contributions to a traditional IRA what do you do now? You can still make after tax contributions up to the annual limit and then convert to a Roth. As with all Roth conversions the pro rata rule applies.
4. Mega-backdoor Roth IRA – is made up by 3 steps:

• Maxing out your 401(k) plan with your employer.
• Contribute to the overall 2024 limit of $69,000 ($76,500 if your 50+) These rules will change in 2026 under the SECURE 2.0 Act, which requires individuals earning $145,000 a year will have to put their catch-up dollars in a Roth 401(k) – Which means those contributions will be after tax but will allow for withdrawals in retirement to be tax free.
• The Mega-backdoor Roth IRA is complex and not everyone can participate depending on their administrator’s workplace plan. Anyone interested in this strategy should contact a tax or financial professional and see if it is right for them.

1. Legacy Planning – Talk to your children about the importance of contributing to a Roth IRA when they are young so that they have a head start in planning for their lives and retirement.