Roth IRAs: An Alternate Route

Though high earners are not permitted to contribute directly to Roth IRA accounts, which offer tax-free income later on, there’s still a way in. Married couples who earn $191,000 or more and singles who earn $129,000 or more this year are ineligible to contribute directly to Roth IRAs, however, they are allowed to put money into a traditional IRA and then roll it over into a Roth. 

The cautionary detail to be considered is that this strategy will work well primarily for those who do not already have money in traditional IRAs.  In conversions, earnings and previously untaxed contributions in traditional IRAs are taxed. The tax figure is then based on your total traditional IRAs amounts, even the ones you aren't converting. 

For those who do not already have a traditional IRA, creating one and then quickly converting it into a Roth IRA will cost little or nothing in tax. It is important to remember that those with money already in traditional IRAs could face a far higher tax bill on the conversion.

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