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Key Points

• Consider a Roth IRA if you expect to be in a higher tax bracket in retirement.
• If your income exceeds a certain threshold, you may be penalized for contributing.
• High earners can circumvent income limits with backdoor contributions.

Roth IRAs are designed to help people with low to moderate income save for retirement. While contributions aren’t tax-deductible, earnings grow tax-free, and withdrawals are tax-free as long as you follow certain rules.

In particular, it can be a good idea to contribute to a Roth IRA over a traditional IRA if you expect to have more income in retirement than you do now. Paying taxes on the money you contribute today can save you from higher tax rates on distributions later.

But the federal tax code prohibits you from contributing to a Roth IRA — at least directly — if your income exceeds a certain threshold. Understanding the income limits and ways to circumvent them may help you avoid costly penalties.

Can you contribute to a Roth IRA with a high income?

In general, you can contribute up to $6,500 to an IRA in 2023, or up to $7,500 if you’re 50 or older. But your maximum allowable contribution may be reduced or set to zero depending on your filing status and modified adjusted gross income.

“Income limits are set by the government to strike a balance between offering these benefits and minimizing potential revenue loss to the government,” said John Cunnison, a chartered financial analyst and chief investment officer at Baker Boyer Bank. “This ensures that the incentives are directed specifically towards the demographic they were designed to assist.”