How high earners can funnel money to a Roth IRA, the 'gold standard' of retirement accounts

cnbc.com:

You'd think earning more would make it easier to boost retirement savings. But high earnersmay find it tricky to access tax breaks in individual retirement accounts.

U.S. tax law imposes income limits on breaks related to certain tax-preferred accounts like Roth and traditional (i.e., pretax) IRAs. Those rules may pose a challenge for investors who've maxed out annual contributions to their 401(k) plans and are seeking other tax-sheltered savings opportunities.

However, there's a workaround for the wealthy: the so-called backdoor Roth IRA.

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Basically, high earners who can't directly contribute to a Roth IRA have a «backdoor» route to getting one: They can contribute to a nondeductible IRA, then quickly convert it to a Roth account. (More on that later.)

Roth accounts are especially attractive to investors, due to features like tax-free investment growth and withdrawals in retirement, according to tax experts.

«Roth IRAs are the gold standard,» said Ed Slott, a certified public accountant based in Rockville Centre, New York.

IRAs have a $7,000 annual contribution limit for 2024. Investors age 50 or older can save an extra $1,000, or $8,000 total this year.

Investors who save in a pretax IRA typically get a tax deduction on their contributions. However, they generally pay income tax later on earnings and withdrawals. Roth contributions don't get the same upfront tax break: Investors fund Roth IRAs with after-tax money, but generally don't pay income taxes on earnings or withdrawals in retirement.

Many high earners can't make the most of