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Do you earn too much for a Roth IRA?

Key takeaways

  • Roth IRAs offer multiple benefits, including the opportunity for tax-free investment growth and withdrawals in retirement, plus no required minimum distributions (RMDs).
  • People with high incomes generally can’t contribute directly to Roth IRAs due to income limits on eligibility.
  • Contributing to a traditional IRA and converting to a Roth IRA is one way for high income taxpayers to take advantage of a Roth IRA.
  • You can also convert 401(k) balances to a Roth IRA—usually after you leave the employer who provided the 401(k).

The Roth IRA offers potential tax advantages: tax-free investment growth with no taxes on qualified distributions in retirement.1 Roth IRAs also have no RMDs, making them an attractive vehicle for tax-savvy estate planning.

But not everyone can make a direct contribution to a Roth IRA because of income limits on eligibility.2 The good news for high income taxpayers is that they can still benefit from the Roth tax treatment if they're willing to convert either traditional IRA or 401(k) dollars to a Roth IRA, or if available, contribute to a Roth 401(k). There are no income limits on Roth conversions and no limits on how much you can convert, as long as you pay the applicable federal and potentially state income tax on the conversion.

Not sure if a Roth IRA would make sense for you? Read Viewpoints on Traditional or Roth IRA, or both?

Converting a traditional IRA to a Roth IRA

Converting a traditional IRA to a Roth IRA lets you transfer all or a portion of your traditional accounts into a Roth IRA. But it comes with a tax bill. Because contributions to a traditional IRA may be tax-deductible, income taxes are typically due on distributions from the account—and that includes conversions. You would have to pay income taxes on all of the pre-tax contributions and tax-deferred investment earnings transferred to the Roth account.

You can also make nondeductible contributions to an IRA and then convert them to a Roth. In a conversion including non-deductible contributions, you will be required to prorate across all your IRAs, and you will also be required to prorate the amount of earnings. You should consult a tax advisor to find out the impact of a conversion in your specific circumstances.

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Converting a nondeductible IRA contribution to a Roth IRA

You may know that if you or your spouse has a retirement plan available at work, it limits the deductible contributions you can make to a traditional IRA.3 If you're in that boat and want to make the most of your tax-advantaged saving options, you can still make nondeductible IRA contributions. Earnings on these contributions will be tax-deferred but you do have the option of converting to a Roth IRA. In that case, your nondeductible contributions won’t be taxed again, although any earnings would be treated as pre-tax balances, which means they would be taxable when converted. This type of conversion is sometimes called a backdoor Roth IRA.

If you do decide to convert either pre-tax or non-deductible contributions, the timing can be a little bit tricky. Some time should pass between the date of the contribution and the date of the conversion, but it's not completely clear how much is enough. If you do decide to convert, consult your tax advisor first to ensure that you understand the full scope of potential tax consequences.

If you have more than one IRA: IRA aggregation rule and pro rata rule

When it comes to conversions and distributions, the IRS views all of your traditional IRAs as one account. If you have 3 traditional IRAs and a rollover IRA spread across different financial institutions, the IRS would lump all of them together. It's called the IRA aggregation rule, and it can complicate your conversion to a Roth—or make it more costly than you may have anticipated.

If you have existing IRAs, like a rollover, and also want to make nondeductible contributions and later convert them to a Roth, you won't be able to convert only the after-tax balance. The conversion must be done pro rata—or proportionally split between your after-tax and pre-tax balances, including contributions and earnings.

For instance, let's say you have an existing traditional IRA worth $10,000. You've just made a nondeductible contribution to a new IRA in the amount of $5,000 and plan to convert it to a Roth IRA. You can convert $5,000 of your IRA dollars, but you would have to pay taxes on about $3,333 of the money being converted.

    Total IRA balance: $15,000     After-tax IRA balance: $5,000

$5,000 is one-third of your total IRA balance. That means that one-third of your conversion will be after-tax dollars and two-thirds will be pre-tax dollars.

There is some potential good news if you want to convert only after-tax IRA balances to a Roth IRA and leave any pre-tax IRA balances alone. If you have a retirement plan at work, like a 401(k), you may be able to roll your existing IRAs into it. Any after-tax IRA balances would be ineligible to be rolled into your plan. The after-tax balances would thus be the only remaining balances in your IRA, and could potentially then be converted to a Roth without incurring any tax liability, assuming there isn't any growth in the account’s value between the time of the roll to the 401(k) and the conversion. The only catch is that the workplace plan has to allow this type of rollover, and you have the responsibility to not only track and report the after-tax contributions, but also prevent the after-tax assets from rolling to your retirement plan at work.

Converting a 401(k) to a Roth IRA

You can also convert traditional 401(k) balances to a Roth IRA. Generally, you'll only be able to transfer a 401(k) to a Roth IRA if you are rolling over your 401(k), the plan allows in-service withdrawals, or the plan allows in-plan conversions. That's not always the case, however, so check the rules of your employer's 401(k) plan.

Another option that may be available to you is an in-plan Roth conversion. If your employer offers a Roth 401(k) option, you may be able to convert your existing pre-tax and after-tax balances to a Roth account within the plan. Some employers even offer an auto-convert feature inside their plan. You can set it up so that any after-tax contributions (if your plan allows them) are automatically converted to a Roth 401(k) at regular intervals.

Taxes on a 401(k) to Roth IRA conversion depend on the type of contributions involved:

Pre-tax contributions only

If your 401(k) account is composed entirely of pre-tax money (your pre-tax contributions, any company match and/or profit sharing, plus earnings), then you'll be subject to current-year income tax on the entire amount converted to a Roth IRA.

After-tax contributions only

If the contributions made to your 401(k) account were made entirely in after-tax dollars, you can roll them directly into a Roth IRA, as long as any tax-deferred earnings associated with them are also distributed from your employer-sponsored plan at the same time to either a traditional IRA or another eligible retirement plan.

Pre-tax and after-tax contributions

If your plan does not track pre-tax and after-tax contributions separately, you can still roll over the after-tax contributions directly into a Roth IRA. You would need to do a complete rollover from your employer plan and split the rollover between the Roth and Traditional IRA. The pre-tax contributions, along with the earnings from both the pre-tax and the after-tax contributions, can be rolled to a traditional IRA, incurring no current income tax.

Alternatively, you can roll everything into a Roth IRA, paying income taxes on the pre-tax contributions and all of the earnings. Either way, if sources are not tracked separately, the after-tax contributions along with the earnings, plus the pre-tax contributions and their earnings, must be transferred out of the employer’s plan at the same time.

In many cases, the process of rolling out of a 401(k) plan can be a tricky one, particularly when rolling to more than one IRA. So investors should consult with a qualified tax professional to avoid costly errors.

Roth conversion: Things to be aware of

Roth IRAs have a 5-year aging rule which requires you to wait 5 years after your first Roth IRA contribution before you can withdraw earnings tax-free in retirement or qualify for an exception to the 10% penalty.

There's also a 5-year waiting period for conversions, whether the source was a traditional IRA or pre-tax 401(k) money. In this case, you'll need to wait 5 years before you can withdraw the converted amount without incurring a 10% penalty. Taking withdrawals from the converted amount after age 59½ exempts you from this penalty. Note that this only applies to taxable money that was converted; it does not apply to any balances that were not taxable when converted such as conversions of after-tax contributions to a traditional IRA.

Another important fact to understand—there's no way to undo a Roth conversion.

Before the Tax Cuts and Jobs Act was enacted in December 2017, you could undo a Roth conversion. That option is no longer available.

Finally, investors should be aware that taxes are not the only factor when it comes to rolling funds from a 401(k) plan to an IRA, of any type. There may be considerations related to fees, investment choices, creditor protection, RMDs, and other factors that need to be weighed when deciding whether a rollover is appropriate for you. Consider consulting a financial advisor before making any decisions.

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For a distribution to be considered qualified, the 5-year aging requirement has to be satisfied, and you must be age 59½ or older or meet one of several exemptions (disability, qualified first-time home purchase, or death among them).

2. For 2023, you can make full contributions to your Roth IRA as long as your modified adjusted gross income (MAGI) is no more than $138,000 as a single adult or $218,000 if you’re married and filing jointly. The limits for 2024 increase to no more than $146,000 for a single adult and $230,000 if married and filing jointly.

For 2023, partial contributions to a Roth IRA can be made up to a MAGI of $153,000 for Single filers and up to $228,000 for those married and filing jointly. For the 2024 tax year, partial contributions can be made up to $161,000 for Single filers and up to $240,000 for married couples filing jointly.


For a traditional IRA, full deductibility of a 2024 contribution is available to covered individuals whose 2024 Modified Adjusted Gross Income (MAGI) is $123,000 or less (joint) and $77,000 or less (single); partial deductibility for MAGI up to $143,000 (joint) and $87,000 (single). In addition, full deductibility of a contribution is available for non-covered individuals whose spouse is covered by an employer sponsored plan for joint filers with a MAGI of $230,000 or less in 2024; and partial deductibility for MAGI up to $240,000. If neither you nor your spouse (if any) is a participant in a workplace plan, then your traditional IRA contribution is always tax deductible, regardless of your income.

The change in the RMDs age requirement from 72 to 73 applies only to individuals who turn 72 on or after January 1, 2023. After you reach age 73, the IRS generally requires you to withdraw an RMD annually from your tax-advantaged retirement accounts (excluding Roth IRAs, and Roth accounts in employer retirement plan accounts starting in 2024). Please speak with your tax advisor regarding the impact of this change on future RMDs.

Recently enacted legislation made a number of changes to the rules regarding defined contribution, defined benefit, and/or individual retirement plans and 529 plans. Information herein may refer to or be based on certain rules in effect prior to this legislation and current rules may differ. As always, before making any decisions about your retirement planning or withdrawals, you should consult with your personal tax advisor.

Fidelity does not provide legal or tax advice. The information herein is general and educational in nature and should not be considered legal or tax advice. Tax laws and regulations are complex and subject to change, which can materially impact investment results. Fidelity cannot guarantee that the information herein is accurate, complete, or timely. Fidelity makes no warranties with regard to such information or results obtained by its use, and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information. Consult an attorney or tax professional regarding your specific situation.

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