Even so, Roth IRAs may make sense for some high-income investors. Maximizing your Roth savings is a great way to save for retirement for both high-income earners and professionals at all levels. The Roth IRA is a tax-free retirement savings account that allows you to make after-tax contributions to save for retirement. If your employer allows it, you may be able to transfer the pre-tax portion of your traditional IRA contributions to your 401 (k) plan, leaving only the non-deductible portion for the conversion.
This may make sense, especially if you expect to be in a higher tax bracket in the future and have an extended time horizon. That means you'll pay a rate equal to the highest marginal tax bracket in which your other income places you (for example, 24%). Pre-tax contributions to these accounts reduce your taxable income and potential earnings will increase with deferred taxes, although distributions during retirement will be taxable at ordinary income rates in the future. That could be an argument in favor of converting to a Roth and paying taxes now so that we don't have to pay even higher taxes in the future.
A clandestine Roth IRA may be attractive if you've been prevented from contributing to a Roth because of your income. Mega Backdoor's Roth conversion strategy allows you to contribute “after taxes” to your employer's plan (401 (k), for example) and convert those after-tax funds into your Roth 401 (k) within your employer's plan. You can complete the conversion with an existing Roth account, or you can open a new Roth IRA if you don't have one. In other words, people with high incomes can't contribute directly to a Roth IRA, but they can contribute to a traditional IRA, and that's where a clandestine Roth IRA comes in.
These same people are often surprised to learn that there are no income restrictions for Roth 401 (k) or Roth 403 (b) dollars, unlike the income restrictions imposed on Roth IRAs. In the text that follows, I'll try to demonstrate why it makes a lot of sense to contribute in a Roth way, especially for those who face contribution restrictions. Converting to Roth is a strategy that allows you to convert all (or part) of your retirement accounts before taxes (IRA, 401,000, etc.) This is because the tax-free growth of your Roth account will have more time to offset the immediate fiscal impact you will suffer from making the conversion. The same maximum applies to traditional IRAs and is also the total amount you can contribute in a year to several IRAs.
Early retirement, before enrolling in Social Security and receiving the required minimum distributions (RMD), can be an ideal climate for achieving more substantial Roth conversions. Traditionally, Roth contributions have been recommended to people who believe that their current marginal income tax rate is lower than it will be when the amounts are withdrawn in retirement years.