Roth IRA Contribution other than my 401K Contribution

Investing
#1

Hello,
I needed Clarification regarding the below topic from you.

My wife and I put money in our 401K plan(Pretax and Roth) through our employer. We also want to invest in a Roth IRA on a regular basis each year outside of the 401K plan, but our joint income is more than the income limit set by the IRS to invest in Roth IRA.

What are the options I have in this case? since my income limit does not allow me to invest in Roth IRA.
There are various forums talking about doing a backdoor IRA, meaning putting money in Traditional IRA and converting that to Roth IRA**(but also talks about tax implications, Please clarify this)**.

What about if I simply invest in a traditional IRA since it does not have an income limit or I can’t do 401K and traditional IRA at the same time. also I believe the traditional IRA in this case would not be pretax one since I am already doing that with my 401K plan which is pretax.

My first preference would be to invest in a Roth IRA.

Please clarify and thanks in advance!

#2

401k and IRA’s are completey different accounts and limits. I think the Roth and Traditional hangs people up more than it should.

401ks are separate and count them as separate.

As far as Traditional vs. Roth IRA, I believe I can break it down but may need the higher earners to clarify.

Since your income is too high for a Roth IRA, your income is too high to receive a tax deduction on your traditonal. But you can still contribute taxable dollars to a traditional IRA.

Since a traditional conversion to Roth is a taxable event that is where the tax implications come in. You’re still using taxable dollars so you’re paying taxes on that money anyway.

It would just be listed as a taxable conversion rather than just as income since you put those dollars in a pre-tax account, but don’t qualify for the deduction. Basically, you’re saying I’m contributing taxable dollars to non-pretax IRA and then converting to Roth and paying taxes.

Hope this sums it up.

#3

@Chadmethner : So If I can also just put money in traditional IRA but I will not receive tax benefits since my income limit is higher to receive tax deduction and hence we transfer it to Roth since I don’t have to pay taxes on the earning when I take it out from Roth IRA post 59 and 1/2 years of age ?

#4

There’s some other stipulations on it. As a low income earner the details are outside my expertise.

@vivitron may be able to clear up your further questions.

#5

Yes you got it! :slight_smile: thanks @Chadmethner !