What happens if you exceed Roth IRA income limits?

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.” Learn more about the Roth IRA income limits in the table below.

2023 Roth IRA income limits

FILING STATUS	MAGI	MAXIMUM CONTRIBUTION
Married filing jointly or qualified widow(er)	Less than $218,000	Up to the annual limit
	$218,000 to $227,999	A reduced amount
	$228,000 or more	Zero
Single, head of household, or married filing separately and you didn’t live with your spouse during the year	Less than $138,000	Up to the annual limit
	$138,000 to $152,999	A reduced amount
	$153,000 or more	Zero
Married filing separately and you lived with your spouse during the year	Less than $10,000	A reduced amount
	$10,000 or more	Zero

Contributing more than you’re allowed may trigger penalties. But, as we explain below, it is possible to contribute to a Roth IRA with a high income.

What happens if you exceed Roth IRA income limits?

As your income changes, it can be difficult to predict whether you’ll exceed the Roth IRA income limits. “It isn’t the end of the world if you do happen to make a contribution and are over the income limit,” said Kyle Berg, a certified financial planner and partner at Affiance Financial. “It happens more often than you might think.” Excess contributions are subject to a 6% excise tax for each year they remain in your account. It’s possible to avoid that penalty by withdrawing the excess contributions or recharacterizing them as traditional IRA contributions by the due date of your tax return, including extensions. There are no early withdrawal penalties for removing excess contributions as long as you do so before your tax deadline. “Withdrawal and recharacterization require coordination with your IRA custodian, and it is advisable to consult a tax professional to ensure proper handling,” Cunnison said.

Strategies for high earners

If your income exceeds the limits, you can’t make Roth IRA contributions directly. But there are several ways to contribute to a Roth IRA indirectly. Here are some options to consider.

Backdoor Roth IRA

While traditional IRAs do not have income limits for contributions, high earners may not be eligible for the upfront tax break. They can, however, make nondeductible contributions. These nondeductible contributions form the linchpin of the backdoor Roth IRA strategy. To take advantage of a backdoor Roth IRA:

1. Open a traditional IRA.
2. Make a nondeductible contribution.
3. Roll the funds into your Roth IRA. You may need to contact your brokerage firm to do so.

As long as the nondeductible contribution did not generate earnings prior to the rollover, it typically will not trigger taxes. “Someone should consider a backdoor Roth contribution if they’re able to max out all other available savings options, they still have more money to save and they don’t currently have a traditional IRA,” Berg said.

Mega backdoor Roth IRA

If you have an employer-sponsored 401(k), a mega backdoor Roth IRA may make sense for you. First, verify that your plan administrator allows both after-tax contributions and withdrawals while you’re employed. If it does, follow these steps:

1. Max out your pretax contributions. The limit is $22,500 in 2023, or $30,000 for savers 50 or older.
2. Make after-tax contributions up to the overall limit, which is $66,000 in 2023, or $73,500 if you’re 50 or older. Note that employer matching contributions reduce how much after-tax money you can contribute.
3. Roll the after-tax funds into your Roth IRA.

Any earnings your 401(k) contributions generate prior to the rollover will be subject to taxes.

Roth conversion

If you already have money in a traditional IRA, you can convert some or all of it to a Roth IRA. Any contributions made on a pretax basis will be subject to taxes upon conversion.

Tip: Spreading out conversions over multiple years can help you manage the tax bill.

Roth 401(k)

Unlike Roth IRAs, Roth 401(k)s don’t have income limits. If your employer offers one, you can contribute up to the annual limit, which is $22,500 in 2023, or $30,000 if you’re 50 or older. You can roll Roth 401(k) contributions and earnings into a Roth IRA tax-free.

Bottom line

Roth IRAs can provide significant tax advantages, even to high earners. But before you contribute to a Roth IRA, make sure you understand the income limits. If your income exceeds the threshold set by the IRS, avoid contributing to a Roth IRA directly. And if you’ve already made excess contributions, withdraw them before your tax deadline to avoid being penalized. Review the above strategies for making Roth IRA contributions to determine the best option for you. Before you proceed, consider consulting a tax professional for guidance on your specific situation.