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6 benefits of the Roth IRA: Even for the wealthy

Everyone in the Capital Region should be an investor. That's simply because the traditional 3-legged stool of pensions, Social Security, and savings is down to one leg: savings. And to maximize savings, we need to become prudent, wise investors. It is the only game in town, as they say.

Even the young and wealthy need to consider a Roth IRA
Photo by Spencer Platt/Getty Images

But even established, sophisticated investors can and should make use of the Roth IRA.

  • High-income earners can generally not make a contribution to a Roth IRA.
  • The IRS has income thresholds that limit the size of the contribution that high earners can make. Above that threshold, direct contributions to a Roth IRA are disallowed.
  • But there is a way around that. People who make a lot of money can make a nondeductible contribution to a traditional IRA and then convert it to a Roth.

"It's what is called a back-door Roth. Everybody can do a nondeductible IRA and then convert to a Roth," says financial adviser Graham Lerch.

"Up until 2010, there were limitations on who could convert. Now that is one of the options for anyone who had built up assets in a traditional IRA," says Lerch.

However, the IRS does require you to take into consideration all your pretax holdings when figuring the tax liability of a conversion. Because it's complicated, it's best to consult a tax professional before attempting this maneuver.

Dave Balog teaches finanical solutions for middle class families. Join him for a month-long series of presentations at the Rotterdam town library. Click here for more details. dbalog99@gmail.com, 952-1257.