There are many ways to save for retirement, each with different benefits and limitations associated. Most people are familiar with Traditional IRAs, which let you save for retirement while providing a tax benefit on your contributions. Unfortunately, fewer are aware of Roth IRAs. I say “unfortunately” because a Roth IRA in my opinion is the best gift the government has ever given to all Americans.
Some would say there is a catch with a Roth IRA because of the contribution limitations. However, if you read the Internal Revenue Code very closely, there is a loophole or two and the reason why “mega backdoor” Roth IRAs exist with high-income earners. Before I get into that, let’s go over the contribution limitations with Traditional and Roth IRAs. For those high-income earners, stick around and I will teach you a trick or two about creating a long-term strategy to build a mega backdoor Roth IRA.
If you are not a high-income earner yet, your opportunity to contribute to a Roth IRA is now and if you are not yet, start. In the future you may find yourself in the higher income bracket and need to use this strategy to continue to sock away tax-free income in your Roth IRA.
Contribution limits may change each year as determined by the Internal Revenue Service (IRS). Below are the 2021 contribution limits.