The April 18 tax-filing deadline is looming, and many corporate executives, attorneys and other professionals earning high salaries are seeking to save more money and cut their taxes.
There is a great strategy that they could be overlooking that may save significant taxes in retirement: setting up a Roth Individual Retirement Account.
Roth IRAs are attractive for several reasons. While funded with after-tax dollars, any earnings are tax-deferred and withdrawals in retirement are tax-free. In addition, Roth IRAs are not subject to the minimum annual withdrawals required from traditional IRAs during retirement, so they can also be an excellent tax-planning tool.
Because there are income limits to open a Roth IRA, most people earning high salaries don’t believe a Roth IRA is an option. Under the law, a single person with an annual adjusted gross income of $133,000 or more and a married couple making more than $196,000 cannot directly fund a Roth IRA.
However, since an Internal Revenue Service rule change in 2010, there have been no income limits on converting funds initially made to traditional IRAs into Roth IRAs. By taking advantage of this strategy, many people can implement a long-term strategy to have more tax-free funds available in retirement.
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