Yes, you can have a traditional IRA and contribute to it even if you make over $200,000 per year. There are no income limits that prevent you from opening or contributing to a traditional IRA account, as long as you have earned income. As long as you're working, you can keep contributing to a traditional IRA, as well as your 401(k).
Traditional IRA Contribution vs. Deduction
While your income doesn't restrict your ability to contribute to a traditional IRA, it significantly impacts whether your contributions are tax-deductible. This is a crucial distinction for high-income earners. The ability to deduct traditional IRA contributions on your tax return is subject to income limitations, especially if you (or your spouse, if married) are also covered by a retirement plan at work, such as a 401(k) or 403(b).
Understanding Deductibility Limits
If you are covered by a workplace retirement plan, the deductibility of your traditional IRA contributions begins to phase out at certain Modified Adjusted Gross Income (MAGI) levels and is eliminated entirely once your MAGI exceeds the upper end of the phase-out range.
Here are the 2024 IRA deduction phase-out ranges if you are covered by a retirement plan at work:
| Filing Status | MAGI Phase-out Range (2024) |
|---|---|
| Single, Head of Household | \$77,000 - \$87,000 |
| Married Filing Jointly | \$123,000 - \$143,000 |
| Married Filing Separately | \$0 - \$10,000 |
Note: These limits are subject to annual adjustments by the IRS.
Since your income is over \$200,000, if you are covered by a workplace retirement plan (which is common for high earners), your ability to deduct traditional IRA contributions would likely be completely phased out.
What if You Can't Deduct Contributions?
If you are a high-income earner and your traditional IRA contributions are not deductible due to the income limitations, you still have options:
- Make Non-Deductible Contributions: You can contribute to a traditional IRA on a non-deductible basis. This means you don't get an upfront tax break, but your earnings inside the IRA still grow tax-deferred until withdrawal. This can be useful for certain strategies like the "backdoor Roth IRA."
- Consider a Backdoor Roth IRA: For many high-income earners who exceed the income limits for direct Roth IRA contributions and cannot deduct traditional IRA contributions, the "backdoor Roth" strategy is a popular solution. This involves:
- Making a non-deductible contribution to a traditional IRA.
- Converting the traditional IRA funds to a Roth IRA.
- Since the original contribution was non-deductible, only any earnings (if converted quickly, there might be none or minimal) would be taxable upon conversion.
- Once in the Roth IRA, all qualified withdrawals in retirement are tax-free.
This strategy allows individuals with high incomes to effectively contribute to a Roth IRA and benefit from tax-free growth and withdrawals, circumventing the direct Roth IRA income limitations.
Key Takeaways for High Earners
- Ability to Contribute: Yes, you can contribute to a traditional IRA regardless of your income.
- Tax Deductibility: Your income (especially if covered by a workplace plan) will likely prevent you from deducting these contributions.
- Strategic Planning: For those over \$200,000, non-deductible traditional IRA contributions can be a stepping stone for a "backdoor Roth IRA," offering a valuable way to save for retirement on a tax-free basis in the future.
For the most accurate and up-to-date information on IRA deduction limits, always refer to official IRS publications or consult a qualified tax professional.
