Contribution and Income Limits of the Roth IRA
The Roth IRA is one of the best ways to invest your money. It's a retirement account that grows completely tax-free. Meaning if you were to invest $10,000 in stocks and make a $1,000 gain, in an ideal scenario you would be on the hook for paying $150 in long-term capital gains taxes. ($200 if you have a high income)
If you make that gain within a Roth account though, you owe zero. It's a tax-free investment account where you owe no taxes on your gains assuming you let your investments grow and don't withdraw until retirement.
This is a very powerful investing strategy with massive tax advantages, so it makes sense that it comes with certain limits.
The first being a limit to how much you can contribute every year. For 2020 this limit is $6,000 ($7,000 if your 50 or older).
Also, income limits apply and if you're an individual making over $124,000 your contribution amount will be limited. If you make over $139,000 you can't contribute anything directly.
Alternative Strategies for High Earners
If you're one of the lucky few high earners who can't contribute to a Roth IRA because your income is too high, there are solutions and you can still invest in this tax-advantaged account. The primary way people do this is with a conversion.
Traditional IRA Conversion
Anyone can contribute to a Traditional IRA, there are tax-advantages with this account as well but if you earn too much to contribute to a Roth, you don't qualify for these benefits either.
BUT the more important element here is that you can still contribute to this account. Once you've put your $6,000 contribution into a Traditional IRA, you can convert the account to a Roth IRA and then benefit from the tax-free growth as well.
This is typically referred to as a Backdoor Roth IRA, due to how it is created. But still, it is an awesome way to take advantage of those sweet tax benefits!