High Income Earners Can Still Contribute to a Roth IRA, You Just Have to Go in the "Backdoor"
Although there was a media blitz on this topic back in 2010, ROTH conversions have not taken hold to nearly the degree I think they should have when the income limit was lifted. A ROTH conversion is nothing more than taking any traditional IRA, paying the income taxes that would be due on it, and ending up with a ROTH IRA.
So why would anyone do this? If you expect future income tax rates to be higher (which it seems inevitable that they will be) having money in traditional IRA's will be a large tax trap that you'll regret you didnt avoid. Additionally, ROTH IRA's come with a myriad of other benefits as I'll discuss at a later time.
For those of you making more than $125,000, the IRS effectively says you can not contribute to a ROTH IRA. But what if there was a "secret backdoor" that could bypass this restriction. There is...
It works like this: Simply make a contribution to a traditional IRA and DO NOT, take an income tax deduction on your tax return for the year of the contribution. After your filing is in, you can convert the traditional IRA to a ROTH IRA via standard conversion rules. Lather, rinse, repeat as they say and do this every year. The effect will be the same as if you had been allowed to contribute to ROTH IRA's in the first place!