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Ask a Fool: My Income Is Too High to Invest in an IRA. What Should I Do?

By Matthew Frankel, CFP® – Feb 8, 2019 at 12:00PM

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IRAs are income-restricted for many people, but there might be some alternative ways to save.

Q: I'll make too much in 2019 to invest in a Roth IRA or take a traditional IRA deduction, but I want to invest more for retirement. What's the best alternative? 

First off, if you're ineligible for a traditional IRA deduction, that means you (or your spouse) has a retirement plan at work. If it's a defined contribution plan, such as a 401(k) or 403(b), the best answer could be to simply increase your contributions to it. In 2019, you can choose to defer up to $19,000 of your salary in a qualified retirement account, and if you're 50 or older, this limit goes up to $25,000. 

Next, if any of your income is from self-employment or independent contractor work, there could be several options available to you.

A SEP-IRA, for example, could allow you to save as much as $56,000 ($62,000 if you're 50 or older) or 25% of your self-employment income, whichever is less. SIMPLE IRAs and individual 401(k)s are also worth a look if this applies to you. 

Another option is a health savings account (HSA). If you have a qualifying high-deductible health insurance plan, you can contribute to one of these double-tax-advantaged investment accounts.

Not only are your qualified contributions tax-deductible, but any money in the account that you use to pay for qualified healthcare expenses is 100% tax-free to withdraw. With the average lifetime out-of-pocket healthcare costs for a 65-year-old retired couple estimated at $280,000 by Fidelity, this could be a great way to save and invest for this purpose. 

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