A loophole, known as a clandestine Roth IRA, provides a way to get around the limits. If a person with a high income decides to make a contribution to an IRA, the contribution cannot be made to a Roth IRA. Instead, it should be done to a traditional IRA. Let's suppose that, in the situation of this person who earns, the contribution is not tax-deductible.
Once the funds are in the IRA, they will grow tax-deferred until they are withdrawn. At the time of withdrawal, if the IRA has gained value, part of the distribution will be a tax-free tax return and the rest will be taxed at the beneficiary's current income tax rate. Excess contributions are taxed at 6% per annum for each year in which the excess amounts remain in the IRA. The tax cannot exceed 6% of the combined value of all your IRAs at the end of the tax year.
However, you can still contribute to a Roth IRA and make cumulative contributions to a Roth or traditional IRA, regardless of your age. The financial institution that holds your traditional IRA contributions transfers them directly to the institution that holds your Roth IRA.
