The Roth Dilemma
Roth accounts are everywhere. Your 401(k) has a Roth option. People are talking about Roth conversions. You’ve probably heard of the backdoor Roth IRA strategy. It sounds smart… and it probably is. However, for high-income earners, Roth strategies come with more complexity than most people realize.
We’ve seen clients with strong income and good intentions make decisions that seemed harmless at the time but ended up creating real tax inefficiencies or limited future options.
This post is here to help you avoid that.
Whether you’re already contributing to a Roth or just wondering if you should, here’s what you need to understand before making any more moves.
Roth Isn’t Always the Better Option
The core appeal of Roth accounts is tax-free growth. You pay taxes on your contributions now, and in retirement, withdrawals come out tax-free. That can be a powerful advantage if you expect to be in a higher tax bracket later.
But for high earners, that may not always be the case.
If you’re earning $400,000 to $800,000 and expect a lower income in retirement, contributing pre-tax today may save you tens of thousands of dollars in income taxes. That savings can be invested and compounded in your favor. In that scenario, a traditional 401(k) may serve you better than the Roth, at least for now.
Whether Roth or pre-tax works better for you has less to do with general rules and more to do with how your income, taxes, and goals all line up.
You Can’t Always Contribute to a Roth IRA Directly, but You May Still Have Options
Roth IRAs come with income limits, and by the time many households reach peak earning years, they’re often over those thresholds.
For 2026, the rules work like this:
If you file single, you can make a full Roth IRA contribution if your modified adjusted gross income is under $153,000
You can make a partial contribution if your income is between $153,000 and $168,000
If your income is $168,000 or higher, you are not eligible to contribute directly to a Roth IRA
For those married filing jointly:
A full contribution is allowed if your income is under $242,000
A partial contribution is allowed if your income falls between $242,000 and $252,000
If your income is $252,000 or higher, you are not eligible to contribute directly to a Roth IRA
If you fall above these limits, you can still contribute to a traditional IRA. From there, some high-income households explore a backdoor Roth strategy, which involves making a non-deductible IRA contribution and then converting those dollars to a Roth account.
This approach works well, but only when done carefully.
If you have pre-tax dollars in any other IRA (including rollover IRAs from past jobs), you may unknowingly trigger the pro-rata rule. That turns what should be a tax-free conversion into a partially taxable one, often wiping out the benefit. In some cases, it makes sense to roll old IRA balances into your current 401(k) to “clear the deck” for future Roth strategies.
Roth Conversions: Timing Matters More Than You Think
A Roth conversion means taking pre-tax dollars (like from an old 401(k) or traditional IRA) and moving them into a Roth account. You pay taxes on the amount converted, and then the money grows tax-free.
For high earners, the key is when you do this.
The best time to consider a Roth conversion is during a lower income year. This might happen during a job change, a business sale, a sabbatical, or the early retirement years before Social Security or required distributions begin. Doing a conversion during peak income years is rarely ideal unless it’s part of a very specific strategy.
Also worth considering - if your long-term plan includes charitable giving, Roth conversions may not be necessary at all. Qualified charitable distributions from traditional IRAs can offset required minimum distributions later in life while satisfying your giving goals in a tax-efficient way.
These aren’t quick decisions. Your Roth strategy should be coordinated with your tax planning, charitable goals, retirement timeline, and cash flow.
Mega Backdoor Roths: A Hidden Opportunity
Some high earners have access to a powerful tool most people never hear about the mega backdoor Roth.
This only applies if your 401(k) plan allows both after-tax contributions and in-plan Roth conversions. If so, you may be able to contribute well beyond the standard deferral limits.
In 2026, the total 401(k) contribution limit (employee + employer + after-tax) is $69,000. If your employee deferral and match total only $30,000 to $40,000, that leaves room to contribute tens of thousands more after-tax and immediately convert it to Roth.
It requires plan-specific language and proper setup, but when available, it’s one of the most effective ways to build Roth assets at high income levels.
Roth Accounts and Estate Planning
Roth IRAs are often overlooked as legacy planning tools. Unlike traditional IRAs, Roth accounts pass to heirs income-tax free and still enjoy up to 10 years of tax-free growth under current law.
If your retirement needs are fully covered by other assets, Roth accounts become ideal vehicles for long-term family wealth transfer. They don’t create taxable income for beneficiaries and are exempt from RMDs during your lifetime if held inside a Roth IRA.
Converting to Roth in your 60s and early 70s - while managing your tax bracket intentionally - can be a smart move if you know your children will eventually inherit the accounts.
Coordination Is Key
We sometimes meet clients who are putting every available dollar into Roth accounts, thinking it’s the smartest move. But they haven’t built up liquidity, have no flexibility for early retirement moves, and lack any sort of tax diversification.
Roth accounts are powerful, but they’re not meant to hold everything. They are one tool in a broader system. Here’s what we often recommend for high earners:
Build liquidity first with 6 to 12 months of expenses in reserves
Max out retirement plans using pre-tax or Roth based on your current and projected tax brackets
Use a taxable brokerage account to create flexibility and unlock tax strategies like loss harvesting
Consider backdoor Roth contributions if your IRA balances allow
Look at Roth conversions during low-income windows or for estate planning
Take advantage of mega backdoor Roths if your 401(k) allows them
When Roth strategies are coordinated correctly, they add clarity and control to your plan. When used in isolation, they can unintentionally limit it.
The Takeaway
Roth accounts can be incredibly effective, especially when used in the right context. High income doesn’t automatically make Roth the wrong choice, but it does require more careful consideration. You need to evaluate your tax brackets today and in retirement, the structure of your accounts, and your timeline for using the money.
If you’ve been contributing to Roth accounts a comprehensive look at the bigger picture - or skipping opportunities that could work better - we can help make sense of it.
Any discussion of taxes or legal considerations is for general information purposes only, does not purport to be complete or cover every situation, and should not be construed as legal, tax, or accounting advice. Clients should consult with their qualified legal, tax, and accounting advisors before implementing any strategy discussed herein. CRN202811-10007955.