Accessing a Roth IRA is still possible for high income earners. It just requires a simple strategy.
One of the most popular retirement accounts known to humankind is the Roth Individual Retirement Account (IRA). It’s an account where after-tax contributions grow tax-free, and withdrawals are also tax-free in retirement.
The caveat is that as you earn more, the ability to use the Roth phases out. High earners lose the ability to access this powerful retirement vehicle.
However, there is a loophole that folks can use. It’s called the “backdoor Roth IRA”.
Who is this strategy for?
Before we get into the mechanics, the backdoor Roth IRA is specifically designed for high earners who are locked out of contributing to a Roth IRA directly. If you are within the income limits, there is no reason to go through the “backdoor”.
For 2026, single filers with a modified adjusted gross income (MAGI) under $153,000 can contribute in full, with a phase-out range of $153,000 to $168,000. Married couples filing jointly with a MAGI under $242,000 can also contribute in full, with a phase-out range of $242,000 to $252,000. If your income puts you above those thresholds entirely, direct Roth IRA contributions are not permitted, which is where the Backdoor Roth comes into play.
Purpose of a Backdoor Roth
A Backdoor Roth IRA is a mechanism that allows high earners the ability to indirectly contribute to a Roth IRA. It involves making nondeductible contributions to a traditional IRA and then converting those contributions into a Roth IRA.
Nondeductible contributions are contributions for which you do not take a tax deduction. Typically, contributions to a traditional IRA are tax-deductible; however, to execute a Backdoor Roth conversion, you would not take that deduction on your taxes.
The no RMD benefit
Most retirement accounts, including traditional IRAs and 401(k)s, require you to take required minimum distributions, or RMDs, once you turn 73. An RMD is essentially the government forcing you to start withdrawing money from your retirement accounts so they can collect the taxes owed on those funds. With a Roth IRA, there are no RMDs. Your money can stay invested and continue growing tax-free for as long as you choose.
The flexibility that comes with not being forced to take distributions can be valuable, especially for those who do not need the income in retirement and want to keep their wealth compounding. The Roth IRA is one of the only retirement accounts that offer this benefit.
How to execute the strategy
The actual mechanics of the Backdoor Roth are not complicated. Here are the steps:
- Open a traditional IRA with any brokerage.
- Contribute post-tax, nondeductible dollars to the account.
- Convert the traditional IRA balance to a Roth IRA as soon as possible. Delaying the conversion could trigger a taxable event on any investment gains that accumulate before the conversion.
- File Form 8606 with the IRS when you file your taxes. This form tracks your after-tax basis and ensures you are not taxed on that money again.
- Any time you want to contribute to the future, simply inject after-tax, nondeductible dollars into the traditional IRA and transfer the money to your Roth IRA.
- The maximum contribution limit for 2026 is $7,500 for those under age 50 and $8,600 for those aged 50 and above.
The tax implications
Executing the backdoor Roth strategy is fairly straightforward. Where people can get into trouble is on the tax side, specifically, something called the Pro-Rata Rule.
If you already have pre-tax money sitting in a traditional IRA, the tax picture gets more complicated. The IRS does not allow you to simply convert just your after-tax contributions, as it treats all of your IRA balances as one combined pool. This can result in an unexpected tax bill.
If that applies to your situation, it would be strongly recommended to speak with a tax professional before executing this strategy. It is one of those details that is easy to miss and can be costly if missed.
Roth vs. traditional IRA
This is where your current and projected tax bracket becomes an important consideration. Generally speaking, Roth accounts are a good idea for most individuals. But nobody really knows what tax bracket they will be in during retirement, unless close enough to retirement that they can make a reasonable projection.
For founders who are still 20 or 30 years away from retirement, predicting future tax rates is difficult. What I will say is that most people tend to be in a lower tax bracket when they retire than during their peak earning years. If that is true for you, a traditional IRA, where contributions are tax-deductible today and withdrawals are taxed at retirement, may actually work in your favor.
That said, my general view is that it is good to have a mix. Having some money in Roth accounts, where withdrawals are tax-free, and some in accounts that tax the withdrawals, gives you flexibility in retirement to manage your tax situation. If you knew exactly what the future looked like, you could optimize perfectly. Since none of us do, diversifying across account types is a reasonable hedge.
For example, if you are filing single and are currently in the 24% tax bracket but expect to be in the 32% tax bracket during retirement, the Roth would be the better choice, as you are locking in today’s lower rate. On the flip side, if you are currently in the 32% bracket and expect to drop to the 22% bracket in retirement, a traditional IRA may serve you better.
*This is not meant to be investment or tax advice and is for general information purposes only.
Did you know?
85% of self-employed and microbusiness owners know they should be saving more for retirement. 42% worry they will never be able to retire.
Something to ponder…
A $50,000 qualified withdrawal from a Roth IRA is entirely tax-free. The same $50,000 withdrawn from a traditional IRA at a 20% effective tax rate leaves you with just $40,000 — meaning the Roth effectively delivers 25% more spendable income in retirement.
Need help taking advantage of a backdoor Roth? Schedule a free consultation with Texel Compass and let us help.