4 Paths to a Roth IRA for High-Income Earners

The Roth IRA has become a darling of retirement savings accounts. Although funded with after-tax dollars, Roths offer tax-free withdrawals of contributions and earnings in retirement (so long as the account holder is 59½ or older and has held the account for at least five years). Plus, such funds can continue to accrue tax-free indefinitely during the owner's lifetime because unlike tax-deferred retirement accounts, Roths aren't subject to required minimum distributions (RMDs).

Unfortunately, the Roth IRA income limits make it difficult for many higher-income individuals to make direct contributions to these accounts. Here's what to know.

For 2025, only savers with a modified adjusted gross income (MAGI) at or below $150,000 ($236,000 for married couples filing jointly) can contribute the full amount to a Roth IRA. And even then, annual contributions are limited to $7,000 ($8,000 if age 50 or older), though that limit is reduced for a single filer with a MAGI between $150,000 and $165,000 (between $236,000 and $246,000 if married).

For those who exceed the income thresholds, the ability to make Roth IRA contributions isn't completely out of reach. With some planning, even high earners can reap the tax-advantaged benefits of a Roth account. Let's look at four strategies to consider.

If you're still working and participating in a 401(k) plan, you might check if your employer offers a Roth 401(k). Unlike a Roth IRA, a Roth 401(k) has no income limits. For 2025, you can set aside up to $23,500 in after-tax contributions from your salary. Employees age 50 or older can contribute an additional $7,500 (for a total of $30,500), and workers ages 60 through 63 can make a supersize catch-up of $11,250 (for a total of $34,750).

Employer matches to your Roth 401(k) contributions, if available, may be deposited in your account or a separate traditional 401(k) account. Be aware that matching contributions to your Roth 401(k) will result in additional taxable income to you, whereas you won't pay taxes on matches placed in a traditional tax-deferred 401(k).

That said, the rules and guidelines that apply to a Roth 401(k) generally are the same for other employer-sponsored retirements plans, such as a Roth 403(b) or Roth 457(b).

Those who have savings in a tax-deferred account, like a traditional IRA, can roll over some or all of that balance to a Roth IRA. However, you'll owe ordinary income tax on the converted amount, including not just your pretax contributions but also any income or appreciation from those funds. Any after-tax dollars you contributed to your traditional IRA will not be taxed upon conversion.

This doesn't mean you can choose to transfer only your after-tax contributions. Under the pro rata rule, the converted amount will be taxable in proportion to the pretax versus after-tax values of all your IRA accounts (see IRS Notice 2014-54 for more). As a result, if you have pretax IRA assets, you may choose to spread out a Roth IRA conversion over multiple years to better manage the associated tax bill.

For example, let's say you have a traditional IRA with a balance of $1,000,000—of which $100,000 (10%) comes from after-tax contributions. You could perform a single Roth conversion and owe taxes on $900,000, or 90%, of the converted amount. However, if you convert $200,000 annually for five years, you could potentially soften the hit, paying tax on just $180,000 each year.

Before doing a Roth conversion, remember that once done, it can't be undone, and each conversion will be subject to a separate five-year rule. Your financial advisor or wealth management team can help you plan a strategy that aligns with your goals.

A backdoor Roth conversion provides another way for high-income earners to fund a Roth account. With this two-step strategy, you would first contribute after-tax dollars to a traditional IRA and then roll over those funds to a Roth. You won't get a tax deduction, but that's not the point—your end game is to convert those nondeductible contributions so you can enjoy the tax benefits of a Roth IRA. If you have no other IRA assets other than your after-tax contributions, you can perform the backdoor Roth conversion with no taxes due. Also, though you can convert the funds at any time, if you invest them within your traditional IRA, you'll owe taxes on any growth at the time of conversion.

Be aware the IRS hasn't formally provided guidance on whether a backdoor Roth conversion violates the "step-transaction rule," which treats multi-step transfers as a single transaction for tax purposes. The lack of a definitive ruling means there is some risk involved. And remember, the pro rata rule mentioned earlier also applies to a backdoor Roth conversion. So, bottom line, if you use this backdoor Roth strategy solely to sidestep the earnings limits on Roth IRA contributions, keep the risks in mind and seek the counsel and support of a tax professional.

For those who participate in a workplace retirement plan, such as a 401(k), a mega-backdoor Roth conversion is another potential option for high earners. However, before you attempt this supersize version of a backdoor Roth, you'll need to verify eligibility with your employer's retirement plan administrator. Make sure:

• You can contribute after-tax dollars above and beyond the normal annual limits.
• Your plan either:
  • Offers a designated Roth account, such as a Roth 401(k), that allows in-plan rollovers from your 401(k) or
  • Permits withdrawals from your 401(k) while you're still working.

If your plan meets these prerequisites, a mega-backdoor Roth could work for you. The process would look like this:

1. First, max out your normal contributions, which you can make to either your tax-deferred employer-sponsored retirement plan or the Roth equivalent. Doing this will also ensure you get the maximum employer match, if offered.
2. Then, contribute after-tax dollars up to the overall limit of $70,000 ($77,500 if age 50 or older or $81,250 for ages 60 to 63) in 2025. (Keep in mind your normal contributions as well as any employer matches count against this limit.) 
3. Finally, perform a Roth conversion using one of two methods:
   • Roll over your after-tax contributions. If you have access to a designated Roth account through your plan, the simplest way to perform a mega-backdoor Roth conversion is through an in-plan rollover.
   • Transfer out all the money in your workplace retirement plan to IRAs. If your employer-sponsored retirement plan doesn't offer a designated Roth account with in-plan rollovers and your account includes both pretax and after-tax dollars, you'll need to transfer all the after-tax assets into a Roth IRA and pretax money into a traditional IRA.

As with any Roth conversion, income generated by your after-tax contributions could be taxed when you roll over the funds.

Some of these Roth IRA strategies, especially the mega-backdoor Roth, can be complex. We recommend that you seek the assistance of a tax professional or financial advisor if you're interested in pursuing any of these methods.