by Tyler Conroy, CFP®, CPWA
Vice President Wealth Planning
The Roth IRA has earned its popularity with retirement savers—and for good reason. Funded with after-tax dollars, it offers the rare advantage of tax-free withdrawals in retirement, provided you’re at least 59½ and have held the account for five years. Unlike traditional retirement accounts, Roth IRAs are not subject to required minimum distributions (RMDs), allowing savings to grow tax-free for life, and up to 10 years beyond.
But there’s a catch. Income limits restrict who can contribute directly. In 2025, full Roth IRA contributions are only available to individuals with a modified adjusted gross income (MAGI) of $150,000 or less ($236,000 for married couples filing jointly). Contributions phase out completely at $165,000 ($246,000 for married couples filing jointly).
So, what options do higher earners have? Let’s explore some potential workarounds.
Backdoor Roth IRA
For high-income earners who are ineligible to make direct Roth IRA contributions due to income limits, a backdoor Roth contribution can be a smart approach. This two-step strategy allows you to fund a Roth IRA by contributing after-tax dollars to a traditional IRA and then converting those funds to a Roth IRA.
You won’t receive a tax deduction for the initial contribution—and that’s fine. The goal isn’t the deduction; it’s to get your money into a Roth IRA, where it can grow and be withdrawn tax-free. If you have no other IRA assets (besides those after-tax contributions), you can typically make the conversion without owing any taxes.
As a general rule, it’s best to convert the funds right away. If you invest them in your traditional IRA and they grow before the conversion, that growth will be treated as taxable income when moved into the Roth IRA. That said, it’s important to consult your tax advisor to determine the best timing based on your specific situation.
But here’s where it can get tricky.
The IRS’s aggregation rule may apply if you hold other pre-tax IRA assets. Under this rule, all your traditional IRAs—including SEP IRAs and SIMPLE IRAs—are treated as one combined account for tax purposes. This means any distribution or conversion from an IRA may be partially taxable based on the proportion of pre-tax to after-tax funds across all accounts. Inherited IRAs, however, are excluded from this calculation.
Nevertheless, there’s a potential solution: a reverse rollover. If you're currently employed and your workplace retirement plan allows it, you may be able to transfer your pre-tax IRA assets into your 401(k) or another qualified employer plan. This effectively clears your pre-tax dollars, allowing you to avoid the aggregation rule and make a clean backdoor Roth conversion.
Alternatively, if your pre-tax IRA balance is relatively small, it may be worth considering a full Roth conversion and simply paying the taxes now. This “clean slate” approach can eliminate future complications and make all future backdoor contributions far more straightforward.
Mega Backdoor Roth
The backdoor Roth IRA is a go-to strategy for high earners who make too much to contribute directly to a Roth IRA. It’s a great workaround but it has its limits. Literally. The annual contribution cap is relatively low—$7,000 for those under age 50 and $8,000 for those 50 and older—which can be a drawback for anyone looking to save more for tax-free growth. That’s where the “mega backdoor Roth” comes in.
To use the mega backdoor Roth strategy, start by checking with your employer’s retirement plan administrator. Your 401(k) plan must meet two key requirements: it must allow after-tax contributions beyond the standard annual limits, and it must either support in-plan Roth rollovers or permit in-service withdrawals while you’re still employed.
If your plan qualifies, the process is relatively straightforward. Begin by maxing out your regular 401(k) contributions—whether to a traditional or Roth 401(k). This step not only gets you the full employer match (if available) but also ensures you’ve reached the employee contribution limit.
Next, contribute additional after-tax dollars to your 401(k) up to the total defined contribution limit for the year. In 2025, that limit is $70,000, or $77,500 if you’re age 50 or older. For individuals between the ages of 60 and 63, the limit increases further to $81,250, thanks to the expanded catch-up contribution. Just remember: your employee contributions, as well as any employer match, count toward this total.
Once the after-tax contributions are in, the final step is to convert those funds to Roth dollars. If your plan includes a Roth 401(k) option, you can opt for an in-plan rollover, which is often the most straightforward approach. If it doesn’t, and your account contains both pre-tax and after-tax funds, you’ll need to split the rollover—moving the after-tax contributions to a Roth IRA and the pre-tax portion to a traditional IRA.
As with any Roth conversion, any growth on your after-tax contributions could be taxable when you roll the funds over. Converting sooner rather than later can help reduce that tax bite by limiting how much those investments grow beforehand. Of course, it’s always smart to check with your tax advisor on the timing to make sure it fits with your overall plan.
Roth IRA strategies—particularly the mega backdoor Roth—can be powerful tools, but they come with complexity. Before moving forward, it’s important to work with your portfolio manager to evaluate whether this strategy aligns with your broader financial goals. It’s also a good idea to consult a tax professional who can help navigate the rules and ensure everything is executed properly and tailored to your specific situation.