Month: April 2026

Earn too much for a Roth IRA? There’s still a way in.

By Michael Christian, CFA®, CAIA® EverPar Advisors

High earners who exceed the Roth IRA income limits often assume tax-free retirement savings are no longer available to them. The backdoor Roth and mega backdoor Roth strategies exist precisely for this situation, and for those who execute them correctly, the long-term impact can be significant.

Why the Backdoor Roth Exists

The Roth IRA is one of the most powerful retirement accounts available. Money grows tax-free, withdrawals in retirement are tax-free, and unlike traditional IRAs, there are no required minimum distributions during your lifetime. The IRS limits who can contribute directly based on income, which is where high earners run into a wall.

¹In 2026, the phase-out for single filers begins at $153,000 and cuts off completely at $168,000. For married couples filing jointly, the phase-out begins at $242,000 and ends at $252,000. For many high earners, direct contributions are simply off the table.

The backdoor Roth is the workaround. Income limits apply to Roth IRA contributions, but not to conversions. That distinction is the foundation of the entire strategy.

¹Source: https://www.irs.gov/newsroom/401k-limit-increases-to-24500-for-2026-ira-limit-increases-to-7500

How the Backdoor Roth Works

The mechanics are straightforward. You open both a traditional IRA and a Roth IRA.
¹You make an after-tax, non-deductible contribution to the traditional IRA, up to $7,500 in 2026, or $8,600 if you are age 50 or older. Then you convert that traditional IRA balance to your Roth IRA as quickly as possible, ideally within days.

¹Source: https://www.irs.gov/newsroom/401k-limit-increases-to-24500-for-2026-ira-limit-increases-to-7500

Source: https://www.irs.gov/forms-pubs/about-form-8606

Keep the funds in cash between contribution and conversion to avoid any taxable earnings accumulating in the traditional IRA. Every year you execute this strategy, you must file IRS Form 8606 with your tax return. This form tracks your after-tax basis and proves to the IRS that you have already paid tax on the contribution. Missing it is one of the most costly backdoor Roth mistakes you can make.

While $7,500 per year may not sound like much, the compounding impact over time is substantial. As Michael walks through in the video, a couple each contributing the maximum from age 40 to age 65, $15,000 per year combined and stepping up to the catch-up amount in their 50s, could accumulate over $1 million in tax-free retirement savings assuming 8% annual growth.

The Pro-Rata Rule: The Part That Trips People Up

The backdoor Roth works cleanly when your only traditional IRA is the one you just opened for this purpose. If you have existing pre-tax money in any traditional IRA, including rollover IRAs from old 401(k)s, the pro-rata rule comes into play.

The IRS treats all of your traditional IRA balances as one combined pool. When you convert, they look at the ratio of pre-tax money to after-tax money across all your IRAs, not just the account you are converting from. You cannot choose to convert only the after-tax dollars.

For example, if you have $92,500 in an existing traditional IRA and you contribute $7,500 for the backdoor, your total IRA balance is $100,000. Your new after-tax contribution represents only 7.5% of that pool, meaning roughly 92.5% of your conversion would be taxable. The strategy becomes far less efficient.

If your current employer plan accepts incoming rollovers, you can roll your pre-tax IRA balances back into your 401(k) before executing the backdoor. This removes them from the pro-rata calculation entirely.

The Mega Backdoor Roth: A Much Larger Opportunity

For those who want to go further, the mega backdoor Roth operates through your 401(k) rather than an IRA, and the contribution potential is dramatically higher.

¹Your 401(k) has three contribution buckets: your employee deferrals (up to $24,500 in 2026), your employer match, and a third bucket most people have never heard of, after-tax contributions. The IRS sets a total plan cap under Section 415(c) of $72,000 in 2026. The gap between what you and your employer contribute and that $72,000 cap can potentially be filled with after-tax contributions and then converted to Roth, either through an in-plan Roth conversion or an in-service distribution to a Roth IRA.

In the example Michael walks through in the video, a $200,000 salary with a 5% employer match leaves a gap of $37,500 between combined contributions and the $72,000 cap. That $37,500 could potentially go into Roth through the mega backdoor strategy.

¹Source: https://www.irs.gov/newsroom/401k-limit-increases-to-24500-for-2026-ira-limit-increases-to-7500

Does Your Plan Allow It?

Not all 401(k) plans support the mega backdoor Roth. Two specific features must both be present.

First, the plan must allow after-tax, non-Roth contributions, a separate bucket beyond standard pre-tax and Roth deferrals. Second, the plan must allow either an in-plan Roth conversion or an in-service distribution so you can move those after-tax contributions into Roth status. To find out, ask your HR department directly or review the plan documents.

This feature is more common at large tech and finance employers and among business owners who control their own plan design. If you own your business, you can work with your plan administrator to add these provisions if they are not already there.

When These Strategies Come Up in Planning

In practice, these conversations tend to come up in three situations. The first is when someone has already maxed out their 401(k) and is looking for additional tax-advantaged savings vehicles. The second is when someone has a small existing traditional IRA balance. Sometimes it makes sense to do a one-time conversion, pay the tax, clear the balance, and then execute the backdoor cleanly going forward. The third is the gap between retirement and RMD age. If you retire at 65 but are not required to take RMDs until 73, those eight years of lower income can be a good window for Roth conversions.

The Estate Planning Case for Roth Accounts

Beyond the tax-free growth during your lifetime, Roth IRAs carry a significant estate planning advantage. Traditional IRAs passed to non-spouse heirs are subject to the 10-year rule. Heirs must fully distribute the account within 10 years and pay income tax on every dollar along the way. Inherited Roth IRAs are subject to the same 10-year rule, but heirs are not required to take annual distributions. They can let the account grow tax-free for the full 10 years and then take the entire balance out tax-free at the end. For high earners building wealth to pass on, that distinction matters enormously.

Common Mistakes to Avoid

The most common errors we see are ignoring the pro-rata rule, waiting too long to convert after contributing, failing to file Form 8606, over-converting in high-income years which can trigger IRMAA Medicare surcharges or push you into a higher bracket, and assuming your 401(k) supports the mega backdoor without verifying it in the plan documents.

Is the Backdoor Roth Right for You?

The backdoor Roth and mega backdoor Roth are powerful tools, but they require careful execution. The right approach depends on your income, your existing IRA balances, your employer plan, and your broader tax picture. If you are a high earner who has not explored these strategies yet, there is a good chance you are leaving tax-free growth on the table.

To explore whether these strategies make sense in your situation, schedule an introductory strategy session.

​​​​​​All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability, or completeness of, nor liability for, decisions based on such information and it should not be relied on as such.

The information provided is for educational and informational purposes only and does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor’s particular investment objectives, strategies, tax status or investment horizon. You should consult your attorney or tax advisor.

The views expressed in this commentary are subject to change based on market and other conditions. This commentary may contain certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.

The order you withdraw from your retirement accounts can shape your tax bill, your Medicare premiums, and how long your money lasts. Here is how to think through it.

By Courtney Hoffman, CFP®, AAMS™ EverPar Advisors

Most of my clients come in thinking retirement income is a math problem. Add up the accounts, divide by years, figure out how much you can spend. That part is actually the easy part.

What takes longer to work through is this: where do you pull from first?

Withdrawal sequencing (which accounts you draw from and in what order) is one of the most consequential decisions in retirement planning. I’ve seen the tax side of this many times with clients. And I can tell you that two retirees with the same account balances can end up in very different places over a 20-year retirement depending on how they structure their withdrawals.

Small differences in timing quietly shape your tax brackets for years. They affect your Medicare premiums. They determine how much of your Social Security is taxable. They influence how long your portfolio actually holds up.

In this video, Ken and I walk through the full picture. We start with the basics and build toward a framework you can actually apply.

The Three Types of Retirement Accounts

Before you can make smart withdrawal decisions, you need to understand the tax character of each account. There are three categories, and each one behaves differently when it’s time to take money out.

Tax-deferred accounts like Traditional IRAs and 401(k) plans are funded with pre-tax dollars. You get a deduction today, the money grows without being taxed along the way, and you pay ordinary income taxes when you withdraw in retirement. The original assumption built into these accounts is that you’ll be in a lower tax bracket in retirement than you were during your working years.

That assumption holds for some people. For others, it doesn’t.

Tax-exempt accounts like Roth IRAs and Roth 401(k)s work the other way. You contribute after-tax dollars, the money grows tax-free, and qualified withdrawals come out without owing federal income tax. There are no Required Minimum Distributions, which gives you more control over when you take money out. These accounts tend to make the most sense when you expect your tax rate to be higher in retirement, or when you’re early in your career and have decades of tax-free growth ahead of you.

Taxable brokerage accounts are funded with after-tax money as well, but the tax treatment along the way is different. Dividends and interest are taxed in the year you receive them. Selling an investment triggers a capital gain or loss. Investments held longer than a year qualify for long-term capital gains rates, which range from zero to 20% depending on your income. These accounts are the most flexible since there are no contribution limits, no distribution requirements, and no penalties for early withdrawal.

Most people have assets spread across all three. Understanding how each one is taxed is the foundation for everything else.

A comparison worth running through

Let me make this concrete with a side-by-side example.

Take someone earning $100,000 a year who contributes 10% to their retirement account. Here’s how the math plays out differently depending on which account type they use.

With a Traditional 401(k), that $10,000 contribution comes out pre-tax, so they’re effectively paying taxes on $90,000. At a 22% marginal rate, they get a real tax break today. Then, in retirement, if their income drops to $40,000 and they take a $5,000 withdrawal, their taxable income bumps to $45,000 and they’re paying roughly half the tax rate they were during their working years.

With a Roth 401(k), they contribute the same $10,000 but pay taxes on it now. At 22%, that’s $2,200 in taxes, leaving a net contribution of $7,800. At a 6% average growth rate over 30 years, that $7,800 becomes approximately $44,800. When they withdraw it in retirement, they owe nothing in federal income tax.

Same income. Same contribution rate. Very different outcomes depending on when you pay the taxes.

I want to flag something I don’t think gets enough attention: tax diversification deserves as much thought as investment diversification. Having assets spread across all three account types gives you flexibility to manage your tax bracket in retirement. It lets you respond to legislative changes, unexpected income events, and shifts in your spending.

Why Withdrawal Order Matters so Much

Once you’re retired and no longer receiving a paycheck, the question shifts from how to save to how to draw down what you’ve built. And the order matters far more than most people expect.

The sequence you choose affects your current and future tax brackets. It affects your Medicare premium calculations (IRMAA is a real consideration for a lot of our clients). It shapes how your Required Minimum Distributions play out later in retirement. And it has a direct impact on how your portfolio holds up through a market downturn.

Taking money out of growth-oriented accounts during a down market locks in losses and can permanently reduce your portfolio’s lifespan, particularly in the first five to ten years of retirement. This is what planners call sequence-of-return risk, and it’s one of the reasons that thoughtful withdrawal planning matters before the first withdrawal ever happens.

The traditional approach, and where it breaks down

The most commonly recommended strategy draws from accounts in this order: taxable accounts first, tax-deferred accounts second, and tax-exempt accounts last.

The logic is straightforward. You pull from accounts taxed at lower capital gains rates before touching accounts that will generate ordinary income on withdrawal. Roth accounts are preserved as long as possible to maximize tax-free growth and keep the most efficient assets available for heirs.

This is a reasonable starting point. It’s not the right answer for everyone.

The better way to think about it: sequencing isn’t really about avoiding taxes. It’s about controlling when and how they happen. In many cases, a blended approach that draws from multiple account types in the same year can smooth out the tax impact and outperform a strict sequential strategy over a 20-year retirement.

This is a reasonable starting point, but it is not the right answer for everyone. Sequencing is less about avoiding taxes and more about controlling when and how they occur. In many cases, a blended approach that draws from multiple account types in the same year can smooth out the tax impact and ultimately outperform a strict sequential strategy.

Your situation is specific

The right approach depends on your specific numbers, your specific timeline, and what else is going on in your financial life.

Before settling on a strategy, there are several things worth working through carefully: your current and expected future tax brackets, when your RMDs are set to begin, large one-time expenses or deductions you’re expecting, your legacy and charitable goals, current market conditions, any upcoming tax law changes, and shifts in your lifestyle or spending.

That list isn’t exhaustive. It’s just a starting point.

How we work through this at Everpar – 5 steps

Here’s the process we use with clients.

Step 1: Map spending against guaranteed income

That means identifying what’s already covered by Social Security, pensions, or other fixed sources before we look at investment accounts. You need to know what the base looks like before you know how much flexibility you have.

Step 2: Look at RMDs and Roth conversion windows

If you have time before RMDs are required at age 73 or 75, that gap is often valuable. It’s a window to reduce pre-tax balances through strategic conversions, at tax rates that may be lower than what you’ll face once RMDs begin.

Step 3: Identify the spending gap

What’s left after guaranteed income is accounted for? That gap, combined with your current tax bracket and everything else on the list above, determines which accounts make the most sense to draw from.

Step 4: Run actual tax estimates

This is where my accounting background comes in handy. We model the impact on Medicare premiums, identify years where long-term capital gains may be taxed at 0%, and account for known one-time income events or legislative changes on the horizon.

Step 5: Define net spendable income

Once that number is clearly established, planning shifts from reactive to intentional. Instead of making decisions in response to market moves or unexpected expenses, you’re working from a defined plan that can be adjusted thoughtfully each year.

There’s no fixed formula here. Retirement income planning is a year-by-year process, and it’s highly personal. What works for one client doesn’t automatically work for the next.

If you have questions about how to structure your own withdrawal strategy, we’re happy to talk through it.

Schedule time with EverPar’s planning team →

​​​​​​All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability, or completeness of, nor liability for, decisions based on such information and it should not be relied on as such.

The information provided is for educational and informational purposes only and does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor’s particular investment objectives, strategies, tax status or investment horizon. You should consult your attorney or tax advisor.

The views expressed in this commentary are subject to change based on market and other conditions. This commentary may contain certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.