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.
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