You finally received that pay bump you were hoping for or started a business that took off. Making more money is great, but now you can’t contribute directly to your Roth IRA anymore – wrong! Many high-earners have mentally written off contributing directly to a Roth IRA as a viable financial planning tactic because they exceed the IRS-imposed income limits. But the conversation doesn’t have to end there. There’s a legal, IRS-acknowledged strategy called a “backdoor Roth IRA” that allows eligible investors to get money into a Roth IRA despite exceeding the income limits.
According to the IRS, for 2026, Roth IRA contributions begin to phase out at $153,000 of modified adjusted gross income (MAGI) and are fully phased out at $168,000 for single filers. Married filers have a phase-out range of $242,000 to $252,000 of MAGI. For executives, business owners, or dual-income households, these limits can be easy to surpass.
As a result, many high earners assume they are completely shut out of Roth IRA planning altogether. This assumption overlooks a key planning opportunity.
How the Backdoor Roth IRA Works
A backdoor Roth IRA isn’t a separate account type. It’s a two-step process using accounts that are already available to you.
Here’s how it works:
- You make a non-deductible contribution to a traditional IRA. There are no income limits on this type of contribution.
- You then convert that traditional IRA balance to a Roth IRA.
The result is a funded Roth IRA, achieved through a route that bypasses the income restriction on direct contributions.
This approach is consistent with current tax law and widely used in financial planning for high-income clients.
What Makes a Roth IRA Worth the Effort
You might be wondering whether the workaround is worth it for a $7,000 annual contribution limit. The value depends on your situation, but a few factors make it worth considering seriously.
Tax-free growth. Money inside a Roth IRA grows without being subject to federal income tax. Qualified withdrawals in retirement are also tax-free.
No required minimum distributions. Unlike traditional IRAs and 401(k)s, Roth IRAs don’t require you to take distributions at a certain age. That gives you more control over your income in retirement and can reduce exposure to taxes on Social Security benefits.
Tax diversification. Most high earners accumulate the majority of their retirement savings in tax-deferred accounts. A Roth IRA adds a tax-free bucket to draw from, which can provide flexibility when tax rates or your income situation changes.
For someone in peak earning years with a long time horizon, those benefits compound over time.
A Detail You Can’t Ignore: The Pro-Rata Rule
If you have existing pre-tax money in any traditional IRA, the conversion step gets more complicated. The IRS requires you to calculate taxes on the conversion proportionally across all your IRA balances, not just the amount you just contributed.
This is called the pro-rata rule, and overlooking it is one of the most common planning errors with this strategy. In some cases, it can make the backdoor Roth less advantageous or require additional steps to execute cleanly.
This is one reason the strategy works best when coordinated with a financial advisor who can evaluate your full picture before you act.
Is a Backdoor Roth IRA Right for You?
This strategy tends to be a strong fit for people who:
- Exceed the income thresholds for direct Roth contributions
- Have limited or no existing pre-tax IRA balances
- Are focused on building tax diversification in retirement
- Have a long enough time horizon to benefit from tax-free growth
It becomes more complex if you already have significant pre-tax IRA assets or are nearing retirement, as those factors can impact how the strategy is executed and the tax implications involved. The right answer ultimately depends on your overall financial picture.
An HBKS Wealth Advisor can help you evaluate whether this strategy fits within your broader financial plan and how it may complement other retirement and tax planning strategies.
FAQs
Q: Is a backdoor Roth IRA legal? Yes. The strategy uses two separate provisions of the tax code that are each independently allowed. The IRS has acknowledged the approach, and it has been widely used in financial planning for years.
Q: How much can I contribute through a backdoor Roth IRA? The contribution limits are the same as a standard Roth IRA. For 2026, that’s $7,500 per year, or $8,600 if you’re 50 or older.
Q: Does a backdoor Roth IRA affect my taxes? If done correctly with no existing pre-tax IRA balances, the tax impact is minimal. However, the pro-rata rule can create a taxable event if you have other traditional IRA funds. Working with an advisor before executing the conversion helps avoid surprises.
Q: Can I do a backdoor Roth IRA every year? Yes. Many people who use this strategy do so annually as part of their broader retirement savings plan.
The Income Limit Is a Door, Not a Wall
High earners are often told what they can’t do when it comes to retirement accounts. The backdoor Roth IRA is a reminder that the picture is more complete than it first appears.
If you’ve assumed this option wasn’t available to you, it may be worth a second look. At HBKS Wealth Advisors, we work with clients across complex financial situations to identify strategies that align with their long-term goals.
Schedule a conversation with an HBKS advisor to find out whether a backdoor Roth IRA fits your retirement plan.
Important Disclosure:
The information included in this document is for general, informational purposes only. It does not contain any investment advice and does not address any individual facts and circumstances. As such, it cannot be relied on as providing any investment advice. If you would like investment advice regarding your specific facts and circumstances, please contact a qualified financial advisor.
HBKS Wealth Advisors is not a legal or accounting firm, and does not render legal, accounting or tax advice. You should contact an attorney or CPA if you wish to receive legal, accounting or tax advice.
The historical and current information as to rules, laws, guidelines, or benefits contained in this document is a summary of information obtained from or prepared by other sources. It has not been independently verified but was obtained from sources believed to be reliable. HBKS Wealth Advisors does not guarantee the accuracy of this information and does not assume liability for any errors in information obtained from or prepared by these other sources.
Investment Advisory Services offered through HBK Sorce Advisory LLC, d.b.a. HBKS Wealth Advisors. Not FDIC Insured – Not Bank Guaranteed – May Lose Value, Including Loss of Principal – Not Insured By Any State or Federal Agency.
