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How High Earners Get Around the Roth IRA Income Limit (Legally) · Well Advised Wealth

• 0:00
  SPEAKER_01: Here's something that a lot of high earners get told they believe, and it's completely wrong.
• 0:05
  SPEAKER_01: I make too much money to have a Roth IRA.
• 0:08
  SPEAKER_01: This is a contribution strategy.
• 0:10
  SPEAKER_01: For brand new money you haven't put into a retirement account yet, done specifically because your income could be too high.
• 0:18
  SPEAKER_01: But it's not true that a high earner cannot have a Roth.
• 0:23
  SPEAKER_01: Every year you wait is a year of tax-free growth you don't get back.
• 0:26
  SPEAKER_01: There's no undo button.
• 0:30
  SPEAKER_01: Welcome in, everybody.
• 0:32
  SPEAKER_01: This is the Well Advised Wealth Podcast.
• 0:35
  SPEAKER_01: I'm your host, Justin Chastain, certified financial planner.
• 0:38
  SPEAKER_01: And every week I help successful business owners and families create wealth that lasts.
• 0:45
  SPEAKER_01: Here's something that a lot of high earners get told they believe, and it's completely wrong.
• 0:50
  SPEAKER_01: I make too much money to have a Roth IRA.
• 0:54
  SPEAKER_01: That's true if you're talking about a direct contribution.
• 0:58
  SPEAKER_01: The IRS really does shut the door on that once you cross a certain income level.
• 1:03
  SPEAKER_01: But it's not true that a high earner cannot have a Roth.
• 1:08
  SPEAKER_01: There's a completely legal way in which you can have one, and it's got a slightly suspicious name.
• 1:15
  SPEAKER_01: It's called the backdoor Roth, which sounds something like a creepy guy in a trench coat would be selling you in an alley, but it isn't.
• 1:23
  SPEAKER_01: It's on the IRS's website.
• 1:25
  SPEAKER_01: And today we're going to be talking about the good, the bad, and the ugly of it, including a rule that you not only need to know, but it's one rule that trips up almost everyone who tries this and the exact fix if you're already in this spot.
• 1:42
  SPEAKER_01: So let's get into it.
• 1:43
  SPEAKER_01: Why does this matter?
• 1:45
  SPEAKER_01: Most people think that retirement tax planning starts the day they stop working.
• 1:51
  SPEAKER_01: And it doesn't.
• 1:52
  SPEAKER_01: Tax planning is so much different than tax filing because tax planning, we're looking out 30, 20, 10 years in the future.
• 2:00
  SPEAKER_01: We're looking out the windshield of a car.
• 2:03
  SPEAKER_01: Tax filing, on the other hand, is looking out the rearview mirror.
• 2:07
  SPEAKER_01: And they're both important.
• 2:08
  SPEAKER_01: But tax filing is what you do in the here and now and looking back a few years, filing your taxes to make sure you stay legal.
• 2:16
  SPEAKER_01: Tax planning is forward thinking, and they're two different things.
• 2:19
  SPEAKER_01: But by the time you retire, most of your tax situation is already locked in.
• 2:24
  SPEAKER_01: How much is in tax-deferred accounts?
• 2:26
  SPEAKER_01: How much is in tax-free versus even a taxable account?
• 2:30
  SPEAKER_01: And that is going to determine how much flexibility you'll have control of of your own income each year.
• 2:38
  SPEAKER_01: Those decisions are made or not made during your working years, often a decade or two before anyone actually touches the money.
• 2:46
  SPEAKER_01: Here's the pattern that I constantly see with high income clients in their accumulation years.
• 2:52
  SPEAKER_01: They're maxing out their 401k, they're doing everything right by the headline that they've read.
• 2:58
  SPEAKER_01: And every single dollar is going into typically one bucket, pre-taxed, or another way to put it, qualified.
• 3:06
  SPEAKER_01: That's qualified money.
• 3:07
  SPEAKER_01: That just means that every dollar that eventually comes out of retirement gets taxed as ordinary income.
• 3:12
  SPEAKER_01: And ordinary income is at whatever rate that tax code happens to be at that time.
• 3:17
  SPEAKER_01: A rate nobody can predict 30 years out, including me.
• 3:21
  SPEAKER_01: I don't have a crystal ball.
• 3:23
  SPEAKER_01: I do practice Santa Ria, but that's enough sublime reference for now.
• 3:27
  SPEAKER_01: And I do this for a living.
• 3:28
  SPEAKER_01: Tax rates are historically on the low end of the range.
• 3:32
  SPEAKER_01: Nobody in Washington, DC that is, has ever promised you that they'll stay there.
• 3:37
  SPEAKER_01: The fix isn't a complicated concept, but building a second bucket, a Roth bucket, alongside that pre-tax one, so future you has a choice instead of one option and a bill.
• 3:50
  SPEAKER_01: The complication is once that your income crosses a certain line, the IRS won't let you fund that Roth bucket directly anymore.
• 3:58
  SPEAKER_01: That's exactly the gap that backdoor Roth exists to close.
• 4:02
  SPEAKER_01: And it's most valuable precisely in these high earning years because when the front door is locked and the workaround actually matters.
• 4:10
  SPEAKER_01: So here's some terms.
• 4:12
  SPEAKER_01: I don't want to make this feel like we're in a spelling bee, but I do think that it is important for us to define before we get to rocking and rolling in the good, in the bad, and the ugly of the backdoor Roth.
• 4:24
  SPEAKER_01: So before we get into the meat and potatoes of this episode, let's define what a backdoor Roth is.
• 4:32
  SPEAKER_01: This is a contribution strategy.
• 4:34
  SPEAKER_01: For brand new money, you haven't put into a retirement account yet.
• 4:38
  SPEAKER_01: Done specifically because your income could be too high to directly contribute to a Roth.
• 4:44
  SPEAKER_01: Now, here's the number behind that.
• 4:45
  SPEAKER_01: In the year that this podcast is being recorded in 2026, direct Roth contributions phase out between$153,000 and$168,000 for single filers.
• 4:58
  SPEAKER_01: And the filing phase for married filing jointly is between$242,000 and$252,000 for those married couples.
• 5:09
  SPEAKER_01: Above those numbers, the backdoor is how you get money into a Roth.
• 5:14
  SPEAKER_01: You put after tax money into a traditional IRA, which has no income limit for anyone.
• 5:20
  SPEAKER_01: Now there's a deductibility factor.
• 5:22
  SPEAKER_01: You're not going to get a tax deduction in that year if you go over a certain income in the traditional IRA, but nonetheless, you can still contribute.
• 5:30
  SPEAKER_01: Then we can convert that money into the Roth a few days later, in timing matters, which we'll talk about later in the episode.
• 5:37
  SPEAKER_01: The Roth conversion.
• 5:38
  SPEAKER_01: This is a different move entirely.
• 5:40
  SPEAKER_01: It's not about new money.
• 5:42
  SPEAKER_01: It's about moving money you've already had sitting in a traditional IRA.
• 5:47
  SPEAKER_01: Sometimes this is built up over years, multiple years, and you move this over into a Roth.
• 5:54
  SPEAKER_01: People do this deliberately in a low income year, often what we call the gap years after retiring, but before Social Security required minimum distribution start.
• 6:04
  SPEAKER_01: Because converting in a low tax year means owning less tax on it.
• 6:08
  SPEAKER_01: The simplest way just to remember the difference, a backdoor Roth is a way to make a new contribution you'd otherwise be blocked from making.
• 6:16
  SPEAKER_01: Roth conversion is usually moving existing money from one account to another, usually timed for a low tax year.
• 6:25
  SPEAKER_01: So again, I think sometimes those words are used interchangeably as you're hearing people talk, but they are different.
• 6:32
  SPEAKER_01: I just want us to make sure that we understand that because the rule I'm about to walk you through, the one that trips almost everybody up, applies to both of them, not just one.
• 6:43
  SPEAKER_01: So let's get rocking into the good of the backdoor Roth.
• 6:48
  SPEAKER_01: Number one, here's the actual number so there's no confusion.
• 6:51
  SPEAKER_01: In 2026, direct Roth IRA contributions start phasing out at$153,000 of modified adjusted gross income for single filers.
• 7:02
  SPEAKER_01: And the ability to contribute directly disappears entirely once you cross$168,000.
• 7:08
  SPEAKER_01: Now again, that's for single individuals.
• 7:11
  SPEAKER_01: For married couples that do file jointly, and you can file separately.
• 7:17
  SPEAKER_01: There's a joke there, but let's be honest, we just don't have time.
• 7:20
  SPEAKER_01: That range is two hundred and forty-two thousand to two hundred and fifty-two thousand.
• 7:25
  SPEAKER_01: Below that number, you'll get full contribution.
• 7:28
  SPEAKER_01: Inside the range, it's reduced.
• 7:30
  SPEAKER_01: And above those top numbers, the direct door is shut.
• 7:35
  SPEAKER_01: It's as simple as that.
• 7:36
  SPEAKER_01: There are the numbers that decide whether you even need a backdoor Roth in the first place.
• 7:41
  SPEAKER_01: Number two, and here's the fact that actually unlocks the whole strategy.
• 7:45
  SPEAKER_01: For a traditional IRA, income does not matter at all.
• 7:50
  SPEAKER_01: Say that one twice because it's part of the almost conversation everyone almost misses.
• 7:56
  SPEAKER_01: Whether you make$60,000 a year or$6 million a year, if you have earned income, you can contribute to a traditional IRA.
• 8:04
  SPEAKER_01: No income cap.
• 8:05
  SPEAKER_01: None.
• 8:06
  SPEAKER_01: The only income that can limit is whether you get to deduct the contribution.
• 8:12
  SPEAKER_01: And that only applies if you're covered by a workforce plan, such as a 401k.
• 8:17
  SPEAKER_01: For the backdoor Roth, none of that even comes up because you're deliberately making non-deductible after-tax contribution in the first place.
• 8:25
  SPEAKER_01: You were never trying for the deduction.
• 8:27
  SPEAKER_01: So the one income test that could have applied just doesn't here in this case.
• 8:32
  SPEAKER_01: Number three, put those facts side by side and you've got the whole strategy.
• 8:36
  SPEAKER_01: Roth IRAs have an income limit.
• 8:38
  SPEAKER_01: Traditional IRAs, they don't.
• 8:40
  SPEAKER_01: So put after-tax dollars in the traditional IRA anyone can at any income.
• 8:47
  SPEAKER_01: Then convert that same money to Roth.
• 8:49
  SPEAKER_01: No income limit on conversions, either on the direct contributions or any of it.
• 8:55
  SPEAKER_01: The gap between no limit here and hard limit there is the entire loophole.
• 9:00
  SPEAKER_01: And it's been sitting wide open since 2010 when Congress removed the income cap that used to apply in conversions.
• 9:08
  SPEAKER_01: Number four, tax-free growth compounds longest when you start now.
• 9:12
  SPEAKER_01: Every year you wait is a year of tax-free growth you don't get back.
• 9:16
  SPEAKER_01: And it doesn't send you the refund for the delay.
• 9:18
  SPEAKER_01: If you start now during your working years, and that money has decades to compounds completely tax-free before retirement ever touches it, the high earner in their 40s doing this today could easily have 30 plus years of runway on that money.
• 9:34
  SPEAKER_01: And remember, time is a component of wealth that can completely change not just your life, but also the way your money grows.
• 9:42
  SPEAKER_01: Number five, speed protects the strategy.
• 9:47
  SPEAKER_01: If we contribute and convert close together, days or weeks, not months, and we let that money sit and grow in the traditional IRA first, and that growth becomes taxable, even though your original contribution wasn't.
• 10:01
  SPEAKER_01: Move fast and there's nothing left to tax.
• 10:04
  SPEAKER_01: But here's one rule that can undo all of this if you don't see it coming.
• 10:08
  SPEAKER_01: And it's the single biggest reason this strategy backfires on people.
• 10:12
  SPEAKER_01: So let's talk about the bad.
• 10:13
  SPEAKER_01: Well, number one, there's something called the ProRata rule.
• 10:17
  SPEAKER_01: Now, this thing catches almost everyone off guard, and here's the assumption people make.
• 10:22
  SPEAKER_01: I'm contributing money that I've already paid tax on, so converting it should be just tax-free.
• 10:28
  SPEAKER_01: Here's exactly why that's wrong.
• 10:29
  SPEAKER_01: The IRS doesn't let you keep separate jars labeled already taxed, never taxed inside of your individual retirement accounts.
• 10:38
  SPEAKER_01: It treats every traditional, SEP, simple IRA you own as one combined pool.
• 10:43
  SPEAKER_01: No matter how many accounts you have or which bank you think they sit at or custodian.
• 10:48
  SPEAKER_01: So if you've got an old 401k you've rolled into a traditional IRA years ago, that money was never taxed.
• 10:55
  SPEAKER_01: And you go and you try to convert your only brand new after-tax contribution, the IRS looks at the whole pool and taxes the conversion in that same proportion.
• 11:05
  SPEAKER_01: You don't just get to fish out the after-tax dollars and pretend the rest of that money in the pool wasn't there.
• 11:12
  SPEAKER_01: Number two, what looks like real numbers, let's just use Mark, has$95,000 sitting in a traditional IRA from an old 401k rollover.
• 11:22
  SPEAKER_01: All pre-taxed, never taxed a day in his life.
• 11:25
  SPEAKER_01: He then contributes$5,000 in new after-tax money and tries to convert just that$5,000.
• 11:31
  SPEAKER_01: Well, his total IRA pool now is$100,000.
• 11:35
  SPEAKER_01: Only 5% of that pool is after tax.
• 11:38
  SPEAKER_01: So when he converts, the IRS treats 5% as tax-free, 95% as taxable, meaning$47.50 of his already taxed$5,000 gets taxed again as ordinary income the year he converts.
• 11:53
  SPEAKER_01: He didn't get a clean backdoor Roth.
• 11:55
  SPEAKER_01: He got a mostly taxable conversion with an unwelcome surprised attack.
• 12:00
  SPEAKER_01: And he still owes tax on the pre-tax amount share, no matter how he slices it.
• 12:05
  SPEAKER_01: And you got to remember, ladies and gentlemen, when you retire, when we're doing these things, we have to treat the IRS as our business partner.
• 12:13
  SPEAKER_01: Whether it's fair or not, as my mom always said, fair is where you can get cotton candy and ride a cheap ride.
• 12:18
  SPEAKER_01: Number three on the bat, here's the actual fix right now, not later.
• 12:22
  SPEAKER_01: Roll that old pre-tax IRA money into your current employer's 401k.
• 12:28
  SPEAKER_01: If the plan accepts the incoming rollovers, most do, a 401k balance isn't counted in that pro rata math at all.
• 12:36
  SPEAKER_01: Only IRA money is.
• 12:38
  SPEAKER_01: Once that old money is out of the IRA world, your traditional IRA is effectively empty.
• 12:45
  SPEAKER_01: A fresh backdoor contribution converts cleanly with nothing left to mix it with.
• 12:50
  SPEAKER_01: No chaser, no crown royal, as you say, if you're chasing bush lights.
• 12:54
  SPEAKER_01: Good chaser.
• 12:55
  SPEAKER_01: I'm kidding there.
• 12:56
  SPEAKER_01: If we're using Mark as an example, instead of converting that$95,000 of old pre-tax money just still sitting in his IRA, he rolls that$95,000 into his current$401 first, and the whole$5,000 convert with no extra tax owed because there's nothing left in the pool to dilute it.
• 13:15
  SPEAKER_01: If you don't have a current$0.1k employer-based retirement account that accepts rollovers, say you're self-employed between jobs or already retired, this specific fix isn't available to you, and you'll want to sit down with your financial planner that specifically deals with tax planning before you convert anything because the pro rata math could still apply whether you like it or not.
• 13:39
  SPEAKER_01: You know, that is the one thing about the IRS that you do have to appreciate.
• 13:42
  SPEAKER_01: When they make a rule, they do stand by it.
• 13:45
  SPEAKER_01: And even when they change a rule, they'll stand by that too.
• 13:49
  SPEAKER_01: You know, and and they're firm on that.
• 13:51
  SPEAKER_01: Number four, it's not even just a backdoor Roth problem.
• 13:54
  SPEAKER_01: The same ProRADA rule applies to any Roth conversion.
• 13:57
  SPEAKER_01: That's a full stop there.
• 13:59
  SPEAKER_01: So old rollover money just quietly sitting in an IRA could potentially, again, surprise people who aren't trying anything that would be a backdoor Roth, but it would just be a surprise that, oh, this is taxed at a pro rata level.
• 14:14
  SPEAKER_01: Now here's the ugly.
• 14:15
  SPEAKER_01: Number one, the catch.
• 14:16
  SPEAKER_01: You have to know to do this before you convert, not after.
• 14:20
  SPEAKER_01: This is genuinely the ugly part.
• 14:21
  SPEAKER_01: The fix that I just gave you only works if you catch it in time, and most people don't.
• 14:27
  SPEAKER_01: They find out about pro rata rules even exist after they've already done converting, when that tax bill has already been generated and there's no undo button.
• 14:36
  SPEAKER_01: The IRS doesn't send you a courtesy.
• 14:38
  SPEAKER_01: Here's your pass, collect$200 before your 1099R shows up.
• 14:44
  SPEAKER_01: The move itself is hard once you know it.
• 14:46
  SPEAKER_01: And the problem is nobody warns you about the rule until you've already sitting there holding the bill.
• 14:51
  SPEAKER_01: But I think that's the way most things go.
• 14:54
  SPEAKER_01: We by the time we understand what we've done, we've got a bill in hand.
• 14:58
  SPEAKER_01: Number two, it applies to both terms that I've gave you up front, not just the backdoor.
• 15:03
  SPEAKER_01: Remember the distinction from the top of the episode when we talked about backdoor Roth money is new money.
• 15:10
  SPEAKER_01: Roth conversion is sitting there on existing money.
• 15:12
  SPEAKER_01: The pro rata rule doesn't care which one you're doing.
• 15:16
  SPEAKER_01: Same math, same either way.
• 15:18
  SPEAKER_01: The ugly reality is waiting until you're already retired, already taking RMDs, or already collecting Social Security to think about any of this means the cheap windows are closing.
• 15:30
  SPEAKER_01: Those working years or low income years right before those start have already closed.
• 15:35
  SPEAKER_01: And the IRS is very patient about collecting.
• 15:39
  SPEAKER_01: If they're patient about anything, they love to wait and collect those RMDs.
• 15:45
  SPEAKER_01: It is not patient about giving, and the IRS is not patient about giving you a do-over.
• 15:52
  SPEAKER_01: So let's just spend a few minutes talking about what to do about it.
• 15:57
  SPEAKER_01: Well, number one, if you're above that Roth income limit, so that's$168,000 single,$252,000 married, and this is what we call Magi, modified adjusted gross income.
• 16:10
  SPEAKER_01: In 2026, you're still working and you're looking at whether to do a backdoor Roth, even if it makes sense this year or future.
• 16:18
  SPEAKER_01: The tax-free growth compounds longer the earlier you start.
• 16:23
  SPEAKER_01: And this strategy only gets more valuable the more working years you have left ahead of you.
• 16:30
  SPEAKER_01: Remember, speed is important in this strategy.
• 16:33
  SPEAKER_01: Number two, before converting anything, check whether you have old pre-tax IRA money sitting around from a previous or prior 401k rollover.
• 16:42
  SPEAKER_01: If you do and your current employer plan accepts rollovers, get that money into a 401k first so your backdoor Roth converts cleanly instead of triggering pro-rata rules.
• 16:52
  SPEAKER_01: Number three, do the contribution and conversion close together.
• 16:57
  SPEAKER_01: The same week if you can manage it.
• 16:59
  SPEAKER_01: Don't let the money sit and grow in the traditional IRA first.
• 17:03
  SPEAKER_01: The reason being any amount that grows in that traditional IRA, interest, dividends, etc., when we do the conversions, that has a potential to be taxed.
• 17:15
  SPEAKER_01: Number four, if you're already retired and you're sitting on a large traditional IRA and most of your money is pre-taxed or qualified, ask about a multi-year Roth conversion, not just the backdoor.
• 17:27
  SPEAKER_01: Because converting a little at a time in your lowest income years rather than all at once can drastically lower your lifetime tax bill.
• 17:37
  SPEAKER_01: So here is your weekly wealth minute.
• 17:40
  SPEAKER_01: If you remember one thing from today's episode, I want you to make it this.
• 17:47
  SPEAKER_01: If your income is too high for a Roth based on the limits that we talked about in the episode today, this only closes one door, not both.
• 17:58
  SPEAKER_01: And maybe your direct route is closed because of your income level, but we can still do a backdoor Roth Roth, and that has no income limit at all for anyone.
• 18:10
  SPEAKER_01: The backdoor Roth is legal and it's available no matter what you earn.
• 18:15
  SPEAKER_01: And it's the biggest mistake people make that aren't doing it, or maybe they're doing it wrong and don't understand it.
• 18:22
  SPEAKER_01: I would say this this is your go check this this week.
• 18:26
  SPEAKER_01: If you have any money that has been sitting in a 401k or you're in this red zone retirement opportunity and you're coming up where you think your tax rate is going to get lower, you need to start having serious conversations with your financial planner, and you need to also ask them if they are versed in income distribution planning and retirement planning.
• 18:52
  SPEAKER_01: Because you need to be thinking about either a backdoor Roth andor Roth conversions, and that starts many years before you start taking required minimum distributions.
• 19:06
  SPEAKER_01: So go ahead and pick up that phone and make that call.
• 19:09
  SPEAKER_01: And that is your weekly wealth moment.
• 19:12
  SPEAKER_01: As they say, time flies when you're having fun.
• 19:15
  SPEAKER_01: And that's it for this episode.
• 19:17
  SPEAKER_01: For the exact 2026 income limits and a full walkthrough of the pro radar rule and more work examples, you can always check the show notes.
• 19:26
  SPEAKER_01: And if you've realized mid-episode that you think this is entirely confusing and you have no idea what to do, hey, you're in a great seat.
• 19:36
  SPEAKER_01: You've got a front row seat to the show.
• 19:39
  SPEAKER_01: But as I say, if that has at least sparked some questions in your mind, pick up the phone and call your financial planner.
• 19:47
  SPEAKER_01: Call your CPA.
• 19:49
  SPEAKER_01: And as I always say, if you don't have one, you're always welcome to call me anytime, and I'll be glad to help.
• 19:56
  SPEAKER_01: But before you convert anything, make sure you're having calls with the right people.
• 20:01
  SPEAKER_01: That's it for this week.
• 20:03
  SPEAKER_01: As always, I'm your host, Justin Chastain.
• 20:06
  SPEAKER_01: Live well and build well.
• 20:07
  SPEAKER_01: See you next week.
• 20:09
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• 20:19
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• 20:26
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• 20:58
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