For high earners, one of the biggest frustrations in retirement planning is hitting the Roth IRA income limits. You make good money, but suddenly the IRS tells you: Sorry, you earn too much to contribute directly to one of the best retirement accounts available.

That’s where strategy comes in. At Compound Advisory, we help clients use smart, legal approaches like the backdoor Roth IRA and Roth conversions to unlock the full power of tax-free growth. Done correctly, these moves can add hundreds of thousands of dollars of tax-free income to your retirement plan.

Why Roth Accounts Are So Powerful

• Tax-free growth. Once money is inside a Roth, all dividends, gains, and growth accumulate without future tax drag.

• Tax-free withdrawals. Qualified withdrawals in retirement come out completely tax-free.

• Estate planning benefits. No required minimum distributions (RMDs) for the original account owner, and tax-free distributions for heirs (even under the 10-year rule).

If you’re in your peak earning years, these benefits become even more valuable. Think about it: pay taxes once, at today’s known rates, and never again.

The Backdoor Roth IRA: A Smart Workaround

High earners can’t contribute directly to a Roth IRA, but the “backdoor” strategy creates a legal path in:

1. Contribute to a Traditional IRA – Anyone can put in $7,000 annually ($8,000 if you’re 50+). This contribution is non-deductible if you’re above income limits.

2. Convert to a Roth IRA – Move those dollars into a Roth IRA, usually right away. Because you already paid taxes on the contribution, there’s typically no additional tax owed.

Important: The “pro-rata rule” applies if you have other pre-tax IRA balances. This can create an unexpected tax bill. A common fix? Roll those IRA assets into a 401(k) to “clean the slate” before doing the backdoor Roth.

👉 Pro Tip: Some 401(k) plans also allow “mega backdoor Roth” contributions—up to $70,000 in 2025 when combined with catch-up contributions.

Roth Conversions: Bigger Moves with Bigger Impact

While the backdoor Roth focuses on annual contributions, Roth conversions let you move much larger sums from:

• Traditional IRAs

• Traditional 401(k)s

• 403(b)s or TSPs

You’ll pay ordinary income tax on the amount converted, but from then on, the growth is tax-free.

The real advantage is timing: you choose when to pay the tax bill. This makes conversions especially powerful:

• During early retirement, before RMDs kick in at 73

• In years with temporarily lower income

• During market downturns (converting more shares at lower values)

Rules You Can’t Ignore

• The 5-Year Rule – Each conversion has its own 5-year clock before you can withdraw converted amounts without penalty.

• No do-overs – Since 2018, Roth conversions are permanent. No “recharacterizations.”

• Legislative risk – Congress has eyed backdoor strategies before. This makes timing important.

Tax and Cash Flow Considerations

• Bracket management – Converting too much can push you into higher tax brackets or trigger Medicare IRMAA surcharges.

• State taxes – Conversions may make more or less sense depending on where you live now versus where you’ll retire.

• Paying taxes – Always use non-retirement funds to cover the tax bill. Otherwise, you lose much of the benefit.

The Long-Term Payoff

Here’s a simple illustration:

• Contribute $7,000 via backdoor Roth each year for 20 years.

• With a 7% return, your $140,000 in contributions could grow to over $300,000—completely tax-free.

Scale that up with larger conversions, and the compounding effect becomes even more dramatic. This is why Roth strategies are core to our planning process at Compound Advisory.

Special Situations

• Business owners & self-employed – SEP-IRAs and Solo 401(k)s add complexity. Often, rolling assets into a 401(k) helps clean things up before doing a backdoor.

• Federal employees – TSP accounts can accept rollovers from traditional IRAs but don’t allow direct backdoor Roth contributions. Strategy matters here.

Bottom Line

Backdoor Roth IRAs and Roth conversions aren’t just tax tricks. They’re powerful planning tools that, when used strategically, can reshape your retirement income picture and give your family decades of tax-free growth.

At Compound Advisory, this is exactly the kind of forward-looking, tax-optimized planning we specialize in. Whether you’re still building wealth or already thinking about how to spend it in retirement, we’ll help you make the right moves—at the right time—to keep more of what you’ve earned.

👉 Ready to explore how Roth strategies could fit into your retirement plan? Schedule your Free Retirement Assessment today.

This post is for educational purposes only and should not be considered personalized financial advice. Consult with a qualified financial advisor or tax professional before implementing Roth strategies.