Hi,
Based on our prior interactions, you are likely earning too much to contribute to a Roth – or are you?
Most people are quietly losing six figures in retirement by skipping the Roth, usually because they assume they earn too much to use one. The truth is the opposite: the income limit applies to contributing, not to converting, and anyone at any income can get money into a Roth IRA.
You don’t need a special account, an employer plan, or permission from anyone. If any of these describe you, there’s a good chance you should be using one:
- You have a 401(k) and assume that means you’re covered
- You were told years ago you make too much for a Roth and never revisited it
- You have a rollover IRA sitting from an old job
- You’re self-employed or own the business, so nobody is doing this planning for you
- You’re already maxing your 401(k) and don’t know where the next dollar goes
Here’s what makes a Roth different. Your 401(k) money went in untaxed, which feels good now, but every dollar you eventually withdraw is ordinary income, including thirty years of growth. You didn’t avoid that tax. You deferred it, at whatever rate exists when you retire. A Roth is the opposite: you pay tax on the seed, never on the harvest.
Here’s how the savings work:
- $7,500 a year for 30 years at 7 percent is roughly $708,000 – about $225,000 of your own money and $483,000 of growth the IRS never touches. Run that same balance through a 401(k) and you’d owe roughly $170,000 in a 24 percent bracket
- A married couple can each run their own, so the same math runs twice
- Roth IRAs have no required minimum distributions during your lifetime. Your 401(k) forces money out at 73 whether you need it or not
- Withdrawals don’t count as income, so they don’t inflate your Medicare premiums or drag your Social Security into taxation
- It passes to your heirs income-tax-free
To be straight with you: a Roth is not automatically better than a 401(k). If you expect a lower bracket in retirement, the traditional deduction often wins. Always take your full employer match first, because that’s free money and nothing beats that. But these are separate limits, not a choice between two things – most of our clients should be funding both.
Which door you use depends on what you earn. Under $153,000 single or $242,000 joint in 2026, you contribute directly. Above $168,000 and $252,000, a direct contribution isn’t reduced, it’s prohibited – so you use a backdoor Roth instead: a non-deductible contribution to a traditional IRA, then a conversion. Two ordinary transactions, no income cap on the second one. And if your employer’s plan allows after-tax contributions with in-plan conversions, the mega backdoor moves up to $47,500 a year under the 2026 limits.
The catch is that this is where it quietly goes wrong, and nobody tells you until the bill arrives:
- The pro-rata rule. The IRS aggregates every traditional, SEP, and SIMPLE IRA you own on December 31. Someone with $93,000 in an old rollover IRA who converts $7,500 pays tax on about 93 percent of it
- The fix has a deadline. Move that pre-tax balance into a 401(k) before year-end and it leaves the calculation entirely. After December 31 it’s too late for 2026
- Form 8606 has to be filed. If nobody files it, the IRS has no record you already paid tax on those dollars, and you pay tax on the same money twice. We find this on incoming client returns constantly
- Conversions are permanent. Recharacterization was repealed in 2018, so there’s no undoing a bad one
- Skipped years don’t carry forward. Miss 2026 and that $7,500 of tax-free space is gone for good
That’s really the point: the Roth is one move among several that only works if somebody is watching the whole picture, and you can’t plan for what nobody’s tracking. That’s why we put everything under one roof:
- Personal and business tax returns handled by the same team
- Form 8606 filed and basis tracked year over year, so your contributions are never taxed twice
- Pro-rata exposure checked before you convert, not discovered in April
- Solo 401(k) and plan design for owners, so the mega backdoor is actually available to you
- Quarterly tax estimates so you know what you owe before April
- A full review of every credit and deduction you qualify for, by the same team that files your return
Reply to this email by Wednesday and we’ll set up a free 15 minute call with our senior tax advisor to go over your situation. Bring your most recent 1040 and your latest IRA statement, and we’ll tell you which door applies to you and what has to happen before December 31.
Sincerely,
—
George Dimov, CPA
Licensed and Insured
(833) 829-1120 toll free
(212) 994-8081 Fax