A Roth IRA is a wonderful thing.
Even though it does not give you a tax break when you make a contribution, you never have to pay a dollar of taxes on it ever gain.
The money inside the account grows and compounds with no taxes. There are no taxes when you withdraw dollars in retirement either… and as a bonus, you can pull out your contributions at literally any time with no penalties.
In fact, a Roth IRA is such a good deal for you (and such a bad deal for the IRS) that the government has tried to limit who even has access to one.
As of 2025, if you earn over $150,000 single or $236,000 married, you cannot directly contribute to a Roth IRA.
Because of this income limit, and the fact that Roth IRA’s are typically limited to $7,000 a year in new contributions, almost every high earner I know has stopped using these accounts.
However, these limitations are completely artificial if you know what you are doing.
Due to several loopholes and workarounds in the US tax code, every single high earner can still find roundabout ways to contribute tens of thousands of dollars every single year to a Roth IRA.
Read this guide, and you will learn:
Why every high income earner should use Roth IRA’s as part of their wealth building strategy
Why the $7K per year limit is a completely artificial constraint if you know what you are doing
Four powerful methods to contribute to a Roth IRA if you make too much to make a direct contribution (with step-by-step guides)
How you can set up your family members with Roth IRA’s to reduce household tax rates and compound family wealth
How I personally invest my Roth IRA
Let’s dive in.
Table of Contents
To Roth or Not to Roth
One of the most common questions I get: “Should I make pre-tax or Roth contributions to my retirement accounts?”
The conventional narrative pedaled by most financial gurus is to opt for pre-tax contributions when you are in a higher tax bracket, and Roth contributions when you are in a lower tax bracket.
While this is perfectly fine as a general maxim, I believe most people should diversify into both buckets… and Roth contributions should be a meaningful part of most peoples playbook.
Here are four reasons why having a Roth allocation is useful:
We don’t know how high tax rates will be in the future
A Roth IRA is a form of insurance against tax rate policy. When you look at the history of top marginal tax rates in America, we’re at a relatively low point with a top marginal rate of 37% (as opposed to 90%+ historically).
I cannot predict where we will be in the future, but having a healthy amount of dollars in a Roth IRA protects you from this uncertainty.
You can access your contributions at any time
The downside of retirement accounts is that you typically lock up your money until you retire.
But with a Roth IRA, you can access your original contributions at any time with no penalties at all. If you convert dollars into a Roth IRA, there’s a 5-year vesting rule, but you still don’t need to wait for retirement.
No required minimum distributions (RMD’s)
If you have a pre-tax retirement account, you have to mandatorily take distributions after you turn 72 years old. No such restriction applies to Roth IRA’s and it’s entirely up to you when you want to take money out of the account.
A Roth IRA is a fantastic playground for investments with asymmetric upside
You’ve likely heard about how Peter Thiel and Mitt Romney were able to grow their Roth IRA to billions of dollars on which they will owe 0 taxes.
Since there are no taxes inside a Roth account, it can be a powerful place to put investments that have asymmetric upside — if any of them “hit”, you could build a massive tax-free retirement nest egg.
Personally, I also hope to still be in a higher tax bracket even when I retire so there’s less of an arbitrage play for me.
I share more in the last section on how I invest dollars in my Roth IRA — but my strategy is to diversify into both pre-tax contributions and Roth contributions despite being in the top marginal tax bracket today.
How High Earners Can Still Leverage a Roth IRA
You make too much money to directly contribute to a Roth IRA… now what?
Fortunately for you, despite the best efforts of the IRS to limit who has access to a Roth IRA, there are four powerful and entirely legal ways anyone can still leverage these accounts, no matter how much they make.
Three of these strategies also let you contribute substantially more than the $7K per year annual Roth IRA limit.
And you can mix and match these strategies every single year until you hit the dollar amounts you need.
Roth 401k
One of the many parts of the US tax code that make very little sense to a neutral observer — high earners cannot directly contribute to a Roth IRA, but no such restriction applies to a Roth 401k.
Bizarre, right?
The upshot is if your 401k plan at work allows for Roth contributions, you could contribute the entire $23,500 in Roth every single year. If you are over the age of 50, this jumps to $31,000 in annual Roth contributions.
The trick is you have to have one of these plans:
If you are a full-time W2 employee somewhere, the 401k plan at your work needs to support Roth contributions
If you are self-employed, make sure you pick a Solo 401k provider that allows you to make Roth contributions like Carry.
If you have access to either of these, you can max out your Roth 401k every single year, and when you change jobs, you can fully roll the Roth 401k balance into your Roth IRA without counting against your contribution limit.
You have to wait 5 years before you can withdraw the contributions, but this is an easy and effective way to keep funding a Roth IRA even after you have been phased out.
Roth Conversions
Most people think tax planning is something you do when you make a lot of money and have a very successful financial year.
The reality is… good tax planning serves an important purpose almost all the time. In fact, when you have a low earning year, there’s a lot of valuable things that can be done to reduce your lifetime tax rate.
One of the most important strategies is a “Roth Conversion” — this is the voluntary conversion of pre-tax retirement dollars to Roth retirement dollars.
You can electively choose to convert any amount in a given year. The amount converted is taxed as income, but if you are expecting very little other income in the year, it can either be entirely tax-free or taxed at a very low tax rate.
Imagine you have a year where you take a sabbatical from work and go to the business school — or are unfortunately laid off and not working for a large part of the year. Those years are a great time to effect a Roth conversion and convert pre-tax retirement funds to your Roth IRA.
You could also choose to do small amounts every single year and play around with your tax brackets to make this conversion as efficient as possible.
This is a great way of optimizing your lifetime tax rate by voluntarily choosing to pay more in taxes today, to save substantially more later on.
The “Backdoor” Roth IRA
Most people have heard of a Backdoor Roth IRA, but almost no one knows how to do this correctly and not mess it up.
If you cannot directly contribute to a Roth IRA, there’s still a simple three step process to make a backdoor Roth IRA contribution that accomplishes the exact same goal.
Ensure you have no pre-tax IRA dollars in any account
Most people mess this step up, and it’s the foundation before you can do a backdoor Roth IRA. To make this transaction entirely free of taxes and not subject to the pro-rata rule, you want to ensure you have no other pre-tax IRA dollars — this includes a SEP IRA, a rollover IRA, old traditional IRA’s.
The easiest way to accomplish this is to transfer all pre-tax IRA dollars into your 401k plan at work or a Solo 401k, which should be an easy and tax-free process.
Make a non-deductible contribution to a Traditional IRA
After doing this, you can contribute the maximum $7,000 amount to a Traditional IRA. When you file your taxes, remember to elect that this was a “non-deductible contribution”, which means you’re not trying to take a tax deduction for it.
This is accomplished by filing Form 8606 but in practical terms, you can either directly tell your CPA or enter it in on Turbotax or whatever filing software you use.
Convert the Traditional IRA to a Roth IRA
Congratulations, you’ve already done the hard work before getting to this point so this is the quickest and easiest step.
Tell your custodian to convert your Traditional IRA to a Roth IRA, and you should be all set. They will issue you a form 1099-R at the end of the year that you report with your taxes, and you are good to go.
The tricky part about a Backdoor Roth IRA is the first step of ensuring you have no other dollars in a pre-tax IRA, but it’s fairly straightforward afterwards.
My personal setup is:
All pre-tax dollars in my Solo 401k so I can effect a backdoor Roth IRA every year
All post-tax dollars in my Roth IRA for maximum flexibility
You are going to want to ensure that you not just have no dollars in a pre-tax IRA when you contribute and convert, but that it also stays that way until December 31 in the tax year of the conversion.
The “Mega Backdoor” Roth IRA
While the first three strategies are great, the Mega Backdoor Roth IRA more effective than all of the others combined.
The Mega Backdoor Roth IRA allows you to contribute up to $70,000 every single year into a Roth IRA.
No matter how much you make you can use this to fund your Roth IRA with tens of thousands of dollars as long as you have either one of these:
A 401k plan at your work that supports MBDR
Some large employers have 401k plans that support the mega backdoor Roth by allowing optional after-tax contributions that can be then converted to a Roth IRA.
Side hustle or self-employment income at a business with no employees
If you have any kind of side hustle or self-employment income, you can set up a Solo 401k plan that supports this feature.
If you have either of these, congratulations! You’re in luck and have access to one of the craziest loopholes in the US tax code.
Here’s a step-by-step guide on how to set up a Mega Backdoor Roth IRA:
Make an optional after-tax contribution to your 401k plan
You can do this with the entire $70,000 amount if you’d like — or just the amount leftover after maxing out your employee contribution and getting the employer match.
Convert the contribution to a Roth IRA
Since the dollars you have contributed are post-tax, there are no taxes due when you convert the entire amount to a Roth IRA.
Make this conversion before the money in the optional after-tax account has grown, since any gains prior to conversion will be taxable. Some custodians like Carry do this for you automatically.
Your 401k plan provider or custodian should issue you a 1099-R form that you include when you file your taxes, and you should be all set!
This is a particularly effective strategy for people who have a full-time W-2 job and some self-employment income on the side.
Even if your employer doesn’t support this, you could set up a Solo 401k with your self-employment income and contribute almost the entirety of what you make in a side hustle (minus one half employment taxes) to a Roth IRA.
There is a chance this loophole will be shutdown by the IRS in the future, but all the more reason to take advantage of this while it’s still open!
Roth IRA for Your Family
We’ve established all the ways high earners can still contribute large amounts of dollars to a Roth IRA no matter how much they make.
But making Roth IRA contributions for yourself is just one part of the entire picture.
With some smart tax planning, your entire household should be taking advantage of this tax-free wealth building tool.
Your Spouse
Typically, you need to have earned income to contribute to a Roth IRA — but there’s an important carve out in the tax code for non-working spouses.
A working spouse is allowed to contribute for a non-working spouse to double the family’s direct contributions to a Roth IRA by using a spousal Roth IRA.
This allows you to collectively contribute $14K / year vs $7K / year.
However, that pales in comparison to the most powerful way to use your spouse to increase your household contribution to a Roth IRA.
If you run your own profitable business without any other full-time employees, you can hire your spouse as your business partner and double your mega backdoor Roth IRA limits.
This would allow each of you to contribute up to $70,000 each to a Roth IRA, or $140,000 between the both of you. If you are both over the age of 50, this jumps to over $150,000.
You would need to have enough income where you can afford to defer that much money, but being able to contribute a healthy 6-figure amount to your Roth IRA every year starts compounding very, very fast.
Your Children
In addition to a spousal Roth IRA, you can set up a custodial Roth IRA for the benefit of each of your children.
Your kids need to have “earned income” to contribute… but as a business owner, you are allowed to hire them for your business and contribute their earnings to a Roth IRA for their benefit.
The advantages here are massive:
You reduce your tax rate
By shifting some income to them, you reduce your household tax rate. If they earn under the standard deduction, they pay nothing in taxes.
Their Roth IRA starts compounding super young
The difference between maxing out a Roth IRA at age 13 and age 21 is many millions of dollars. This gives them such a big head start on life — and if they need liquidity later in life, they can pull out contributions.
An incredible learning tool for personal finance and money
Most of us don’t grow up with a great education on personal finance and money. But by hiring your children, and investing on their behalf, you start teaching them very young.
Something that bears repeating every time I share this strategy:
Please ensure you only hire your children for legitimate work and compensate them accordingly. Document the work performed in case it ever comes up in an audit later on.
There’s a lot of bad tax advice around hiring your toddlers for “modeling” but I’d steer as far away as possible from what can only be considered tax fraud.
There is also a relatively new provision in the tax code that allows you to use leftover 529 funds to fund a Roth IRA for the same beneficiary, which could be worth looking into eventually. The account needs to be open for 15 years before you can make that contribution.
Investing Your Roth IRA
Getting a meaningful quantity of dollars into your Roth IRA is where it all begins. But the real magic comes from being able to grow and compound those dollars without paying any taxes.
If you read my article on how I invest my money, you will recall that I do not believe there is a ton of alpha to be found in investing.
I am applying a barbell strategy to investing my Roth IRA, where I am keeping the majority of my dollars in indexing the market, while taking a few highly asymmetric bets.
This is what’s in my Roth IRA:
Indexing the stock market
The average annual return for investing in the S&P 500 over the last 100 years is ~10% annually, including reinvesting dividends.
The majority of my dollars are in a single S&P 500 index fund, setting it to automatically reinvest dividends and letting it ride.
Highly asymmetric bets in alternative opportunities
With a small amount of dollars in my Roth IRA, I’m punting on highly asymmetric opportunities investing in tiny startups in the off chance one of those could end up hitting big leading to a big windfall in a tax-advantaged account.
I’m not counting on any of these to necessarily be successful, but in the off chance that any of them do hit, it will dramatically increase the dollars inside my Roth IRA with many years of compounding growth ahead.
Meanwhile, here are some things I’ve seen other people do that I’m avoiding in my Roth IRA:
Investing in my own startup
Most people have read about how Peter Thiel bought founder shares in Paypal from his Roth IRA and used this to build billions of dollars in tax-free wealth.
However, the IRS has very clear rules preventing “self-dealing” transactions, and while Thiel’s purchase may have been OK as a minority founder in Paypal, it’s a level of risk I’m not comfortable taking.
Investing in anything other than passive investments
While a Roth IRA usually has no taxes, you can sometimes be subject to “Unrelated Business Income Tax” (UBIT) if you invest in a non-passive investments or leverage debt to generate income.
It’s never worth the additional hassle for me.
Investing in real estate
As a general rule of thumb, I don’t like to double up tax benefits.
Real estate is already a very tax-advantaged asset class and by placing it inside a Roth IRA, you lose some of the benefits since a Roth IRA already has no taxes.
Plus, if you end up using any of the real estate in your Roth IRA for personal use (even accidentally), you could potentially blow up your entire account.
One final note: the most important thing here is to remember to actually invest the dollars inside your Roth IRA.
I’ve heard horror stories about people who have been diligently contributing to a Roth IRA for many years but never actually made a single investment 🫠
Did you find this article useful?
Forward it to friends of yours that are high earners who are not using Roth IRA’s to their full potential.
This is the first breakdown I’ve written that’s a deep dive on a personal finance topic, I’d love to know if y’all enjoy content like this.
