IRA-Only High Earner: Missing Opportunities

If you're only using a traditional or Roth IRA, you're likely leaving substantial deduction opportunities unused. This guide explains the bigger picture of retirement savings.

Traditional IRA deduction is likely gone. If you or your spouse is covered by a workplace retirement plan, the deduction for traditional IRA contributions phases out well below $200,000. Even without workplace plan coverage, the contribution limit of $7,000 ($8,000 if age 50 or older) is modest compared to what other plans allow.

Roth contributions are phased out too. Direct Roth IRA contributions phase out for married filers between $236,000 and $246,000 (2025). Above that range, you cannot contribute directly. This is where the backdoor strategy becomes necessary.

Backdoor Roth is the play. Contribute to a non-deductible traditional IRA, then convert it to a Roth IRA. There is no income limit on conversions. The key requirement is that you do not have existing pre-tax IRA balances, or else the pro-rata rule will make part of each conversion taxable. Rolling pre-tax IRA money into an employer 401(k) before converting solves this.

The pitfall: Relying on an IRA as your only retirement vehicle at high income means you are sheltering at most $7,000-$8,000 per year in a tax-advantaged account. If you are self-employed, a SEP-IRA or solo 401(k) could shelter ten times that amount with similar effort.