A raise can open new doors.
It can also quietly close one.
A couple I spoke with is approaching the income limit for direct Roth IRA contributions. They are still eligible today, but another bonus, promotion, or job change could remove that option sooner than expected.
That sounds like a future problem.
It may actually be acurrent planning decision.
When income becomes too high for a direct Roth contribution, some investors evaluate a Backdoor Roth IRA. The basic concept may appear straightforward, but the tax result can be affected by retirement accounts that already exist.
That is where planning ahead matters.
Pretax balances in traditional, rollover, SEP, or SIMPLE IRAs can complicate a future conversion under the pro-rata rule.
A routine decision today - such as moving an old 401(k) into a rollover IRA—may create consequences years later.
For this couple, the discussion was less about completing a Backdoor Roth immediately and more about preserving the option.
We reviewed:
• How close household income is to the direct Roth limits.
• Where previous employer accounts are held.
• Whether pretax IRA balances already exist.
• How a future conversion may be taxed.
• Whether an employer plan could accept eligible rollover assets.
Their growing income was good news.
The challenge was making sure today’s account decisions did not unintentionally limit tomorrow’s flexibility.
For high earners, retirement planning often becomes more complicated as compensation rises.
The best time to prepare for a Backdoor Roth may be before you actually need one.
Together, we can work to keep you on-track toward your financial goals.
Request a consultation to learn more.
Read more articles by Ryan Johnson