Roth vs. Traditional IRA: In-Depth Comparison

Roth IRA vs. Traditional IRA: Which Is Better for High Earners?

Deciding between a Roth and Traditional 401(k) or IRA is a difficult and confusing process for high earners.

Both accounts offer tax advantages, but the “better” option depends on your income, tax bracket, career stage, and long-term goals.

In this guide, we’ll compare Roth IRAs vs. Traditional IRAs and explain which option may make more sense if you’re a high-income professional.

Roth IRA vs. Traditional IRA: The Key Difference

The main difference comes down to when you pay taxes.

• Traditional IRA: You may get a tax deduction today, but withdrawals in retirement are taxed.

• Roth IRA: You pay taxes today, but qualified withdrawals in retirement are tax-free.

The right choice depends on your tax situation both now and in the future.

How Traditional IRAs Work

How contributions are taxed

Traditional IRA contributions may be tax-deductible, depending on:

• Your income

• Your filing status

• Whether you’re covered by a workplace retirement plan

For many high earners, deductions are limited or phased out entirely.

How withdrawals are taxed

• Withdrawals in retirement are taxed as ordinary income

• Required Minimum Distributions (RMDs) begin at age 73 (under current law in 2026)

How Roth IRAs Work

How contributions are taxed

• Contributions are made with after-tax dollars

• No upfront tax deduction

How withdrawals are taxed

• Qualified withdrawals are completely tax-free

• No RMDs during your lifetime

This makes Roth IRAs especially attractive for:

• High earners expecting higher future tax rates

• Investors seeking tax diversification

• Those planning to leave assets to heirs

Contribution Limits and Income Restrictions

IRA contribution limits

• Annual limit: $7,000

• Age 50+: Additional $1,000 catch-up

Income limits (important for high earners)

• Roth IRA contributions phase out at higher income levels

  • This can be avoided using a Backdoor Roth IRA

• Traditional IRA deductions are limited if you have an employer plan

Side-by-Side Comparison

Which Is Better for High Earners?

When a Roth IRA May Be Better

A Roth IRA often makes sense if you:

• Expect higher tax rates in the future

• Want tax-free income in retirement

• Are early or mid-career with income growth ahead

• Want flexibility and no RMDs

Even if you can’t contribute directly, strategies like the Backdoor Roth IRA may still apply.

When a Traditional IRA May Be Better

A Traditional IRA may make sense if you:

• Are in a peak earning year

• Expect lower income in retirement

• Can fully deduct contributions

• Need immediate tax relief

However, many high earners cannot deduct Traditional IRA contributions, limiting the benefit.

What About Backdoor Roth IRAs for High Earners?

Because of income limits, many high earners use a Backdoor Roth IRA strategy:

• Make a non-deductible Traditional IRA contribution

• Convert it to a Roth IRA

When structured properly, this allows continued access to Roth benefits, but tax rules (like the pro-rata rule) must be managed carefully.

🔗 Related: Backdoor Roth IRA Explained

Common Mistakes High Earners Make

• Assuming Roth IRAs are “off limits” forever

• Ignoring the pro-rata rule

• Failing to file Form 8606

• Over-focusing on tax deductions instead of long-term flexibility

• Not coordinating IRA decisions with employer plans

Final Thoughts

For high earners, the Roth vs. Traditional IRA decision is rarely black-and-white. The best choice depends on tax planning across your entire financial picture — not just this year’s return.

At Virgil Wealth, we help clients evaluate IRA strategies alongside investments, tax planning, and retirement goals to make informed decisions with confidence.

Want personalized advice? Schedule a free 15 minute consultation below!

Backdoor Roth IRAs: A Guide for High Earners

If your income is too high to contribute directly to a Roth IRA, but you want to save additional after-tax income in a tax-advantaged way, there is a solution: Backdoor Roth IRAs can allow high earners to continue building tax-free retirement savings when done correctly.

In this guide, we’ll explain how Backdoor Roth IRAs work, who they’re best for, and common mistakes to avoid.

What Is a Backdoor Roth IRA?

A Backdoor Roth IRA is a two-step strategy, not a separate account:

1. Contribute to a Traditional IRA (non-deductible)

2. Convert that contribution to a Roth IRA

Because the original contribution was made with after-tax dollars, the conversion itself is often tax-free if structured properly.

Who Is a Good Candidate for a Backdoor Roth IRA?

Backdoor Roth IRAs are typically best for individuals who:

• Earn too much to contribute directly to a Roth IRA ($150k if single filer; $236k if married filing jointly)

• Have little or no pre-tax money in Traditional IRAs

• Want tax-free growth and flexibility in retirement

• Have already maximized their 401(k) or employer plan

This strategy is especially popular with:

• Physicians

• Corporate executives

• Business owners

• Dual-income households

2025 Contribution Limits

• IRA contribution limit: $7,000

• Age 50+: Additional $1,000 catch-up

• Income limits apply only to direct Roth contributions, not conversions

The Pro-Rata Rule (The #1 Mistake to Avoid)

The pro-rata rule determines how much of your conversion is taxable.

If you have any pre-tax money in:

• Traditional IRAs

• SEP IRAs

• SIMPLE IRAs

The IRS requires your conversion to be treated as a proportionate mix of pre-tax and after-tax dollars.

Example:

• You contribute $7,000 after-tax

• You already have $93,000 in pre-tax IRAs

Only 7% of your conversion is tax-free, and unfortunately, the rest is taxable.

How to Avoid the Pro-Rata Trap

Strategies may include:

• Rolling pre-tax IRA assets into an employer 401(k) (if allowed)

• Delaying the strategy until IRA balances are cleared

• Using alternative tax-efficient investment vehicles

Every situation is different, but Virgil Wealth can help you navigate your particular situation.

Step-by-Step: How a Backdoor Roth IRA Works

1. Open a Traditional IRA

2. Make a non-deductible contribution

3. Convert the funds to a Roth IRA

4. Invest the money inside the Roth IRA

5. File IRS Form 8606 to track after-tax contributions

Tax Reporting: What You Need to File

Each year you do a Backdoor Roth IRA, you must file:

• Form 8606, which reports non-deductible contributions and conversions

Poor reporting can result in double taxation or IRS notices.

Is a Backdoor Roth IRA Worth It?

Pros:

• Tax-free growth

• No required minimum distributions (RMDs)

• Greater flexibility in retirement

• Valuable estate planning tool

Cons:

• Complex tax rules

• Not ideal for those with large pre-tax IRAs

• Requires careful coordination with your tax return

There are pros and cons, but when done correctly, backdoor Roth IRAs can supercharge your savings.

Final Thoughts

A Backdoor Roth IRA can be a powerful tool for high earners — but mistakes can erase the benefits quickly. Understanding the rules, timing, and tax implications is critical.

At Virgil Wealth, we help clients integrate Roth strategies into a comprehensive financial plan, ensuring every decision aligns with their long-term goals.