What makes Roth special. With a traditional account you get a tax break now and pay later; with a Roth you skip the break now and pay nothing later. Beyond tax-free growth, a Roth IRA has two standout features: no lifetime RMDs (traditional accounts force taxable withdrawals starting at 73 — Roth IRAs never do), and tax-free inheritance (heirs pay no income tax on Roth dollars, though they must generally empty the account within 10 years — Chapter 28). Those features make Roth a uniquely flexible bucket in retirement and a powerful estate-planning tool.
When Roth wins. The core question is your tax rate now vs. later. Roth is favored when you're in a low bracket today (early career, a gap year, a low-income stretch) and expect higher rates later, when you want a tax-free source to draw from in retirement to manage brackets and IRMAA (Chapter 12), or when leaving a tax-free legacy matters. Traditional tends to win in your peak-earning, high-bracket years. Most people benefit from holding both — "tax diversification" — so they can choose which bucket to tap each year in retirement.
The two flavors. A Roth IRA you open yourself (subject to income limits below). A Roth 401(k) is the Roth option inside your workplace plan — no income limit, much higher contribution room, and (as of 2024) no RMDs. High earners locked out of a Roth IRA can still use a Roth 401(k) directly.
The Roth IRA income limits. You can contribute the full $7,500 to a Roth IRA only if your income is below the phase-out, which for 2026 runs $153,000–$168,000 (single) and $242,000–$252,000 (married filing jointly). In the phase-out range you can contribute a reduced amount; above it, zero — directly. That's where the backdoor comes in.
The backdoor Roth. For high earners over the income limit, the backdoor is a legal two-step: (1) contribute up to $7,500 to a non-deductible traditional IRA (allowed at any income), then (2) convert that traditional IRA to a Roth IRA. Because the contribution was already after-tax, the conversion is (ideally) tax-free, and you've funded a Roth despite exceeding the income limit.
The pro-rata trap. The catch that snares people: the IRS treats all your traditional IRA money as one pool when you convert. If you hold other pre-tax IRA balances (say, a large rollover IRA from an old 401(k)), your conversion is taxed pro-rata across pre-tax and after-tax dollars — you can't cherry-pick only the new after-tax contribution. Example: with $93,000 of pre-tax IRA money and a fresh $7,000 non-deductible contribution, 93% of any conversion is taxable. The fix is usually to roll pre-tax IRA balances into a 401(k) first (401(k)s aren't counted in the pro-rata math), leaving only after-tax money in the IRA to convert cleanly.
The pro-rata trap, in numbers
Raj earns too much to fund a Roth directly, so he tries the backdoor: a $7,000 non-deductible traditional-IRA contribution, then a conversion. But he also holds a $93,000 pre-tax rollover IRA from an old 401(k). The IRS totals all his IRAs — $100,000 — and taxes any conversion in proportion.
So his "tax-free" backdoor is 93% taxable: he owes ordinary income tax on $6,510, and only $490 converts free. The leftover basis stays trapped in the IRA, pro-rating every future conversion too.
The fix: first roll the $93,000 pre-tax IRA into his 401(k) — 401(k) balances don't count in the pro-rata formula. That leaves only the $7,000 of after-tax money in the IRA, which then converts 100% tax-free. Same contribution, a $780+ tax bill avoided (12–22% of $6,510) and no trapped basis.
The mega backdoor Roth. If your employer plan allows after-tax contributions (distinct from Roth deferrals) and in-plan Roth conversions or withdrawals, you can contribute well beyond the $24,500 deferral — up to the $72,000 combined limit — and convert the after-tax portion to Roth. For high earners with cash to spare and the right plan, this shovels large sums into tax-free growth each year. Not all plans support it; check yours.
The 5-year rules (don't trip on them). Two separate clocks: (1) your Roth IRA earnings are tax-free only after the account has been open five years and you're 59½; (2) each conversion has its own five-year clock before you can withdraw the converted principal penalty-free if you're under 59½. Contributions (not earnings) can always come out tax- and penalty-free. Keep records of contributions vs. conversions.
One 2026 workplace note. Under SECURE 2.0, starting 2026, employees earning over $150,000 (prior-year wages) must make 401(k) catch-up contributions as Roth. Not a conversion, but part of the broad shift toward Roth — and a reason high earners should confirm their plan offers a Roth option.