3 Little-Known Roth Strategies to Maximize Retirement Savings

Key Takeaways   

• Roth conversions during low-income years minimize taxes while moving pre-tax retirement funds into tax-free Roth accounts.  

• Backdoor Roth IRAs let high earners bypass income limits by contributing after-tax dollars to traditional IRAs, then converting.  

• Mega Backdoor Roth 401(k)s allow additional after-tax contributions up to $70,000 annually if your employer plan permits.  

Many of you have done a good job of saving for retirement through traditional IRAs, 401(k)s, and Roth IRAs, but you might not be taking full advantage of these savings vehicles. Here are three strategies that many people overlook that can substantially boost their retirement contributions.  

1. Roth Conversions in Low-Income Years  

You’re likely familiar with a Roth conversion, which involves moving money from a pre-tax retirement account, such as an IRA or a 401(k), into a Roth IRA. You must pay income tax on the amount converted in the year of the conversion, but then all qualified withdrawals from the Roth IRA in retirement will be tax-free. A Roth conversion can be a very useful strategy when you have low-income years due to job loss or illness. It can also be a smart strategy if you have decided to retire before you start taking Social Security (at age 67 through 70), and you have after-tax accounts you can draw on for your living expenses until Social Security, pensions, and traditional IRAs kick in.   

Essentially, we can raise cash for clients by selling those growth positions in an after-tax account and keeping their taxes low. Our main goal for Novi clients is to try to keep their tax rates consistent throughout their lifetimes. If they’ve been in the 24% tax bracket throughout their working years, our goal is to keep them from moving into a higher bracket in retirement—something that can easily happen once Social Security, pensions, and required minimum distributions begin.

How It Works 

• Transfer money: You move funds from a traditional, pre-tax retirement account to a Roth IRA. This can be done through a direct rollover, a trustee-to-trustee transfer, or a 60-day rollover. 

• Pay taxes: The amount you convert is added to your taxable income for that year and is taxed at your ordinary income tax rate. 

• Get tax-free growth: The money in the Roth IRA grows tax-free, and qualified withdrawals in retirement are not subject to federal income tax.

   

How Roth Conversions Play Out In Real Life

Let’s say you need $100,000 a year for living expenses. When looking at your after-tax account, we see you bought Apple (AAPL) many years ago for $50,000. Now your stake is worth $100,000. We can sell $100,000 worth of Apple to cover your living expenses. You would only pay tax on the $50,000 in gain, and you’re only paying at the preferred capital gains rate of 15%. So, in effect you’re only paying $7,500 in tax (15% x $50,000) on a $100,000 sale. If you took the $100,000 from an IRA or 401(k), you’d have to pay tax on the full $100,000, which could potentially lead to a tax bill of $22,000 to $24,000 (or more). This strategy keeps both your taxes and your reported income low. 

2. Backdoor Roth IRA  

A backdoor Roth IRA is a strategy that high-income earners use to contribute to a Roth IRA, bypassing direct contribution income limits. It involves a two-step process: first, making a non-deductible contribution to a traditional IRA with after-tax dollars, and then, converting the money from the traditional IRA to a Roth IRA. While the initial contribution is non-deductible, the conversion allows for future growth and qualified withdrawals to be tax-free.  

Typically, this strategy works if there’s only one (high) income earner in the family, and the other spouse is a homemaker. Say the working spouse earns $500,000 a year, which is too high an income to contribute to a Roth (currently $236,000 MFJ). However, they can contribute to a traditional IRA and fund it with after-tax money. In most situations, when you fund an IRA, you do it with pre-tax money, so you can get the deduction and report that on your tax return.  Many people don’t realize that you can also fund your traditional IRA with after-tax money. You won’t get the upfront tax-deduction on the contribution, but the money will grow tax-deferred (and you can take that portion out tax-free since you’ve already paid tax on it). So, you can have your spouse who’s not working contribute to a traditional IRA with after-tax money, which is essentially the same thing as a Roth IRA. The spouse won’t get any tax-deduction, but after a reasonable amount of time, say a month, we can just move the money from a traditional IRA to a Roth IRA.  

While the original contribution is not taxed, any investment earnings in the traditional IRA before the conversion will be subject to income tax. To minimize taxes, it's best to complete the conversion as soon as possible after contributing.  It’s also important to keep in mind that all conversions of a traditional IRA to a Roth IRA are made on a “pro-rata” basis.

How The Backdoor Roth Strategy Plays Out In Real Life

Let’s say you have a $40,000 IRA with $10,000 in pre-tax money and $30,000 in after-tax money (i.e., 25% pre-tax and 75% after-tax). If you want to convert it to a Roth IRA, you cannot choose just to convert the after-tax amount. They must convert it proportionally between pre-tax and after-tax money. Therefore, if you want to convert $20,000 of the $40,000 IRA, you’d have to use $5,000 (25%) of pre-tax money and $15,000 (75%) of after-tax money. Essentially, you’re paying taxes on the $5,000 conversion of pre-tax money. 

NOTE: it’s VERY important that the non-working spouse does not have any traditional IRA assets funded with pre-tax money. A rollover from a 401(k), 403(b), 457 or other retirement plan to a traditional IRA can basically destroy the opportunity to do a Backdoor Roth IRA. 

3. Mega Backdoor Roth 401(k)  

For 2026, the most you can contribute to your 401(k) tax-deferred basis is $24,500 ($32,500 if over age 50 and $35,750 if between the ages of 60-63). Many people don’t realize that if you’re a high earner and can afford to contribute more, you can contribute up to an additional $46,500 in after-tax income ($72,000 total, or $80,000 if age 50 or older)….minus any employer matches you receive. The goal is to get as much money as possible into your retirement account during high income years, but we're constrained by IRS limits on contribution. Just check with your company benefits manager to make sure your plan allows this.  

NOTE: There are two very important items that the 401(k) plan needs to allow for in order to make the Mega Backdoor Roth (401(k) a viable strategy. First, we need to review the plan to make sure it allows after-tax contributions – some plans don’t. Second, we must make sure the plan allows for in-service withdrawals or rollovers. This means you cannot choose to roll over the after-tax contributions into a Roth IRA while still working. 

 How The Mega Backdoor Roth 401(k) Strategy Plays Out In Real Life:  

• An individual under 50 contributes the maximum $23,500 of employee deferrals. 

• Their employer contributes $11,750. 

• The maximum after-tax contribution they can make is: $70,000 - $23,500 - $11,750 = $34,750.  

My colleague Devin Starr has more about the Mega Backdoor Roth Strategy. 

Conclusion 

The strategies above can substantially boost your retirement savings and offer tax advantages. Just don’t try to execute them on their own. They’re fairly complicated, and if you do them incorrectly, you could face penalties and other headaches that are hard to unwind. If you or someone close to you would like to improve the amount you’re saving for retirement don’t hesitate to reach out. I’m happy to help.  

 RYAN A. DUNN, CFP®, is a Wealth Manager at Novi Wealth