MAGI Phaseouts: The Numbers That Actually Matter
The Roth IRA's income limits create a hard ceiling that catches people mid-career. A single filer earning $148,000 in 2025 who gets a raise to $157,500 in 2026 goes from full contribution eligibility to roughly half. The 2026 phaseout for single filers runs from $150,000 to $165,000 MAGI. For married couples filing jointly, it's $236,000 to $246,000.
The math is straightforward but the implications are not. At a MAGI of $157,500 (single), your maximum direct Roth contribution drops from $7,000 to approximately $3,500. At $160,000, it's roughly $2,333. At $165,000 and above, it hits zero. These thresholds apply to modified adjusted gross income — which includes your salary, bonuses, RSU vesting, interest, dividends, and capital gains. A $145,000 base salary can easily push past $165,000 once a few RSU lots vest.
The Backdoor Roth: A Workaround With Fine Print
High earners above the phaseout aren't locked out entirely. The backdoor Roth strategy — contributing to a non-deductible Traditional IRA, then converting to Roth — has no income limit. The IRS hasn't challenged it despite years of use, and the strategy survived the Build Back Better legislative threat in 2021.
The trap is the pro-rata rule. If you hold $200,000 in a Traditional IRA from old 401(k) rollovers and make a $7,000 non-deductible contribution, only 3.4% of your conversion is tax-free. The other 96.6% gets taxed as ordinary income. The fix: roll all pre-tax IRA balances into your current 401(k) before executing the backdoor. This zeroes out your pre-tax IRA balance, making the conversion clean. If your employer plan doesn't accept rollovers, the backdoor Roth gets expensive.
Tax Bracket Arbitrage: Roth vs Traditional
The conventional wisdom — "contribute Traditional if you're in a high bracket now, Roth if you're in a low bracket" — misses several factors. Consider a 35-year-old software engineer earning $185,000 in the 24% bracket. A Traditional IRA deduction saves $1,680 in taxes today ($7,000 x 24%). If their retirement withdrawals fall in the 22% bracket, the Traditional account saves $140 per year of contribution ($7,000 x 2% bracket difference).
But that $185,000 earner probably has a 401(k) balance that will generate required minimum distributions at 73. If those RMDs push their income into the 24% or 32% bracket — which is common for anyone with $1.5M+ in tax-deferred accounts — the Traditional advantage evaporates. Roth money creates zero taxable income, gives the most flexibility in managing your AGI, and protects against legislative tax increases. For someone earning $150,000-$250,000 today, maxing Roth capacity first and filling traditional accounts second is often the stronger long-term play.
The 5-Year Rule and Conversion Ladders
Roth conversion ladders are the primary tool for early retirees accessing pre-tax money before 59.5. Each year's conversion starts a separate 5-year clock. Convert $60,000 in 2026, and that $60,000 becomes available penalty-free in 2031 — assuming you're still under 59.5 (after 59.5, both the conversion and earnings are fully accessible).
The strategic timing matters. If you plan to retire at 50, start conversions at 50 and fund the first 5 years from Roth contributions (always accessible), taxable brokerage accounts, or cash reserves. Beginning at year 6, your conversion ladder starts producing annual penalty-free withdrawals. Converting $70,000-$80,000 per year while in the 12% or 22% bracket effectively re-taxes decades of 401(k) growth at a fraction of the rate it was deducted at. For someone who contributed at 32% and converts at 12%, the arbitrage on $70,000 is $14,000 per year in tax savings — a guaranteed 20% return on the tax differential alone.