Roth or Traditional Contributions: What’s Best for High-Income Earners? (Updated 2025)
If you’re a high-income professional, you’ve probably heard conflicting advice about whether to contribute to a Roth or Traditional retirement account. It’s one of the most common—and misunderstood—decisions in financial planning.
The truth is: there’s no one-size-fits-all answer. But there is a framework that helps you make an informed choice based on your current tax situation and future goals.
At Memento Financial Planning, I work with dual-income households in their 30s and 40s navigating equity compensation, rising income, and competing priorities like student loans, child care, and saving for the future. This decision comes up a lot.
Here’s how I walk clients through it.
1. Understand the Core Tradeoff
Traditional contributions give you a tax deduction now, lowering your current taxable income. But you’ll pay taxes later in retirement.
Roth contributions are made with after-tax dollars, meaning no deduction now—but your withdrawals in retirement are tax-free (if qualified).
Think of it as: Pay taxes now (Roth) or later (Traditional).
2. When Roth Usually Wins for High Earners
Roth contributions often make sense if:
You’re early in your high-income trajectory and expect your income to rise further
You’re maxing out your 401(k) and looking to build tax-free flexibility
You expect tax rates to increase in the future
You have stock options or RSUs that will create future taxable income, and you want to hedge against higher retirement taxes
Roth is also valuable for:
Building a tax-diversified retirement portfolio
Avoiding Required Minimum Distributions (RMDs) if converted to Roth IRA later
Leaving tax-free assets to heirs
3. When Traditional May Still Be a Better Fit
Traditional contributions might be better if:
You’re solidly in the 37% federal tax bracket with little expectation of retiring in a similarly high bracket
You want to maximize current-year tax savings to invest elsewhere
You’re also doing backdoor Roth contributions and want to avoid additional after-tax burden
4. What About Backdoor Roth IRAs?
If your income is too high to contribute directly to a Roth IRA, a backdoor Roth strategy can be a great workaround—but be careful with the pro-rata rule if you have pre-tax money in traditional IRAs.
This strategy can pair well with either 401(k) contribution type, depending on your tax plan.
5. My Framework for Clients
I guide clients through a Roth vs. Traditional analysis that considers:
Current and projected marginal tax rates
Stock compensation and future liquidity events
Existing tax diversification across accounts
Long-term income goals and lifestyle planning
It’s not about timing the market or tax rates—it’s about building flexibility and peace of mind.
Editor’s Note: Originally published in 2022. Updated in 2025 to reflect new tax planning strategies and common use cases for high-income households.
