Final Stretch Strategy: Qualifying for a Roth IRA by Lowering Your Income

For many pre-retirees, these final earning years are the most productive—and often the highest income years of their career. Ironically, that success can limit access to one of the most valuable retirement tools: the Roth IRA.

Roth IRAs provide tax-free income in retirement and do not require minimum distributions, making them particularly appealing as you are near retirement. However, eligibility depends on your modified adjusted gross income (MAGI).

• Starting in 2026, the ability to contribute gradually reduces above about $153,000 for individuals and $242,000 for married couples and completely phases out at higher income levels.

The good news: income for these purposes is more flexible than it appears.

One of the most effective strategies is maximizing pre-tax contributions. Increasing contributions to your 401(k), 403(b), or similar plans directly lowers your taxable income and might help you stay within Roth contribution limits.

Health Savings Accounts (HSAs) are a powerful tool. Contributions are made pre-tax, grow tax-deferred, and can be withdrawn tax-free for qualified medical expenses. In the years before retirement, they can serve as both a healthcare buffer and a strategic way to lower income.

Variable income, bonuses, commissions, or self-employment earnings can offer flexibility. Business deductions, retirement plan contributions like SEP IRAs or solo 401(k)s, and even the timing of income all affect your MAGI.

You can also consider tax-loss harvesting in taxable accounts, utilizing investment losses to offset gains and lower your overall taxable income.

And if your income still exceeds the limit, all is not lost. A “backdoor Roth” strategy, contributing to a traditional IRA and converting it, remains a popular workaround, although it requires careful tax planning.

At this stage, it’s not just about how much you’ve saved, but also how much of it you’ll keep. The main goal is to be deliberate in how you organize your income. These final earning years provide an opportunity to arrange your assets for tax-efficient retirement income. If you’d like to talk through any of these strategies, we can set up a time to dive into your specific strategy and explore the options.