IRA Strategies for High net worth investors

How a High-Earning Business Owner Saved $1.2 Million in Taxes Using IRA Strategies

I want to share a story about one of my clients, John, a 50 year old successful entrepreneur. He owns a manufacturing company and has been building wealth aggressively. John came to me because he was frustrated with his tax bill. Every year, he felt like he was writing a huge check to the IRS without getting much in return.

He told me, “I work 80-hour weeks, I take all the risks, I create jobs… and yet I’m paying nearly half my income in taxes! There’s got to be a better way.”

John was in the highest federal tax bracket—37%—plus state taxes, which meant every additional dollar he earned was getting hammered by nearly 50% in taxes when combined with his state rate. He had a large taxable income of $850,000 per year, and he was maxing out his 401(k) at $66,000 per year (since he was a business owner over 50 and using a Solo 401(k)).

The problem? That wasn’t enough. He was still sitting on too much taxable income, and as his company grew, his taxes were only going to increase.

This is where IRA strategies came in to save him a massive amount of money over time.

Step 1: Backdoor Roth IRA – Turning Taxable Money into Tax-Free Growth

One of the biggest frustrations for high-income earners like John is that Roth IRA contributions have strict income limits.

In 2024, those limits are:

• $161,000 for single filers
• $240,000 for married filers (jointly)

John was far beyond those limits, so he assumed he couldn’t contribute to a Roth IRA. That’s a common misconception among high earners, and it’s exactly what the IRS wants—you to give up before looking at your options.

But I showed him a perfectly legal loophole called the Backdoor Roth IRA, which allows anyone, regardless of income, to move money into a Roth IRA.

How We Used the Backdoor Roth Strategy for John

Here’s the step-by-step approach we took:

1. Step 1: John contributed $7,500 to a Traditional IRA (since he was over 50).
2. Step 2: Because his high income made his contribution non-deductible, he immediately converted it to a Roth IRA.
3. Step 3: Since we converted it right away, there were almost no taxable earnings on the contribution—meaning the conversion had zero tax cost.

This completely bypassed the Roth income limits and allowed John to move after-tax money into a Roth IRA every single year.

Step 2: Roth Conversions – Eliminating Future Tax Liabilities

After successfully implementing the Backdoor Roth IRA, we took it a step further.

John had built a large SEP IRA over his career, holding over $1.2 million in pre-tax retirement savings. The problem? Every dollar in that SEP IRA would be taxed as ordinary income when he withdrew it in retirement.

With future tax rates likely to increase, John was unknowingly sitting on a tax time bomb.

If he left things as they were:

• At age 73, he’d be forced to take Required Minimum Distributions (RMDs)
• Those RMDs would push him into the highest tax brackets
• He could owe hundreds of thousands in unnecessary taxes

He needed a way to convert some of that pre-tax money into tax-free Roth savings while his tax rate was still manageable.

That’s where a strategic Roth conversion plan came in.

How We Used Roth Conversions to Reduce John’s Future Taxes

We didn’t want to convert everything at once. Doing so would have spiked his tax bill and pushed him into the top tax bracket, costing him more than necessary.

Instead, we took a calculated, multi-year approach:

1. Over a 5-year period, we converted $100,000 per year from his SEP IRA to a Roth IRA.
2. Each year, he paid taxes on the $100,000 conversion at his current marginal tax rate (which was high, but we strategically timed it).
3. To maximize his Roth balance, we used outside cash to pay the tax bill, so the entire $100,000 could go into his Roth IRA.

This approach allowed us to move money into a tax-free account while controlling his tax burden each year.

The Long-Term Tax Savings

At first, John wasn’t sure if paying taxes now was the right move. But when I showed him the math, it became a no-brainer:

• By paying tax now at 37%, he moved $500,000 into a Roth IRA over five years.
• If he left that money to grow at 8% per year until age 70, his Roth would be worth $1.6 million.
• Had he left it in his SEP IRA, those withdrawals in retirement could have cost him $640,000 in taxes at a 40% tax rate.
• Instead, by converting to Roth early, he avoided over $640,000 in future taxes.

John immediately saw the value—instead of kicking the tax problem down the road, he was taking control of his future tax liability.

Why This Strategy is a Game-Changer for Business Owners

Many business owners and high earners, like John, build up significant pre-tax retirement accounts through 401(k)s, SEP IRAs, or SIMPLE IRAs.

While these plans offer upfront tax deductions, they come with a hidden downside:

• Every dollar withdrawn in retirement is fully taxable as income.
• Large pre-tax balances trigger high RMDs, which can push retirees into higher tax brackets than they expected.
• If tax rates increase in the future, those withdrawals become even more expensive.

By strategically converting to Roth, John now has:

✔ $1.6 million of tax-free retirement money
✔ Zero RMDs on his Roth IRA, allowing it to keep growing
✔ More control over his tax bracket in retirement

This means he can withdraw money when he needs it, without worrying about tax rates or IRS penalties.

Step 3: Using a Traditional IRA to Reduce Taxable Income

After implementing the Backdoor Roth IRA and a strategic Roth conversion plan, John still had one final tax issue to tackle.

He was taking home a high taxable salary from his business, and while we had already optimized his retirement savings, we needed another way to reduce his current taxable income.

This is where his wife’s income came into play.

Leveraging a Traditional IRA for Additional Tax Savings

John’s wife, Sarah, was a high-earning consultant, making $160,000 per year. Unlike John, she wasn’t covered by a 401(k) or other workplace retirement plan, which meant she had an opportunity to contribute to a Traditional IRA and deduct it from their taxable income.

Here’s what we did:

✔ Step 1: Opened a Traditional IRA for Sarah.
✔ Step 2: Contributed the maximum amount—$7,000 in 2024 (since she was over 50).
✔ Step 3: Because she wasn’t covered by an employer plan, her entire $7,000 contribution was fully deductible.

How Much This One Move Saved Them in Taxes

John and Sarah were in the 37% federal tax bracket, so this $7,000 Traditional IRA contribution directly reduced their taxable income, leading to a $2,590 tax savings every year ($7,000 × 37%).

At first, John didn’t think this was a big enough tax break to worry about. But when I showed him the long-term impact, he realized he was leaving money on the table every single year.

Let’s run the numbers:

• If Sarah contributed $7,000 every year for the next 20 years, that’s $140,000 in contributions.
• With compounding at 8% annually, that account could grow to over $350,000.
• Over that time, their tax savings alone would total over $50,000—money they would have otherwise given to the IRS.

Why This Was a No-Brainer for John and Sarah

1. It Was an Easy Win
   Unlike Roth conversions (which required tax planning and careful execution), this was a straightforward way to lower taxable income every year—with zero risk or complexity.
2. Traditional IRA Contributions Were Fully Deductible
   Since Sarah wasn’t covered by a 401(k) at work, they didn’t have to worry about phase-out limits. This meant every dollar she contributed directly reduced their taxable income.
3. It Provided More Tax-Deferred Growth
   While we had prioritized Roth savings for long-term tax-free withdrawals, having some tax-deferred money still had its advantages. By keeping this bucket separate, John and Sarah had more flexibility in how they withdrew money in retirement.

The Bigger Picture: Tax Diversification in Retirement

After setting up this Traditional IRA strategy, John and Sarah had a perfectly balanced retirement savings plan:

This tax diversification strategy gave them more control over their tax bill in retirement.

✔ Need tax-free income? They could tap into their Roth IRAs.
✔ Need flexibility? They could withdraw from their Traditional IRA in lower-tax years.
✔ Want to defer taxes further? They could let the Traditional IRA continue compounding until RMDs started.

By having a mix of Roth and Traditional retirement funds, John and Sarah could adjust their withdrawals each year to minimize taxes and maximize income.

What Happens If You Ignore This Strategy?

Many high-income earners skip Traditional IRA contributions because they assume the tax benefit isn’t big enough to matter.

But over time, the compounding effect of tax savings adds up:

This was $50,000 they would have otherwise paid to the IRS—instead, it stayed in their pocket and continued to grow inside their IRA.

Final Takeaways: How You Can Use This Strategy

If you or your spouse is earning income but isn’t covered by a workplace retirement plan, a Traditional IRA contribution can be a simple and effective way to lower your tax bill every single year.

• Reduce taxable income – Every dollar contributed lowers your taxable salary, reducing your annual tax bill.
• Save thousands over time – Even a seemingly small deduction compounds into major tax savings over decades.
• Keep more money invested – Instead of handing over extra tax dollars to the IRS, you keep that money growing for yourself.
• Pair it with a Roth strategy – Having both Traditional and Roth accounts allows for greater tax flexibility in retirement.

Ready to Optimize Your Retirement Tax Strategy?

Most high earners miss out on easy tax savings like this because they don’t know the rules.

Let’s make sure you’re not overpaying the IRS when you don’t have to.

Schedule a call today, and I’ll walk you through how much you can save with this Traditional IRA strategy—plus how to combine it with Roth conversions for even bigger tax benefits.

Final Results—Massive Tax Savings Over Time

By combining multiple IRA strategies, here’s what John accomplished:

• $350,000 in a Backdoor Roth IRA (by contributing each year)
• $1.6 million in a Roth IRA from conversions (saving over $640,000 in future taxes)
• $50,000+ saved from deductible Traditional IRA contributions for his wife
• Avoided higher Medicare premiums and Social Security taxes by reducing taxable income in retirement
• Controlled his tax brackets instead of waiting for the IRS to force withdrawals on his terms

Total Estimated Tax Savings Over Time: $1.2 million

Why This Matters for You

John was just one case. If you’re a business owner, high-income professional, or someone with a large pre-tax IRA, these strategies can work for you too.

Here’s the bottom line:

• The IRS won’t remind you about these strategies. If you don’t plan, you’ll pay more tax.
• If your income is high today, you must think about how to minimize your tax bill both now and in retirement.
• Roth conversions, backdoor Roth IRAs, and deductible IRA contributions are some of the most effective tools to take control of your tax situation.

If you’re wondering how this would apply to your specific financial situation, let’s talk.

I’ve helped business owners, doctors, executives, and high-net-worth individuals save hundreds of thousands—even millions—in taxes using these exact strategies.

Click here to schedule a consultation, and let’s start cutting your tax bill today.