Build Tax-Free Wealth Even If You Earn Too Much to Qualify
| California Financial Newsletter for Doctors and Dentists | California Financial Consulting | Michael Kamali, Doctor of Business Economics candidate |
Are you a high-income doctor or dentist in California?
You’re likely locked out of the Roth IRA due to income limits. But there’s a smart, legal workaround that could save you tens of thousands in taxes and build a tax-free retirement nest egg:
✅ It’s called the Backdoor Roth IRA.
This article breaks down:
- How it works
- Who qualifies
- California tax-saving potential
- Step-by-step guidance
- Pros & cons
- Real-life example
- And how can your financial advisor help
💥 Why This Strategy Matters
As a California medical professional, your income puts you in a high tax bracket; often over 45–50% combined with federal and state.
But unlike regular retirement accounts, Roth IRAs grow tax-free and withdraw tax-free in retirement.
Unfortunately, if you earn:
- Over $146,000 (single) or
- Over $230,000 (married)
you can’t contribute directly to a Roth IRA in 2025.
Here’s where the Backdoor Roth IRA comes in.
🔄 What Is a Backdoor Roth IRA?
A Backdoor Roth IRA is a two-step process that allows you to legally bypass the income limits on Roth IRAs:
- Contribute after-tax dollars to a Traditional IRA
- Convert it to a Roth IRA (usually tax-free if done correctly)
Repeat this strategy year after year, and you’ve built yourself a powerful tax-free engine.
✅ Who Qualifies?
You qualify if:
- You earn too much for a direct Roth IRA
- You have no significant pre-tax IRA assets (or have rolled them into a 401(k))
You may need help from a CPA or financial advisor to avoid a common tax trap called the pro-rata rule.
🛠️ Step-by-Step: Backdoor Roth IRA
Step 1: Open a Traditional IRA Step 2: Contribute up to $7,000 ($8,000 if 50+) after-tax Step 3: Wait a few days (optional) Step 4: Convert to a Roth IRA Step 5: File IRS Form 8606 to track basis
That’s it! Simple in theory, but the details matter.
⚠️ Watch Out for the Pro-Rata Rule
If you have existing pre-tax IRA balances (from past rollovers), the IRS may blend your accounts and tax more of your conversion than expected.
💡 Pro Tip: Roll those old IRAs into a 401(k) first. A qualified advisor can walk you through it.
🧮 California Tax Savings: A Real Example
Meet Dr. Sarah, Oral Surgeon in Woodland Hills
- Age: 42
- Income: $310,000
- Married
- Contributes $7,000/year to Backdoor Roth for 20 years
- Grows at 7% annually
Outcome:
- $305,000+ tax-free in retirement
- If she had used a taxable account instead, she’d owe up to 33% in combined federal + California capital gains taxes
- Potential tax savings: $90,000+
✅ Pros & Cons
✅ Pros:
- Tax-free growth and withdrawals
- No required distributions (RMDs)
- Better estate planning options
- Repeatable every year
❌ Cons:
- Pro-rata rule complications
- Requires tax form 8606
- Could trigger audit flags if mishandled
- Law could change in the future
🔁 Is This a One-Time Thing?
No—it’s an annual opportunity.
Imagine doing this every year for 20 years:
➡️ $140,000 for a couple ➡️ Grows to $600,000+ tax-free ➡️ Strategic, consistent wealth-building
🧑⚕️ Why Doctors & Dentists Should Act Now
Your income puts you at risk of massive tax erosion in retirement.
Roth IRAs offer:
- Tax-free distributions in your highest-cost years (60s+)
- Flexibility to control Medicare premiums & avoid IRMAA
- Shelter from California’s aggressive tax regime
This strategy gives you control, not surprises.
🤝 How an Investment Advisor Can Help
Don’t do it alone. A fiduciary investment advisor can:
- Review your IRA balances for risk
- Help roll assets into a solo 401(k) if needed
- Coordinate timing and paperwork
- Automate your annual Backdoor Roth strategy
- Ensure compliance with IRS regulations
💡 Bonus Tip: Solo 401(k)s are ideal for practice owners; they avoid pro-rata rules and offer more flexibility than SEP IRAs.
Final Thought
You’ve dedicated your life to helping patients. Now it’s time to treat your own financial health with the same precision and care.
The Backdoor Roth IRA isn’t flashy, but it works. Quietly. Consistently. Tax-free.
Whether you’re an orthodontist in Orange County or a cardiologist in San Jose, this may be one of the most powerful retirement tools you’re not using yet.
👉 If you found this helpful, leave a 👍 or comment with your thoughts. 📩 Or send a private message to explore how to implement this in your practice.
🔔 Follow the California Financial for more investment strategies tailored to high-earning doctors and dentists.
California Financial Consulting: https://www.CalFin.ai or Tel: (310) 541-1000
Advisor LinkedIn profile: https://www.linkedin.com/in/michaelkamali/
Disclosure Statement
The information provided in these materials is intended solely for educational and informational purposes and does not constitute financial, investment, tax, legal, or accounting advice. Nothing contained herein should be construed as a recommendation to buy, sell, or hold any security or investment product, nor as a guarantee of any financial outcome.
Readers are strongly advised to consult with their own qualified financial advisors, tax professionals, and legal counsel before making any investment or financial decisions. Every individual’s financial situation is unique, and professional guidance is essential to ensure that decisions are made based on personal circumstances and regulatory considerations.
The authors and publishers of these materials disclaim any liability for loss or damage resulting from the use of or reliance on the information contained herein.
