High-Income W-2 Tax Strategies: Breaking Through the Limits
Earning $200K-$500K+ as an employee? Your tax options aren't as limited as you think.
Why traditional advice falls short
The High-Income W-2 Tax Problem
High-income W-2 earners face a frustrating paradox: You earn too much to use most tax strategies, but not enough for the ultra-wealthy playbook.
Phase-Outs Hit Hard
- ❌ Roth IRA: Phased out above $161K (single) / $240K (married)
- ❌ Traditional IRA deduction: Phased out with workplace plan
- ❌ Student loan interest: Phased out above $90K
- ❌ Child tax credit: Phased out above $200K
But Opportunities Exist
- ✓ Backdoor Roth IRA (no income limit)
- ✓ Mega Backdoor Roth (if plan allows)
- ✓ HSA maximization
- ✓ Section 7702 (no limits at all)
The workaround for high earners
Strategy 1: Backdoor Roth IRA
How It Works
Contribute to a Traditional IRA (non-deductible contribution)
Convert to Roth IRA (no income limits on conversions)
Pay minimal tax on any growth between contribution and conversion
Enjoy tax-free growth forever
⚠️ Pro-Rata Warning: If you have existing traditional IRA balances, the conversion is taxed proportionally. Consider rolling traditional IRAs into your 401(k) first.
The turbocharged version
Strategy 2: Mega Backdoor Roth
Standard 401(k) Limits
- Employee contribution: $23,000
- Catch-up (50+): $7,500
- Employer match: varies
- Total limit: $69,000 (2024)
Mega Backdoor Roth
- After-tax 401(k) contributions
- Up to $69,000 total limit
- In-plan Roth conversion
- Extra $40,000+ to Roth annually
Requirement: Your employer's 401(k) plan must allow after-tax contributions AND in-service distributions or conversions.
The triple tax-advantaged account
Strategy 3: HSA Maximization
Tax-Free In
Contributions are pre-tax, reducing your taxable income. $4,150 individual / $8,300 family (2024).
Tax-Free Growth
Invest your HSA like a 401(k). Growth is never taxed. Choose low-cost index funds.
Tax-Free Out
Withdrawals for qualified medical expenses are completely tax-free. After 65, any purpose (taxed like traditional IRA).
💡 The HSA Optimization Strategy
- Max out HSA contributions every year
- Pay current medical expenses out-of-pocket
- Keep all medical receipts
- Let HSA grow tax-free for decades
- Reimburse yourself tax-free in retirement (no time limit on reimbursement)
Breaking all contribution limits
Strategy 4: Section 7702
When you've maxed out 401(k), Backdoor Roth, Mega Backdoor, and HSA... Section 7702 has no limits.
Traditional Retirement Limits
- 401(k): $23,000 (+$7,500 catch-up)
- IRA: $7,000 (+$1,000 catch-up)
- HSA: $8,300 family
- Max combined: ~$108,800
Section 7702
- Contribution limit: None
- Income limit: None
- Access penalty: None
- Fund as much as you want
More tax optimization opportunities
Additional Strategies
NOL Solar Strategies
Invest in solar projects that generate paper losses. Use Net Operating Losses to offset W-2 income. Complex but powerful.
Real Estate Depreciation
Short-term rental 'loophole' may allow active losses against W-2. Material participation requirements apply.
Charitable Bunching
Bunch multiple years of donations into one year via Donor Advised Fund. Itemize in big year, standard deduction in others.
Tax Loss Harvesting
Sell losing investments to offset gains. Replace with similar (not identical) investments to maintain exposure.
Deferred Compensation
If your employer offers NQDC plans, defer income to lower-tax years. Risk: employer must remain solvent.
529 Plans
State tax deductions for contributions. Tax-free growth for education. Some states allow deduction for any state's plan.
Frequently Asked Questions
Tired of Paying Too Much in Taxes?
High W-2 income doesn't mean you're out of options. Let's find every tax alpha opportunity available to you.