Investment Options for High-Income Earners

For most people, trying to invest enough for retirement is a stretch. But if you’re a high-income earner, you’ve got a different problem (don’t worry, it’s a really good one): You make so much money that you could max out your retirement accounts and still have enough room in your budget for more.

We recommend investing 15% of your gross income in tax-advantaged retirement accounts like a 401(k) and IRA. But the IRS sets contribution limits for those accounts—so if you’re raking in a few hundred grand each year, it’s possible to hit those contribution limits without contributing 15% of your income.

Great. Now what? Does that mean you’re stuck? Nope! You have plenty of options to keep building wealth even if you bring home a big paycheck.

But first, remember that saving for retirement is Baby Step 4 of the 7 Baby Steps. You should be debt-free (except for your house) and have a fully funded emergency fund before you start saving for retirement.

Following the Baby Steps is the proven way to build wealth and leave a solid financial legacy for generations to come. In fact, there’s a special group of people who’ve followed the Ramsey plan and—in about 20 years on average—reached a million-dollar net worth. We call them Baby Steps Millionaires. The Baby Steps work no matter how small (or large) your income is.

Now that we’ve laid the groundwork, let’s take a look at six great investment options for high-income earners—so you can put more of your money to work for you.

1. Backdoor Roth IRA

The backdoor Roth IRA takes advantage of a convenient loophole that allows you to convert a traditional IRA to a Roth and enjoy tax-free growth and other benefits. Typically, high-income earners can’t open or contribute to a Roth IRA because there’s an income restriction. For 2025, if you earn $165,000 or more as an individual ($246,000 or more for couples), you can’t contribute to a Roth IRA.¹

But there’s a way around the rule book—and it’s perfectly legal. The federal government does allow you to convert money from a traditional IRA into a Roth IRA regardless of your income. Here’s how it works: You can contribute up to $7,000 in 2025 (or $8,000 if you’re 50 or older) to a traditional IRA.² As soon as that money posts to your traditional IRA account, you can convert it into a Roth IRA. (You can convert other existing plans too, like SEP-IRAs or SIMPLE IRAs.)

There’s a catch, though: Whenever you convert from traditional to Roth, you have to pay taxes on that money—so make sure you have the cash on hand to pay Uncle Sam before you do the conversion (do not use your converted funds to cover the tax bill).

Market chaos, inflation, your future—work with a pro to navigate this stuff.

But here’s the exciting part: Roth withdrawals in retirement are tax-free! That’s right—once you payeth the tax man, he goeth away. We like the sound of that (and we bet you do too). Once you’ve converted to a Roth plan, all that compound growth is yours. And you can repeat this process year after year: Invest. Convert. Pay the taxes on the money you invested. Then watch it grow tax-free.

Of course, if you’re in a higher tax bracket or if you convert a large amount, this could lead to a massive tax bill. So make sure you talk to a tax professional before you move forward.

Pros of Investing in a Backdoor Roth IRA:

• No income limit: Everyone who earns an income is eligible to open a traditional IRA and then convert those funds to a Roth—no matter how much you earn!
• Tax-free gains and withdrawals: When you convert your traditional IRA to a Roth IRA, you pay the taxes up front and get to enjoy tax-free growth and withdrawals (once you reach age 59 1/2). 

Cons of Investing in a Backdoor Roth IRA:

• Income taxes: You must pay income taxes on your contributions before converting to a Roth IRA.
• Contribution limits: You can only invest a few thousand dollars in an IRA every year before the IRS says, “Whoa, buddy—that’s enough.” 

Ramsey Solutions is a paid, non-client promoter of participating pros. 

2. Health Savings Account

A Health Savings Account (HSA) is designed to help you pay for medical expenses . . . but it can also be used to invest a little extra toward retirement! The HSA comes with three tax breaks: You get tax-deductible contributions, tax-free growth and tax-free withdrawals (for qualified medical expenses).

Pro Tip: The IRS defines qualified medical expenses pretty broadly. Examples: medications, transportation for medical care, emergency room visits and long-term care. An expense qualifies if it’s “primarily to alleviate or prevent a physical or mental disability or illness,” but not if it’s just vitamins or a vacation.³ See IRS Publication 502 for more info.

As an investment vehicle for high-income earners, the HSA is a hidden gem. But there’s one thing you need to be aware of: To qualify for an HSA, you have to be enrolled in a high-deductible health plan (HDHP). As the name suggests, these plans come with higher deductibles (which means you pay more up front to cover medical costs), but they also have lower monthly premiums than most other health insurance plans.

HSAs can act as an emergency fund for health care expenses and help you cover the higher deductible of an HDHP. You can use the money you save in your HSA to pay for doctor visits, prescriptions and a whole bunch of other medical bills.

And in the long term, you can use your HSA as a kind of “health IRA.” Not only can you save money in your HSA, you can also invest it. With most HSAs, once you’ve contributed a certain amount (usually between $1,000–2,000), you can start investing any additional money into mutual funds inside your HSA.

If you invest wisely now, your HSA could grow to be a big ol’ pot of money that can help you cover the cost of medical expenses in your later years. And that’s going to matter a lot more the older you get: The average couple retiring today will rack up $330,000 in health care expenses (and that doesn’t include long-term care costs).⁴ And as long as you’re using the money from your HSA to pay for medical expenses, you get to use it—including the growth of your investments—tax-free!

Plus, once you turn 65, you can take money out of your HSA and spend it on whatever you’d like—just as you would with a traditional IRA. You will have to pay taxes on those withdrawals, though.

Pros of Investing in an HSA:

• The “health IRA”: Save money for what could be your biggest expense in retirement—health care. 
• Triple tax break: You can invest in an HSA with pretax money, enjoy tax-free growth, and avoid taxes if you use the money for qualified medical expenses. If you use the money on other expenses, you’ll pay regular income taxes, just like you would with a traditional IRA or 401(k). 
• No required minimum distributions (RMDs): Traditional 401(k)s and IRAs require you to take a certain amount of money from your retirement accounts every month (Uncle Sam wants his share of that tax money!). But there are no RMDs for an HSA. You can withdraw money on your own schedule.

Cons of Investing in an HSA:

• Conflict with Medicare: Once you enroll in Medicare, you can’t contribute to an HSA since it’s only for high-deductible health plans. But you can still use the money you’ve saved! 
• Contribution limits: For 2025, the IRS has set the individual contribution limit at $4,300 and the family contribution limit at $8,550.⁵

3. After-Tax 401(k) Contributions

For 2025, the normal contribution limit for a 401(k) is $23,500 (there are higher catch-up contribution limits for folks who are 50 and older).⁶ But some employers allow you to make after-tax contributions once you’ve reached your contribution limit.

If your plan allows after-tax contributions, in 2025 you can contribute up to the maximum overall contribution limit of $70,000 when you combine employee and employer contributions (that amount is higher if you’re 50 or older).⁷

For example, if you contribute the maximum $23,500 in a traditional or Roth 401(k) and your employer match is $5,000 (for a total of $28,500), you could then contribute an additional $41,500 in after-tax contributions. This would take you to your total overall contribution limit of $70,000.

There is a catch, though. Those after-tax contributions? They’re not the same as Roth contributions. Yes, you pay taxes on the money you contribute as it goes in—but your earnings from those contributions are also taxable. You’ll have to pay taxes on that growth when you take the money out in retirement.

Wait, what? If you don’t get a tax break from making after-tax contributions, why bother doing it? Well, for one, money you invest for retirement—even if you have to pay taxes on it—is going to grow (and compound interest pays big over time). But two, it could open the door to a mega backdoor Roth conversion (more on that in a minute).

The bottom line is, not all 401(k) plans allow after-tax contributions (or mega backdoor Roth conversions), so make sure you check with your plan administrator to see if after-tax contributions are an option for you.

Pro Tip: Max out your tax-favored accounts (like a traditional or Roth IRA) before making after-tax 401(k) contributions. Minimizing tax exposure is a good thing. Like Dave Ramsey said in his book The Legacy Journey,“There is absolutely nothing wrong or immoral about using every legal means available to avoid taxes. In fact, I’ll take it a step further. I believe that taking advantage of every legal method of avoiding taxes is actually good stewardship.”

Pros of After-Tax 401(k) Contributions:

• Automated contributions: Every time you get paid, you can automatically sweep some of that money into your 401(k). Putting your savings on autopilot is a great way to consistently build wealth (contact your company’s HR representative or your plan’s administrator for more on how to set this up). 
• Simplicity: This option keeps all (or most of) your investment dollars in one convenient location—your 401(k). Plus, you can invest in the same mutual funds where you invested your pretax dollars. 

Cons of After-Tax 401(k) Contributions:

• No tax advantages: Contributions above the pre-tax limit are not tax-deductible, so you’ll pay taxes on them before you invest them.
• Some plans don’t allow it: Your plan administrator can help you find out if your 401(k) allows after-tax contributions.

4. Mega Backdoor Roth

Okay, before we dive into the mega backdoor Roth, there are a couple of things you need to know. First, this is a complicated strategy—so make sure you talk with a financial advisor about it. Second, a lot of things have to line up to make the mega backdoor Roth a possibility for you. Now let’s get down to those details.

A mega backdoor Roth is an advanced retirement savings strategy that allows high-income earners to contribute much more into a Roth account than the typical 401(k) or IRA would normally allow—even if you’re above the income limits for a Roth IRA. How? By converting those after-tax contributions we talked about earlier into a Roth account.

Here’s how it works.

• First, max out your regular 401(k) contributions. You must hit your regular 401(k) contribution limit before you can make after-tax contributions.  

• Then, start making after-tax contributions. You’ll make these contributions after paying tax on this as regular income, so there’s no tax break here. Also, the investment growth on these contributions is taxable until you do the Roth conversion.

• Finally, convert those after-tax funds into a Roth account. You can do either an in-plan Roth 401(k) conversion or a Roth IRA rollover. An in-plan conversion allows you to convert your after-tax 401(k) money into your Roth 401(k) and keep the money in your workplace retirement plan. A rollover lets you move the funds into your own Roth IRA, even while you’re still employed.

In case you haven’t guessed by now, the mega backdoor Roth is, well, mega complicated. Some 401(k) plans don’t allow after-tax contributions or mega backdoor Roth conversions, so check with your HR representative to see if a mega backdoor Roth is an option for you.

Pros of Investing in a Mega Backdoor Roth:

• Much higher contribution limits than a regular backdoor Roth IRA conversion: By taking advantage of this loophole and paying taxes on your extra contributions up front, you can save a lot more for retirement.
• Tax-free growth and withdrawals in retirement: Since you handled the tax bill up front, savings in a Roth plan grow tax-free and you get to make tax-free withdrawals.
• No RMDs: Since you already paid taxes on this money, there are no required minimum distributions in retirement. You can withdraw your money whenever you want.

Cons of Investing in a Mega Backdoor Roth:

• Complexity: This strategy has a long, detailed list of conditions. Your employer’s 401(k) plan may not allow it.
• Contribution growth taxable until conversion: Until your after-tax contributions are converted to a Roth plan, any growth your investments earn will be taxed, which further complicates this option.

Pro Tip: You should definitely talk to a pro if you’re considering a mega backdoor Roth conversion. Complicated or not, this option is a great way to get the tax man’s hands off your retirement accounts so you can enjoy tax-free growth for retirement.

5. Brokerage Accounts

Brokerage accounts—also called taxable investment accounts—allow you to purchase basically any type of investment: stocks, bonds, mutual funds and exchange-traded funds (ETFs). 

Unlike other more common forms of retirement investments like the IRA and 401(k), brokerage accounts offer no tax advantages. But on the plus side, they offer a wide range of investment options, no contribution limits and lots of flexibility. With a brokerage account, you can invest as much as you want and take money out whenever you want without penalty.

Think of this option as icing, not cake. Once you’ve maxed out all your tax-advantaged retirement accounts—like your 401(k), 403(b) or IRA—you can continue to save through a brokerage account. Keep in mind that you’ll pay taxes whenever you earn interest, dividends or capital gains (by selling an investment) in a brokerage account. In most cases, though, you’ll still see more growth than you would by just letting extra savings gather dust in a checking or savings account (which rarely even keep up with inflation!).

You can open a taxable investment account with a bank or brokerage firm directly. And you can even set up automatic withdrawals from your bank into your investment account each month.

Pros of Investing in a Brokerage Account:

• No contribution limit: With a brokerage account, you can invest as much as you want each year. 
• Flexibility: You can take money out at any time for any purpose without having to pay penalties. This flexibility is important if you want to retire early and need an income stream. 
• No required minimum distributions: You get to decide when and how much you want to withdraw.

Cons of Investing in a Brokerage Account:

• No tax breaks: You invest with after-tax money and pay capital gains taxes when you realize any gains (sell assets for profit). You also pay taxes on any dividends you decide to keep (instead of reinvesting). 
• Liability: Investments in a 401(k) and other similar retirement accounts are well protected in the event of a lawsuit. That’s not the case with a brokerage account, which is why you might want to consider umbrella insurance.

6. Real Estate

Investing in real estate is super popular (everyone seems to have a favorite remodeling show these days). If you do it right, you can get a good return on your money. But before you give up your career to start fixing and flipping every run-down house in town, keep in mind that real estate is probably the most hands-on and time-consuming investment option out there. It’s hard work, y’all.  

So don’t dive headfirst into investing in real estate unless you have a real passion for it—and a deep understanding of its ins and outs. Before you buy, do your homework. Talk to people who’ve done it successfully. They’ll tell you what it’s really like and what to watch out for. Also, know that homeownership is the first step in real estate investing, so before you do anything beyond your own home, let’s make sure that mortgage is paid in full (because that reduces risk, and even the grass in the yard will feel different).

Work with a top-notch real estate agent who can help you find the right property in the right location when you’re ready to buy. Also, talk to an insurance agent about what kind of coverage you’ll need, especially if you invest in a rental property. Do the math to see how much money you’d actually make after expenses—including taxes, utilities and other costs. And never, ever borrow money to buy real estate as an investment. Only buy investment properties when you can pay cash for them.

Pros of Investing in Real Estate:  

• Tried-and-true investment: If you play it right, real estate can be a great source of income. Real estate almost always goes up in value, and rental properties can help provide a diversified, solid income. 
• Portfolio variety: Diversification (spreading out your money in different types of investments) is one of the most important ways to build wealth while minimizing risk. 
• Local investment: If you’re doing it right, you’re investing close to home—and that will not only make a difference where you can see it but also make your life a lot easier when things go wrong with the property.

Cons of Investing in Real Estate:

• Time commitment: Real estate is a hands-on type of investment, and being a landlord has challenges.
• Risk: If a rental property sits vacant, you won’t collect rent. Can you cash-flow something like that for six months or a year? You’ll also foot the bill for all repairs and expenses, so make sure you budget accordingly.
• Property value fluctuation: Just like the stock market rises and falls, the value of your property can change depending on what happens locally.

Find an Investment Pro Today!

We get it . . . this is a lot to take in. But the big takeaway is that are investment options for high income earners—they’re just a little complicated at this level.

That’s why it’s a good idea to chat with an investment pro before you make any big decisions. They’ll help you navigate the government’s list of do’s and don’ts, and they can help you set investment goals that work for your situation.

 

This article provides general guidelines about investing topics. Your situation may be unique. To discuss a plan for your situation, connect with a SmartVestor Pro. Ramsey Solutions is a paid, non-client promoter of participating Pros.