Roth vs. Traditional IRA Distributions: What High Earners Should Know
Retirement account distributions remain a core component of tax architecture for affluent households.
Traditional IRAs and qualified retirement plans generally produce ordinary income when distributed, to the extent contributions were pre-tax. Early distributions before age 59½ may trigger a 10% penalty unless an exception applies.
Roth IRAs operate differently.
Qualified Roth distributions—those meeting the five-year rule and age or qualifying event requirements—are tax-free.
Non-qualified distributions follow specific ordering rules:
- Regular contributions
- Taxable conversions
- Non-taxable conversions
- Earnings
Regular contributions may be withdrawn at any time tax- and penalty-free. Converted amounts may avoid income tax but can trigger penalty if withdrawn too early. Earnings are generally taxable and potentially penalized if distributed prematurely.
For high earners, Roth conversions often become a strategic lever in lower-income years. The objective is not to avoid tax entirely. It is to shift taxation into controlled brackets.
We evaluate:
- Projected marginal rates
- Estate planning implications
- Liquidity needs
- Required minimum distribution exposure
- Long-term compounding environment
Retirement income design is not about maximizing accounts in isolation. It is about coordinating income flow with tax structure across decades.
Written by Christi Shell, CWS®, AAMS®, BFA™, CETF®, Managing Director and Private Wealth Strategist at Shell Capital Management, LLC.
To speak with Christi about your financial situation, request a private consultation.
Shell Capital Management, LLC is a registered investment adviser. This material is for informational and educational purposes only and does not constitute investment, legal, or tax advice. Advisory services are only offered to clients or prospective clients where Shell Capital Management, LLC is properly registered or exempt from registration. Any views are as of the date published and may change. Investing involves risk, including the possible loss of principal. Past performance is not indicative of future results.