Tax-Efficient Gold: How High-Net-Worth Individuals Can Exploit Pass-Through Entities and Roth IRAs in 2025

High-net-worth individuals have always sought ways to minimize tax burdens while maximizing wealth. In 2025, legislative changes and evolving tax rules have created new opportunities—and risks—for those willing to navigate the complexities. From pass-through entities like S Corps and LLCs to Roth IRAs, the right strategies can turn these tools into engines of tax-efficient growth. Here's how to exploit the loopholes and stay ahead of the curve.

The Pass-Through Entity Playbook: Navigating SALT Limits and Structure Shifts

The 2025 tax overhaul has reshaped the landscape for pass-through entities. The removal of the $10,000 SALT deduction cap and its replacement with a permanent $15,000/$30,000 limit for married/single filers (with phase-downs for higher incomes) is a game-changer. But the real action lies in entity-level deductions and strategic restructuring.

1. The 75% Gross Receipts Test: A Loophole for Qualified Businesses

Businesses can avoid the SALT cap entirely if they meet the 75% gross receipts test—a rule allowing income-based taxes to flow through as deductions if at least 75% of revenue comes from non-Specified Service Trades or Businesses (SSTBs). For example, a manufacturing LLC with minimal consulting services could qualify.

Action Item: Audit your revenue streams. If your business is SSTB-heavy (e.g., law, accounting), consider spinning off non-SSTB operations into separate entities to meet the test.

2. Entity-Level Deduction Denial: The New Reality

Partnerships and S Corps can no longer deduct specified taxes (e.g., state income taxes, property taxes) at the entity level. These now flow through to owners, subject to individual SALT limits. This forces high earners to prioritize tax-efficient structures.

Risk Alert: The IRS's Section 6659 addition to tax penalizes mismatched allocations (e.g., over-allocating tax benefits to certain partners). Ensure meticulous tracking of distributive shares to avoid penalties.

Roth IRAs in 2025: Bypassing Income Limits with Clever Tactics

Roth IRAs remain a golden ticket for tax-free growth, but high earners face income phase-outs. The 2025 thresholds are:
- Single filers: $150,000–$165,000
- Married filing jointly: $236,000–$246,000

1. The Backdoor Roth IRA: Still Alive (But Cautious)

Even above phase-outs, high earners can contribute to a non-deductible traditional IRA and convert to a Roth. However, the pro rata rule complicates this—if you have pre-tax IRA funds, conversions must include a proportionate share of taxable dollars.

Tip: Use this strategy only if your IRA is 100% non-deductible to avoid taxable conversions.

2. The Mega-Backdoor Roth: Employer Plans to the Rescue

If your employer allows after-tax contributions to a 401(k) or 403(b), you can max out pre-tax contributions ($23,500 in 2025) and add after-tax dollars. Once in the plan, these funds can be rolled into a Roth IRA. This bypasses income limits entirely.

Action Item: Negotiate with employers to expand plan limits. The total 2025 cap is $69,000 (including catch-ups), but some plans go higher.

3. Roth 401(k)s: No Limits, No RMDs

Employer-sponsored Roth 401(k)s have no income caps and, under the SECURE 2.0 Act, no RMDs. Contributions of up to $23,500 (plus $7,500 catch-up) grow tax-free, making them ideal for legacy planning.

The Master Strategy: Combining Pass-Throughs and Roth IRAs

High earners should blend these tools:
1. Reduce taxable income via pass-through entities structured to meet the 75% test, minimizing SALT exposure.
2. Maximize Roth contributions using employer plans and backdoor strategies.
3. Time conversions during low-income years (e.g., post-retirement) to minimize tax hits.

Example: A real estate LLC with 80% rental income (non-SSTB) and 20% property management fees could qualify for the 75% test. Pair this with a Roth 401(k) and annual backdoor Roth conversions to lock in tax-free growth.

Final Word: Act Before 2026

The new rules take effect for 2026 taxable years. Now is the time to:
- Reassess entity structures and state tax regimes.
- Optimize employer plan contributions.
- Consult tax pros to avoid mismatches or pro rata pitfalls.

The tax code's complexity is its secret sauce—those who decode it first win big.

In 2025, the game isn't just about avoiding taxes—it's about turning tax rules into a ladder to wealth.

Investment advice: Consult a tax professional before executing any strategy. Past performance does not guarantee future results.