Structuring NIL Income for Long-Term Wealth Accumulation

The Roth IRA Playbook for Athletes

Name, Image, and Likeness (NIL) income has done something the sports world has never seen before: it has put real, reportable earnings in the hands of athletes at the very start of their careers — often years before a first professional contract, and frequently while they are still in their late teens or early twenties. That timing can be a gift. Money invested at 19 likely has four to five decades to compound before retirement, and few financial tools capture that advantage as powerfully as a Roth IRA.

The catch is that NIL income arrives with strings most young earners have never had to think about: self-employment taxes, quarterly filings, income phase-outs, and a short, unpredictable earning window. Used thoughtfully, though, those same dollars can seed a retirement account that grows tax-free for the rest of an athlete's life. This piece walks through how that works — and how a properly structured business entity can open the door to far larger tax-free savings than most athletes realize.

This article is educational and general in nature. It is not individualized tax, legal, or investment advice. Tax rules change frequently and the right approach depends on your full financial picture. Please consult a qualified CPA or financial advisor — including our team at Propulsion Capital Management — before acting.

Why NIL Income Qualifies for a Roth IRA

The single prerequisite for contributing to any IRA is earned income — also called taxable compensation. You cannot fund an IRA from investment gains, gifts, or allowances; you need money you worked for.

NIL income clears that bar easily. The IRS generally treats payments for endorsements, appearances, autograph signings, and social-media promotion as self-employment income. In practice that means an athlete reports it on Schedule C, pays self-employment tax (15.3% on net earnings once they exceed $400 in a year) on top of ordinary income tax, and is responsible for making quarterly estimated payments. No school or brand withholds taxes on an athlete's behalf — that responsibility lands squarely on the athlete.

The tax obligations are real, but the upside is that this self-employment income is exactly the kind of compensation that makes an athlete eligible to fund a Roth IRA — and, as we'll see, potentially much more.

One wrinkle worth flagging: revenue-sharing payments flowing to athletes under the House v. NCAA settlement may be classified as W-2 wages rather than self-employment income. That distinction changes how the income is taxed and which retirement plans it can support, so it's worth confirming how each stream is reported.

Why the Roth IRA Can Fit Athletes So Well

A Roth IRA is funded with after-tax dollars. You get no deduction today, but the money grows tax-free and qualified withdrawals in retirement are completely tax-free. That structure is almost tailor-made for an athlete's situation for three reasons:

The tax bracket trade-off. Many athletes are in a relatively modest tax bracket during their NIL years compared to where they hope to be later. Paying tax now, at a lower rate, to lock in decades of tax-free growth is precisely the bet the Roth IRA is built for.

Time. A 20-year-old who contributes the annual maximum and never adds another dollar has the potential to see that contribution multiply many times over before retirement. Starting early is one of the most powerful lever an investor has, and athletes have the rare chance to start unusually early.

Flexibility. Roth IRA contributions (though not earnings) can generally be withdrawn at any time without taxes or penalties — useful insurance for an athlete whose career, and income, may be unpredictable.

Contribution limits and income phase-outs

	2025	2026
IRA contribution limit (under 50)	$7,000	$7,500
Catch-up (age 50+)	+$1,000 ($8,000)	+$1,100 ($8,600)
Roth phase-out — single / HOH	$150,000–$165,000	$153,000–$168,000
Roth phase-out — married filing jointly	$236,000–$246,000	$242,000–$252,000

Source: Internal Revenue Service, 2026 cost-of-living adjustments for retirement plans (IR news release).

Two rules matter most here. First, you can only contribute up to the lesser of the annual limit or your earned income for the year — so an athlete who earned $4,000 in NIL income can contribute at most $4,000. Second, the ability to contribute directly to a Roth IRA phases out as income rises. A single filer earning above the upper threshold ($168,000 in 2026) cannot make a direct Roth contribution at all.

That income ceiling is exactly where the next strategy comes in.

When Income Climbs: The Backdoor Roth IRA

A top-earning athlete can blow past the Roth income limits in a single big endorsement year. Fortunately, the limits apply only to direct contributions — not to conversions.

The “backdoor” Roth is a two-step maneuver:

1.    Contribute to a traditional (non-deductible) IRA. There is no income limit on contributing to a traditional IRA; only the deduction is limited. So a high earner can still put in up to the annual cap ($7,500 in 2026) on an after-tax basis.

2.    Convert that traditional IRA to a Roth IRA. There is no income limit on Roth conversions, and because the contribution was already after-tax, little or no additional tax is due — as long as the account hasn't grown meaningfully and one critical trap is avoided.

The conversion itself must be reported, and the non-deductible basis is tracked on IRS Form 8606 each year. Done cleanly, this lets an athlete who is otherwise locked out keep funding a Roth — just through the side door.

The pro-rata trap

This is the part that can quietly derail many backdoor Roth attempts. The IRS does not look only at the new $7,500 you converted. It aggregates the balances of all your traditional, SEP, and SIMPLE IRAs as of December 31 and treats your conversion as a proportional blend of pre-tax and after-tax money.

An example makes it concrete. Suppose an athlete has $93,000 of pre-tax money sitting in a SEP IRA from a prior year, then contributes $7,000 of after-tax money to a new traditional IRA and converts it. The IRS sees $100,000 total, of which only 7% is after-tax — so roughly 93% of the conversion becomes taxable. The strategy is gutted.

The takeaway: a backdoor Roth only works cleanly when you have no pre-tax balances in any traditional, SEP, or SIMPLE IRA. And that is precisely where the choice of business structure and retirement plan becomes decisive.

The LLC and Business-Entity Question

A common question we hear is whether routing some NIL payments through an LLC unlocks “backdoor” retirement savings. The honest answer requires untangling two ideas, because the LLC itself isn't the magic ingredient — what it enables is.

An LLC does not, by itself, create a backdoor Roth. A single-member LLC is usually a “disregarded entity” for tax purposes, meaning its income is reported on the same Schedule C the athlete would use anyway. The backdoor Roth is available to the athlete personally regardless of whether an LLC exists. What an LLC genuinely provides is liability protection and a clean separation between business and personal finances. An S-corporation election can layer on self-employment-tax savings once NIL income is consistently high (often cited around the $50,000–$60,000 range), but it also brings payroll, reasonable-compensation requirements, and added complexity — which is why most advisors counsel against electing too early.

The real unlock is self-employment income — which NIL already is. Because NIL income is self-employment income, an athlete is eligible to open a business retirement plan: a Solo 401(k) or a SEP IRA. These dwarf the regular IRA limits. For 2026, total contributions to either can reach roughly $72,000 (combining the employee and employer portions, with additional catch-up room for those 50+) — versus $7,500 in a standard IRA. For an athlete with a short, front-loaded earning window, the ability to shelter that much in a single high-income year is enormous.

Here is the key distinction for backdoor purposes. A Solo 401(k) and a SEP IRA are not interchangeable when a backdoor Roth is in play:

• A SEP IRA is still an IRA. Its balance counts toward the pro-rata calculation — so a large SEP IRA balance can sabotage a clean backdoor Roth, just like the example above.

  
  

• A Solo 401(k) is a 401(k), not an IRA. Its balance is invisible to the pro-rata rule. An athlete can hold a large Solo 401(k) balance and still execute a clean, fully tax-free backdoor Roth on the side.

This is why the Solo 401(k) is often the centerpiece for a high-earning athlete who also wants Roth exposure. It allows the big employer-style contribution and keeps the door open for a clean backdoor Roth IRA on top.

The mega backdoor Roth

The Solo 401(k) enables one more layer. If the plan document allows after-tax (non-Roth) employee contributions and in-plan conversions, an athlete can contribute after-tax dollars above the normal deferral limit — up to that combined $72,000 ceiling for 2026 — and then convert those dollars to Roth inside the plan. This “mega backdoor Roth” can move tens of thousands of dollars into tax-free Roth status in a single year, far beyond what the standard $7,500 IRA route allows. Critically, SEP IRAs and SIMPLE IRAs cannot do this; only a properly drafted Solo 401(k) can.

So, to answer the question directly: structuring NIL payments to flow through a business doesn't create a backdoor on its own, but the self-employment income it formalizes is what makes a Solo 401(k) possible — and the Solo 401(k) is the vehicle that makes both a clean backdoor Roth and a mega backdoor Roth realistic for athletes who have outgrown the standard Roth limits.

A Sensible Sequence

For many athletes, the priorities tend to stack in roughly this order: build a cash reserve for taxes and emergencies first (a common rule of thumb is setting aside around 25% of NIL earnings for federal income tax, self-employment tax, and state taxes); fund a Roth IRA directly while income is below the phase-out; and, as income grows, layer in a Solo 401(k) for the larger contribution room — with a backdoor or mega backdoor Roth on top once the standard Roth door closes. The right mix depends entirely on the athlete's income level, state of residence, and career outlook.

A Few Cautions

Athletes can face wrinkles many savers don't. Multi-state “jock tax” exposure can create filing obligations in every state where income is earned. Earning windows can be short and front-loaded, which argues for saving aggressively in the high-income years rather than assuming they'll repeat. And the rules in this space — from contribution limits to the still-evolving treatment of revenue-sharing income — change often.

None of this should be navigated alone. The interplay between entity choice, plan selection, the pro-rata rule, and an athlete's broader tax picture is genuinely complex, and small missteps (a stray SEP IRA balance, an early S-Corp election, a missed quarterly payment) can be costly.

That is where having an advisor who understands both athletes and the tax code pays for itself.

Sources

• IRS — 401(k) limit increases to $24,500 for 2026, IRA limit increases to $7,500 (contribution limits and Roth phase-outs)

  
  

• IRS — Self-Employed Individuals Tax Center and Self-Employment Tax (Schedule C, 15.3% SE tax, $400 threshold)

  
  

• IRS — Retirement Plans FAQs Regarding IRAs and Instructions for Form 8606 (Roth conversions and non-deductible basis)

  
  

• IRS — Retirement Plans for Self-Employed People (Solo 401(k) and SEP IRA)

Propulsion Capital Management does not provide tax or legal advice. The information above is general and educational, reflects rules in effect as of mid-2026, and may not apply to your circumstances. Consult a qualified tax professional regarding your specific situation.