3 Year-End Retirement Account Deadlines You're Not Thinking About

This is going to impact you or a family member in a significant way. If you want to set up a solo 401k, you have got to do it before you're in the people that are dropping 70 grand into a Roth IRA that's a tax free ATM. So you mean I make 100% on my money.

In one day you will have 8 grand in your 401k but you only put in 4.

That's better than Bitcoin or Tesla or Microsoft combined. You are in control, not your employer, not Wall street and not the government take over your retirement.

Welcome everyone to the Main Street Business podcast. This is Matt Sorensen, joined by the great and powerful Mark J. Kohler.

Thank you for that and I like our great and powerful topic today.

It's powerful because we're talking about tax advantaged funds, your retirement account dollars and some things you need to know that have to be done by December 31, 2025.

And we love the title here that you're not thinking about because people just don't think about these two or three unique strategies. And so this is going IRAs, 401ks so don't go anywhere. I know that this is going to impact you or a family member in a significant way. So let's dive into these three year end deadlines that have kind of a ripple effect, have a domino effect in a variety of areas and they're a deadline that I don't think you're thinking about. What's your number one?

Number one, I'm talking about your 401k. If you have a 401k at your job, you need to match it out. That's a 401k strategy. Mark and I talk about what does that mean? Baby, if you've got a 401k at an employer where you work, they most likely have a match to encourage you to contribute. For example, let's say you make 100 grand a year and they say, hey, in your 401k if you put in 4% of what you make $4,000, we'll match that dollar for dollar and put in 4% too.

So you mean I make 100% on my money.

In one day you will have 8 grand in your 401k but you only put in 4.

That's better than Bitcoin or Tesla or Microsoft combined.

100% return guaranteed, guaranteed if your company doesn't match. So we want to make sure you do the match out. But your 401k at work, these contributions are count are due by December 31st, in order to qualify for the match, you solo K owners, we'll come back to you. That's a little different. But for people that have a 401k at work or maybe your spouse, if you want to take advantage of that match, you got to act now. And don't think that this only qualifies if you put in a little bit from your paycheck and you know you've had this deduction. You, you can do this at the year end to be like, let me throw in the rest. Maybe I've got two in so far this year, 2000, but I need to get the other 2000 in to get to the 4000 total. You can just cut a check or get a deposit into your 401k for that other two grand by December 31st.

And while you're not thinking about this is because you've thought, I've been doing this throughout the year, I can't do this or it's too late. Yeah, that's what we're going to talk about. What your action item is on this. Also, many of you are like, my 401k sucks. I don't get a great return anyway. Why am I stressing about this? So let's re emphasize. I'm going to go with the most recent comment first, and that is remember, they are doubling your money. When you put this money in, they are matching it 100%. Now. Yeah, your overall return might suck, it's 4 or 5% after all their fees. But when you're doubling your money, it is worth it. And number two, here's your action item. After hearing this podcast, first thing tomorrow morning, you're going to call the HR department at your office, which might be Judy down the hall or it might be a 1-800-number. I don't know how big your company is, but if you're participating in a 401, going to call HR and go, hey, can you tell me how much I've contributed this year and how much my match is from the employer? Now, every department and any employer size should be able to go, oh, you've only put in three grand and $232 this year so far and your match is actually $4,692. Okay, what's the difference? They'll tell you the difference, say, okay, now between now and the end of the year. Am I doing any additional withdrawals from my paycheck? Yes, it's going up to $362. Okay, what's the difference? All right. I'm going to come by your office and I'm going to drop off a check for that difference. Done. They will double that money or they may go, oh, go onto your portal online.

Yeah, that's not going to say done. Thank you for the check that I say. Actually, this goes to the 401k administrator.

But, you know, I'm just giving just a practical, you know, old school. Some of you were like, write a check. Who are you?

What is a check? I know, seriously, I had to explain that to one of our employees. That's in your twent here. Yeah, they're like, so how do you do, like the. What's this line where you like, write out $1,242.33. I kind of actually write that out anyway, so. So. But yeah, I think now this might be Toby in hr. Yeah, you know, we never know. You know, everybody loves gold Toby from the office. So. But yeah, you're going to typically go in. This is going to get into a

portal and you're going to make that portal.

And some of the 401k administrators make it go through your employer. So you might need to work through your employer to. But critical to just think about here at your end. Because if, Even though some IRA deadlines and stuff are not till April 15th to get the match here and in your 401k at your day job, this is critical. December 31st to get it done.

Okay, now why do we say match and out? Okay, notice there was a little subtlety there. The theory of match and out is, let me put in as much as I need to to get that 100% match and then rethink. Do I want to put more in? Should I maybe go over to my Roth ira, which we're going to come to in a moment. Are there other strategies where I may want to invest my money for you? There could be, but you don't want to turn down 100% match. So you want to get the match and then parenthetically or hypothetically, you're going to step out for a minute and rethink what's my next move? For some of you are like, this is my best investment. Actually, my 401k administrator, I love them. They get a great ROI. I'm going to put actually more money in. Okay, but you thought about it. You were intentional. You put in your match, you got it. Now you sit back and go, hmm, what other options do I have? And it's something you do before December 31st, and you're in control. That's the point. You are in control. Not your employer, not Wall street and not the government. Take over your retirement people.

We should trademark that.

I like that. Yeah, that was good. Okay, now, number two, Matt Sorenson, the expert in retirement, matching out. I'm sitting there outside the door of Judy's office or Toby's office or on the portal. I've turned the portal. I've moved the laptop away from me. I've sat back. I went to go get a drink in the kitchen. I've come back. What would you say the second deadline is that I really need to think about?

For those of you that are like, but I want to do more, Mark. I don't want to just put in that amount to get the match. I've maximized the match. But I want more tax advantage savings. Whether I'm chasing deductions for traditional doll or even better, I want to grow this money totally tax free. And I want to get more Roth dollars in through the year. So the next thing I would be thinking about, is there two steps, this

Roth conversion thing, or we, this is really small employers. Should we save small employers for that? I mean, I want to talk about

the mega backdoor roth in your 401k.

Okay.

Which is already in 401k.

Yeah, but I guess employees could do as well as business owners. Yes, that's true. Yeah. Okay, so the mega. Yeah, Okay. I like where you're going, everybody. This is, this is good. I like.

Mark and I talked about what we're going to talk about, but not in what order.

Yeah, but I like where your head's at, Sorensen. This is good. Okay, so the mega. So I'm, I put away my match and my grandma left me some money. My next.

Or you had a great year, you got a bonus, whatever.

Yeah, the bonus is coming.

It needs to be on income you've earned. Not, you know, because so, so. But you're like, all right, well, Matt, I heard I could put 70 grand a year in my 401k. I watched your guys's video about a Mega backdoor Roth. Yes, you can do a mega backdoor roth in your 401k at your day job at work. And that allows you to put up to 70 grand for 20, 25. So after you put in your. Let's say you put in. Just to run. Run with the numbers here on this. Let's say you put in 10 grand. The company matched 10 grand. So you have 20 grand in. We have 50,000 left that you can contribute, but your Employer's not going to match anything. They're not putting any more money in. The regular employee contribution. Max goes to 23,500 for 20, 25. So that only gives me $13,500 left and just regular contributions. And if that's all I want to do, just do that. But if you're like, I want to do more, you're going to do an after tax employee contribution. About 60% of plans. 401 plans allow for this after tax employee contribution that can immediately be rolled out to a Roth IRA or you can convert to a Roth 401 with no tax due because you didn't take a deduction.

All right, now, for many of you, Matt lost you in about four words in there. And it is complicated. So let me tell you a story. Let's bring this together. This is when Matt and I learned about this strategy. We did. We learned about this from a client. We had these guys working up in South Dakota on Alaska.

They were Alaska.

I thought they were South Dakota. I remember. Well, they're all over the place. They move them around and, you know, they're oil rig workers.

They could have ended up in South Dakota. I'm just. I'm just trying to get the facts right.

Okay, fair enough. Fair enough. You know, you're ruining my story here. Oil rig workers. Can we agree on that?

Okay, and fun fact, the old podcast jingle, when we very first started the Main street business podcast, when it used to be refresh your wealth podcast, the. The sound bite used to be called oil rig. That was the jingle.

We were. We were trying to be manly accountants and lawyers. Okay? So these oil rig workers, wherever the hell they were, okay, they're up north. They're up north. They're making a ton of money. Because if you're an oil rig worker and watch Landman, if you haven't seen this recently, oil rig workers get their housing taken care of, their food taken care of. They move them up there to go work on the oil rigs. They're getting these paychecks. They can't even spend their paycheck on Friday nights at the honky Tonks. They're, like making great money. Some of them with families are sending it back to their family in Oklahoma City or down in Texas somewhere. But they go work for three or four months up on these oil rigs, and they're making a ton of money. So these guys.

Mark's getting somewhere on this story. He's going somewhere with this.

You're never gonna forget this story. Now that I'm telling you, hang in there. So these oil rig workers call us up and go, we are making so much damn money and we wanna save for the future. And the company's only matching five or six grand of our money in our 401k and I can only put in 20 grand. There's gotta be another way. So these geniuses and I give it to them cause they're engineers, really, oil rig workers. They're in these little huts with computers around them drilling in the ground. They're not there getting oil sprayed all over them. These guys are smart. So they start doing their research. And I visited these oil rigs, okay? And these, they start doing their research and find out you can actually put more Money in your 401k at work. It's called an after tax contribution. The thing is though, no one does it because you don't get a write off. You so you get a paycheck and the money says on the paper you made this money. But in box 13 you're saying, send it to my 401k. And HR is going, who is this idiot? Why would they send money to their 401k and not get a write off? They're still paying taxes on this money. Well, these oil rig workers are like, yeah, that's fine. Because on day two I'm going to convert it to a Roth. And when I convert it to a Roth, there's no tax because it's already in my paycheck. So they were able to backdoor into a mega 401k contribution by gaming the system. They said to their employer, put in not only my 23,000 but put in another 40, whatever it is to get me up to 70. When you put your match in the mix. And the company's like, fine, we'll do it. And then the next day they send in the paperwork. At the end of the day They've got a $70,000 freaking Roth IRA and they're still making money at the oil rig and they're loving it.

Yeah, let me fill in a couple spots here on the story too. Is these guys were actually using Fidelity at the time. And that's why I was like, what are you guys doing? And like, you know, so I dug into it. Well, this isn't about 2015, 2016. I think in 2014 there was a revenue ruling from the IRS about this strategy where someone was saying, can you do this basically? And they're like, yep, you can. And essentially got green lighted. So every savvy financial advisor or tax attorney, CPA Was like, all right, how do we utilize this for our clients? At the time, most plans didn't allow for this after tax employee contribution. But certain companies like the oil and gas industry, they had high income execs and they also had these workers out in the fields and engineers that were, that made pretty good money. They were like wanting to put more money away in retirement accounts. So they had this after tax thing already built in. Now let's go through the example here just to help illustrate this. Let's say that there was the 10 grand out of employee contributions, 10 grand in of match already.

Okay, so there's 10 and 10.

So I got 20 and I got 50 left to do. All right, now that, that 20 is going to be stuck in the 401k. Okay, the other 50 you're going to contribute to the 50. The other 50k, you're going to contribute into the 401k as an after tax employee contribution. And you're going to have two options. One, you can roll that whole 50k out to a Roth IRA. No conversion. It just gets accepted into a Roth IRA. A Roth IRA can receive after tax 401k employee contributions right into it and it's Roth dollars now in an IRA. Or you can convert in plan within the 401k to a Roth 401k.

And there's a third option here that remember the 20 you put in 10, the company matched you 10 on that 10 you put in. You already had decided I want that to be Roth money or I want it to be traditional. You would have gotten to choose. And the company match is by definition traditional. So it's not included in your paycheck. They're just going to match it and throw it in your 401k.

They can do Roth. That's a new thing.

Yeah, it's true too. But a lot of companies are not. Yeah, they're rare. So the third question you're going to ask yourself is, hey, you know what, Whatever's traditional that's sitting in there, I want to convert that to Roth in the plan at the same time. Now you can't roll that out to a Roth because it was a contribution by you and a match by the company. And it's typically going to be traditional. That's 90% of the time what it is. So you're going to say we'll convert that to Roth as well. Now why are you doing this? Because, you know, in the long run that's a tax free atm. It's going to keep growing tax free and come out tax free. And yes, the people that are doing this have a little larger paycheck and they're like, I can afford to pay the tax on this even if I don't get the money. So if you're looking at a big bonus, you've made a little more money than usual. Or your spouse has a small business and they're making money that helps pay the bills and you're like, you know what? I'm going to let this ride. Those are the people that are dropping 70 grand into a Roth IRA or somewhere in between.

Yeah, anywhere you want. Roth 401K IRA. It's in the 401 case. Not only the after tax piece comes out to the Roth IRA. Right. So like in that example, it'd be 50. But you know what we're saying here, 70K in the account maximizing, because you're able to do this after tax contribution. That's the mega backdoor Roth.

And When's the deadline? December 31st. And you don't want to be calling Judy or Toby on December 30th or they're going to wring your neck. So as soon as you hear this podcast, you may go, holy crap, this is awesome. I'm going to get on it. Or, you know what? I'd like to learn a little bit more about this. Oh, well, we have a webinar next week for a whole hour. By the time you get this podcast, it might be a day out or whatever. The recording will be available. Go to kkoslawyers.com and Matt and I are going to be breaking this down for a whole hour. And spoiler alert, you're going to hear the oil rig story again. I'm sorry, because it makes so much freaking sense. But join us for that webinar. We're going to be doing live Q and A at the same time. And if you're able to catch it live, that'll be a nice benefit. Or if you catch the recording, you're going to hear all the questions that you would have typically asked anyway. So, people, this is a killer strategy.

Yeah, and also just get a comprehensive tax and business consult at the best law firm on the planet, KQS Lawyers. Just talk to one of our tax lawyers and get into this strategy and all other stuff you didn't even know about that you should be thinking about. That'll save you taxes.

Well, actually, Matt, before I go to number three, we need to bring one last thing up on the 401k, and that is for you, small business Owners out there. If you want to set up a solo 401k, you have got to do it before your end. We'll give you some critical deadlines internally for US because the IRS shuts down on December 26th, by the way, to do maintenance and you don't have it done by then, you're screwed. So the Solo 401 is critical. And you may say, well, there was a law last year or the year before where I can still set up a 401k next year. Yeah, you can, but you don't get as much bang for your buck. So Matt, tell us about this year end 401k solo thing for small business owners.

Yeah, I mean the. There's two important things to think about. One, if I want to maximize contributions, I need the solo 401k set up by year end. Our internal deadline to get going on this is December 15th. So one, I want to make sure I can maximize all 2025 contributions. The other thing to be thinking about is there is a tax credit for solo 401ks that we're talking about in this webinar as well.

Yeah.

That can get you a $500 tax credit, not a deduction.

A tax credit times three for the next three years. Yes.

It'll get up to $1,500 total. So if you want to, you know, chip away at 500 now for 2025, let's get it set up so you can be able to claim that for 2025 seed.

If you're in a 30% tax bracket, a 500 credit is equivalent to a 1500 dollar deduction. So. And we set up 401ks for a thousand bucks. So you're able to get into a solo 401k before year end, get a tax credit that pays for IT plus another 500 next year and the year after that.

And you still get the deduction, by the way, of the thousand to set it up.

That's right.

This credit is separate from the setup cost and this is not the startup 401k credit. That's a whole different thing. This is a different credit. But again, there's a webinar. We're talking about this@kqslawyers.com Go to the webinar section. Maybe you'll catch it live. You have to catch the recording. But we'll be digging into this and everything.

We were just talking about the quote unquote matching out. The mega is going to apply to you as well. So this comprehensive tax consult. Oh my gosh. People, I'm just going to, for a couple grand, you get to meet with a real tax lawyer on Zoom, applying every strategy that will move the needle for you before your end. Now, our guys and gals, we have 10 lawyers, they're pretty busy, but you can get in within at least four to five days right now. And I'll tell you, it gets heated

after the 15th, you're going to be calling his favors.

So in the show notes below, just click on KQS Lawyers and you can make an appointment immediately with any of our tax lawyers to have a one on one planning session. And they're going to cover all this too.

They'll look at your last year's tax return, get an understanding of what you're doing and not doing, give you the

ideas, get your kids on payroll, do your annual board meeting, drive off, travel during the holiday. All these questions that you might have will be covered in that consult tailored to you. And you'll get a trifecta out of it. Oh, it's beautiful. Okay, so number three, though, moving on. Number three is this Roth conversion where I have to convert any traditional money to Roth by the end of the year. Why would I do that, Matt?

Yeah, I mean, the, the Roth conversion deadline, why we're saying December 31st matters is if you want it on your 2025 return. Okay. And I want to think about a few things on Roth conversions right now.

It relates to a lot of stuff.

Yeah, and this is interesting right now because I've had calls with clients that are like, like, well, Matt, I've been in the market and the market's down. I want to convert my account now. My crypto traditional IRA has been in bitcoin. Bitcoin's down from when I bought it, so I want to convert now. So another thing to think about is like, if you have a lower reduced value, and I'm just saying this because the stock market, if you're invested in that, or even if you've had a crypto IRA with this directed IRA has gone down, you may want to think about just converting because you have a lower value. Because remember, the cost of conversion is the value of the account. You're going from traditional to Roth. So if I got a hundred thousand dollar account that it was invested in bitcoin in a traditional IRA, or, you know, I bought Nvidia stock that was 100 grand, now it's down to 80, I'd rather convert. So I'm only taxed on the 80,000 conversion. All right, so, but the other Thing is, let's take that $100,000 you still want to convert. Let's say it's in a traditional account. You might say, well, I want to do 50 grand this year, get it on my 20, 25 return, and then I'll convert the other 50 grand January 1st, 2026, and I'll break up the conversion over two years. You may even want to break it up 33, 33, 33 over three years. Doesn't matter here. There's a couple of reasons why we like this chunking strategy. First is we want to lessen the tax burden over time. Right? It's a large check I'll have to pay to convert to going taxes. Second, I want to stay in a lower tax bracket. All right? If I do 100 grand, that might bump me into a higher tax bracket. And sometimes the steps on the brackets are 8% or 10%. So depending on what your income is, you may want to look at that and the tax brackets you're in. This is going to bump me up where this 100k is now at a 32% rate instead of a 24% rate or whatever it might be. So you can be a little strategic in that and by chunking it, make sure you don't jump up into the higher bracket.

Yeah, and I, on this note, I was just looking at our brackets and if you're single, the jump between 24 and a 32 is really where it's going to be. Most people are not stressing about this when they're under 100 grand. It's tough out there. You know, trying to make ends meet is tough. We are recognizing that. But there are people that are listening to this podcast that are having a good year. They're making money and they're like, I'm getting killed with taxes. That's who we're talking to here. And if you can pay a little more tax now with a little short term pain, the long term gain can be incredible. And so that's what tax lawyers are really about, the long game. If we can really make strategic decisions now that save you taxes next year or even for the next 10 years, that's where the real money is and what the wealthy do. It's not about short term pleasure that we all about that long term wealth. So if you're single and you want to be converting up until about $197,000 of income, you want to be converting over to Roth. Once you go over 197, you're going to jump up by 8% in your tax bracket. Now, if you're married, filing joint up until 394agi, you want to be chunking. Once you go over 394 and you're going to chunk, you're going to add an additional 8% to your tax rate. You may want to rethink that. Now, some people are like, I'll rip the damn band aid off. My crypto's down. It goes up by 10%. I just paid for that eight, you know, sort of concept. So it just depends on your situation. And this is what we cover in a consult as well.

Yeah. So Roth conversion. Remember, this is a deadline issue. If you're trying to get some on your 20, 25 return. Another theory I've had a lot of people say is like, Matt, I just want to convert the whole thing. Maybe it's 50 grand or a smaller amount. Maybe I'll just wait till January 1st and just do it all then so I don't have to worry about my 25 return. That's another school of thought. So just keep in mind this December 31st matters at what time you're doing the conversion and what tax year this is going into. So be a little strategic about it. Whether you're chunking, pushing it into that year, or grabbing it this year because your account's at a lower value.

Okay. And last little tip I'm going to throw in here as a bonus is if you want your kids to put money into their Roth IRA, they have until April 15th. Okay, what's your point, Mark? They have until April 15th, but they have to have earned income in their bank account by December 31st. So for all of you small business owners out there, even with rental property, pay your kids what they deserve for helping with the business or the rental or whatever they were doing. Put that money in their bank account. Even if you reimburse yourself for the cost of living that you've been providing for them, the little jerks. But what are. Did I just say that? Okay, anyway, so put the money into their bank account before December 31st, and you've just unlocked the opportunity to help them fund their Roth over the next three and a half, four months. So you got plenty of time to fund it in the spring, but you got a funnel the money through their account now in the next month.

Little jerks that. Remember that line from Home Alone? Look what you did, you little jerk. The crappy uncle.

Yeah, I know. This time of year, we've just started the shows. Patty and I last night were watching Planes, trains, and automobiles.

You know, good starter.

Yeah. You know, Thanksgiving starter.

I like it.

It's a good one. I like it. So thanks, everybody, for being here. This was so fun to talk with you, and there's so much opportunity out there.

There.

If you've loved this podcast, please share it with someone. Give it five stars. Two thumbs up. Thank you so much. Travel safe during the holidays. And don't forget all those cool tax strategies that can end up under the tree if you do a little planning. See you next week.