Oil-rig workers earning high salaries use the mega backdoor Roth to contribute $70,000 a year to a Roth IRA. They max out the standard $20k pre-tax 401(k), then add after-tax dollars and immediately convert them to Roth, avoiding future taxes since the money was already taxed when earned.
Chapters
These oil rig workers call us up and go, we are making so much damn money and we want to save for the future. And the company is only matching five or six grand of our money in our 401k and I can only put in 20 grand. There's got to be another way. So these geniuses and I give it to them, they're engineers, really oil rig workers. They're in these little huts with computers around them drilling in the ground. They're not always out there getting oil sprayed all over them. These guys are smart. So they start doing their research, find out you can actually put more Money in your 401k at work. It's called an after tax contribution. The thing is, so no one does it because you don't get a write off. 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, 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.
