How To Earn $60,000 TAX FREE Every Year

Talking about Roth Roth accounts, how to have more.

It's better than that. It's the mega backdoor Roth,

which, if you didn't know, is how you can get more than 60 grand per year into a Roth account that can come out tax free at retirement and you

can self direct it and invest in whatever the freak you want.

I mean, I don't have to just buy mutual funds.

Yeah. And you know, I had a phone call with a client yesterday. We were talking about the Charitable Remainder Trust. We're doing some additional strategies with CRT and some crypto and some real estate. And the client said. And they go. And his wife was on the phone, she's like, well, I want to do a Roth strategy too. Can we do that inside a crt? And I go, no, they're kind of brother sister. We do the Roth over here and we do the CRT over here, but they can work in concert. And we talked about some strategies there. And then they go, well, hold it. How much can I put into a Roth? And I said, with the mega backdoor roth fricking over 60 grand. And they were like, brain's blown. And then the husband said this. Well, I can't get to it till I'm 65 and I'm 55 now. I don't want to wait 10 years. I go, whoa, whoa, whoa, whoa. You can access the Roth IRA at 59 and a half. It's like a tax free ATM. Just pull out whatever the frick you want at 59 and a half. He goes, what? I go, have you had the Roth for at least a year already? Yeah, I've had a Roth for a while. It's only got a few thousand in it. I go, five years or 59 and a half. Whichever's earlier, it's all yours, baby.

But also, here's the cool thing about the Roth. The contributions you put in can come out tax free whenever you want. It's the earnings and growth. You gotta wait till you're 59 and a half.

And this is why we're doing the mega backdoor Roth today, because it's like the Roth on steroids.

So the Roth was on steroids and also worked out every day. That's what it's like. We want to make sure you know what the heck a mega backdoor Roth is. That's over 60,000 per year into a Roth account. I know many of you are like, I thought I could only do 6,000 or maybe I can only do 20,000.

I can't do anything. I make too Much money. I make too much money.

Yeah. No, no, no, no, no. We're gonna cut through the BS and let you know how you can do it and go over the strategies and how it adds up. Let me say this. This is why you gotta know this stuff and be informed. Because a lot of people are gonna give you the quick, easy answer of just no. Because when people don't know, your financial advisor, your cpa, they're uninformed. They wanna just say, no, you can't do it, because they look. They're gonna look like a moron when they try and tell you how to do it, because they don't know. So we're going to teach you. Here's how you do it. And go through the technical rules on how it stacks up where you get to over 60,000 a year.

All right, now, in the mega backdoor Roth, it all starts with the basic Roth. And we've got to dispel some myths. Matt, what does this tell us?

All right, the first thing you're going to do is you want to put 6,000 bucks in a Roth IRA. And the myth Mark's talking about, there's a lot of people know if I'm high income, I can't just drop 6,000 bucks into a Roth. And we got the slide here outlining what's high income here just for those on the podcast. You know, have the benefit of seeing the video here. You know, if you're making over basically 200 grand, married, 125,000 single, you're going to be phasing out on this. And you can't go in what we call the front door for a Roth ira, but there's another door, you see

six or seven thousand. So we've got to make that distinction, that if you're under age 50, it's six grand. If you're over 50 or older, it's seven grand. And so what a lot of CPAs say, or financial advisors is you make too much money, you can't do a Roth. And that's. They don't tell you a couple extra strategies or rules which we're going to unveil now. But before we go to the next slide, I want to point this out, too. Some people go, well, I'm too old. You're never too old to do a Roth, period. And then people go, you said you could do this with your kids. Yeah, I've got kids that are 2 years old with a Roth. All they have to have is earned income. Now, you gotta have a unique scenario as a small Business that could even

have the 2 year olds. You know, maybe they're, you know, the child actor, but you gotta have, you know, definitely your teenagers and those people working the family business are great for the kid Roths that they have income or they got their summer job or whatever.

The point is, Again, any age 2 year old or 92 year old can have a Roth IRA with a little earned income. So that myth is dispelled and we don't care what your income level is. So here's this next slide. Matt, show us how this works.

All right, so I said, you know, you can't go in the front door. So what we're going to do is this is called the backdoor Roth. And you may have heard news, the backdoor Roth IRA is getting closed and shut out. There's legislation on that. Last year it didn't pass. The backdoor Roth has not been locked shut. It's still open. You can still go through it. All right, so what, what the backdoor Roth means is, is you don't qualify to make a deductible traditional IRA contribution if you're high income, but you can still make a traditional IRA contribution. It's just non deductible. Well, why don't I make a non deductible traditional IRA contribution? I'm high income and I'm going to convert it to Roth. You can convert non deductible traditional contributions over to Roth. And so that's all we're doing. It's kind of this two step process. It's commonly known as the backdoor Roth. We have prior podcast episodes just on the backdoor Roth. But this is an important one because this is the easy one for a lot of people that are just like, guys, I don't have 60 grand to throw in every year, but I got six. Or even if you're like, dude, I got as much as I can throw in. Well, let's do this. Mega BackDoor 401K Roth and the Roth IRA to get to this even higher number.

Okay, but notice off to the left on this slide. We were told by our current CPA or financial advisor can't do it. They're wrong. Now notice the little. However, now for those again, listening. I'm pointing out the different sections of this slide that this is why a lot of financial advisors will say you can't do it, because they're thinking two steps ahead. And don't tell you this, but it's a fair point, is that if you have old traditional IRAs, again, you have to Convert those to Roth first. But what they don't say is let's. Let's see if we can crack the code here. What could we do with that old IRA? Oh, we could roll it into a 401k that you've got sitting over on the shelf here. And that rule is gone. Or, hey, do you want to do some chunking and convert some of that other Iraq? Yeah, I would, Tom.

Okay. You probably want all that to be Roth anyways, right?

So they don't take the time to say that there's some ideas here that could work, you know, and so it just drives you crazy. All right. Okay, now the next slide. Oh, my gosh. This is step two, okay. In the stacking to get to the. Okay, I'm going to show the slide just so you know where we're headed. This is the coolest slide. This is the mega backdoor Roth cylinder Power. Okay?

So

this is going to show you how we stack this bad boy up and we get to our levels.

And just so everyone listening again on our YouTube, we're. We're adding up how these numbers add up to get to the over 60,000 here we're talking about. So there's a couple. There's really three little amounts in the cylinder of power.

Cylinder. Okay, so we got to go back to the grid spreadsheet here. And step one was get your Roth 401. Step one was get your Roth IRA funded. And if you need to convert some old traditional money, do it, or move it to a 401k and back and get rid of that rule. But step two is. Okay, now I've got to use the 401k strategy. Okay? Now, in this grid, for those of you listening on the podcast and what I'm showing here is within the 401k, there's two or three pieces, which the cylinder of power will show you in a moment. The first piece is, okay, I'm setting aside your Roth IRA. That's really the first step. But in the 401k, there's kind of an ABC. The first part of the 401k is your deferral. You know, how much do you want to defer? Now, you might be doing a little bit of deferral at your day job and getting a match. Love it. We call that matching out. Get the match, get the hell out. But then in your solo 401k, for those that have that strategy, you're going to do the rest of your deferral in your solo. Or if those of you that just Have a day job, you're going to defer your entire amount even if you don't get a match on the whole thing this year that the diagram shows 20,500 if you're under 50, 27,000 if you're 50 or older. Then part B of the 401k is this matching thing. Now why I say there's a B and a C is if you're at a day job, they're only going to match up to so much. So we've got to add another piece which is called this non deductible 401k contribution. Or if you have a solo 401k, you might do it through a match strategy with your S Corp or did this non deferral. Now I know I just said a lot of things that sounded girly goop, be patient with me. But what I'm just trying to say is the 401k is not just one check. It's made up of one, two or three pieces to get that next because we got to stack this thing to get to that mega backdoor, backdoor amount. Some of you would just like say, oh, where do I write a check? It's not that easy. So, so you got to be patient with me.

And, and it does take kind of like the backdoor Roth ira. We showed where you're making that non deductible contribution. You convert to roth in the 401k. It's actually called after tax. It's similar in that you don't get a deduction on it, but it's this after tax contribution which you make a Roth conversion on. So it's kind of like once I did that 20,500 of straight Roth. Now I'm doing after tax contribution converting to Roth. It's kind of a similar process.

Now here is the cylinder of power. Alright. Now this is the under 50 and we've got the 50 and over. So just under 50. Let's show what this looks like. So the first thing is the bottom portion of the cylinder is your individual Roth. We already talked about that. You're under age 50. Here's your six grand. Yeah. Then you've got your 401k employee contribution. That can be straight Roth. That's easy. There's no conversion straight. Matt, what's your take on this? See this little match thing? What's your take on that?

Well, some of you, let's say you have the day job 401k, right. They're throwing in a match, likely in that. But you can convert that to Roth. Let's say maybe they threw in 5,000 of a match on your 20,500. You could convert that five grand to Roth. Boom right there. Yep.

Okay.

Now and but if you don't, let's say you, they don't match anything. They're like you're on your own. You want to throw in money, throwing money and there's some 401ks like that. Then you're just at the 25. And then we keep going up the cylinder here because we can still get more in.

Everything you're putting in is either Roth or going to be converted. Converted to Roth. And that's okay. Now in our cylinder of power, individual Roth at the bottom, then your, your deferral. Get any match you can. Fine. If the employer does it, then you go up to the last piece to the cylinder. And this is what Matt clarified for me earlier and it's properly typed here. It's called the after tax employee traditional contribution. The the reason why I like this than a match. If you're in a solo 401k is you can take a lower salary and get there. See a lot of people say oh, if I do a match, it's 25% of whatever my salary is on top of my deferral. Well, this is a new strategy we've learned at our accounting law firm in the last two years is over to the right side. You can see that if I take an optimal payroll amount of 66 grand, I can defer almost the entire thing into Roth money by doing this after tax thing. Now if you need to take a bigger salary because your company made more money, take a bigger salary. Stay out of hot water with the irs. But if you are, if you have some flexibility to take a lower salary, your sweet spot here is 66. 053.

Yeah. And remember that's going in now. This is on your W2 too. And so you've got to have the earned income also. So you've got to at least have that amount of earning earned income. This is whether you're self employed, doing the solo or you got the day job, you know, 401k at Dunder Mifflin. And so you're able to do this both. Now most 401ks like definitely our solo K allows for after tax. Most company 401ks actually allow for after tax. It's more the exception that a big company for 1k does not allow the after tax. So. So it's pretty widely available is basically what I'm trying to get out Here it's just learning how to execute it and pull it off that sometimes that's where you can get tripped up. You call HR, your 401k administrator at the day job, and they're like, I don't know. Or they say no because they don't know how to do it. So this is. This is the strategy. And the hard part really is this after tax amount, because it's got to go in as after tax. It's on your W2. Or actually, is it not on the W2? I think we actually realized it's not on the W2. Is that right? The after tax.

Oh, the after tax is in box 13. So it's a box on the W2.

Yep. Okay.

And for you accountants out there, you want to make sure. Okay, so. All right, let me. Let's get.

This is going to get geeky for a minute. I can.

Yeah, you see the geekness coming? King of the.

Coming out.

Yep. Here it comes. Here's the geek. Okay. Right now, it's April. We're recording this April 12th, 13th. It's going to go live today, tomorrow. We want you to have this in time before the deadline and make sure all of you come to the summit next week after the tax deadline. But here's here, let's get real notice up in the slide, it says 2022. The reason why is you've got a plan for this. No later than January of the year, you want to take of the prior year. Sorry. Of the subsequent year, you want to take advantage of it. So if you want to do a mega backdoor for 2022, you're going to be putting some of this information on your W2 in January of 2023. Because, see, this has got to all add up for 2022. And that's why we're sharing it now. Now, you can do some of this mega backdoor for 2021 still. But if you missed some of this on your W2 3 months ago in January, the ship already sailed. So we can't get the entire 61 grand in this example, or 67 grand if you're under age 50.

But you could maybe do the employer contribution and convert that to Roth for if you're looking at 2021. So there could be a couple of things you could do because employers not do. Again, it's going to turn on your salary and everything. But let's say you had $100,000 W2. That's $25,000 you could throw in as company match employer contribution. You convert to Roth. Again, not the regular way to do it because it takes a higher salary. But I'm just saying it's a save for those of you that didn't get this right in 2021 yet.

Yeah. And literally I have a call with a client right after this that is literally saying, okay, what do I put in my 401k? Because see, the cool part about this is if you're planning properly, you can put the numbers on all the right forms in December, January, up until April 15, whatever. But you actually don't have to put the Money into your 401k until the date you file your tax return with extensions. So if you extend next week on April 18, and you've put the numbers in the right spots on your W2, you're okay. You still have time to put the money in. So anyway, that's the bad News. So you CPAs out there make sure that you're putting these numbers in the right boxes on the W2 in January for the previous year. You're trying to pull this off. Does that make sense? Yeah.

Yeah. And those with, like, the day job 401k is a little more trickier. Cause you don't have a lot of flexibility. You're dealing with HR and your W2's cut. You know, they ain't getting the change, so you gotta be on it. But those you self employed, you get a little more flexibility. Cause you know, you're the boss.

Okay, now here's the climax of the show for Those under age 50 is look up in the top right hand corner. Your maximum Roth for this year in 2022, can be $67,000 each if you're married.

Yeah.

Oh, my gosh. You just did $134,000 in Roth as a married couple. That's awesome. Some of you are like, I don't even make that much money. That's all right. Someday you will. That's the beauty of the marriage.

You can work your way up in the cylinder of power, you know. Yeah, that's okay.

All right, I'll let Matt show the next slide. You know, climactic moment here up in the right hand corner of those 50 or older. Where are we at?

Yeah. The cool thing about those 50 or 50 and older is you get to put more in. The IRS is trying to incentivize those 50 or older who want to throw more in to put more in. Plus.

Plus, we're smarter.

That's right.

You know, we're a little more seasoned.

Yeah. They have more wisdom.

Yeah.

I don't know.

Yeah, for you. But you also get to put more and what's the number?

So on the IRA you get an extra thousand. So instead of six, we're doing seven. But on the Roth 401k we're able to do 27,000. That's just the straight Roth 401k employee contribution as opposed to the 20,500. And so what that allows me to do here is now I'm able to throw 74,500 in on a mega backdoor Roth at the end of the day. Again, if you got a spouse over 50 working in the business too, you both could be doing that and throwing almost 150 grand of Roth new contribution dollars in each year.

You know how sly Matt is. I mean this is that Slick Willy attorney in him. Notice how he said you could be doing about 150. See, he didn't want to do the math of 74,500 times2 because he was like, I don't want to go there.

And 149,000 doesn't sound as cool.

Yeah, it's really 149. But you know, he was like about 150, you know, what's that about? What's a thousand? 140. 950 tomatoes.

Not an accountant. I get a, I get to do the fuzzy math. It's close enough, everybody.

That's it. I'm going to, I'm going to stop sharing the screen here and just summarize with. There is a mega backdoor Roth that exists. It is not a unicorn. Whatever. This is for real. It's real. You can do it again. This is a Roth IRA that you can self direct. There is a lot in the news this last year with Peter Thiel and his 3, 4, 5 billion dollars whatever Roth IRA that he started in PayPal and Facebook and all these things. You can do the same thing with your Roth. You can invest in any type of small business that you're excited about. Crypto real estate startups. So get out there, use your retirement account and get to the directed IRA summit. It's, it's for real. Yeah, tell your accountant.