In this video Mark Kohler, a CPA‑attorney and author, walks viewers through a side‑by‑side comparison of Roth IRAs and Roth 401(k)s to help small‑business owners decide which retirement vehicle best fits their needs. He outlines the contribution limits ($5,500/$6,500 catch‑up for Roth IRAs versus $18,000/$24,000 for Roth 401(k)s), income eligibility (Roth IRAs are phased out at higher incomes while Roth 401(k)s have no income cap), and borrowing rules (IRAs cannot be borrowed against, Roth 401(k)s allow loans). Kohler explains the simplicity and low setup cost of Roth IRAs versus the higher setup fee (≈$1,200) and annual fee (≈$400) for a self‑directed Roth 401(k) that requires a small‑business entity (often an S‑corp). Both plans can be self‑directed, but borrowing inside a Roth IRA can trigger Unrelated Debt‑Financed Income (UDFI) tax, whereas Roth 401(k) loans avoid UDFI. He stresses that the choice depends on the client’s contribution goals, business structure, and willingness to manage the plan, and recommends consulting an accountant or financial advisor while staying open to self‑direction. The video ends with a call to action for his free ebook and other resources.
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Hi, Mark Kohler here with another tax and legal tip. Let's talk about comparing the Roth 401k with the Roth IRA. I get a lot of phone calls with clients asking Mark which one's best for me. Now this is a complex topic. Let's see what we could do and break down the basics. Okay, let's go to the whiteboard and put them in two different columns. See if that'll help make more sense of it. Let's start with the Roth IRA first. More people are familiar with the IRA or Roth ira, been around a little longer. And then we'll put the Roth 401k over on this side. Now there's pros and cons to both, but let's start with the Roth ira. Maybe we'll contrast what's good and bad because again, everybody's a little different. But you can only put 5500 into a Roth IRA or 6500 with catch up if you're over age 50. Now, now there's also some income limitations. So if you make too much money, you can't even do this, which is probably one of the cons, right? Limitations. You cannot borrow against your ira. So that's another problem when you start comparing them with the Roth 401K. But the Roth IRA is simple, it's easy and it's cheap to set up. So that's easy and affordable. So you've got these different options. And if some of you want to get into a Roth ira, watch my video on the Roth conversion. Because there's no income limits on a Roth conversion. But when I have a client looking to put away a lot more money and even self direct and get a little more creative with some lending, we might want to go to the Roth 401K. Alright, now let's compare the Roth 401K and go over here. Now the first benefit we like is you can put away a lot more money. $18,000, 24,000, that's a $6,000 makeup if you're over age 50. So you can see here kind of a big deal. Now the next benefit is there's no limitations here when it comes to your income level. You can make a million dollars and still put money in a Roth 401K. So like that, no limitations on income. Also with a 401k, you can borrow against it. Borrowing provisions are pretty cool. We gotta love the borrowing provisions if you want to suck some money out of the 401k and use for personal reasons. Now the con here in this situation is in order to take advantage of this you've got to have a small business. You've got to have some small business income. So I typically see our clients with S corporations with ordinary income really funding the Roth 401K. The other con is you've got your setup cost. We charge around 1200 bucks. You're going to see that or more out there if you have multiple employees and it could get a little more expensive. But I would say I'd budget around $1,200 for setup and we charge around $400 a year and you get to be your own trustee and maintain the checkbook. No stockbrokers are taking a percentage of this. This is for you to self direct your own 401k which I'd like to summarize with that. With both of these plans you can self direct and you can invest in what you know best. Watch some of my other videos on this strategy. But with a 401k you can borrow inside your 401k to do investments with no UDFI. That's unrelated debt financed income. Another deep concept. But you have UDFI when you borrow money inside a Roth IRA and you're self directing. Bottom line. This is a complex topic as you can see and something you should debate with your accountant or financial advisor. Be open to self directing. Don't let an advisor tell you can't do this. It's usually that they can't do it, but you can look at your options even if you have employees. As to what you can do with a Roth 401k again, talk to your advisor. Big topic. We'd love to help you but keep catching these tips and we hope to better help you live your American dream. Thanks for listening and I hope that information was helpful. And let me speak from the heart here. I've been talking about topics like this for 1015 years. I'm a CPA attorney, best selling author, radio show host and I am passionate helping small business owners save taxes, build wealth and protect it. Please check out the link right here. Download my free ebook on 10 Common Mistakes Small business owners make in the tax and legal arena. Also check out my social media links here. I've got Daily Tips, a weekly blog radio show every week. This information is free and I'd love to help you. Click below. Find out more about me and thanks for listening. Sat.
