Tax Free Wealth - Powerhouse Roth IRA Strategies (No Stocks)

Welcome everybody to this week's episode of the Main Street Business podcast with yours truly, Mark Kohler and my amazing co host, Matt Sorenson. Boy, do you like all that inflection. I was really trying to make that.

Yeah, yeah. This week, this Sunday. Sunday, Sunday. I like that, you know, but I like the topic of today even better. I like the topic. Okay, going next level guys on Roth Strategies. We're going to Roth and roll today. Pretty excited about it. And I think for those of you that know a little about Roth, you know how awesome it is because it's the way to make money tax free. We're going to talk about how you can get more Roth. Or maybe some of you thought you couldn't play in the Roth game.

We're going to go over some ways to get there. Yeah, we've got so many little cliches, you're going to be sick of them. We're going to Roth your world. Get it? Rock your world, kid. Roth. We're going to. We can do it all. We like. We could freaking give a two to two hour seminar at least on just Roth strategies. Probably three hours.

So going to be Roth some.

Oh my gosh. Okay, now we will say this, this is going to be a tight show. So we're going to go quick. Let's get into it. So next level Roth strategies. I'm going to give a general intro and then Matt, you. Then we'll just back and forth with our Roth strategies. Here's the general intro. A Roth ira, gross tax free, comes out tax free for investments. And anybody at any income level can have one. You can buy whatever you want in your Roth. You can self direct and buy small business, real estate, crypto, do notes, you can do all sorts of things. Now if I just blew your mind with that statement, Statements, you've got a lot to learn. They are legit, they're honest, they work. They've been around for years. Why do you think Peter thiel has a $6 billion Roth? It's because it works. So we're talking about next level strategies. Assuming many of you already know that you can fund a roth with just 5 or 6, 7 grand based on your age. And you can play in the game at any income level. You can grow it and build it. You can form llc. There are some sell some prohibited transaction rules and LLC strategies. And those are all going to be. Let me write this down, everybody. Okay, this is the directed Ira podcast that you would want to go to. That's our sister podcast, Directed Ira podcast. When you get over there. We have multiple episodes under Roth breaking it down. But today we're just going to rattle off our next level strategies. Matt, the floor is yours. All right.

Awesome. And the Directed IRA podcast, if you watch on YouTube, is on, on my channel, Sorensen. But let me say one other introductory thing and then let's start hitting them is when we're talking about Roth, when we say Roth generically, that could be Roth IRA or also Roth 401K. All right. And in the future, by the way, there's going to be Roth SEP iras, Roth simple iras. There's a Rothification going on in Congress. That's what they're calling right now. They love Roth because they get to tax your money. Now we love. So Congress and the government loves Roth. So these are going to, these are going to only get better over time because you don't get a tax section when you put the money in, which is fine. We are playing the long game. We want this thing to grow and come out totally tax free. Retirement governor doesn't care about that. When they run their budgets, they look at 10 year cycles. They don't care about all the money they're leaving on the table that we get the benefit of in the long run. So, but we're talking about Roth IRAs and Roth 401k type. Let's hit the first one.

The first strategy you choose, you choose.

Let's do the backdoor Roth.

Okay.

All right. The backdoor Roth. This is a tried and true one. It's been around for days. You could. Years, Days, Years. You can do this at directed ira, of course, at our company, you can do it at Fidelity, you could do it at Merrill lynch, wherever. Everybody will do a backdoor Roth ira. So I just want to say it's legit. It's been around. Now, Roth IRAs, as many people know, is the most common Roth account. And as Mark said, you can put 6,000 in 7,000 if you're 50 or older. But the Roth IRA has an income limit. If you make too much money, you can't put money in a Roth if you're like high income, which is only like $120,000 or something, it's not a very high income level. So you're restricted from putting a new contribution in the front door the normal way. But there's a backdoor method where you basically put money into a traditional IRA that is a non deductible contribution, which means you don't take a deduction and then you convert that, those dollars over To Roth. So it takes a, it's a two step process. We broken it down to one set of paperwork at direct IRA when you're doing it, but it's a two step process. But it gets you in the back door. You're throwing in six grand a year. I do the backdoor Roth every year and I know some people are like, but it's only six. You know what, if you do it for a while, it's a pretty good, nice little kitty you got of Roth IRA money that if you were, what else are you going to do with that six grand? Leave it as taxable where you pay tax on it when you make money. Yep.

Love it. Now as we're going to rattle through these, some of you like, we'll talk about this more. We have podcasts on, we have articles on this. So just we have our crypto, sorry, our crypto tax summit that we recorded in Miami a couple of months ago where we broke this down. But we have our real estate tax summit coming up in Austin in a couple months, three months and also our directed IRA two day summit in Phoenix. On all of our websites you'll see the workshops, you'll see the other podcasts and info. So we're just again giving you a quick survey today. So Matt just mentioned the backdoor Roth for you high income earners. That said I want to start a Roth and just kind of start playing in the party. How do I get there? Okay, strategy number two. I'm going to call this the matching out strategy. Many of you may think you're captive with your employer. All you can do is play in your 401k at work. All of this Roth icon conversation is just interesting. But I can't play. Nope. You can have a 401k at work and a Roth any income level. So what I tell clients is at least matching out. Put in your money that you're going to get 100% match from your employer on, have that withheld from your paycheck and then get out. Take the rest of the money you want to allocate to your 401 at work and go do your Roth IRA or backdoor Roth IRA individually. You can also max out your 401 at work, do the match portion and throw in rest of your 19,500 or 27,000. If you're over 50 or 50 or over, then go still do your Roth on the side. You can do both. So that's a next level strategy. Don't forget to match it out and even max out your 401k and still do the Roth on your own.

Next, how about the spousal Roth ira? Okay, don't forget some of you may have a non working spouse that doesn't have any earned income. And we may sometimes pay a spouse to do a Roth 401k. Get them actual on your payroll. If you got a small business even before that, you can do a spousal Roth IRA and you can attribute income from the working spouse to the non working spouse. So they can have a Roth ira. Also. So you could be doing a Roth IRA and your spouse could be doing a Roth ira. If you're high income, you can both be doing a backdoor Roth ira. All right. And so don't forget about the spousal Roth IRA if you have any a non working spouse.

On this note, I've got a YouTube video called Should I pay my Spouse? And so watch that because a lot of people think I have to put my spouse on payroll in order to do a Roth ira. Nope. They're attributed earned income from their spouse that may have a day job or a small business. Now on this, I'm going to go to the next level strategy of the Mega Backdoor Roth. Because if you do have a small business, whether you're single or married, you can do your 401k at work in your own small business and then on top of that do additional matching or non deductible contributions and even still do your individual Roth. We call it the Mega Backdoor Roth because you're getting a bite at the apple in three or four different ways. And to get in many instances over 60 to $70,000 in a Roth in one fail swoop. And if you're married, you can double that. So you would have to put your spouse on some payroll to get some of that mega Roth money in there. But we call that the Mega Backdoor Roth strategy. We have podcasts dedicated to that and videos as well.

Yeah, the Mega Backdoor Roth. Just so you know, if you got a day job at a company, you know they have a 401k, you may be able to do this. That's actually where we learned this strategy from clients of ours doing it. It's just oil and gas company, they were just kind of, I mean in that business they were middle income, but they were making, you know, 150 grand a year, 200 grand a year. And they were doing this strategy every year, maxing it out to do more Roth dollars. Now it also works for the small business owner too. If you got employees Sometimes it's a little tricky, but so there's some little caveats there. Like Mark said, we got another whole podcast episode on it. But that's where you can get way more Roth dollars. And remember, why do we love Roth dollars? The more money I make on that, on that Roth. It's not taxable income. I'm growing this thing tax free. I think you guys have already hopefully sold on the Roth. All right, let's talk about The Roth Solo 401k, just in a general concept, for those of you that are self employed with no employees, we love the Solo 401K. We've talked about it many times. We talked about it last week on how it gets screwed up a lot and the directed IRA podcast. But the solo K is an awesome strategy because you can put 60 grand a year in as just you, the only employee in your business. Let's say you're a real estate agent, you're a consultant, you got an online store, whatever. You have no employees, just you and a spouse. Maybe you and a business partner. You can do a solo 401k for yourself, only employee where you're putting 60 grand away. Now, those could be all Roth dollars, you know, and there's a mechanism where you do it. You could be doing the mega backdoor Roth like Mark talked about. You can also add on your spouse. This is one instance where we would add the spouse.

Okay, I like it.

And where they could be doing 60 grand a year, too, if again, you have enough income where you're ready to throw 120,000 into retirement accounts. But we're just throwing out the ideas here, throwing them out. Again, more episodes we have on the solo 401k. Lots of videos and stuff. Mark and I have shot on that.

Now, this brings up what I'd like to call the side door 401k, which could be Rothatized, which some of you are going. Well, I have a day job, but I don't have a small business to do a solo 401.

Ooh, ooh.

But Mark and Matt, I have a rental property or a couple rental properties. Oh, but my rental property's cash flowing. It could even be a little Airbnb scenario, but it's not earned income. I can't do a 401k over there because it's passive. It's on a schedule E. Well, the only time we like this strategy of a management company is to fund a 401k for those rental property owners that want a 401 but can't have one. So what we do is set up either a schedule C single member LLC or an S corporation. Typically a single member LLC will do the trick and that LLC adopts a 401, it's the adopting company. And then the rental property business pays a management fee to the single member LLC management company only up to the amount that you want to fund in a 401k. So we can zero out that single member LLC or choose the Roth money you want to do and basically push money from a rental property business into a 401k that can go buy other rentals. Love it.

Yeah. So, okay, let's, let's. Let me just say the next strategy I have may seem a little obvious, but it's particularly a sweet strategy. Now those of you that have traditional dollars sitting right now, and this could be traditional IRA or it could be traditional 401k dollars. Whether it's a solo K or a 401k at Dunder Mifflin or your day job, whatever it is, this might be the best time to convert to Roth we've had in a long time. I'm shooting a YouTube video on this in particular. I'm going to give you a couple reasons why. First, if you're investing in the stock market in that your account balance is valued lower than it's probably ever been in a long time. And when you convert from traditional Roth, we take the value of your account and so that's an awesome time to convert. When the real estate market Collapsed back in 08 09, I had a lot of self directed real estate clients converting and getting appraisals of their property and converting those over to Roth at really low values 14 years later. Those guys look like geniuses, right? Because they converted such low value. Now they got this much massive larger account that now is fully Roth. They converted at such a fraction of what the total account value is now. Second, the Roth conversion for high income earners has been on the table a lot, a lot. In Congress the Democrats have really wanted to get rid of the Roth Roth conversion for high income earners. So this could close some of the you high income earners out from converting your traditional dollars to Roth. Now that hasn't passed anywhere, but it's always kind of floating out there. And so why not get it done now? Get your little kitty of Roth dollars now. Get the conversion done now while that, that option is still there. And another thing might keep in mind, if we're in a recession right now or we continue on this economic slowdown, are we getting One, you might have lower income this year might be a great time to be paying the tax on your Roth conversion. So there's kind of this convolution of a lot of things right now that makes it an ideal time to be converting your traditional dollars to Roth.

Now I've termed this and I think I'm not sure if Matt used the word, so I'm going to throw it out there is chunking. So meaning some of you are like, well if I convert too much right now, it's going to throw me in a crazy tax bracket situation. So I've shot a YouTube video on this. If you just search Kohler, Roth Chunking, whatever, you'll see a video with May over half a million views. But this video, I go through the different brackets and talk about chunking just the right amount of Roth based on the fair market value of the assets it holds right now like Matt mentioned, this could be a perfect time. But then looking at okay, if I convert today because the conversion is the day you sign the document, not December 31st, it's like you can choose the window right now what brackets that going to put me in. And so you can choose the right amount to chunk at the Roth and say I'm going to do this over a two to three year process so I don't kick my own butt, put me into a higher bracket. So I like that chunking idea in conjunction with the lower market value right now.

Yeah, now. Now the one thing on the chunking is, you know, if you chunk some now and you convert a piece now you're also hoping that maybe if again if you're in the stock market and that's what you're converting is those funds that the market's still going to be down on January 1, 20, 23. So, so but you know, pieces you want to look at that, you know, who the heck knows where the market's going, it could be lower for all we know. What do we know? It could be a better deal. But what do you know?

I think another next level strategy that has to be discussed here. We're talking about getting money into your Roth right now for the most part. But we've got to mention this and that is the self directing option. A lot of people think, oh, if I buy this Roth, if I convert to a Roth, what am I going to buy? Just some more Tesla stock or Apple or whatever and what are my options? Well, this is where many of you that are already listening to this podcast know the possibilities and that is taking that Roth IRA and investing in what you know best. That's a next level frick up strategy. You can form LLCs with multiple Roths, your family members, Roths. In the last three years, between Matt and I, we've bought rentals, cattle in a ranching operation, cryptocurrency, a crypto mine. All of these things can be acquired inside a Roth IRA so you can get better returns sometimes. Many of our clients are doing double digit returns in their Roth because they're outside the bounds of the stock market and we're not beating up the stock market. Lots of opportunity there right now. I mean the down market is, I mean there's plenty of opportunity. But we're just saying keep your mind open to some of these other strategies.

Okay, Love it. All right. One other thing I want to say this is this may seem, you know, oh, I know that, Matt. But check at your employer if you do have the day job. Most 401ks now, 95% of 401ks now offer a Roth option where you can just do Roth dollars. And so stop the pain of continuing to do traditional contributions and figuring out how to convert to Roth. Let's just get the, let's just tackle the thing right in front of you. New dollars going in. Just start doing Roth dollars. If you can again, talk to your spouse, your spouse working, they have a 401k, why don't they just start doing the Roth dollars now? Sometimes in the 401k world they call this pre tax and post tax. And so sometimes you get a little confused of what's Roth and what's not. When they say pre and post tax, they mean pre tax, traditional post tax Roth. So you might have to make a post tax election in your 401k or even 403bs that can have Roth dollars. So don't leave those out of the mix to remember those you or your spouse got one. Any retirement accounts they may have.

I love it. Next level strategy. So many people forget the fact and never even knew it that you can get your family, especially your children and grandchildren into a Roth sooner than they realize. They're thinking, well, someday my 20, my little 2 year old will have a job and they'll be able to have a Roth when they turn 25 years old.

Nope.

All they need is earned income. Now two years old might be a little young, but many clients start getting their kids involved in their business at age 5, 6, 7 years old. Just helping around the office with janitorial basic paper shredding and cleaning, fixing little things that they can do around a small business to create some earned income. Last year I helped a client fund three grand in his daughter's Roth because she had babysat all year long and made about three grand babysitting. Now you may say, well, she spent her three grand, that's okay. Dad can gift her the 3,000 and say, oh, you didn't put that three grand in Roth. Let me gift you three to put into your Roth. Because she had already earned it babysitting. She's not paying fica, she's not having to file a tax return, she's below the standard deduction and she just got a Roth for three grand. So this is a chapter in my book, the Tax and legal Playbook. Matt and I have videos on this podcast. Get your children involved in the business and fund your kids Roth as soon as you can.

Yeah, even those of you that have the teenagers that do a summer job or they got a part time job. I love the teenagers because even if they're like 16, 17 years old, they're starting to learn finance, they're starting to use a debit card, they have a bank account, they get a paycheck. Like they're starting to kind of learn these adult things. It's a great time to get them introduced to the Roth ira. They can even trade it. They, whether they self direct it, whatever, get them in on deals you're doing. You know, we love that stuff. So think about them too. Even if you, they're not in your small business or they get they got another job. Don't forget those teenagers too that have other income. Love those.

All right, another one. Okay, you ready?

Keep going. Yeah, I'm ready.

Your Roth can borrow money. Is that crazy? We did a whole podcast recently in the last couple months about using debt in your retirement plan strategically. For example, you may not have enough money to go buy a rental property. That's okay. Your Roth can form an LLC and borrow money to go buy that rental property and start getting a bigger rate of return than just sitting in an etf. Now you're going to have to learn about what's called udfi, unrelated debt financed income. Your Roth might pay a little bit of tax based on the proportion that's borrowed, but the core Roth money isn't going to pay any tax. And you learn about the Roth 401k that can get you around the UDFI. So your Roth IRA or your Roth 401k can borrow money to invest.

Yeah, these are called non recourse loans. We have those banks that loan to Roth IRAs buying rental real estate or Roth solo. 401ks go to direct IRA.com under the resource director. We've got those. I love that. One other thing on the Roth is as we're thinking about pulling off deals, getting more money is partnering in with other people, partnering in with the spouse's Roth, your Roth kids, other friends, investors using that, using an llc. Some we call this a multi member IRA LLC to get your Roth dollars in on bigger deals and or just diving into real estate in general that you couldn't otherwise do with just maybe 6 grand or 12 grand of contributions. So remember that strategy again. Other podcasts on that multi member IRA llc, we got videos and podcast episodes on that at the Directed IRA podcast. Okay,

man, I don't know if I have another next level Roth strategy. Do you have anything? Oh, I'll say this. Syndications. A lot of people that are going out and investing get offers to invest in real estate developments or syndications and startups or GoFundMes or metaverse projects or daos and they don't think initially going, oh, I could do this in my Roth. And that's where I think Peter Thiel is our poster child for this. 20 years ago or 10, 15 years or whatever it was when he was pitched PayPal and Facebook and all these things, his first thought was, how can I do this in my Roth? Are we making that our first thought? Whenever you're pitched an investment strategy or syndication, it's okay, you can use your Roth even though you're like, well, it's not traded on Wall street or my Merrill lynch guy says, I can't do that. Oh, call Directed IRA will help you out. Yeah, yeah.

And I actually wrote a book on it too, Self Directed IRA Handbook, if you haven't ran into that yet. Okay. Last thing I will say is I had some emails just yesterday with the client. 84 years old, multimillion dollar account, traditional taking RMDs. He's hating it. He's like, ugh, I should have converted to Roth. And he was like, should I convert now? And he's thinking about his health and all the questions I'm getting. I'm like, man, I don't know. So let me cut a couple other important pieces to Roth. Why it's cool. No RMD when you're older and you've built this big retirement account up. That's what we're trying to all do here. Of course, with any retirement account, but particularly with the Roth, it's awesome because no RMD you don't have to take money out if you got a traditional ira, you have to pull money out every year once you hit 72, whether you want to or not. The IRS makes you start pulling that money out. The Roth? Nope. You take it out when you want. Want to leave it all in and invested. Cool. So lots of great perks on the Roth IRA that the traditional IRAs don't get. Keep that in mind too.

Okay, well everybody, I want to say thank you for letting us be a part of your podcast library. We want to bring you strategies that are going to help you live a more rich life. Having a little financial freedom can really make life a little more bearable, a little more exciting. So thank you. Please share this podcast with your friends, neighbors, family, business partners, anybody that you think might benefit. If they're an American, they'd benefit.

All right. Okay, Roth on my friends and we will be back of course next week with another amazing episode of Main Street Business Podcast. And make sure you're signing up for the newsletter. Okay. You can get it on Mark J. Kohler KQS Lawyers Matt Sorensen Mainstream Business Podcast. Get signed up for the newsletter. You'll get updates on what we have going on, articles we're always writing about the Roth topic and many others. Also, the Direct IRA podcast we mentioned has a lot of the retirement account topics, particularly on self directing to get over to and thanks for being with us. We'll see you next week.