The MEGA ROTH Will Make You A Million TAX FREE (Here's How)

We are building the best tax free vehicle to grow and earn wealth. There's no other way to build and grow wealth without paying tax legally than the Roth account.

You start to do the math of putting away approximately $500 a month. Right now. I don't care if you're 20 years old, 30 years old, 40 years old, 50 years old, you start putting away $500 a month and you're consistent. It becomes astronomical. It is unbelievable, the power of the time value of money.

When you make money, you don't pay tax on it. And when you pull it out at 59 and a half, you don't pay tax on it either. When your traditional IRA and traditional 401ks remember, you don't pay tax on your building and growing money. But on the way out at retirement, you build that up to a million dollar account, a $10 million account, or like Peter Till, who's got a $5 billion Roth IRA. When you're pulling money out of a traditional, you pay tax. This is the benefit of the Roth. It's totally tax free. Welcome everyone, to the Main Street Business podcast. This is Matt Sorenson, joined by the illustrious Mark J. Kohler.

Thank you.

And we are excited to be talking about mega backdoor Roth 401ks. This is a culmination of some amazing strategies to build a Roth account and do it in the biggest way possible. Hence Mega Trump may call it the huge Roth ira.

Yeah, no. This is such a great topic. And all of you out there, you want to be informed on this. Some of you have a structure where you're working. We're going to describe three groups here shortly. A group of those that are entrepreneurs with no employees and have a solo 401k in their back pocket. Those of you that have a corporate job, you and or your spouse, and you're not an owner of this company you work for, but they are providing a 401k. You have more flexibility than you realize. And then third, there's many entrepreneurs out there that have those full time employees. They want to do more, but they don't know what to do. And I think there's a lot of people that are like, they just throw up their arms and do nothing. And we want to make sure that you know in context of all these three groups what you have to do before year end. This is a year end issue and some important deadlines.

Yeah. So in a lot of these strategies, I say in all of these, whatever one you're doing, of those three, what you do by year end is Going to dictate whether you can do this in 2023. So you've got to be acting on this by December 31st in order to pull this strategy off. So now let me hit what the heck a Roth is and why that matters. We didn't talk about that at the outset because some people are like, big deal.

Matt. Yeah. Why Roth? Totally. And I do want to give a disclaimer. I just want you to know I fought hard for a show on the holiday cooking balls, the Schweddy method of holiday eating. I wanted to really do kind of an NPR type show on that, but I was outvoted. So we're gonna. So you have to go to SNL

to find out about it. Probably better. That's. Oh, who's the guy that did that? Alec Baldwin.

Yeah, Alec Baldwin.

Alec Baldwin was the guy on that with.

Wow. The.

Anyways, yeah, it was the NPR ladies. Mm.

That's very good.

Yeah, tell me. It's very tasty.

It's so good. So good. So a little holiday. There's our little intercede we want to keep. For those that are new to this show, maybe we do try to keep this fun and light. So get over to your SNL Schweddy ball. Holiday ball favorite on everybody's table during the holidays.

These are meatballs, by the way.

Yes, these are meatballs.

You don't know the punchline in the. These are. These are a company that sells meatballs. All right, now let's talk about Roth accounts. Why the heck do you want a Roth? Now, we're not chasing tax deductions today when we're doing Roth. What we're talking about here, when we're putting money into a Roth. I'm not giving you a tax deduction today. That is not what that is about. The IRS is not giving it to you. Your state's not giving it to you. So why the heck am I doing a Roth? Why does this matter? At year end, we are building the best tax free vehicle to grow and earn wealth. There's no other way to build and grow wealth without paying tax legally than the Roth accounts. Like the government has said, if you use this account and you make money in this account, we don't make you pay taxes. This account over here, your savings account, your brokerage investment account, you pay taxes when you make money. But this little account over here, when you grow and make money, you don't have to pay taxes on it. And I'm just, like, blown away that everyone's not trying to figure out how Can I get as much money in this account as possible? This is the mega backdoor Roth.

Yeah. And what we're also not talking about is Wall street products. You can invest your Roth in anything. Everybody think, well, a 401k is in Wall Street. I don't want to be in Wall Street. Don't be in Wall Street. Everything we're talking about today, in every one of these strategies, your Roth could be loaning money to your sister's cupcake business. You could be investing in notes, you could be investing in real estate, syndications, small business, all assets, all of that. Now, many of you listen to our show know that we're not going to beat that drum too hard. The point is, we need to realize Roth account is a tax free atm. And have you seen those TikTok videos where it's like girl math?

Oh, yes, I've seen that.

Once you take the cash out of the atm, it's free money. Yeah, girl math. So once you build a Roth ira, it is tax free. Good math.

I don't know what to call it. Roth guy math. I don't know what that is. But this is the Roth account, right? You invest that money in that account. When you make money, you don't pay tax on it. And when you pull it out at 59 and a half, you don't pay tax on it either. When your traditional IRA and traditional 401ks, remember, you don't pay tax on your building and growing money, but on the way out at retirement, you build that up to $1 million account, a $10 million account like Peter Till, who's got a $5 billion Roth IRA. When you're pulling money out of a traditional, you pay tax. This is the benefit of the Roth. It's totally tax free as you're earning and growing the wealth. And when you pull it out later,

okay, now I'm going to try to put this in a contextual structure that all of you are going to just love. For this podcast, there's three main groups of people. Again, the entrepreneur with no employees, the corporate employee with no ownership but great job, and a 401k at work. And then the third group is the entrepreneur with employees. So those groups are going to have some different action items before year end, we're going to come to that. But all three groups need to do one damn thing. And it's super easy. And it's a, it's a year end issue for some of you, and that is just funding your backdoor Roth ira. Now, this backdoor concept Is, is it kind of pervades this whole conversation because the wealthy have limits on how much they can put into a regular Roth ira. So. And most people that want to put away a ton of money are wealthy. So they're going to be, they're going to want to go through this backdoor method. You can't walk problem. Yeah. You can't run into the Roth fraternity, Roth. What do you call it? The Ross Sumac guy.

Yeah. Sigma Chi Roth.

Yeah. Sigma guy. Roth wealthy can't go in the front door. They got to go through the back door. So. But all of you, wealthy or not, under the definitions of the irs, for whatever those arbitrary numbers are, no matter who you are in what group, in any of these groups, and I'm talking Warren Buffett 101, Dave Ramsey, 101, Mark Kohler, Matt Sorenson, 101. Fund your Roth IRA every year, whether it's through the front door or the back door. That's step one. In this mega little bucket, we're going to build step one, step one. And it's easy and the numbers are great this year. And you want to get engaged on some year end tips here.

Yeah. And that step one is $6,500 for 2023. That's why we're talking about this right now. So you get this in at year end for 2023, it's going to go up to $7,000 for 2024. So that's step one. We want to get that 6,500 bucks. 7,000 if you're 50 or older, you get an extra thousand bucks you can put in. So that could be 7,500 or 8,000 there. But that's step one. Now when you do this backdoor Roth, you're actually doing a traditional IRA and a Roth IRA at the same time. You make a traditional non deductible contract and that's what you do on your tax return later. Then you convert that traditional contribution over to your Roth ira. That's the backdoor. It's a two step method. We've got other content on just the backdoor Roth IRA in and of itself, but we want to start step one, backdoor Roth IRA, that's good for 6,500 bucks. No, it's a two step process. You open a traditional IRA, you contribute your annual contribution of 6,500 bucks. Even if you're over the income limits for a Roth IRA, even if you're going to max out your 401k, you can still do that 6,500 bucks as a non deductible contribution that can get converted to Roth ira.

And I want to say this another way. Whether or not you're planning on Social Security, whether or not you have that 401k at work, whether or not they're doing matching at work, whether or not you have a solo 401k or whether or not you have a health savings account, the Roth IRA can still be funded every year. And when you start to do the math, and that's why I was saying, Dave Ramsey 101, when you start to do the math of putting away approximately $500 a month right now, I don't care if you're 20 years old, 30 years old, 40 years old, 50 years old, you start putting away $500 a month and you're consistent. It becomes astronomical. It is unbelievable to power of the time value of money. And so we, that's really what it is. $500 a month. Get your kids on board with this, get your brother and sister on board this with your mom and dad and get yourself on board with this. That step one is doing this. And then invest that IRA and what you want, it could be gold, silver, crypto notes, real estate. And you're like, well, I don't have enough money to do it. Well, you need to listen more of our podcast because we have clients making millions with $5,000 on a Roth IRA. We just had a speaker at my 360 conference last week in Phoenix that got on stage, says, I have a seven figure dollar Roth ira. And I started with five grand in a Roth, you could do it. And we told stories on stage. So this is it. And it's not crazy math. So start there. That's number one.

Yeah. And I think with the retirement accounts, everybody starts at zero. That's the, it's a, it's a level playing field for everyone. The people that have the 10 million, the 100 million, the billion dollar Roth IRAs and accounts out there, and they're out there, they started at 02. Now the goal with the mega backdoor Roth, which includes a Roth IRA and the 401K, we're gonna get to that strategy here in a second. The key to that is we're getting as much in, we're getting as much ammo, so to speak, in the gun. I don't know, Ross the gun. That's the right analogy, but you know what I mean? We're getting enough in that we can work with. Because you need a pool of money to start investing in to grow. And this is gonna supercharge your ability to grow tax free wealth.

All right, now that we have you on board with that. So that's step one. What is the year end issue? What is the year end issue? The year end issue is if you're doing this backdoor method, you've got to take possibly some action before December 31st. Because you may say, well, I can put money in my Roth for this year in 2023. I have until April 15th. What are you guys freaking out about? Well, if you're doing the backdoor method, then you want to take advantage of the conversion. That's as good as putting the money in. Because the conversion, you may say, well, I'll just do the back door in April. No, no, that time's gone. You can't. You can try it, you can convert it later. But you want to look at your tax rate right now. What tax bracket am I in? And maybe I should convert a chunk of that money in traditional. And I can't go do a Roth later if I don't convert what I currently have in a traditional or move that traditional 401. So there's kind of these little year end maneuvers. They don't apply to everybody.

Yeah.

And so I don't want to say you can't do the backdoor Roth, but you can be much more effective and efficient at it if you would. If you talk about it before your end does that.

Yeah. And I like doing the backdoor. You could wait up until April 15th through the backdoor Roth IRA. Your contribution's not a tax deduction, so the conversion is not taxable. But one of the things that happens is you might have a traditional IRA land around that has 50 grand or 100 grand in it. And IRA dollars that are traditional do need to be converted before you can do the backdoor Roth ira. Traditional IRA dollars. It's a little catch on that. But. So that might make a distinction whether you want to convert that before year end in 2023 or wait until the next year. I don't know. That's maybe the big consideration on the Roth. But the biggest of why this matters for year end is the 401k part. You've got to have the comp in 2023 and it's got to be on your W2 that's going of 2024. So the biggest motivation is really, it's a, for everyone is in the Roth 401k piece of this, which is the bigger piece which we're going to talk about. In a second. That's got to be done in 2023.

Yeah, yeah. Now, let me say we have a sister podcast that we do every week called the Directed IRA Podcast. We shot a video this week on the back door. Sorry. On the backdoor Roth IRA conversion. And some of these little issues we're talking about. We unpack those more on that podcast. Please get over there. If you enjoy hearing, you can put up with our dumb jokes and you're like, hey, I'm learning something. This is palatable. Just get back on your app when you're done today and type in Directed IRA Podcast. And that's our sister. And so you're. That's going to be more focused on some of these topics. But okay, so now, like Matt said, baseline all everybody is, I'm going to fund my Roth IRA in the proper way. Through the front door, through the back door, with some conversions or not. Go listen to other podcasts on some of those details. But the next step and the biggest when we talk about this mega backdoor Roth, this mega Roth ira, IRA in my mind is always a combination of the two. Because if you want the mega, what you really do is combining that level one of the Roth IRA with level two, which is the 401k, which could come in several different methods or look differently depending on these groups you're in. So this is probably where we can embark on the groups. You can say if you want to do the mega. And let me give you some numbers. If you're under age 50, you could do 72,500 in combination between your Roth IRA and your 401K. In the 401K alone, you could do 66,000 of Roth. Combine that with the 65, you're up to 72. 5. If you're 50 or older, you're doing 73,500 in the 401K, 7,500 in the Roth for a combination of 81,000. So when you see on the web everybody like nutting up, freaking out over these mega, Roth, mega packages, what they're really doing is combining that IRA with the 401k. So 401k, how do we get that 66 grand or 73,5 into that 401k? So let's talk about maybe the solo 401k owner. They're probably the most typical candidate, right?

Yeah. Any of you that are solopreneurs, you have your own business, you're self employed, you could have a main job and a side hustle, but you have your own solo 401k plan. You can adopt a 401k plan for yourself as your own business owner and you're the great employee. So why not make it as generous as possible? You're going to make it this plan possible where you can do this backdoor, mega, backdoor, Roth 401k. So the Solo 401k is only available though if you have no employees. If you've got other full time employees in the business that are not owners or not family or spouse, you cannot do a Solo 401K. The Solo 401K is meant for the self employed entrepreneur. Now that plan's got to be set up in 2023 in order to fully execute this strategy. We're setting up solo 401ks right now every day in our office in our law firm kq. Is that a directed ira? We handle accounts so we can get these set up by year end. If you're acting quickly, if you're catching this a little late, I don't know, you can do this on December 30th. Of course it's not going to happen. But, but the solo K requires a plan document that gets set up and this is step one because in a solo K you're going to make employee contributions and they're going to do something called after tax employee contributions. That's going to get you to $66,000. We can get into the calculations there.

But yeah, no, and I and I'd like to a little bit for those tech. We have a lot of listeners that are very Eng types and as well, well engineers themselves and we also have our accounting advisory groups that really love to follow us. So let me unpack it just a little bit further. That's 66,000. This is good. Got to have the 401k set up. Many of you entrepreneurs already have may not know the power or the tool that you're sitting on. The deferral amount is the 22,5. So we're talking about people under age 50. So that's 22,500 and you go hey, I'm just going to do that. I'm going to do 22,500 and I could do a little bit of a match. The match. Is this a little mysterious when you're a solo 401k owner, is it really a match or is it just after? So but you want the company to get the write off so the company can do the write off and do up to 25% of whatever your payroll is. So if you want to do 22, 5, your payroll would actually be $24,456. The match would be $6,114. And in combination, you've just put away $30,000 in your 401k right there. Just in the 22. 5 in the match. Then you say and, and, and you, you're off to the races. Now if you do the match, your payroll has to actually go up. For you technical people out there, you're like, well, hold it. You did payroll of 22.5, but you ended up with 30 grand in your 401. I thought there was a special rule called 415. You can't do that. That's right. If you're going to do the match, we're going to gross up your payroll a little bit more to 30. And so it's kind of a circular situation because every time you increase your payroll a little bit, well, I can do more match. So anyway, but we're just going to assume you did this $6,000 match, you're at 30, then you go, I want to go next level. How do you get from the 30 up to the 66? And that's where you start to put in this after tax employee contribution. And that after tax employee contribution is I don't want to write off, it can't be Roth. Just put it in my 401k. And then on day two you convert to Roth. That's how you get to the 66. Now let me get a little technical. We've got attorneys willing to do a year end tax consult on this and get you across the finish line. But that's the concept. You're kind of stacking. I have a little cylinder I love to look at. You're stacking all these strategies on top of each other that ultimately gets you to the 71.

Yeah, this is the cylinder of Roth power. Right. So you got the 6,500 bucks you did in the backdoor Roth IRA, you got 22,500. You've done an employee contribution as long as you made the 22,500. Grossed up a little bit with payroll. Like Mark said, you can do 22,500 in as a direct Roth contribution in the 401k. Now the next this little level, which is the mysterious one, is this after tax employee contribution. Now the after tax employee contribution, remember, is an employee contribution. This is not the company doing a match. And some of you familiar with Solo 401s in particular might have heard you don't have to do your matching Contributions, the employer contributions till the tax return deadline of March 15 or April 15, depending on the type of your company structure. Well, that's true for employer contributions, but when we're doing this mega backdoor Roth 401k, that after tax employee contribution is employee comp. It's got to happen in 2023. You have to have it. It's going to be on your W2 in January. So. So that's the last category that's going to get you up to that max of 66,000 in the solo K, minus the 22. 5. That is

72. 5 or no, 36,000. Damn it, I missed it. Okay, this is Moneyball.

Okay? When I point at you, that's when I want you to speak.

Okay? Okay.

All right.

Face it. Face it. Oh, my gosh.

You're just so funny because he gets on base. Okay, yeah, no, but yeah, that's okay. I'm doing the cylinders of power. Okay, we got 6, 500 bucks in Roth IRA. Whether you did backdoor Roth IRA or you got it in the front door, it doesn't matter. Then I got $22,500 of employee.

Got it.

I know in that 401k, I get up to 66,000. So the remainder of 22,005, 266,000 in the 401k is a combination of the

match at 61:14 and an after tax contribution of 37,385. And that gives me my 66. While you were talking, I was literally adding up those four numbers. Okay, the company match. I thought you were the employee contribution. And the $22,500. I wanted to make sure.

Which is 43,500, because if I got $22,500 plus $43,500, now I'm at $66,000 in the 401. Plus, remember, you get the $6,500 Roth IRA on top of that to the $72,500. So that's how we're getting to $72,500 total. It's that employee contribution in the 401. That's Roth. The after tax employee contribution, which could be all 43. 5. Or you can do some match on it, too, and mix it up if you want. But at the end, the Roth 401K, I got $66,000 in my Roth 401K.

Now, let me ask you this. And this is. I love this. I'm with the master, Matt Sorenson. And I've said this before a lot of times in These podcasts, I learned something new. So I'm going to. I want to go deep here for just two seconds because we're talking about the solo here. Yeah, this is a.

This was the corporate employee. I would do it how you did it. I would do it exactly like that. Because you get the free match from the company. If it's a solo, I'm paying for the match. Why does it matter? You know what I mean? I can see where we're at.

Yeah, yeah. So. And that's what I want to ask every. And so everybody gets this. So In a solo 401k, you may say, why don't I do the match?

Because you can do Roth directly now as matching in 2023.

Right.

That's a new thing. So you could go directly in as Roth. You wouldn't have to convert. Sure.

But the company gets the deduction.

Well, starting in 2023 from Secure Act 2.0. This is a Christmas gift. At the end of last year, they said employers can do Roth contributions and

get a write off for it.

No. Yeah, they'll get a write off. But you're going to pick it up as income on your W2.

Probably, yes.

They still haven't given us guidance on this, the IRS being they. Okay, it's been a year. Irs, come on.

And this is the tricky part is that you're. Your S corp gets the write off for matching for you, but then you pick up the income if it's Roth. If it's traditional, then I don't pick it up, but I do when I convert to Roth. So I'm right back where I started. Right.

Same outcome.

Okay, Same outcome. I just wanted to vet that. And then the other thing is, your payroll is going to be the same because under Rule 415, IRS Section 415, my payroll has to be at least what the company matches, plus my after tax contribution, plus my deferral. So that's why I look at in those three pieces, because I know that my payroll in that situation to get to 66 has to be 71,207. And I like your point, Matt. Whether you do it traditional and convert to Roth or have the company match you with Roth, your payroll still going to be 71? 207.

Yeah.

All right. Okay. You're amazing.

Yeah.

All right.

Well, you're, you're grossing that up for. Yeah, you got to gross it up.

FICA has to exceed. I had Kevin, one of our other attorneys actually go over this in our Main Street Tax Pro training for Those of you that are tax professionals and you're like, I'm liking this detail. We have a Main Street Tax Pro certificated, a certified tax advisor program. Yesterday we had 130 CPAs enrolled agents and attorneys on a call going through the detail of this. Exactly what box does this go on? Is box 12, box 14? What is the code? You know, how do you. What is this do now? Let's talk about that for a minute. Now for some of you like, well, Mark, Matt, I'm about ready to turn off this podcast. I don't have $66,000. You don't have to. You have to designate the number right now, make sure it's clear on the W2 what you plan to do. But you have until September to put in the $66,000 and get the write off for this year. Or if it's all Roth done. But you, you have to designate the amount now, but you don't have to actually put the money in. I wish we were led with that because I. People start nutting up going, I don't have money for this. Maybe my audio editors can pop that in a little earlier on. But don't worry about the contribution, worry about the designation.

Yeah. Now you still have had the income made in that year, of course. And obviously people doing this strategy is going to be high income, right? Like, yeah, you just get, you just are. But you might not from a cash flow standpoint. You might have the cash at year end, you're buying Christmas things, whatever. I don't know your business cycle and everything. But you could be putting it in when Mark says September we're talking about because it's the company tax return deadline. So you would have done the extension on your company return up until September. That's the final drop dead date of when you need to get this contribution in. But I always like to tell people too, stop thinking about deadlines of when to get this in. Think about the earliest you can get in so that money can be invested growing in a tax free manner. Why wait till the deadline? Now I know we all like turning in our homework when we were in school. Wait till the deadline, actually do crap like this. But. But you do have time. I like that point. That's a good thing. You do have time. It's not like you got to get the money in by earning, but you got to execute the strategy, get the plan set up, designate the contributions, make sure your accountant's on board because your W2 is going to have to line up on this. And again, we're talking about your solo K. I'm going to talk about this a little differently for the corporate employee.

Yeah.

And because you're going to have to have your money. Yeah.

So here's the action item. If I can give you the action item for entrepreneurs out there with a solo 401k or not, and you're liking this conversation. You're like, okay, that was sweet. I got to get on that. I kind of get it, but it's complicated. Guys, thank you for going deep, keeping it light at times. I hope many of you appreciate that we've got a lot, a big variety of listeners from young entrepreneurs to older technical professionals and young technical professionals, too. And so here, here's your action item. Make an appointment in the next three weeks with your tax advisor. And if you're, don't, if you don't have a 401k yet, you've got to make that appointment in the next eight to ten days. You. Because come December 25th, the IRS shuts down their computer system for maintenance for one week every year and you can't get a tax ID number during that period, which means you can't get a 401k. That gives you the full, well, the full realm of all the 401k benefits. You can still play around with a 401k next year. That 2.0 gave us that, but it's not the full 401k power. So you want to make sure that you, in the next 10 days, you get that 401k created, meet with your accountant, then in January you're going to knock out that W2. But again, no money is really transpiring if you want to go down this path, if you have it ready to go. We have clients loving to get that money to work right away. If you don't, don't stress, you may have a big deal closing in January and you're like, I'll fund it all in February. Okay.

Yeah. Let me just add on that because you mentioned about the 401k needing to get it done by year end. To do the mega backdoor Roth 401k, you have to have it done by year end, set up the 401k plan set up. You've got to designate the contribution in January on your W2. Being able to set up the 401k later is an option for a solo 401k and still make contributions even in 2024 where you're making 2023 contributions. But that's only employer contribution. You're not able to do this 66,000 mega backdoor max out. So that's kind of like a mistake. You didn't get the deadline. You can still get something in. But if you want to max out that type, you've got to get this going now.

Now, corporate employees, oh, it gets better. And here's what's beautiful. You may be married, your spouse may be in a corporate employee space. You might be the entrepreneur with the Solo 401K. That's okay. You can have that. There's different structures. It can get technical. But if you or your spouse work for a company that has a group 401k or safe harbor, sometimes that they're called and they do a match, you're in a different lane. And it's a great lane to be in because it's simpler. It really is. Your action item before your end is to say, how much do I want to put in? How much can I afford to put into my 401k? And you know, you want it to be Roth on day two, as much as possible. So you would say, if I can really put in, that's 66,000, I really got it. And I've got money from other sources. My spouse, maybe my grandma died this year. And I've got money, I can take 66 grand and put it in. So you may say, well, I'm not going to get a paycheck for 66 grand. In December. I was, okay, you can put the money in. You can come back and go, yeah, I'm ready to put it in. So what you do is you're going to figure out that dollar amount and you're going to start with the 22. 5. If you're under age 50 and you're going to call up your HR department and go, is my full deferral in? Yep. Okay, then there's the magic words. I want to do an after tax contribution of this 40,000 and change to get up to the 66. And they'll go, okay, but you already have a match and you're going to go, that's right. How much is my match going to be this year? And so you'd say, I want to put away $22,500. What's my match? And if the match was ironically, $7,500. You now have 36,000. That could be an after tax contribution. You see, you want to take advantage of the match. The match is part of your 66 and it's free money. So you do your 22. 5. Say you get a match of 7,500. You're a 30. That other 36 is called an after tax contribution. So you call HR, go, I want to do an after tax contribution of 36 grand. And they go, where the hell is your surgeries? 36 grand. I'll come by your office and give you a check or I can wire, I can do whatever, but I want to put in my 36 grand. We already did your 22 five. I know. Well, you already got your match. I know. I want to do an after tax contribution. I, I'll tell you, half of HR departments, their brain explodes. They've never even seen this.

So you have to be tough.

And you may say, let me talk to your manager and you can Google this. We've got articles on this, we've got podcasts on this. You may be educating freaking Fortune 5000 company. Not all companies just don't think we're wrong. It's just your company doesn't know they can do this.

Yeah, and it's really going to go to the plan administration company, their TPA that manages your company's corporate 401k. This might be like Vanguard for example, or Fidelity, and you're gonna have to talk to someone there. But most 401k plans do allow for this after tax employee contribution. It costs the company nothing. Right. It's coming out of your contribution dollars and it's a good benefit for people who want to max this out. Frankly, a lot of the corporate executives, management are the ones doing this strategy and the ones deciding on the plan. So they like to have it in there. So. But like Mark said, there is a lot of pushback on it of we don't know what the hell you're talking about. You already maxed out your employee contribution. This is an additional after tax employee contribution that you can do.

So.

But I was just say where we heard about this even was, it was like 10 years ago. I was on a phone call with a bunch of oil and gas workers in Alaska, you know, and these guys were making a couple hundred grand a year. They were working away from home in Alaska for four or five months out of the year. But they were like living cheap. You know, they get corporate housing, corporate housing and everything. And they were just trying to figure out how to max out Roth dollars. I just loved it was like, wow. But, but these guys are doing it at Fidelity, right? They had a great high income. They were maxing out their 401ks, going Roth dollars to going over the additional employee contribution, getting over the regular 225 is like less than 20,000 back then. And so that's where I first actually heard about this strategy. And then I was like, is this legit? I had to look up. I'm like, oh, my gosh, these guys struck oil.

You know what I mean?

They hit it. And I was like, we gotta teach this.

And I would hand it to him instead of getting drunk every Friday night. And Juneau, they were like, hey, let's game this Roth thing. And I guess they got bored after a few months. So they pushed. They pushed. And see, that's the trick here, people. You gotta be the captain of your ship and just freaking push it into the harbor sometimes.

The nice thing a lot of my clients that do it is it's just kind of like routine through the year. Because now you're at the same company. You know, the form now you busted through, you figured out the process. And it's the same form you do next year. And same little process and little dance you gotta do to get the money in. But remember, you've gotta get this in like we're saying. Cause it's like they need to close this out on your W2. And so they're like, if you don't get it done right now, that ain't gonna happen.

Yeah, technically they should be able to do it by January 15th, but they're not gonna wanna talk to you on January 2nd. You wanna be reaching out to them right now because they're administratively. They may say, yeah, technically you could give us the money by January 15th. Or even. Maybe even the end of January. But their operations are not going to allow for that. And I respect that. Whoever your administrator is, they're going to have thousands and thousands of 401 s to process. So call them now. Now, decide how much you want to do and call them.

Yeah. Now there is options. Once that money hits into that, that you. You sent that money and you cut your own check, or you did an ACH or a wire where they gave you the instructions on where to send the money is. Let's say it's at Fidelity or whatever your big company, you know, 401k plans at. You could roll it out to a Roth ira. I think a lot of people know

that it's eligible for in service.

Yes. Because after tax, employee contributions can always be rolled out. And after tax, employee contributions can roll right into a Roth IRA with no conversion. No 1099r. No. No tax due.

And you can buy rental property with that money in February.

And you're self directing It. So if you're like, well, Matt, I don't want to drop more money in my fidelity 401k where I can just buy mutual funds. You don't have to. That can roll out directly. The after tax employee dollars can roll out immediately over to a Roth ira. In fact, a lot of the plans want you to do that. They're like, ah, shoot. We don't want to have to track after tax employee dollars. It's a pain in the butt. Trust me. You do not want to either. You want to get it either converted to roth within the 401k or, or rolled out to a Roth IRA. We like rolling out to a Roth IRA because you can self direct and you're not captive to just buying mutual funds.

And I will say technically you're going to have to convert to Roth first, then roll it to a Roth or can roll it out to a traditional, then convert to Roth. Now we have a system for that.

No, no. The after tax employee can go right into a Roth ira. It does. You do not have to convert it and hit a traditional.

Oh, really?

Yeah. Now if it stays in the 401k, you've got to convert it over to.

I'm pretty sure, I would think that it would be. When they send out that 1099 R, it's an after tax contribution. It is a, it's a weird animal because it's not traditional or Roth.

Yeah.

It's just kind of in this weird space. But that, you know better.

Yeah. The, the, the thing that's going on here from a tax standpoint, just think about it is you never got a deduction.

Yeah.

When you put that additional after tax money, you didn't get a deduction. So there's nothing.

So. But it's also not a Roth yet.

Yeah. But Roth can Receive after tax 401k dollars as, as a rollover.

Okay. There we go.

I'm pretty, I'm pretty certain on that.

Yeah. That's cool.

But you do need to convert it within the plan though. If you're staying within the 401k plan.

Yeah. Oh, I love it. Okay, now the third group out there, these are you entrepreneurs that are freaking leveling up, scaling, kicking butt. And you've got a full time employee that's been with you for at least a year, part time employees that have been with you for at least three years and you've just been told time and time again you can't do the solo 401k. Well, my spouse has a other business. Can they do it sure. If they're not an owner of yours, there's some, some nuances and some exceptions. Talk to one of our attorneys. If you're in a married situation where you have a business with employees but your spouse has a business with no employees, there could be some options there, but you're not going to be able to play in your spouse's solo. But there still could be a great one two punch. But for all of you that are entrepreneurs with employees, I've got two suggestions and then Matt will unpack. We'll impact this together. I didn't want to just give you an assignment. Okay, okay, let's start.

Let's say unwrap it.

Unwrap it.

This is like good Christmas, you know,

we're going to unwrap this present.

Sounds like fun.

So for you entrepreneurs with employees, you have two things to do. One, always do your Roth. Always do your backdoor Roth like we talked about at the very beginning of the show. So many entrepreneurs throw up their hands and go, well, I have employees, I can't do anything. Or I have employees, it's not worth it. Or I have employees, they just turn off their entire mindset to retirement accounts because once they get employees, they think they're out in the cold. Don't do that. Continue your Roth IRA contribution. Back door or front door. Number two thing to do is learn about Safe Harbor Plan. It is a wonderful recruiting tool. It really doesn't cost you that much more. A lot of employees don't play in the 401k. Half of them. Statistics show that they don't. You just have to match up to a certain percentage and it's a great way to recruit and retain employees and it opens up the 22,5 for you. Now you're not going to be able to do the after tax contribution, but you can at least do the 22, 5 or 30 if you're 50 or older. And I can get there and I can triple what I'm doing in my individual Roth through the safe harbor. And so. But you can't. It's too late. Can't do them this year. So come January you make an appointment with one of our attorneys ago. I want a self directed group, 401k or I want a 401k set up somewhere where I can do an in service rollover and get to my own self directing. Yeah, that, that's really the two options. Would you agree with?

Yeah, and I love just doing the backdoor Roth IRA first. Everybody should be doing that. That's why we said everybody at the beginning, start here at 6,500 bucks. It's the easiest. Everyone can get it, even if you're high income. Remember, that's the whole trick of the backdoor Roth ira. The little catch here, I don't know if you mentioned this, is if you're a business owner with employees, even though that you might think, oh well, this is employee contributions. I'm not matching myself anymore and I'm matching an employee. Why can't I do an after tax contribution? Well, because there's a rule that says 2% or more shareholders, owners can't do this. And so this is the tax code. It's full of loopholes, but it's also sometimes full of roadblocks that kind of screw you sometimes like this. And that's why you can't do it when you have employees, is it's this 2% shareholder. But when you're a solo K, there's no testing or issue because there's no other employees that you're quote unquote discriminating against and what, and who can do what.

So, so that's it for those people in that group. It's really straightforward. Again, do your Roth and then start to explore the safe harbor and at least do your deferral. Now we've got financial advisors we work with that have all sorts of other plans out there. There's cash bonus plans for 1H's, DB plans, we for you. If you got the money and you're making it and you have employees, there are some loopholes out there. Yeah, we can align you with some of these high end planners that we work with all the time and are with our tax lawyers. Well, people, that is in summary, my definition, and I think I've sold Matt on this too over the time is, I like to call it a mega backdoor Roth, to me is that overall comprehensive combination of taking your individual roth with the 401k Roth. You may hear people out there say, the mega 401k, that's cool. Just don't forget part two. Or you may say, well, I've got a backdoor Roth. Well, don't forget about part two, you know, because when you can combine both of those things, that's when you get the most.

Yeah, yeah. And in order to have the large Roth accounts and everyone, like I think like the best thing to have is a million dollar Roth IRA, Roth 401k, just Roth dollars that are tax free. Like, like that is like we talked about the atm, this is the thing that grows you can get as big as you want. No tax on the way out. It's the best way to grow and build wealth for the long haul is using these Roth accounts. I know so many people are like fans of the Roth account. It's the number one account we open up at. Directed IRA is actually just a Roth ira. It's the number one account for a reason. People believe in it. They've realized tax rates are not likely to go down. I don't want a large traditional that I'm going to have to pay tax on on the way out later in retirement that could be at a higher tax rate than we're even out freaking now. There's all these other considerations but the Roth account is awesome. This is the recipe on how you get as much money in as possible.

Well, I love it. Okay. It is the time to be married. It is the time to do year end tax planning. Trust me, the wealthy, the smart with their money. This is the time to have a quick year end meeting. Now some of you are like I don't have a good tax advisor. They don't even talk like you guys. We have our Main Street Tax pro network is@markjkoler.com we should have a link at the law firm to over the network but and directed me but Main Street Tax Pro program and you can find an accountant east coast to west coast north to south, young or old, male or female, big firm, little firm, enrolled agent, CPA, whatever. But they're all certified in 80 different strategies that Matt and I have been teaching for years. They speak Mark Kohler and Matt Zornson. They can range in prices for a year in consult from maybe $500 to $1,500. But they're going to take the time to give you a year end plan. You've got three weeks. Don't delay. If you call our law firm there's a link down below kqslawyers.com you can have a call with one of our tax lawyers and they'll build you a trifecta. Many of you that are followers we want your little color diagram and action plan for next year in 2024 and some year end tips. That's our whole goal on the call is to win you over and give you strategies to save 10 or 20 times whatever you pay us. So please take action. Give yourself a gift for Christmas.

Give yourself a gift for Christmas.

Yeah, give yourself a gift for Christmas. I was thinking of four Christmases when Kristen Belle. Yeah it was oh it was so funny. She goes I'm going to give my gift of Christmas. I'm going to get pregnant again or what did she say that was so funny? It was in four christmases. I'm gonna have to get that joke. I don't know. Are you 4 Christmases fan?

Is that the one with Vince Vaughn? His name was Denver.

Yeah. And yeah.

And Orlando. Orlando, that's right. Orlando.

That's right. And Reese witherspoon and oh, my gosh, Kristen winner. She's on Broadway. I'm just embarrassed. Some of you are like yelling it through your TV mark or your radio. But anyway, for christmas is always a classic around us. Matt, thanks for teaching me today. I learned.

Yeah, it was awesome. I love this topic more. Roth, baby, roth. Roth.

Roth.

Roth, baby, roth. And roll whatever. You know, kid roth, kid roth. All that stuff. We love it. Thanks, guys.

See you next week.