The ROTH Strategy The Rich Use To Make $1M TAX-FREE

Now, my name is Mark Kohler. I'm a CPA attorney, best selling author, senior partner in a law firm. I've been helping clients around the country for 25 years, helping them build wealth, save taxes and protect their assets. Now I'm here for you today live, talking about the mega backdoor Roth. Now this is a big deal and it's a strategy only the wealthy use. And it's really important you understand that you don't get overwhelmed. If you cannot put away as much money as you'd like to in your Roth IRA or you're not sure how to invest it once in your Roth ira, I will help show you that it's a progression, it's a journey. The more money you make, the more educated you get, the more successful you're going to be. Everybody that's wealthy now, didn't start out wealthy. They all started out with the same dollar amount in the bank generally. Now, maybe some people inherited it, but they had to build it. That's the American way. And you can do it. The Roth IRA is a structure that does not have to be in Wall street assets. It does not have to be in stocks, bonds, mutual funds and ETFs. You can invest your Roth IRA in real estate, notes, crypto, oil and gas syndications, your best friend's restaurant, they're opening up your sister's bake. You can put it into products that you want to sell online. There's so much you can do with your Roth IRA to get a big return. That's part of the key here. But to make money, you got to put some money in the tank first. You got to fill the tank with some gas and then we start building it. We start building it. Now that's the key to the mega backdoor Roth. Because if I want to take my regular Roth ira, and I've been running numbers here for a bit before we started today. And I'm going to teach you the mega Roth ira. But the first level is just doing a basic Roth ira. I do it. I have my kids do it. I tell every one of my clients to do it. Your friends and family do it. This year you can put $7,000 in a Roth IRA if you're under age 50, 8,000 if you're 50 or older. And that's at any income level. Do not get sold. Well, I make too much money. I can't do a Roth ira. Yes, you can. Is called the backdoor Roth ira. And I have a link to that down in the description below. The backdoor says you're going to put money under traditional and convert it to Roth on the next day. So you can put money into traditional at any income level, not even get a write off, and then convert it to Roth on day two. And since you did get a write off, the conversion is tax free. People, wealthy people, put money in a Roth IRA every year. It's called a backdoor Roth. So get that off the table. Don't listen to anyone crazy that says you can't do it. So level one is we're going to put money in a regular Roth ira. Now. Wonder how the wealthy do it. We start putting more than that into our Roth IRA and we start investing it in more strategic ways. Now, just so we have a baseline, if you take a regular Roth IRA and put in $7,000 every year, you don't even put money in a 401k. You don't save money in any other retirement account. Just in this one Roth IRA, you put $7,000 in a year. It is going to take you 27 years to have a million dollars, tax free. So if you're 30 years old and you start putting $7,000 away every year on a 10% rate of return, you're going to have a million dollars at age 57. That's it. Not bad. Sounds great. And the longer you leave it, the better it gets. I mean, we can have fun with this. If I say, well, mark, I'm a 20 year old and I want to know what I'm going to have at age 57. Oh, okay, so now you're going to have 37 years to kind of play with it. So you're going to start now at age 20, put $7,000 in a year, invest it in S&P 500 ETF. You could start getting more creative down the road. But let's say we get our 10% return and then every year I put in that same 7,000, that's it. I can stick to that 7,000. Okay, here's the number. I want to show you what you got here. $7,000 will give you at age 57, 2.7 million if you start at age 20 and just put $7,000 away every year for 37 years. Now, I know that's hard. 20 years old. Like I'm gonna live forever in 37 years. I don't care about that. This is how the rich get richer. Just start practicing it. I'm working with my kids who are in their 20s, doing their funding, their Roth IRAs. Every year I'm gonna ask the Guys in the group, in the room here. You guys got any Roth this year? No. Yes. Okay, we're 50, 50 here in the room. These guys are in their 20s. I'm proud of them. We're shooting 50, 50 here. We got to work on this. You're in trouble. All right? Okay, so $7,000 a year is baseline. Now I promised you in this video, I'm going to teach you how the wealthy do it. So if you're making money online, you're making money somewhere in a business selling a product, service, whatever, and you're making some good money. Please, I beg of you, do not go out and buy a fricking Range Rover or BMW. Don't go on trips all around the world every year. Don't go buy some mega house, mega apartment and money like it's water. Can you please consider what I'm about to show you with the Mega Backdoor roth, under age 50, you can have a million dollars tax free in seven and a half years. Seven and a half years. Not 27, seven and a half years. But it requires you to use some self discipline and not spend every freaking dollar you make and start plowing it away right away. So I want to show you how this looks in a little diagram here. This is the Mega Backdoor Roth. I'm just call it the Mega Roth because if you make more than a couple hundred grand a year, you're going to have to do the backdoor method. Doesn't matter. We're just going to call it the Mega Roth. It starts here. If you are under age 50 or then we're going to have different numbers if you're 50 or older. Okay. Then we're going to have a different model. So if you're under age 50 this year, you can put $7,000 in your Roth and then your 401k. If you have a day job where you work at a 400, they give you a 401k. You can put $23,000 in there and you can choose to have it. Roth. That's how it works. You're going to put that away and boom, done. 23,000 plus you're going to get a match from the company. Cool. Now the next thing you do is, it's called an after. This is what the rich do, an after tax, employee contribution. And you can do another 46,000 minus the match you may have gotten down below. Because the total you can put away when you add this whole thing up, the total that you can do is $76,000. Now if you put $76,000 in my calculator. 10% rate of return, seven and a half years. You're going to have a million dollars tax free. And my clients are doing this. I have clients with $10 million. Roth IRAs. You can do this. I know it sounds like a lot, but if you have a business that's successful and things are rocking, don't go buy a bigger house for seven years. Live lean and mean. Pump the engine, pump the primer, get the snowball going down the hill, get more snow and let it continue to grow. I'll even just throw that out too. If you in. If we do that same amount every year, and let's run the numbers here. $76,000. And I do it for the seven and a half years. We have a million dollars. Let's say you just do it for 15. You're like, Mark, I can keep it up. I can do it for 15 years. $3 million. You only did it for seven more years, but the money went up by 2 million because your money will double over time. It's called the rule of 72. So anyway, that's the power of the mega Roth. If you're under age 50. Now let's go to the next age group for those that are 50 and older. So this year you can put $8,000 in a Roth IRA. And then you get to. I'm going to go over my other slide here. 31,000 in the regular 401k. Now, if you have a small business, you might do a solo 401k. So you. And that's fine. Whether you have employees or not. You can put away $31,500 and that leaves you a remaining 45,000 to do this after tax contribution. I'm going to give you a story here of some oil workers that you're going to love. After tax, employee contribution, you convert it to roth on day two. Because if you're 50 or older this year, you can put away 84,500. So if I do 84,500 versus the 76,000, it only takes six years. 0.75. So six years, nine months. I got a million dollars tax free. That's how it works. Now, let me tell you where I'm going to be totally honest here. I want to tell you where I learned this. I've been doing this for 25 years. We had some oil workers. These guys are working out of trailers up in South Dakota. And the employers up there recruit. These guys are tough. They're looking, they're grizzly. They're up there, big biceps, and they're working on these oil rigs up in South Dakota and they provide housing for them. They feed them the whole nine yards because they don't want to live up there anyway. So they have to entice them with free housing and room and board and they get these big freaking six figure paychecks. Well, these guys, they can only party so much on Friday and Saturday night in the local town and then get back to work. So they're like, what do we do with our W2? We don't need the money right now. These guys are all in their 30s and they're just cranking up there. Well, several more clients of ours that we had from an Oklahoma relationship and we got on, we were doing some tax planning with them and they said, hey, look at my Roth IRA. I'm putting away $76,000. Now, this was about five years ago, but the numbers were a little different. And I'm like, what the hell? I mean, I get the contribution, the 23 and I get the 7. How in the hell are you doing another 45? And they go, oh, Mark, you didn't know. Instead, if you do an after tax employee contribution, what that means is you go to your HR department and you go, Hey, I can put up to 69 grand in my 401k. So you have 76 when you add your Roth, but it's 69 grand in your 401k. Anybody this year could put 69 grand in their 401. And you go, well, the employer's not going to match it. That's right. You can call up your HRA, I mean your HR department and say, I want to put 46,000 in. And they go, okay, you don't get a tax write off for that. So you, because you could only do your initial contribution for 23,000 this year, but they call up and go, yeah, I want to do the extra 46 grand. Just take it out of my paycheck every month because I don't need the money. I'm living in a trailer. So they're like, take it out of my paycheck, that extra 46 grand a year. And they go, you don't get a write off. That's okay. Because on day two they called him back and go, hey, would you convert that to Roth ira? You can convert as much as you want to Roth anytime you want. But since they didn't get a tax deduction, there was no tax to convert it to Roth. So at the end of the day they had 76 grand sitting in a Roth IRA. I was like, holy crap. Matt Sorenson and I are talking on the phone. He starts writing. He was in the middle of writing his book, the first Edition, and he's like, I gotta throw this in here. And we've been helping clients ever since. It's crazy. It's called the Mega Backdoor Roth if you make too much money, or the Mega Roth if you're under the limit. So if anybody can do it, you just got to have that small business feeding the engine. So, my friends, that's it. If you want to know how to build a million dollars as quick as possible, there's two pieces to the equation. Get in as much money as you can and get the best rate of return. Now on the best rate of return, I want to say a couple things and I'm here to field your questions. Any of you with questions on Instagram, Facebook, Twitter, YouTube, throw in your question. I want questions about the Roth IRA and saving 401ks investing your Roth. Let's keep to questions on the topic, please. If you just call up Fidelity and say, I want to invest in an ETF S&P 500 fund, your average return is going to be between 8 to 10%, which is not bad. This is what Warren Buffett's been talking about. Tony Robbins has been talking about this. Just go to an E.T.F. s and P500. Boom. Don't get all funky trying to trade it. Don't worry about, I don't know what stock to buy. It's called an exchange traded Fund S&P 500 index. Okay, I'll just do that. Just throw your money in there and let it ride. You're gonna average 8 to 10%. Now fall. Sudden your, your buddy calls up and says, hey, I'm opening up a restaurant down the street and I'll give you 20% ownership. You throw in 50 grand. Well, what I get for 20%? Show me your numbers. What are you expecting to make in profit? Oh, dude, you're gonna make a 20% return. Now, if you trust your friend and you trust the restaurant, by the way, very a very risky business industry. But let' like, yeah, I can do it. It's the next best thing to slice bread. It's like the next five guys, you're like, all right, I'm in. You throw up in your drop in your 50K and you get a 20% return. Oh, now what's our rate of return? Now that 76,000 with a 20% return. What? Okay, all right, let's do a 20% return. How do, how fast? How quickly can I get my, my one million tax free? Wow. Five and a half years. Five and a half years. I have a million tax free. See, because your rate of return snowballs faster. So if you can invest in something, you know, you might invest in short term rentals, promissory notes, getting a 12, 2 12% annum, 2 points in interest. You might invest in oil and gas. Crypto. You're like, I'm gonna buy some crypto. That crypto goes, goes to the moon. You pay zero tax, all drops into your Roth boom, bada bang. So that's how it works. So start putting money away and then start self directing. If you want to know more about that, go to our Directed IRA podcast. I have a podcast with millions of downloads. Directed Ira podcast is down below. And you can start learning how to self direct at the Directed IRA Trust Company. We are setting up accounts every day. You can do it online on your frickin phone and set up a Roth IRA and start funding it. And just start with the basics. I said this at the very beginning of the video. Don't beat yourself up. Just start with 600 bucks a month. It's a big car payment, but that's your future. Start now. All right, Zach, we're going to hit some questions here. Do you have some good ones?

All right, well, we have kind of a basic one and general overview of the topic here. So integrity over on YouTube is wondering why it's called a back door.

Oh, okay. Well, we. I'm not able to show my screen here, so I'm going to just draw a picture. All right, so Integrity, I'm going to assume you went to college. Okay, let's just play with that. And this college over here had a cool frat house. I mean, this was like, you know, John Belushi frat house. I mean, you wanted into this party, they were having a big toga party. You're like, man, I want in. So in the front door and this frat house is called a Kuma Roth Sigma. Okay? Roth Sigma High, we'll call it Roth Sigma High. You want to get into the Roth party? This Roth party is a rager. I mean, this is rocking. Well, to get into the Roth party, if you want to put in $7,000 or $8,000 depending on your age, you can't be over a certain income limit. The government says, whoa, whoa, whoa, you make too much money, you can't come into the party. You're like, well, damn it, I want to come into the party. So what are those numbers? If you make more then 146,000, you're not in. And if you're married more than 214, you start, you start phasing out at is this for the next year? Da da, da. I'm going to be more careful here. I think the phase out, I want to be more accurate here, everybody. The phase out is between 146,000 and 161 or it's between 230 and 240 grand. Okay? So if you make too much money, the government says you can't come into the party. Ho, ho, ho, ho. Guess what? There's a back door to the party. I know about a back door over here. Yeah, that's right. I can get you into the party. So to get into the party, you, you say, well, I can't come in the front door. But you know what I do? I'm going to put in my 7,000 in a traditional IRA. And in a traditional IRA, it's kind of like a regular 401k, you get a tax deduction unless you make too much money. So if I make too much money, I don't get the tax deduction. So people don't do a traditional contribution if they make too much money because like I don't get the deduction. Why in the hell am I going to do it? Because if you do it on day two, you can convert to Roth tax free because you never got a tax deduction in the first place. There's no tax on the conversion and that is your ticket, my friends. In the back door. It's a two step process. So you set up the traditional step one and then you convert to Roth. Step two, pay zero tax and you're in the party in your toga outfit, having a great old time, red cup and all that, my friends, is the back door. All right, next question.

All right, I love the analogy there.

Thank you.

Rosalie over on Instagram is asking. They have their own small business, they're 61 years old. They have about 500k in their irate. How do I do the backdoor Roth?

Well, Rosalie, you just saw me do it. That's how you do your backdoor Roth. So I know Zach was queuing up questions before we, I went through that. But Rosalie, she's making 500 grand a year, which is way over. Congrats, girl. So you don't you want to do the mega girl, because you're making the money and so I want you doing the entire 76,000. And by the way, if you're married, double it. Whoa. Now I can throw down 76. That's 152. If I do 152. And what's the rate of return? You guys think I should do 10 or 12 or 15? You name it. Come on, Kirby. What else should I do? 10. We're going 10% conservative, Kirby. Okay, we'll do conservative. Kirby. 152. All right, how much? How much? How long until you think you'll have a million dollars? You guess. Come on, guess. Five years. Ten years. What do you think? Five years. Let's see. Nope. Wrong. Four years and one month you got a mill. A million dollars. So Rosalie, get on the mega backdoor Roth bandwagon. Get that 76 times two and within five years you got $1 million. Tax free. One million tax free. Work it. Now I just want to give a shout out to all of those other tax pros out here. I am the world's best tax pro. But you know what? You can be a tax pro too. I have the coolest Main street tax pro certification. We are signing up hundreds in the last two years of tax pros around the country. Enrolled agents, tax Preparers, financial advisors, CPAs, attorneys. We collaborate every week, two to three times a week. 80 classes, online quizzes, conferences, twice a year. Main street tax pro certification. Get over to markjkohler.com just check it out. Do a demo. It will blow your mind. And people, if you're looking for a tax Pro, go to markjaykohler.com click on the network. Anybody on that network you can hire. And those are the tax pros I've been training. So this is a two part message. Any of you that want to be a tax pro, get over there and guess what? You're going to get referrals. I take no money from it. That's your relationship, that's your client. And if you're looking for a tax pro that speaks Mark kohler, go to markjkohler.com, look at the network. You're going to see hundreds of pros that all speak the same language. They had to take a class on the mega backdoor Roth to be listed on that network. All right, next question. Zach.

Next one is coming over From Jesse on YouTube who's looking at ways he could self build houses to rent within his ira. Could his IRA fund the builds and not be self dealing?

Yes, yes. He doesn't want to build it himself though. He didn't say he's a contractor, right?

He says he's a general contractor.

This is Jesse, the contractor. All right, so Jesse, let's go to the whiteboard here. So Jesse, you need to learn the trifecta, which is built on three steps. Your S corp, which is your construction company. And this is where all of your operations come. This is your Trust and your 1040 down at the bottom. If you don't have your revocable living trust, call the law firm right now. Our link to KQS lawyers is down below. Your trust owns your S Corp 100%. All right? This is where you do your W2. You save on FICA and you get a K1 down to your 1040. All right? Over here you build homes and create rentals. See, that's what Jesse's doing, everybody. He's a freaking contractor. And on his asset side, he's building homes and renting them out. And the cash flow is coming down here to his 1040. See, and he owns that. That's the trifecta. LLC. S Corp. Revocable living trust. Boom Ba da bank. Now he wants to open a Roth ira. Love it. And this Roth ira, Marc, I want it to open an LLC and go buy rentals or build rentals. Love it. You can do that all day long, Jesse. Do it. But you cannot be the gc. You cannot be the general contractor on these. And I know you're going, oh, damn, I better not do it, dude. You know 10 other general contractors, hire one of them on a sweetheart deal because you're good friends to build the house for your Roth. Well, I can't build it as cheap. Who cares? Your Roth is sucking wind at Fidelity in some stupid mutual funds. Even if your friend bills it for and you got to pay him a dime, you're going to make more money in your Roth even if you're not the builder. Get over it. Go out and keep building rentals in your own name. Real estate professional pass through losses. You're loving it. Cost seg. I know what you're doing. But on your Roth, your Roth can buy and build rentals all day long. Just don't be the gc. Pay someone to do it. You're still going to make a crapload of money. That's how you're going to build. Get real tax free wealth. A couple more questions.

Yep, we got Bill over on YouTube who is currently setting up a self directed Roth IRA that owns an LLC and he wants to ask a clarifying question. He says if I understand correctly, I could still have tax liability from the income of the llc. Is that correct?

Okay, he's building. Okay, everybody, let's look at our diagram here. He's building an LLC owned by his Roth and his Roth is doing rentals. Okay? And he says, I'm still going to have taxable income from the llc. The way you said that is Bill is wrong. Your LLC is not going to give you taxable income because a Roth is tax free. Now, what you might be referring to is that inside the Roth you might have what's called udfi, unrelated debt financed income. If your Roth is using debt as leverage, which it should be, and that's okay. So you're worried about udfi for sure. Worry about udfi. What I do is a blocker corporation and do a C corp, which cuts your UDFI in half. You want to get rid of all your UDFI, set up a solo 401k and roll the Roth into the solo 401k. Roth, zero tax, no UDFI. Now, I know I spoke quite quickly there. Get over to the Directed IRA podcast. Search for how to avoid UDFI. Look up 401k UDFI. You're going to see a lot of strategies that we teach this. So. And look up Blocker Corporation. So you're going to use a combination of a blocker and a 401k and you will avoid UDFI altogether. But do you pay tax from the llc? No, you don't even own the llc. Your Roth owns it. So the way you said it was a little quirky, but you're. I think what you're worried about is udfi. We can eliminate that. Have a consult with one of the tax lawyers at my office. We're not that expensive and we'll help you overcome this. All right, next question.

All right, we'll wrap it up with these last two questions here. So this one is from Options Surfer, who's asking for any tips to maintain accurate contribution basis when transferring Roth accounts between brokerages?

So you're going to, when you transfer, okay, you're asking about basis and Roth and all this. Whenever you transfer Roth money between brokerages, the brokerages track where it came from. There's a history in the account of the brokerage account, so that way you can know how much was transferred in when and was it Roth or traditional. And then when you convert to Roth, you pay the tax on the difference. You bring up basis, which I'm trying to figure out. See, there's no taxable income inside the Roth. So your basis of the assets, the Roth that are invested in I don't care what they are. And your Roth is going to be tracked. Every time you go to a new broker dealer, they track how much of Roth money came in on that particular day. Now, when you have a solo 401k and you've got multiple accounts, you're going to have to keep some spreadsheets. It wouldn't hurt for you to keep track of your own spreadsheets. Your accountant, your tax advisor should be helping you too. Try to keep the best records you can on the transfers. But broker dealers should be keeping those records as well. Not a very common question and a big heartache for a lot of clients of mine. I may be missing what you're looking for for. But keep an Excel spreadsheet. If you're worried broker dealers are jacking it up, you should be fine. Next question.

Yep, we can wrap it up with Jim Myers over here who's asking if he can still do a backdoor Roth. If you take the deduction for a traditional Roth contribution.

No. Well, okay, hold it. You can only put this year seven grand if you're under age 50 or eight grand if you're 50 or older. In any IRA, you have to choose. I'm going to put seven grand in a traditional. Too late. You can't play with the Roth. If you're over 50, you put eight grand in a traditional, you can't do a Roth. Let's say you put seven grand in a roth. You can't do seven grand a traditional. You have seven grand for IRAs entirely. Now, a couple thoughts. First of all, a Roth wins every time in the long run. Now you may be like, well, Mark, I want that traditional write off. Yeah, but you're going to pay tax on the way out. And the higher your rate of return, the worse the tax is compared to the write off you got on the front end. I'm telling you, every model we run, the Roth is better. Pay the effing tax and just do a Roth. That's point number one. Point number two. If you have any small business, a side hustle at all, look at doing a solo 401k and tapping into the 23,000 or the 20 or the 30, 23 or the 27 here. Let's go back to the whiteboard. The 3150 or the See, because you get 7,500 plus here on top of the 23. That's why I've got seven in my head. But you've got 31,500 or 23,000. That could be Roth. Or traditional. So if you're like, well, Mark, I really want this to be a write off. Okay, do a write off and then do this in Roth. Well, okay, I'll do this in Roth and I'll do this in traditional. Okay, if you're dying for the write off. But the point is, try to go Roth all the way. Don't worry about this write off crap. Down the road. You'll be so great. You know how many clients I just talked to someone right here before I started the podcast that said, how do I convert to Roth? Because clients are constantly trying to convert to Roth. Once they did the traditional, you will regret it. So just go with Roth right out of the gate. I highly recommend it. So now a couple thoughts here. I do an event every six months. We got a big event coming up in December, three days in Phoenix. It will sell out. We've reserved the entire hotel. It's called the Scott in Scottsdale, Arizona. And who doesn't want to come to Scottsdale in December? Super beautiful, fun. We have an early bird discount that is going away in three days. If you want the discount, you've got to get over to the link down below. Tax and legal360.com Also, you know how I talked about that tax pro training. You get a free book of mine with every demo. So if you would like to do a demonstration of what the program's about, the most affordable certified tax advisor program in the country. Do a demo and get a free copy of my book. I think it's tax and legal playbook or financial freedom. People, the American dream is real. People that are wealthy, 90% of them had to earn it. And they did it following these principles I've been teaching. Please, I beg of you. Get rich slow. Don't think you can get rich quick. It takes saving and investing, saving and investing. Entrepreneurship, saving, investing, entrepreneurship, saving, investing. We all have to go through that path. I'm going through that path. You can do it. Hang in there. Now, next week is 4th of July, so I will not be doing a live next week. But please, I have so many new videos coming out almost every day on YouTube, Twitter, Instagram, TikTok. I've got posts every day trying to help you better live your American dream. I'm there with you. Don't give up.