Year-End Retirement Account Strategies

We are going to be going over retirement account strategies, though, and how you can get more money in by December 31st. And we're also going to go over the things you don't need to stress about right now. It's not till April 15th or later in the year. But we want to talk about how do I maximize my retirement account dollars? There are a number of things we want you to do before year end. And then lastly, we're going to talk about what are some of the new rules in 2026 you need to know about. There's a number of changes happening in retirement accounts in 2026 that could affect you. So we want to go over those so you know how to plan and what to be prepared for. So you're making maximum contributions and strategies for 2026. All right, let's dig in. Okay, first thing before year end 2025, you need to match it out of your 401(k) plan. If you've got a 401(k) plan at work or you have a spouse has a 401(k) plan at work where the company offers a match, which is very common. Let's say, for example, the match is we'll match a dollar for dollar of what you put in your 401(k) up to 4% of what you make. So if you make $100,000, let's say, and you put in $4,000, they'll match dollar for dollar up to 4%, up to the $4,000. So you want to put in your $4,000 so you get the free money from your employer with the match, which is 100% return on money, you would be a fool to return to, you know, decline an investment that has an automatic 100% return on day one. But that's what you're doing if you're not matching out in your 401(k) at work. You are being a fool. So go and do it already. Now, if you have a solo 401(k), you're the employer paying for the match. We're going to come to that later. Not as critical, but if If you have an employer with the match, let's at least get the maximum amount of money in to take full advantage of the match. Even if the match is 50%, some 401(k)s have a match of 50% or the last 2% they'll throw in is only at 50%. Still get that because that's a 50% return on your investment. Again, you'd be a fool not to take advantage of a 50% return on investment in day one automatically guaranteed. Alright, so that's the matching out. Now, why we say match and then out is you may decide whether to maximize your 401(k) contributions of your own dollars that's coming out of your pocket. That's a different consideration. But number one here, I wanna make sure you at least get the match. Secondarily, let's go back to that example. Make $100K, you put in $4,000, company matched and put in $4,000. The company's not putting anything more in. So any more money you put into the 401(k), which with your employer 401(k), you've gotta do this by year end. You've gotta do it by year end to qualify for the match as well with an employer-based 401(k). But after that, anything I want to put in, I can put up to the $23,500 max, another $7,500 for any of you who are 50+. Now, these are your dollars. This is getting deducted out of your paycheck. But these are tax-advantaged dollars you can throw in. So if you're like, well, I need more tax deductions this year, in 2025, we'll do traditional contributions. If you're like, I love Roth accounts, that's more me and my style, and I want to grow and build tax-free wealth, well, you can only put in so much money every year. So let's make sure we maximize that in that employer 401(k). 401(k), and you can do the Roth contributions up to that $23,500. Again, another $7,500 if you're 50+. So, but that's traditional or Roth dollars. This is just your employer 401(k). I want you to think about this for yourself, or if any of you are married, think about your spouse too, and have they maximized it? Now, a common question we get is, well, Matt, I've only put in $1,000 in my 401(k) this year. You know, I've been doing 1%. I've been targeting that. I make $100,000. You know, I don't have enough paychecks coming through "to throw in the other $3,000 to get the full match. What can I do?" Most 401(k)s allow you to put the money in directly to get the match. Now you need to coordinate with your employer 'cause you need to get that money in before December 31st and they're gonna have to coordinate the match. It's not as, it's not the best way to do it, but this is a common thing some people are having to do and coordinate with their employer and their plan administrator at year end. Okay, so we got the match. We can also maximize our 401(k) contributions from our employee side, but remember, that is going to cost you. Okay, next, let's go over Roth conversions. Roth conversions don't have to be done by December 31st, but they do have to be done by December 31st if you want them in the 2025 tax year. So if you want this to go on your 2025 tax return for whatever reason, you need to get your Roth conversion done. A couple of things I want you to think about on the Roth conversion. First is, is this a low-income tax year for you? If so, this would be a great year to convert and get it on your 2025 tax return. Maybe you're out of work this year, you're self-employed, you have a low income year. You could also be looking at it from another angle of, hey, my, my, for my IRA, 401(k), whatever it is, this traditional dollars has been in the stock market and it's went down and I'm at a lower value. You know, you could also be converting at a lower value. So think of it from a strategic standpoint. Where are you sitting right now in 2025? I think the number one consideration is what's your year been like tax-wise? The second consideration I want you to think about of whether to do Roth conversions this year is maybe you have a larger amount you're trying to convert. Let's say this is $300,000 in a traditional IRA. Let's say you have $300,000 in a traditional IRA and you want to make it Roth dollars, but you're like, but I don't want to take $300K into taxable income in 2025. That's going to crush me on my tax bill. I'm going to be in the 37% highest bracket. That's going to cost me, you know, almost $100,000 to convert that thing, or it's going to cost me over $100,000 to convert that thing just on the federal tax side. So how can I be more strategic about it? Well, one thing you could do is just break it up over 2 years. We call this chunking. It's a throwback to the movie Goonies. If you know, you know. And under chunking, what we're doing is we're saying, hey, let's take $150,000 of that $300K and let's convert it in 2025. The other $150,000, let's convert that in January of 2026, and that'll go on your 2026 return. That way, within the, you know, 30 days here, I've got $300,000 converted over to Roth, but I split the tax liability up between 2 years. So if you're someone who has pretty steady income, maybe you're on a salary or your business income is pretty steady between year to year, it's not going to bump you up more than a couple brackets. So rather than going 2 brackets up, to hit 37%, I might stay in a 22% tax bracket. Okay, it depends on your situation and your total adjusted gross income, but as a general rule of thumb, you will pay less money in tax by chunking because you will stay in lower tax brackets on the amount you're converting. Now, this could be done over 3 years. You could say, I'm going to do it over the next 13 months— $100K now, $100K in 2026, another $100K in January of 2027— and I'm gonna convert the whole $300,000, but do it in $100,000 chunks because of where you fall within the tax brackets. So just keep that in mind. We've got some resources and you can obviously Google the federal tax brackets to look where you're at in terms of the income, because this conversion is these last dollars on top. So, you know, your income already through the year, let's say you've made $200 grand this year and you're like, well, I want to convert $300 grand. Well, that $300,000 is going to be taxed at the rate above $200K of income. Okay, so we're pushing you into higher tax years. So think about chunking and getting that done by December 31st, 2025, because you want to get some of that chunked into the 2025 tax year. Now, last consideration on the Roth conversion. You may be like, Matt, I pretty much make the same every year, or I'm I'm lower middle income, the chunking doesn't really matter. I'm just trying to convert $50,000 here. It's not gonna push me into another tax bracket. Just convert it in January of 2026. If we're already, what do we got, 15 days here left? Unless you have an incredible investment you need to make it with Roth dollars now, just wait until January of 2026 because you'll at least push it out one more tax year. If you convert now in 2025, remember that's tax returns due April 15th plus extensions. But if you convert in, 15 days here, that won't be due until April 15th of 2027. All right. So that'll push you out another year tax return-wise. Any questions yet, Daniel?

Yeah, I think, I think we have a good one here, which is we have my wife's primary job contributes 4% to her 403(b). Okay. And she does not have to contribute her portion, so she doesn't contribute anything at that job. So we can take the full write-off in our solo 401(k). Does that sound right?

Okay, all right. Spouse has a 403(b) at work, probably works for a government agency with state, local, federal, and then that's typically what the 403(b) is for. It's like a 401(k) for, um, if you work for a government agency or possibly a nonprofit. So, um, that's great, they throw the match in automatically. Those typically were government, um, or agencies that used to have a pension plan, and so they've moved to this anyways. So don't worry about the matching out. You got the match for free, like, so you're good there. Now, in terms of the solo K, I presume that means you're self-employed, the person asking the question here, and you're doing a solo 401(k). We're going to come to that here in a second. All right. Solo Ks are a little different. The bottom line here is if you already have a solo K that's already been set up for 2025, don't worry about contributing by December 31st. I mean, I want you to get your money in and start investing now. But your, your deadline to get the money in for 2025 contributions isn't until the company return deadline. See, a 401(k) at work, employers have a certain amount of time when they take money out of your paycheck and they're doing a match and they're holding your dollars, they have to put it into the 401(k). And so on an employer 401(k), that basically is happening by December 31st. In a solo 401(k), the actual time to get the money in as a contribution is the company's tax return deadline. So if you're an S corporation, most common entity for someone that has a Solo K is gonna be an S corporation, your tax return deadline is March 15th, plus you get extensions. So if you extend your company return, you also get an extension of when to put in your Solo K contributions, which can push you out till September 15th. Okay? Now, if you're a Solo K person, the one thing I wanna say here, and I'm already getting into this, why don't I just go to the Solo K slide?

You know, you just, I was trying to segue you. I was trying to get you back on.

Yeah, I should have just gone. Remember, contribution deadline here, March 15th. You get an extension, September 15th. If you're a sole prop, that's April 15th plus extension, October 15th. Here's the problem though for you S corp owners. If you have a solo 401(k) already set up or you're setting one up right now before, and you're trying to get it done before December 31st, we can help you. You've got to move like now, okay? 'Cause we got Christmas next week, New Year's. By the way, the IRS shuts down around, New Year's Eve or sorry, Christmas Eve. They're going to be shut down here in like the next couple of weeks. So we want to move quickly on getting a solo K set up if you're still trying to do it for 2025. Now we can set it up next year to a solo K for 2025, but your contributions can be limited. Here's why. If you have an S corporation and you want to make employee contributions in a solo K, see, a solo K is a 401(k) plan. If you're self-employed, you put money in as an employee. And the company, your company, puts money in because you're such a great employee, and they put in a company contribution. So it's a solo K has a combination of you put money in as the employee because you work in your business, and the company's throwing in a match because you're such a great employee, and it's your own company money. It's coming out of your pocket all the same day if you own 100% of the business. So, um, but that's what a solo K is. But an employee contribution has to be on your W-2. In an S corporation, you have to have a W-2 for what you're paying yourself. That's what your employee contribution is based on, and it must be indicated on your W-2, which is due on January 31st, 2026. Even though I don't need to put the money in until March 15th or September 15th plus extension, if I extend my S corporation deadline, I have to note what I'm putting in on my W-2. Which is due on January 31st. So what does that mean? It means you got to be planning. And if you want to make it simple, just put it in now. If you're like, well, Matt, I missed the deadline, what can I do? Well, we can still do employer contributions. Let's say you're talking to us in February or March. If you're a sole prop, you could probably do employee contributions. But US corp owners, it's going to be hard to get that employee contribution in because you're going to have to go back and amend your W-2. It's a lot more work, pain, and headache, and it's not certain you're going to be able to maximize all your contributions. So bottom line, if you want to keep it simple, just do it now. Get your contributions in now. If you don't have a Solo K yet, but you've been thinking about doing one, go ahead and set it up already. There's a new tax credit, automatic contribution arrangement. If you adopt that, you can get a $500 tax credit that flows down to your personal return over the next 3 years. $1,500. It'll pay for the cost of setting up a Solo K. So we've got an article coming out on that shortly. We did a webinar at our sister law firm, KQS Lawyers, on it as well. So solo Ks kind of matters before December 31st. US corporation owners, it's really January 31st. Everyone else, it's kind of the company return deadline. There is a lot of stuff you can do in 2026 to still make a 2025 contribution. Just keep in mind, US corp owners, which is most of you doing a solo K, your W-2 is going to be due. And so you might as well start planning and get the money in now. Now here's another thing you could do. You could, in the solo K, say, well, I'll put what I'm— let's say I decide I want to put in the $23,500, um, 2025 contribution max, um, Roth or traditional dollars doesn't matter, but I'm not going to put the money in yet. But I know I'm going to do it before March 15th or September 15th if I extend my company return. You can just say you're going to do that on your W-2 and you don't have to put it in yet until the contribution deadline as well. All right. Um, went down a rabbit hole on that, but we did have a slide. So great question. What other diversions do you have there?

I actually, I think this is going to be a good diversion for you. I think a little bit of basis here.

Okay.

So on the topic of Roth conversions, yes. Is that assuming pre-tax money and or money that has been generating earnings and therefore taxes could be triggered with a conversion? I'm guessing this does not apply for backdoor Roth that is being funded with after-tax money. Am I missing something?

Okay, great question. And that is a great segue. Who asked that question?

Anonymous attendee. Oh, anonymous attendee.

Come out and get some. Thank you. That was a great question. You're absolutely right. We're talking about pre-tax dollars, also known as traditional dollars. This is what you got a tax deduction in to put in, plus the earnings on those. When you convert those dollars to Roth, you have to take it into taxable income. So when we're talking about that $300,000 traditional IRA or pretax dollars that you have in a 401(k), whatever it may be, you got a tax deduction to put that money in and there's been earnings on it. Well, I want to go Roth on those dollars. And the IRS is like, we'll let you do it, but you're going to pay a toll. You have to take the whole thing in your taxable income. So that whole $300,000, and maybe you want to just convert a partial amount. Again, you can chunk it up and convert whatever piece you want, but that you're going to get a 1099. So to do a Roth conversion, you'll submit a form to us at Directed IRA. If your account's here, you get other accounts other places and you know, but you're going to have to— you have to make a Roth conversion election form. You have to do that in writing. And then we're going to send you a 1099 after January 31st, 2026. That's when your 1099s are due for anyone from anyone. But you're going to get a 1099-R from us saying, hey, they converted $150,000 of traditional dollars to Roth, and that's going to flow on to your 1040 on your tax return. So that would be your pretax dollars. Now let's go to backdoor Roth IRA. That was the segue there from anonymous attendee, which was there's no tax on a backdoor Roth. Okay. A backdoor Roth IRA has a Roth conversion in it, but it is not a taxable Roth conversion. Because you do something called a non-deductible traditional contribution. Non-deductible means I didn't take a deduction. And in the backdoor Roth, you're not investing those dollars, you're immediately converting. So there's no earnings, so there's no tax due on the backdoor Roth conversion. Now, the backdoor Roth IRA can be done by April 15th. The reason we're noting it here by as a 1231 strategy is Some of you may be bumping up on the income limits where you're used to doing Roth IRA contributions, where you put your $7,000 in just to your Roth IRA and you haven't need to worry about the backdoor Roth. We always run into a handful of clients every year who are like, ah, I'm over the income limits. They're doing their tax return in 2026 and they just did regular Roth contributions because they weren't aware of the backdoor Roth structure and the modified adjusted gross income limits. Here's the point: if you make more than $150,000 single or $236,000 married filing joint, you need to do a backdoor Roth IRA. You can't just do a regular Roth IRA and make the full contribution. All right, the regular Roth IRA is meant for lower or middle-income individuals. They— when they kind of created Roth IRAs, Congress was like We can't let high-income earners use these. So they restricted you from putting contributions into a Roth IRA if you were high income. High income being $150,000 single, $236,000 married. These get adjusted every year. Now, the backdoor Roth IRA, the basic concept is where it's a loophole. Okay, that's why it's called the backdoor. All right. We're going around the back and we're coming in the back door to get into the Roth IRA party. That's what's inside. But what you're doing is you're putting money into a traditional IRA. It's a non-deductible contribution. You convert it to Roth on day 2, not taxable 'cause it was non-deductible. And now the money's in a Roth IRA. It seems insane, but this is the tax code. And this is what, this is like the perfect example of a loophole. You really have to thread the needle through and do the little loophole to validate this strategy. Now, I do a backdoor Roth IRA every year. I've been doing it for a while. Many of our clients are utilizing the backdoor Roth IRA every year, getting $7,000 in. That's for 2025, an extra $1,000 if you're 50+. But just know, look at where your income's been at for the year. You might be someone that's already familiar with the backdoor Roth IRA. You're like, Matt, I've already done it. You know, I'm good. But if you're a regular Roth person, its income has gone up, you might need to do the backdoor Roth. Now, what you will do, let's say you messed this up. Let's say you did a Roth IRA contribution, you're single, and you end up making $200,000 this year. You're over that $150,000 limit. You're like, I had a good year this year. I made more than I'm used to, or I've gotten a raise, or my business did well, or big bonus, whatever it was, you made $200,000. You're like, but I already put my $7,000 in the Roth. I put it in like in June of 2025. What do I do? We're going to need to recharacterize that, okay, over to traditional dollars because we're going to do a backdoor Roth on it, and then we are going to convert it over to Roth. Okay, so this is the, um, this is kind of a fix-it backdoor Roth IRA. Not ideal, but there's a way to do this. You need to do that before April 15th, by the way. Um, but for any of you that haven't executed yet on the backdoor Roth IRA, Definitely something you should be doing every year and just pay attention to where you're at income-wise. Again, $150,000 single, $236,000 married is where you need to worry about the backdoor Roth IRA rather than just doing the nice and easy, put your $7,000 directly in the front door on a Roth IRA. Any questions on backdoor Roth that popped in?

I do. I have one question on the backdoor Roth. I actually have a couple on solo 401(k)s too. So, you know, if you want to backtrack as well. Okay, let's hit them both. So for backdoor Roth, Can I contribute $7K plus $7K for my wife if we're over the limit? Yes.

Okay, I love that. You should be doubling that up. And if you married, you should both be doing a backdoor Roth IRA. Um, I'll skip the jokes on that. Um, even if your spouse is not working, you might have a spouse that's not working, the— you can attribute income to them Um, if you have a non-working spouse and a married couple filing on a tax return, one requirement to contribute to an IRA is you must have earned income. But the non-working spouse can get income attributed to them from the working spouse. So, um, so it's not like you need to put them on payroll. For any of you business owners that may have a non-working spouse, um, but absolutely you should be doubling up on that. Why the heck not? The only snag I would say on a backdoor Roth IRA is if you have traditional IRA dollars in a traditional IRA somewhere else that you haven't converted to Roth yet. If you have a traditional IRA— that could even be just a SEP IRA because those are actually traditional dollars— that is, um, that has not been converted to Roth, the IRS makes you convert pieces of that too when you're doing the backdoor Roth. Um, you have to do this pro rata share of your traditional deductible dollars with your traditional non-deductible dollars, which is that new 7 grand you just put into the, uh, traditional IRA to do the backdoor Roth IRA. So, um, there's just a little more on that. We've got articles on that. There are some workarounds to it. Your traditional 401k doesn't matter, don't worry about that. It's just traditional IRA dollars can sometimes— if you have those already, that could be a snag to executing a backdoor Roth IRA. The reason I brought that up with the spouse example is I have had clients over the years that are like, well, I have a traditional IRA um, with, you know, $200K in it. I don't want to convert the whole thing yet, so that means I can't do the backdoor Roth.

Um, true.

Uh, but they're like, but my spouse doesn't have a traditional account. Should I do the backdoor Roth for them? Yeah, because then we can automatically convert theirs. So, um, over to, to do a backdoor Roth IRA. So just keep that in mind on the, uh, backdoor Roth IRA if you have traditional IRA dollars. Okay, solo K questions. I actually—

one more good Roth convert. It's a Roth conversion question that you may be getting into. I'm not sure, but it's the Roth conversion to depreciation losses from real estate. So I have real estate in my IRA. What hap— what does that look like with the Roth conversion on that one?

Okay, that will not help you. Okay, if you have real estate in your IRA that has depreciation losses, is that the question? Yeah.

So he's using— he's— excuse me, he's looking for his real estate losses and then doing the conversion. Okay.

Got it. Okay. Sorry.

All right.

Let's say that you have rental real estate, you're a real estate investor, and you have depreciate— you have losses on your real estate, which generally you get because you have a depreciation expense. Like you could be cash flowing the property, like making money, you know, over your expenses. On your rental property, but you actually have a loss for tax purposes because of depreciation, whether you're accelerating depreciation with a cost segregation or whatever your strategy is. So let's say I have rental real estate losses personally that are on my 1040 and I say, hey, but I want to do a Roth conversion. So I've got $100K of rental real estate losses. I can go do a Roth conversion for $100K. And convert $100,000 of traditional dollars over to Roth, and the rental real estate losses will offset the Roth conversion. Well, that only works if you are a real estate professional for tax purposes. If you are not a real estate professional for tax purposes, your rental real estate losses can only offset other investment or rental real estate income. It cannot come over and offset a 1099 on a Roth conversion, your W-2 income, your business income. It's bottled up here. Okay, so for example, me, my rental real estate losses, I can use those losses against gains on other properties, but otherwise they're bottled up. Now, I'll use those rental real estate losses when I sell the property to offset taxable gain I might have when I sell the property, but otherwise they get bottled up here. I'm not a real estate professional. I don't spend enough hours. I don't do the material participation, and my full-time business isn't real estate. Okay. Even though I might have a number of properties. So the only way your rental real estate losses are going to help you on the Roth conversion is if you're a real estate professional or your spouse is. That's a tax classification. You want to talk to your tax lawyer, CPA. The attorneys, by the way, at KQS Lawyers can do a comprehensive tax and business consult. You can get over to kqslawyers.com if you're like, Matt, you just blew my brain there. I didn't even know what you're talking about. Get over there. We can help you. Um, now there are some loopholes to that. There, for example, there's a self-rental rule. If you rent real estate to your own business and you own the real estate but you're renting it to your business, we can use those losses to offset your business income. Um, short-term rental— there's a short-term rental loophole. So there's a number of things to think about there. Um, outside the scope here, the point is, how can I get tax losses to offset the cost of the conversion. Okay. So that would be more of a tax lawyer question, though. Way too much to cover here today. But I love where you're going because that's being strategic and smart about it. But the law firm, sister law firm, KQS Lawyers can help you there.

So this is, this is a very old one. Hopefully, Richard, you're still here. They are investing in a working interest oil and gas as a sole proprietor with their spouse. They've been told that the income next year will be on a Schedule C and SE tax will be due. Does this mean the net income can be invested into a solo 401(k)? Yes.

Okay. Now that would be contributed into a solo, not invested. So if you're a sole proprietor this year for 2025, is that what they're saying? They're not going to S corp?

I believe so. Yes. Okay.

If you're a sole proprietor for this year, then what you're contributing is the net self-employment income. So when you do Schedule C on your 1040, you have your income, your expenses. What's the net self-employment income that you have? Let's say it's $100,000. Okay, well, what can I contribute to my solo K? You can contribute $23,500. Let's assume you're under age 50. $23,500. That is the employee contribution. You can choose to do Roth or traditional. Plus you can do the employer contribution, which is 20% of that. In the employer contribution, you get 25% for S corps or partnerships— or, uh, for S corps, but for sole proprietorships, uh, you just get 20%. Uh, again, too much detail I should get into. I don't even know why I need to say that, but there's a reason for it. This is not a good one. So 20%, so you can put in $20,000 as an employer contribution. So In other words, you made $100,000 on your self-employment as a sole prop. You're gonna be able to put in $23,500 employee, $20,000 employer for $43,500 if you wanna max out contributions. Now, yours, there's no W-2, so you don't need to worry about it on even January 31st. You don't need to worry about it until April 15th. Now, you might as well put the money in if you have it to start investing and growing that money. I'm just talking about when's the deadline to get it in for tax purposes. Great question there, though. All right. Anything else?

Yeah, there are a lot of questions. I'm trying to keep us on topic, though. Okay. That's good. Yeah, I appreciate it. Let's— so sorry to the people that we may not be answering questions.

Does anyone have a year-end question? Because I'm going to jump to April 15th issues and then 2026 changes, and we're going to come back and do a final Q&A here. We'll do a fire round at the end.

I haven't seen anything for year-end, but there are some people that are kind of leading into it but not asking it directly.

And by the way, if you're like, I need to do a backdoor Roth IRA this year, ooh, I should get a Solo K going, we do have a discount code right now. You can book a call. Okay. Holiday150 is the promo code that saves you $150. You need to open a new account, you're already a customer, or you're new to the Directed IRA family. You can at least save $150. Let's get in and get it done now before year end, because that $150— we don't do specials typically. Our specials would be $50, maybe $100. $150 is the best discount we offer.

And as somebody who helps open up these accounts day in and day out, yeah, please, guys, if you're looking to set up a solo 401(k), do it. Get it. Book calls with us today, tomorrow, because I don't like you guys getting mad at me later on in the year and being like, what's taking so long? It's like, well, there's a line in front of you. Yes, there's a lot of people who are trying to do it by the end of the year.

You know, like at halftime when you're like trying to go to the bathroom and everyone else is too, and you're like, maybe I should just go a little bit earlier. Yeah, let's, let's go a little bit early.

Yeah, a little bit early. You're not gonna miss anything.

It's okay, it's gonna be all right, you know. Um, same thing here. Okay, all right, so let's go into some other items for April 15th. Um, okay, now IRA contributions. Okay, this— you can put $7,000 in for 2025, an extra $1,000 for you that are 50+, so you're putting in $8,000. Now the contribution actually isn't due until April 15th, 2026. This is for 2025 tax purposes. So don't stress about just your regular IRA contributions. You can even be doing the backdoor Roth IRA later here So I was talking about December 31st just to know whether you need to do regular Roth or backdoor Roth, or whether you need to recharacterize. But otherwise, any of your IRA strategies can be done by April 15th. Now, this does not include plus extensions. Even if you extend your return to October 15th, your personal 1040, your IRA contribution is still April 15th. All right, so don't miss the tax return deadline. If you're trying to get 2025 contributions in. Now, for a lot of new people, one of the things I like to talk about is a strategy. If you're new to setting up a Roth IRA, traditional IRA, backdoor Roth IRA, this is the time of year to double up on contributions because what you're able to do in January of 2026 is put $7,500 into your IRA. Okay. Plus you could put the $7,000 in for 2025. So I can put 2 years of contributions in, right? Because the 2025 contribution is not due until April 15th, 2026, and I can start making 2026 contributions in January of 2026 once I made the $7,000 in that year or the $7,500. So, um, get the money in early and you can double up on the contributions, making 2 years of contributions that you could be doing as soon as January of 2026. All right, now let's talk about some of the changes here. Um, or was there any IRA contribution deadline questions? Um, that's usually pretty straightforward. Yeah.

Does the IRA have to exist before 2025 ends even though the contribution is made in 2026 by April 15th?

No, it does not. Don't worry about that. You can set it up next year. But if you want to save $150, get it set up now.

Yeah, I always tell people like If you're setting up the IRA, if you're going to set one up in January, get the $150 off today. You're saving yourself maybe $30 by waiting January. That's how the math works out. Yeah.

And I like the other thing. There's a study by Fidelity where they looked at what are the characteristics of people who had over $1 million in an IRA or 401(k). And there's like 3 or 4, like, common themes. One of those common themes was they contribute as soon as they can. Not when the deadline is. Okay. Think about that. I don't want you to be thinking about when can I put— when is the last day to put money into my IRA? Okay. Because if you think about like your 2025 IRA contribution, yeah, it's not due until April 15th, 2026. But if you put the money in, in January of 2025, you would have had all this investment growth. You would have had a whole 12 months of investment growth. All right. And then if you're going to wait until April 15th, we got another 4 and a half months of investment growth. So we want our money working for us, right? That's the whole purpose of investing. Waiting to invest isn't going to grow that money any faster. So, um, don't think of this like your assignment in high school that you turn in on the deadline. All right. Think about this as an investment. That's going to grow and benefit you. So the earlier, the earliest you can get it in, the more benefit you'll get out of it. So don't think about when is it due. Think about when can I put the money in? And I will tell you, I see, I see that in our accounts, whether it's a Solo K or Roth IRA, backdoor Roth, whatever it is, they contribute in January and February. They get the money in as soon as possible. They're not waiting until April 15th of next year. Okay. All right. So it's a little mindset shift. I know it doesn't matter now because we're talking about year-end stuff, but 2026 is around the corner. So be smart about your 2026 contribution. Get that in so that money can start working for you. All right. Now let's transition into new limits and new rules for 2026. So the contribution limits did go up for 2026. That was good news coming from the IRS. It's rare, but it does come every once in a while. So here's what it is for 2026. Contributions for IRAs is $2,500. That went up $500 from $7,000. Sorry, did I say $2,500? $7,500. Okay. Contribution limits went up to $500 to $7,500. That's up $500 from $7,000 in 2025. The catch-up used to be $1,000 extra for any of you 50-plus. Now it's $1,100. Every little bit counts here. And so the total, if you're 50+, by the way, would be $8,600 that you could contribute for 2026 into your IRA. That's for traditional or Roth. Also same if you're doing a backdoor Roth IRA. Now, 401(k)s, the employee contribution amount went up $1,000. The maximum employee contribution was $23,500. That is now $24,500. So you can put over $1,000 more in a 401(k). This includes solo(k)s. The total contributions in last year was $70,000 was the max contributions into a 401(k), including solo Ks. That is now $72,000 for 2026 401(k) contributions. All right. Now, that's pretty standard every year. Sometimes the IRS keeps it the same. These are basically inflation adjusted. We've had inflation, you know, obviously we all hear about it in the news over the last year. So the contribution limits go up because they get adjusted for inflation. Now, the big change that goes into effect in 2026 is something that came from SECURE 2.0. This was retirement account legislation that passed a couple of years ago. There's a provision going into effect from that law in 2026 that affects catch-up contributions in a 401(k) if you're 50+. So, and this applies to a solo(k) as well. This applies to your 401(k) at work or maybe your spouse's 401(k). If you are 50+ this is really, really important. Traditionally, when you do a catch-up contribution, and even what you can do for 2025 right now, you can choose and say, hey, the catch-up contribution I want to throw in, um, I want to put in traditional or Roth dollars. You could pick. The IRS gave you the choice, and you could do 100% traditional, 100% Roth. You could mix it up, but the IRS gave you the choice. Now, in 2026, You no longer have a choice. Catch-up contributions must be Roth dollars in 2026 if you made more than $150,000 on your W-2 from that employer in the prior year. So let's say it's 2026 now. You're someone that's 50-plus and you want to make the catch-up contributions, which— how much is that for 2025? Can you look that up, or do you know off the top of your head, Daniel?

Uh, the catch-up contributions for 2025 No, I'm not.

I don't have that right here. All right, I think it's like, it's like $8,000.

Yeah, I was gonna say $7,500.

Yeah, $7,500, I think it goes to $8,000 for 2026. Okay, so let's say, um, we're sitting in 2026 and you want to make your catch-up contribution of $8,000 or so, um, and in 2025 you made $150,000 or more from that employer. Well, your catch-up contribution must be Roth dollars, okay? $7,500 for 2025. What is it for '26 though?

'26, I thought it was just an extra $1,000.

$8,000, $8,500.

Okay. I'm double checking that.

All right. We'll clarify that. So that's the big change. Now, the— there's been a lot of confusion about this rule because a lot of people say if you made more than $150,000 a year, this is only about that W-2. You can have a side hustle. Your spouse can have income. Your adjusted gross income could be $300,000 for that year. But if your W-2 from that employer where that 401(k) exists, is $150K, that's all we're looking at. Okay. Um, so if you made, you know, $120 grand at that company, cool. You can still do a traditional catch-up contribution if you wanted. Now, the why behind this— I know you're thinking like, Matt, I thought you said Roth accounts are not for the rich. Now Congress is making those people who make more than $150 grand, if they want to catch up contributions, they have to do Roth contributions. How do you make sense of that? This is part of the one big beautiful bill. In the one big beautiful bill, one of the things they did in Secure 2.0 is they made more tax cuts. They had to raise revenue by forcing people to do Roth contributions instead of traditional. It raises revenue for the government. Congress loves that. So there's this whole concept in DC right now of Rothification, is what they call it, which I actually love. Where the government's like, we should stop letting people do traditional accounts because they take a deduction and the, and the government takes in less money. Now, Congress doesn't care about their revenue in 10, 20, 30 years. The House members and senators won't be there. They can't spend that money. That's some other Congress's problem to worry about. So the Roth, they don't care about that. They care about tax revenue they're collecting now and next year that they get to spend. So that's the concept on this. They wanted to raise revenue. That's why they force you to do Roth contributions, because you don't get a tax deduction on this. This is for high-income earners making more than $150K a year. They're typically in a higher tax bracket, so their deductions are more valuable as well. Okay. 2026 catch-up amount is—

it was $8,000. What I was getting confused on was the super catch-up.

There you go.

Which is $11,250. And that's for people who are over the age of 60 and 66 63 range. Okay.

All right. So $8,000, that's the 2026 catch-up contribution amount in your 401(k), solo K or employer 401(k). And there is that super contribution. If you're in those 4 years, 60 to 63, where that's your age, you actually get to put over $11,000, $11,250. Yeah, $11,250. That's the super catch-up contribution. That's another new thing that came about. But again, that will be subject to the Roth requirement too, if you're more than $150,000. W-2. Yes. All right, now let's come back and I want to summarize all these pieces here, and then we'll take any questions you guys might have. If you're thinking about year-end, I want you to think about the matching out your 401(k) at work. Make sure you're getting the maximum deduction from that 401(k). Second, then let's look at the employee contributions. There are more employee contribution dollars I can get in. Third, maybe you need to do a mega backdoor Roth 401(k). I actually didn't talk about that one yet. Let's pin that. I'm going to come back to that. Okay. Backdoor Roth IRA or regular Roth IRA. Where are you at income? Did you make more than $150K single? You need to be doing backdoor Roth IRA. More than $236K married, adjusted gross filing joint? You need to do backdoor Roth IRA. You can't do a regular Roth IRA contribution. One other note here we have in just the checklist here is HSA eligibility. You need to have done that by December 1st to have a qualifying health care plan., to be able to make a 2025 HSA contribution not due until April 15th. But your eligibility, that HSA high deductible plan needs to be in effect by 12/1. There's also, by the way, if you can make a full year contribution if you had that plan in effect by 12/1. Next, Roth conversions. Remember chunking. Let's break this up. Do I want to get this in on my 2025 tax return to split the tax burden up over multiple years? And then another one here that we didn't talk about is for any of you that have kids that work in your business or on your rental properties, any of you business owners, you should be paying your kids for that work, taking a tax deduction, and then you can open up a kids Roth IRA for them. Okay. We have kids Roth IRAs at Directed IRA. They could be crypto Roth IRAs. They can be self-directed into real estate or other deals. But you can be doing kids Roth IRA accounts. Now, a kid must have earned income. So you must be paying them from the business or from a rental property, whatever it is, so they have earned income. Um, they could have a summer job, or even they have a part-time job. They might work at the mall or a restaurant or whatever. Yeah, I don't know, some of these like, uh, teenager jobs. And, um, they're spending that money, but that's earned income too that you could actually then— let's say they made $5,000 through the year at their part-time job, they're in high school, whatever it is, and they spend all that money. Well, you could drop $5,000 into a Roth IRA for them because that is earned income still. So it doesn't have to be the $5,000 they made, they have to have their earned income through the year. Okay, so those are some things to worry about by year end. I'm going to come back to the mega backdoor Roth. That's a big one. Can't believe I skipped that. Okay, April 15th deadline. Remember, that's your traditional IRAs, Roth IRA, even the backdoor Roth IRA. You don't get to file an extension and get an extension of time to do the IRA contributions. Those are due on April 15th. For any of you solo K owners, you can still make those contributions. You may not be able to maximize, but you do get the tax return deadline extension as well. It's based on your company return, not your personal return, your company return. So if you're an S corp, that will be March 15th plus extension up to September 15th of when you can get solo K contributions in for 2025.

I have a question here from an anonymous attendee to talk about the backdoor.

This is the same anonymous attendee. Okay.

I mean, they have the same name, so I assume it's the same person.

Okay. Um, well, anonymous attendees, just like a default. If you click the button to say, I don't want to say my name, you know? Okay. All right. Which is fine.

Same last name. Attendee.

Okay. Um, yeah, we need, we need, there's like, I think there's like an AA meeting for anonymous attendees. There's a meeting. All you guys need to go and attend to and say hi. My name is Matt. I'm an anonymous attendee.

But then you're not anonymous anymore. Then you're not anonymous anymore.

Well, amongst other AA members.

Okay.

Because it's a circle of trust.

Yeah.

You know what I mean?

Yeah. Are you a part of it? No?

All right. Okay. That might not have been funny at all. I don't know. Daniel's maybe giving me some courtesy laughs here. Okay. I thought that was pretty good. Okay. We'll edit that for the recording. Okay. Mega backdoor Roth. Okay, great question. And that is something you want to be making sure you are hyperfocused on by year end. A lot of our clients that do mega backdoor Roths do it with their employer 401(k), or maybe it's their spouse's 401(k). You can do it in a solo K as well. The mega backdoor Roth is something you're going to do if you're trying to get a lot of money in. You've already maxed out your regular employee contributions. You've gotten your match from the employer 401(k) where you work, or this could be your spouse's. You're like, hey, I've got $30,000 in for my 401(k) through the year, through my own contributions, through the match. I've got $30,000 in, but I still have another $40,000 to go to get up to $70,000. But the company doesn't match anymore, and I can't put in any regular employee contributions anymore. What else can I do? Well, you can do the mega backdoor Roth. Okay, the next thing you can do— over 60% of 401(k) plans allow for something called an after-tax employee contribution. This is a— this is not a deductible contribution. Okay? This is not a Roth contribution. It's an after-tax employee contribution. So let's say that I had already put in $30,000 through the year. I have another $70,000— sorry, I have another $40,000 to go to get me to the total $70,000 max that you can put in a 401(k) for 2025. So I could drop $40,000 in after-tax employee contributions into the company 401(k). That money is not hostage in the 401(k). You can roll after-tax employee contributions out to a Roth IRA, or that's a directed IRA or a brokerage IRA, doesn't matter. But that is the mega backdoor Roth. It essentially is enabled by doing an after-tax employee contribution as long as your plan allows for it. Most of them do. There are still some that don't. You've got to do this by year-end because your plan administrator and an employer 401(k) at a job that you might have is not going to let you execute on this in 2026. So we got to get this done now. Now again, this is not going to get withheld from a paycheck. You might be thinking, well, Matt, my regular 401(k) contributions, I had it scheduled out, so it's withheld from my paycheck and I was getting the match, and you know, so how do I get this in now? Most 401(k) providers allow you to send money into the 401(k). It's not getting deducted from your paycheck. You're ACHing, and if you're doing it this time of year, wiring the money to get it in as a contribution in for 2025. Now, the rollout part to a Roth IRA is what most people will do. In a mega backdoor Roth, the concept is, why would I let that money stay in my 401(k) where I have some target date funds or some mutual funds? I'd rather that money get out to a Roth IRA. Now, in 2014, the IRS put out some guidance on this and said, hey, after-tax employee contributions can leave the 401(k) and they can get rolled directly into a Roth IRA. No conversion, no Roth conversion, and they are Roth IRA dollars. Now, you never took a deduction on it. That's because it's after-tax. Pre-tax would mean you took a deduction. So it's after-tax. You didn't take a deduction to put the $40K in. It has to hit the 401(k) in an after-tax bucket of dollars, and then it can get rolled out to a Roth IRA account. All right. Now, again, that's a December 31st thing because your employer 401(k), they think in terms of we've got to get everything done by December 31st and they do. So you're not executing on the mega backdoor Roth in an employer 401(k) in 2026 for 2025 contributions. However, solo K owners, you don't need to worry about it by year end, okay? Because you can get your contributions in later. Now, if you're an S corp owner, I'd still try to do this by January because even your after-tax employee contributions, your regular employee contributions, these are all going on your W-2 to be recorded properly. So don't be delaying on this strategy even if you're a solo K owner. But that would be the mega backdoor Roth. It requires these after-tax contributions. Check with your plan administrator on that. The— I've probably— where I've worked with a lot of clients over the years on this. Um, what I will say, the first thing you're going to encounter is a lot of nos because that's the easiest answer. And the— and, and I know, you know, some people will talk to so-and-so in HR. They don't know. They don't know that, you know. Okay, you've got to go through and break through to a few people. The first thing to ask for is say, I want a copy of the summary plan description. It's called SPD. That will say what type of contributions are allowed. There's usually a box for after-tax employee contribution. If that box is checked, that means you can do it. Okay? And in fact, that's probably the first thing you should do is say, hey, I want a copy of the summary plan description. It's typically available from your plan provider, um, or whoever the administrator is of your plan, and that'll give you the answer of whether it's allowed. Then you got to go through logistics of doing it. In a lot of bigger companies, this is kind of an executive thing that a lot of them do, so they will be used to it. If it's a smaller or mid-sized company and they haven't done this yet, sometimes you might be the pioneer doing it for the first time, and it will be a little more painful. Okay, so just know this is not like the 101 retirement account contribution that your plan administrator or HR department does. This is definitely advanced, um, but is a very viable strategy And it's something very common for high-income earners to execute on. So that's the mega backdoor Roth. This is done in a 401(k), and those after-tax contributions you drop in can get rolled out to a Roth IRA even though you're not 59 and a half, even though you still work at that employer. After-tax employee contributions are not hostage in the 401(k) plan, though they have to be contributed there, but they can get rolled out. Okay. I'm hoping that made sense. It made sense to me. So if I lost you, well, it is my fault, but it is tricky.

We'll do it next year.

Yeah. If I lost you, it's an advanced strategy. Don't worry about it. If you're like, Matt, I made a lot of money. Okay. I want to execute on this. I love Roth accounts. I want to maximize this. Great. Get to our law firm, KQS Lawyers. One of the tax lawyers can consult you through this. This is not something any retirement account company is going to be able to give you enough advice. Now, if you got a good CPA or accountant, you're fine, you'll be okay. Um, but if you're doing your stuff on TurboTax, or, you know, you're using ChatGPT to try to figure this out, um, stop, drop, and roll, and get someone who knows what they're doing that can walk you through this, because it's definitely more of an advanced strategy. So we're here to help. If you need a solo K set up by year end, a kids Roth IRA account, you want to pay your kids through the business, you've got pay them by December 31st if you want a tax deduction for your business. Remember the backdoor Roth IRA. We can certainly help get those set up. Any of these accounts. I mean, we're here. We want to be a resource. Daniel's, you know, you can book a call with Daniel here.

Matt, trust me, he brought me in.

Yeah. I mean, you know, so we want to make sure we can help you because this is one of the greatest ways to grow and build wealth using retirement accounts that have tax-advantaged Funds in them, whether it's Roth account growing and coming out, no tax, or it's a traditional account you got a tax deduction for, it's growing tax-deferred. These are tax-advantaged accounts. There's $45 trillion in US retirement accounts. It's been a staple way for people to grow and build wealth in America. And we let you invest it in what you want to invest in. You want to buy a stock or mutual fund, knock yourself out. But most clients here, they're investing in real estate or a private asset or crypto, a fund. Whatever it is, that's the open architecture investment we allow here at Directed IRA. Get over here to book a call, directedira.com/appointment. Remember to use the promo code HOLIDAY150. That'll save you $150. Daniel would love to talk to you.

I love talking to everybody.

All right. Any other final questions? We got maybe 1 minute.

Yeah. Let's— can I, can I try and get as many as we can? And I'll just fire around. I'll stop you. I'll be like, Matt, you're going into the weeds. Stop it. Okay. Can I tax— can a tax-deferred annuity I earned before I participated in my defined contribution IRA be converted over to my self-directed Roth?

No.

Next question. Solo 401(k), can the company, either a C or S corp, take an expense for tax purposes?

The company's contributing to the 401(k)?

Yeah, that's what—

Absolutely.

That's what I believe.

If it's traditional dollars. So if the company match that you did is traditional dollars, Actually, let me say this. Either way, the company takes the tax deduction. There's a new rule. This is, again, SECURE 2.0. This went into effect 2 years ago, actually, this one, where the company can do a Roth match. And in that case, the company does take a deduction, but 1099s you, so you pick the income back up if you did employer contributions that are Roth. Generally speaking, though, if the company does traditional contributions, they are taking an expense to that. Contribution.

Okay. Can I pay kids earned income in 2025 if my rental properties are not part of any business?

I don't know how they're not. Your rental property is going to be on your 1040 as a rental property. You have expenses. You can pay people to work on the properties and help manage them. So that's where you would pay your kids if you have a rental property. That is a business. Now, that's to make a Roth IRA contribution for them.

Yes.

Okay. We're not justifying a solo K. It's not a business in terms of like the 401(k)s are— you, in order to do a solo 401(k), you have to have a business that provides goods or services. Rental real estate is rental income, but you can pay your kids for services they're working on your properties to get them earned income to do a kid's Roth IRA account. Okay. Like, I mowed the lawn at my dad's duplex when I was a kid. I got $20 for it. That was pretty good. Yeah, I got—

well, especially back then.

Well, exactly.

Soda was a nickel, right?

Yeah. So it went— $20 went a long way. So it was a fight to who, you know. Now it took a day because you had to get out on the other side of town to go do it. And then my dad was there dinking around at the property, you know, all the time.

So dinosaurs moved real slow back then.

Yes. So what I'm saying here is, is that work that's happening at the rental property you may already be paying your kid, you might need to pay them more in order to make a meaningful Roth contribution.

And I think last one to wrap it up: is there a minimum age for a kid's Roth IRA?

There's no minimum age, but they have to have earned income. So if I got like a 3-year-old that has a Roth IRA, I'm like, what did they do? Okay, I, I did Roth IRAs for my kids about when they were 13, and they would come— they literally came to my office every weekend and cleaned the office for years. Okay, my kids were the cleaning crew. My staff didn't love it, they didn't hate it, you know, it was cute. They would come play office for a little bit too, and you know, the, the stapler would be in the wrong place on someone's desk. But, um, but I like teaching them how to work. I would go do some work on Saturdays too. It was a— it was for many years we did that routine. But I now had— they now had earned income, and I was paying them out of my business, taking an expense that reduced my taxable income. They now had earned income. They didn't even file a 1040 because they were below the standard deduction, and— but they had justifiable earned income to make contributions to a Roth IRA. So I open up Roth IRAs for them. So now some people will do it at a younger age, 7 and 8, but they've really got to be working in the business. And you can't just pay them $7,000, the max contribution amount, unless they really did $7,000 worth of work. But even if it's a couple thousand bucks, it's a great way to like teach them investing get them a couple grand if they have worked in your business or on your rental properties, wherever it may be, and get them started.

Especially if you're already doing self-direction, you can show them what it looks like. Exactly. Start helping them. I mean, that's what Mark does with his kids. I mean, they're older now, but yeah, yeah, exactly.

And just teaching them the principle of investing and growing and building wealth. And I know one of the things we've all seen as investors and savers is if you had a Roth IRA when you were 17 years old, you— and you know, now you're 60. 60 and you just put the minimum contribution up, it'll be worth $6 million. And that's true, but most people read that article and hear that and understand that when they're 40, and they're like, I need a DeLorean, some plutonium, and I need to go back in time to go do that. But you can start now with your kids. Help them, give them a head start.

Don't make them be the 40-year-old that looked back and says, I wish I would have done—

I wish I did this. Yeah, yeah, help them, you know. So, all right, well, that's it for us here today. Thank you so much for tuning in. Thanks for those that asked the questions. Thank you, Daniel, for being an amazing co-host over there. He looks so good. Look at that cinematography there. You look like you'd be on Between Two Ferns. Like Zach Galifianakis could be right next to you.

A little bit skinnier, less beard, but yes.

No, you're the guest. You're the star.

Oh, yeah, yeah, yeah. I'll take that one.

I'm not saying you look like Zach Galifianakis. I'm saying that you could be on the show with him.

Yeah, My other fern is missing. You guys can't see, but it's missing.

Yeah, so, all right, thanks everybody. Enjoy the holidays. Thanks for being on. See you next time. And thank you everyone for listening. A quick disclaimer and reminder. This presentation does not constitute an attorney or CPA client relationship, and it is always in your best interest to consult competent legal and tax professionals when conducting your own personal transactions. We also want to make sure you know This is not investment advice or financial advice. We're just trying to give you education, ideas, and strategies you can take to your professionals or conduct your own research on. We'll see you next time.