Roth IRA vs Roth 401(k) - Where Should You Put Your Money?

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Welcome everyone to the Directed IRA podcast.
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This is Matt Sorensen.
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Excited to be with you today.
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I'm going to be covering Roth IRAs versus Roth 401Ks.
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I did this live and I want to share it with everyone here on the Directed IRA podcast.
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Roth IRAs are the number one account we open up at Directed IRA, followed by traditional IRAs, but also Roth 401Ks, whether you have one of them at your employer or you have a solo Roth 401K.
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Critical strategies, I'm comparing and contrasting both in today's episode.
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Please enjoy.
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We're going to talk about how do you get the money in.
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We're next going to talk about the tax rules.
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And there's a lot of stuff in here many people do not know.
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I happen to be a tax lawyer, run a big company called Directed IRA, where we have 25,000 retirement accounts, the most common of which is a Roth IRA.
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So we're going to break down some of the cool things you can do with it that you probably aren't even thinking about.
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Third, we're going to talk about investment options.
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How can you invest these accounts?
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Fourth, we're going to go over the differences between the Roth IRA and Roth 401k.
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And then we're going to be going over getting the money out of these accounts.
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How do I access this money at retirement or earlier?
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And then we're going to go over how do I use both of these accounts?
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Can I do the Roth IRA and the Roth 401k together?
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How does that work?
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So we got a lot to cover today.
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This is really substantive, a lot of great info, in my humble opinion.
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You'd be the judge by the end of this.
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But we have a deck.
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And so with all of this info, I'm going to be dumping on you.
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We do have a deck.
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It's in the description in the link below.
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Last but not least, the Alt Asset Summit is going to be October 22nd and 23rd.
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This is a live event hosted by Directed IRA.
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There's a number of other sponsors, but my company's Directed IRA hosts this every year.
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It's two days hearing from other experts in different investment categories from real estate to private equity to venture to precious metals to crypto, some of the tax and legal strategy associated with it.
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There'll be CPAs, attorneys, even financial advisors speaking about this.
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So it's really two days condensed.
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Meet other like-minded investors learning about alternative assets specifically.
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It'll also be streamed virtually, but we'd love to see you there live.
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We had 250, 300 people, I think 300 plus at the last one that we did in Phoenix.
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I think we'll have more at this one coming up again October 22nd, 23rd, Costa Mesa, California.
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That's Orange County area in Southern California.
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Catch the virtual stream if you can't make it out there, but we'd love to see you there live as well.
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And do we have a discount code we want to throw out yet?
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It's just code client.
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Oh, just code client.
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Okay.
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Don't share that with anyone.
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Um and all right, I got the go from Jordan.
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So all right, let's dig back into it and talk about the Roth IRA, Roth 401k, and getting the money in.
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So Roth IRAs, 401ks, Roth 401ks, the government only lets you put so much money into these accounts every year.
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Now you can invest it and grow it as much as you want, but the government says, hey, this account and retirement accounts in general, these are like tax advantaged.
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So we're not going to just let you dump as much money in there and then go invest it.
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We're only going to let you put so much money in every year.
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So because of that limitation, you want to be consistent about getting the money in and starting as early as possible, because that's how you start compounding and growing this.
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And remember, in a Roth account, Roth IRA or Roth 401k, that money's growing.
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We're investing it and you pay no taxes on it.
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And then it comes out entirely tax-free later in retirement.
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Now, in a Roth account, when I put money in and for a Roth IRA for 2026, it's$7,500 a year.
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When I put that$7,500 a year into the Roth IRA, I do not get a tax deduction.
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Traditional IRAs you get tax deduction, or traditional 401ks, you get tax deductions when you put the money in, where you get to reduce your taxable income by$7,500.
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And the catch with the traditional, though, is you don't pay taxes as you grow it, but when you pull it out and that money's grown and is invested, you're paying taxes as you're distributing the money later in retirement.
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So the Roth is frankly the exact opposite.
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You put the$7,500 in, no tax deduction.
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But now the growth and what's coming out later in retirement, you pay zero taxes on.
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So the amount for 2026 for Roth IRAs is$7,500.
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If you are$50 or older, you get an additional$1,100 you can put in for$8,600.
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So I can put that in every year, and we're going to go.
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What if you're a high income earner?
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We'll talk about that here in a second.
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Now, if we contrast this with a 401k, I want to break down two different 401k types.
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There's the corporate 401k person where you're an employee working for a company that has a 401k.
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There's another 401k user that's the self-employed 401k user.
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And this is someone who will use what's called a solo 401k.
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So let's talk about the most common, which is I work at a corporate job.
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Okay, I'm Jim Halpert.
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I work at Dunder Mifflin.
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I have the Dunder Mifflin 401k.
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All right.
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So in that scenario, with a 401k at an employer where you work, you can put in$24,500 a year as the employee.
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All right.
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If you're 50 or older, you can put$32,500.
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If you're age 60 to 63, there's a new kicker for years 25 to 28, where you can actually put 35,750.
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But everybody can at least put in, regardless of your age,$24,500 in Roth 401k dollars.
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Now, this is coming out of your paycheck.
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Most 401k providers have a match.
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We'll talk about here in a second.
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But, and you want to get that.
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So if I'm working at a company that offers a 401k, and let's say I make 200 grand a year, and they say, well, we match 4% of your salary dollar for dollar.
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So if you put in 4% of your salary, we'll put in 4% of your salary into the 401k.
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So 4% of my salary if I'm making$200,000 is$8,000.
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And so they're saying, if you put in 8 grand, we'll put in$8,000.
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So that's$8,000 as an employee contribution.
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That goes against your$24,500.
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And then they're dropping in$8,000 as a match, which is an employer contribution.
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That doesn't eat into your$245.
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That's the company putting money in.
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All right.
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Now they can put in money up to the total of your 401k being up to$72,000.
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So they've got another$40,000 in change they could put in in matches.
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Most corporate 401ks never do that.
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I would say and say most, I'd say all.
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I've never ran into a corporate 401k that maxes out the employer contribution for their employees.
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But the important point here is if you have a match from your employer, that does not count against the dollars you can put in as an employee.
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And remember, 245 is the amount you can put in.
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Now we're going to get to advanced strategies in the episode three here that we'll get into the mega backdoor Roth 401k, where you can put more in as an employee.
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And I'll dig into that strategy in the next episode.
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But for now, let's just leave it there.
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You can put 245 in.
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Again, if you're over 50 or over in that year, 60 to 63, you can put more of those amounts are on the deck.
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Now let's contrast this to someone self-employed.
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If I'm self-employed, I can have something called a solo 401.
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This is for people who are self-employed with no employees.
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We see a lot of consultants, real estate agents, brokers, just people who have a small business, maybe even, or even a side hustle.
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They might even have a 401k a day job, but they have a side hustle over their own business where they have a solo 401k.
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So the solo 401k is meant for a self-employed person that doesn't have other third-party employees.
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They might have business partners or family that works in the business.
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They don't have other third-party employees.
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So the IRS lets them have something called a solo 401k.
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It's just kind of like a 401 for yourself.
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And in the solo 401, the reason I talk about it separately than the corporate 401 is even though you can put in still$24,500 as an employee that can be Roth dollars, the rest of the money you put into the 401k is called an employer contribution, but it's still coming out of your pocket.
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It's really just coming out of the business account, right?
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It's still coming from you because you're the owner of the business if you're someone who's self-employed.
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So in the solo 401k for 2026, you could be putting in a maximum of$72,000.
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Because you're the employee and the employer, you could decide to max the whole thing out and max out employee contributions, and you can max out the employer contributions because you're such a good employee.
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Why not?
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That's how you can get to$72,000 a year in a solo$0.1k.
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Now, technically, could I do$72K in my corporate 401k where I work?
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Yeah, but you don't get to decide the employer contributions.
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You could max out 245 as an employee.
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That's your choice.
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Those are come, that's coming off of your paycheck.
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But is my employer going to put the rest in to get me to 72?
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Probably not.
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Again, we'll get to the backdoor Roth 401k, the mega backdoor, in the next episode.
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There are some workarounds there if you want to do more.
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But for now, just contrast, you might be the self-employed person with the solo K.
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You might be the person with the corporate 401k, or you might be that person that actually has this business on the side and you still have a corporate 401k where you work.
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So those are the dollars that can get in.
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The Roth IRA is less, but it's simpler because any individual can have an IRA.
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The 401k I can put more in, but it is through my employer, unless I'm that self-employed person with the solo 401.
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All right.
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So now we're getting the money in every year.
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Okay.
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We're putting the money in.
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We know the tax rules here.
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And we just have a little breakdown here on the slides of remember, these accounts are all growing tax free.
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The money can be invested as I'm making money on this, whether I'm investing the IRA in stocks or an index fund or real estate or a private company, like the gains are building up on the retirement account.
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It's not going on my 1040.
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All right.
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So both accounts, the Roth 401k and the Roth IRA, have that same tax-free nature.
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No taxes as you're investing it, no taxes on the way out once you get to 59 and a half.
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The Roth IRA, though, has some flexibility in how I can get the money out, though.
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And this is one of the unique rules for Roth IRAs that I love, which is whatever contributions you put into a Roth IRA, you can take out with no tax or penalty at any time.
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So let's say I put$7,500 into the Roth IRA for 10 years for$75,000 of contributions.
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And let's say over that 10-year window, I had investment returns of$50,000, so the account's worth$125,000.
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Well, let's say I'm age 45 or 50, and I'm like, I want to take out that$75,000 I put in.
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You can take it out now.
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The contributions you put into a Roth IRA can always come out tax and penalty free at any time.
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It is only the earnings and growth, in this example, that 50 grand, that you'd have to wait until you're 59 and a half to pull out tax and penalty free.
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So little unique rule there with the Roth IRA that I can access those dollars earlier.
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A Roth 401, you cannot do that.
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All right.
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Once those contributions are in, tax and penalty to get it out early.
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So just know that's a very unique rule just for the Roth IRA, where your contributions come out, can come out early, tax and penalty free.
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By the way, just a note, for those of you that are high income earners doing the backdoor Roth IRA, that strategy kind of works, but you have a five-year clock on each contribution of when you put it in to when you can get it out.
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We'll cover that in the next episode on advanced Roth strategies.
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All right, Roth 401k withdrawals.
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Basically, when I pull out with the Roth 401k withdrawals early, you have to take them out pro rata.
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You don't get to say these are contributions.
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I'll take the contributions first because there's no tax or penalty.
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These are the earnings.
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They just don't let you do that.
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That's why this uh early withdrawal strategy of contributions doesn't work with the Roth 401.
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Um, okay, another rule on the tax side, you need to know.
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Um, and actually we'll get to some withdrawals.
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There's something called a five-year rule.
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Let's we'll we'll dig into that um later here in a second.
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Okay, so we got the money in.
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We all know the tax, the basic tax rules on this grows and comes out tax-free.
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I can get the money out of the Roth IRA that I put in the contributions, penalty and tax-free at any age.
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Roth 401k, I can't do that.
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I'm gonna have penalty or tax to pull even the contributions out early.
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But let's, I got the money in.
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What are my options to invest those dollars?
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Most people are familiar with a Roth IRA or Roth 401k, investing in index funds or the stock market, even if you're buying individual stocks, or maybe it's a mutual fund, a target date fund in your 401k.
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A Roth IRA is gonna have much greater investment options, whether you have a brokerage IRA and you're buying individual stocks, or you're doing a self-directed IRA, which is what we do at our company, directed IRA.
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And I'm investing that IRA into real estate deals, I'm doing private lending, I'm buying crypto, I'm investing in a startup, in a private fund, in a venture capital deal.
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Like self-directed Roth IRAs is, I mean, it's what I do with my own account, and we and we have 25,000 plus accounts of clients that do this every day, is they're investing in these private assets with their Roth IRA.
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But Roth IRAs in general, because you're the individual owner, and that's the IRA part of the of the account, you know, is this is an individual account.
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You are the decision maker on how it's invested, and you can choose where to put the account.
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In IRA world, you decide do you want to use Merrill Lynch?
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Do you want to use directed IRA?
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Do you want TD Ameritrade?
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Do you want Robinhood?
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Okay, that's up to you.
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You're the decider and you determine how to invest the account in the IRA world.
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Once we get over to your corporate 401k and think of Jim Halpert at Dunder Mifflin and the Dunder Mifflin 401k, he doesn't have a say in what 401k company is being used.
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He has no say of what investment options he has.
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If he's an employee at Dunder Mifflin, he gets the Dunder Mifflin 401k.
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Dunder Mifflin uses Vanguard, he's going to use Vanguard.
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Dunder Mifflin makes you buy target date funds, he's gonna have to buy target date funds.
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Okay.
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So in the corporate 401k, where you're working, you're an employee.
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This is common, this is just how it is.
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Okay, it's not Dunder Mifflin's fault.
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Okay, it's just how it is in that space for the most part.
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Well, it is a little bit, but but it's just how it is in the 401k space.
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Your investment options are what your employer decided or the advisors or companies that they engage to offer that 401k plan.
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All right.
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It's a menu.
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You can invest as long as something's on the menu.
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If we contrast that, though, with your solo 401k, because you're the business owner in the solo 401k, you can decide to self-direct it.
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You can let it be open architecture, whether that's individual stocks, self-directing, doing a real estate deal, a private fund, a private equity deal, whatever you want to do.
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It's up to you because you control what the investment options is in a solo 401k, just like you get to do in an IRA.
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But just know if you're someone that has that corporate 401k where you're an employee where you work, it's nice because you get the match and your employer's giving you that match, which is some free money.
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You always want to do that.
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Um, but you typically are gonna have limited investment options of target date funds, mutual funds, index funds, which isn't the end of the world.
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It's just they're not letting you invest in the best investment you can find.
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They're letting you invest in the best investment that's on their menu.
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All right.
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Um, so you just have to live with that.
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All right, where are we at?
00:16:34.159 --> 00:16:35.039
I got investment options.
00:16:35.120 --> 00:16:36.159
Okay, differences.
00:16:36.399 --> 00:16:37.919
Shout out to Jared on the slides.
00:16:38.000 --> 00:16:38.879
These slides are great.
00:16:39.120 --> 00:16:39.840
Thank you.
00:16:40.080 --> 00:16:41.200
Uh all right.
00:16:41.519 --> 00:16:42.559
This needs a chart.
00:16:42.720 --> 00:16:49.679
Okay, so we had to do a chart to break down the differences because there are little nuances between them.
00:16:49.840 --> 00:16:55.519
There's a common theme again of growing and coming out tax-free, but there is some nuance here on it.
00:16:55.600 --> 00:16:56.639
So let's just hit a couple of things.
00:16:56.720 --> 00:16:58.240
We've talked about some of them already.
00:16:58.399 --> 00:16:59.919
The employer match.
00:17:00.240 --> 00:17:01.840
You're not getting that in an IRA.
00:17:01.919 --> 00:17:03.360
You get it in a 401k.
00:17:03.440 --> 00:17:07.920
The contribution limits, higher in a 401k than an IRA.
00:17:08.240 --> 00:17:09.519
Um, loans.
00:17:10.160 --> 00:17:13.519
You can't take a loan from the IRA to yourself.
00:17:13.759 --> 00:17:22.400
If you have a 401k, whether this is a solo 401k or a 401k at work, most 401ks, the corporate 401ks out there, allow these these loans.
00:17:22.480 --> 00:17:23.839
They don't have to, but most do.
00:17:24.000 --> 00:17:33.039
But there's something called a participant loan in the 401k world, where you can lend yourself half the balance of the 401k not to exceed 50 grand total.
00:17:33.119 --> 00:17:41.680
So if I have a$200,000 401k, I could get a total loan, max amount of$50K, because it's half the balance not to exceed$50,000.
00:17:42.000 --> 00:17:45.519
And that loan is something where you can basically get the money out of the 401k.
00:17:45.680 --> 00:17:54.720
Maybe you need it to buy a home, that you're starting a business, you're paying off high interest credit cards, financial emergency, medical, whatever it is.
00:17:54.799 --> 00:17:58.160
Okay, you can just access the money in your 401k and lend it to yourself.
00:17:58.319 --> 00:18:05.359
Now you have to pay it back at prime interest plus 2%, which is gonna put you around 7% ish, let's say.
00:18:05.519 --> 00:18:12.079
And you're paying that interest back plus the total loan amount you took from the 401k, it's going back to your 401.
00:18:12.640 --> 00:18:12.960
All right.
00:18:13.119 --> 00:18:19.200
So that's just a mechanism that's kind of nice for a 401k that lets me get that money early if I need it.
00:18:19.440 --> 00:18:28.319
And, but I get to put it back in the 401 later through this loan strategy, which I like because it gives me access, but it lets me get it back in there so I can let it keep compounding later.
00:18:28.400 --> 00:18:36.960
So if I'm 35 and I'm like, ah, I'm starting a small business or I'm buying a house or something, and I need that 50 grand, but I can catch back up in the next few years.
00:18:37.200 --> 00:18:39.440
I like that I can get that 50 grand back in.
00:18:39.599 --> 00:18:44.960
So for the next 20 years or whatever, I'm still building and investing, growing for my retirement.
00:18:45.119 --> 00:18:48.079
That money can get back in and get compounding.
00:18:48.319 --> 00:18:54.880
Um, so that's the participant loan that you can do in a corporate 401k.
00:18:55.039 --> 00:18:58.880
Most of them offer it, not all, but I'd say 95% plus due.
00:18:59.119 --> 00:19:02.880
And your solo 401k, you can use that loan option as well.
00:19:03.200 --> 00:19:15.920
Um, one other thing that's unique in the IRA that doesn't apply to the 401ks is Roth IRAs have high income phase outs for standard contributions.
00:19:16.240 --> 00:19:27.759
So if you make more than$153,000 a year single or$242,000 a year married filing joint, you can't just put$7,500 into a Roth IRA every year.
00:19:27.839 --> 00:19:32.079
The IRS is like, these accounts scroll and come out tax-free.
00:19:32.240 --> 00:19:33.599
We don't want the rich to use them.
00:19:33.680 --> 00:19:41.519
So if you're a high income earner over these limits, you can't put$7,500 a year in the front door into a Roth IRA.
00:19:41.759 --> 00:19:48.559
Now I'm gonna get to the backdoor Roth IRA here in a second, but Roth 401k accounts don't care.
00:19:48.720 --> 00:19:50.079
They don't care your income limit.
00:19:50.160 --> 00:19:51.440
There's no income restriction.
00:19:51.519 --> 00:19:54.880
So you can be putting as much money in a Roth 401 every year as you want.
00:19:55.039 --> 00:19:57.839
You can be making millions of dollars a year, doesn't matter.
00:19:58.000 --> 00:20:04.559
You can just do Roth contributions in the regular way as you're building and saving in a Roth 401k.
00:20:04.880 --> 00:20:06.559
So let's come back to the Roth IRA.
00:20:06.640 --> 00:20:08.880
Let's say you're someone who's over the income limits.
00:20:09.039 --> 00:20:09.920
What do you do?
00:20:10.160 --> 00:20:13.359
Well, you can do something called a backdoor Roth IRA.
00:20:13.519 --> 00:20:18.720
This is like the most commonly used tax loophole in the tax code, all right?
00:20:19.039 --> 00:20:28.240
And this is a this is a strategy where you essentially put$7,500 into a traditional IRA, is what's called a non-deductible contribution.
00:20:28.400 --> 00:20:32.000
You put$7,500 in a traditional IRA and you don't take a tax deduction.
00:20:32.160 --> 00:20:36.400
And then you convert that$7,500 over to a Roth IRA.
00:20:36.640 --> 00:20:50.480
The reason this backdoor Roth IRA works is Congress at first, when they created this income restriction, they said, if you're over these income limits, you can't contribute to a Roth IRA, nor can you do a Roth conversion.
00:20:50.960 --> 00:20:57.440
But about 15 years ago, Congress changed the rules and said, actually, you can do a Roth conversion.
00:20:57.920 --> 00:21:03.519
You still can't put the contribution in the front door, but you can convert traditional dollars to Roth.
00:21:03.839 --> 00:21:06.799
Now, Congress did that because it was a way to raise revenue.
00:21:06.960 --> 00:21:13.440
They wanted people to convert traditional IRAs to Roth IRAs, high-income earners, because they wanted to raise revenue now.
00:21:13.599 --> 00:21:17.039
Congress was greedy, and Roth Conversions created tax now.
00:21:17.200 --> 00:21:19.119
So they changed the rules on it.
00:21:19.519 --> 00:21:29.119
Well, that left this door open for the backdoor Roth IRA, whereby now I can just put$7,500 in a traditional IRA.
00:21:29.519 --> 00:21:31.119
I don't need a tax deduction for it.
00:21:31.279 --> 00:21:31.599
Who cares?
00:21:31.759 --> 00:21:36.559
Some of you might be, well, Matt, I'm high income and I have a 401k at work and I do a Roth IRA.
00:21:36.640 --> 00:21:38.559
I don't get a deduction to putting the money in.
00:21:38.880 --> 00:21:39.440
Who cares?
00:21:39.519 --> 00:21:40.319
Don't worry about it.
00:21:40.480 --> 00:21:49.279
Everyone can do$7,500 no matter what, your income, you got a 401k at work, you can do$7,500 a year non deductible in a traditional IRA.
00:21:49.440 --> 00:21:51.599
We're going to convert that to Roth dollars.
00:21:51.839 --> 00:21:58.559
When I convert non deductible dollars from traditional to Roth, there's no tax on the conversion because I didn't take a deduction.
00:21:58.960 --> 00:21:59.279
All right.
00:21:59.440 --> 00:22:01.279
So That's the backdoor Roth IRA.
00:22:01.359 --> 00:22:02.799
You can do$7,500 a year.
00:22:02.960 --> 00:22:04.000
Again, it's three steps.
00:22:04.079 --> 00:22:08.799
You have a traditional IRA, you put$7,500 into it, and then you convert it over to Roth.
00:22:09.039 --> 00:22:13.680
Traditional IRA,$7,500 non-deductible contribution, converted to Roth.
00:22:14.240 --> 00:22:16.079
That's your backdoor Roth IRA.
00:22:16.160 --> 00:22:18.319
Now it's not that difficult to execute.
00:22:18.480 --> 00:22:21.440
If you have an advisor, they definitely know the strategies.
00:22:21.680 --> 00:22:23.680
And if they don't, you should fire them.
00:22:24.000 --> 00:22:29.359
Most CPAs that are smart and tax savvy understand this rule.
00:22:30.079 --> 00:22:35.039
A lot of IRA providers, even the fidelities or swabs of the world, have like a structure of this.
00:22:35.200 --> 00:22:38.160
We have a package just called a backdoor Roth IRA.
00:22:38.240 --> 00:22:43.680
And we'll dig into more of it because there are some mistakes people make and some traps on it, but we'll hit that in episode three.
00:22:43.759 --> 00:22:49.359
I just wanted to note if you're that high-income earner and you're looking at this chart saying, Well, Matt, what about me?
00:22:49.519 --> 00:22:50.880
Can I do a Roth IRA?
00:22:50.960 --> 00:22:52.799
Yes, you're going to do the backdoor Roth IRA.
00:22:52.880 --> 00:22:54.799
Make sure you're subscribed to the channel.
00:22:55.039 --> 00:22:59.759
So you'll get notified when we go live to talk about it in uh episode three.
00:22:59.839 --> 00:23:01.839
And I have some other videos on YouTube already on this.
00:23:02.000 --> 00:23:03.599
So I think I'm good on differences.
00:23:03.680 --> 00:23:05.039
And I'm sure you're getting questions, Jordan.
00:23:05.200 --> 00:23:05.759
I'm going to be ready.
00:23:05.839 --> 00:23:06.720
We have some bunch of it.
00:23:06.960 --> 00:23:07.200
There we go.
00:23:07.440 --> 00:23:08.400
Okay, so we got this couple.
00:23:08.480 --> 00:23:11.920
So I'm going to come to you guys in a second, keep throwing in questions.
00:23:12.480 --> 00:23:15.599
All right, let's go to getting the money out.
00:23:15.920 --> 00:23:20.160
Um, the whole point of using the Roth account is that one day we want to get the money out.
00:23:20.319 --> 00:23:29.119
We want to live off of this sacrifice of this money we set aside that we saved and the time and effort we put into investing it and managing this.
00:23:29.279 --> 00:23:31.759
We want to pull this money out one day.
00:23:32.079 --> 00:23:38.960
Now, there is most of everyone's familiar with you don't get to pull money out of a retirement account until you're 59 and a half.
00:23:39.200 --> 00:23:45.039
There's another quirky rule for Roth IRAs and Roth 401ks called the five-year rule.
00:23:45.279 --> 00:24:00.000
And what the five-year rule is, let's just talk about it for IRAs, is it says, hey, you must have a Roth IRA for five years and be 59 and a half in order to get the earnings, the growth, and the gains out tax-free.
00:24:00.240 --> 00:24:07.920
So let's say you're someone that's 58, you've never had a Roth IRA before, and you start putting money into it and you got investment gains and growth.
00:24:08.160 --> 00:24:10.240
And now you're 62.
00:24:10.400 --> 00:24:12.400
You're like, well, I want to start pulling all this money out.
00:24:12.559 --> 00:24:14.960
I want to pull the contributions out and the gains.
00:24:15.119 --> 00:24:16.000
Can I do it?
00:24:16.160 --> 00:24:16.640
Nope.
00:24:16.880 --> 00:24:19.519
Because you haven't had a Roth IRA for five years.
00:24:19.759 --> 00:24:28.880
So you would have to wait until you're 63 in that example, in which case you would have had five years of having a Roth IRA and over age 59 and a half.
00:24:29.039 --> 00:24:32.400
Now, if you're someone that's saving earlier, this isn't gonna matter.
00:24:32.559 --> 00:24:38.640
Um, and and really that clock on a Roth IRA ticks the first day you have a Roth IRA.
00:24:38.799 --> 00:24:43.359
And it's not, and it's once you have had one Roth IRA for five years, you're good.
00:24:43.519 --> 00:24:47.920
Okay, you don't need to like every Roth IRA doesn't need to be in existence for five years.
00:24:48.000 --> 00:24:53.200
It's just you've had one Roth IRA for five years that qualifies you and qualifies all your Roth IRAs.
00:24:53.279 --> 00:25:00.960
So when you're 59 and a half, you can pull not only the contributions out, penalty and tax free, but also all of that earnings and growth.
00:25:01.440 --> 00:25:09.680
Um, also, one thing on the Roth IRA that's unique when you do hit 59 and a half, is you don't have to take the money out if you don't want to.
00:25:10.319 --> 00:25:20.079
Many people are familiar with um traditional IRAs or even traditional 401ks that have something called RMD, required minimum distributions.
00:25:20.400 --> 00:25:27.039
And that usually hits at age 73, and it says, hey, you need to start pulling money out of this account.
00:25:27.200 --> 00:25:32.720
We gave you tax deductions on this traditional account, you invested it, but we need to get some tax revenue.
00:25:32.880 --> 00:25:37.119
So you need to pull the money out because traditional IRAs, they got to pay tax on the distributions.
00:25:37.279 --> 00:25:42.960
So traditional IRAs and 401ks have this RMD rule where they're forced to start pulling money out at age 73.
00:25:43.119 --> 00:25:44.720
Roth IRAs don't have it.
00:25:44.880 --> 00:25:53.279
So you don't even need to worry about it with the Roth IRA, and that's a huge benefit to the Roth IRA because you can keep investing it and compounding it under your schedule and your timeline.
00:25:53.440 --> 00:26:01.359
And also, I think the Roth IRA is the last account you touch in terms of your wealth building and all the assets you're gonna use in retirement.
00:26:01.519 --> 00:26:09.200
Because I'm telling you, the best account you could leave your kids, the best inheritance someone could give you is a Roth IRA.
00:26:09.359 --> 00:26:13.119
Your kids could receive that as an inherited Roth IRA.
00:26:13.839 --> 00:26:16.799
They can continue investing it for another 10 years.
00:26:17.039 --> 00:26:26.160
Well, over 10 years, if they invested at a 7% rate of return, they can double the size of that account and it still comes out tax-free.
00:26:26.400 --> 00:26:28.319
So the Roth IRA is awesome.
00:26:28.400 --> 00:26:30.000
It's a great account to inherit.
00:26:30.160 --> 00:26:41.039
Remember, it gets to compound for another 10 years after you pass away, even, which makes it twice as valuable to your kids if they are smart about it and can you continue to invest it and grow it themselves.
00:26:41.279 --> 00:26:44.799
So um, so I love the Roth IRA.
00:26:44.880 --> 00:26:46.480
We don't we have no RMDs.
00:26:46.640 --> 00:26:48.480
I mean, obviously, draw on it if you need to.
00:26:48.559 --> 00:26:50.240
I mean, have a retirement you love and enjoy.
00:26:50.319 --> 00:26:53.519
I don't want you to be like, you know, cheap and don't just leave everything to your kids.
00:26:53.680 --> 00:26:56.960
But I'm just saying, if you don't need to, this is the last account to touch.
00:26:57.440 --> 00:27:09.680
All right, now Roth 401ks, and this will apply to the corporate 401k or your solo 401k, there's a new rule that came into effect a couple years ago, which is Roth 401ks don't have RMD either.
00:27:09.839 --> 00:27:22.480
It used to be this weird rule that you know your Roth 401k, even though it was Roth dollars and the IRS collected no revenue when you pulled the money out because it wasn't taxable, you still had to do RMD.
00:27:22.640 --> 00:27:26.960
Well, Congress changed that in Secure 2.0 a couple years ago.
00:27:27.119 --> 00:27:32.079
So now Roth 401Ks have no RMD, just like Roth IRAs.
00:27:32.720 --> 00:27:34.960
Let's dig into using both.
00:27:35.119 --> 00:27:40.640
Um, I I don't want you to think, hey, this is Roth IRA versus Roth 401k.
00:27:40.720 --> 00:27:43.440
This is more Roth IRA and Roth 401k.
00:27:43.519 --> 00:27:44.799
All right, I do both.
00:27:44.960 --> 00:27:51.200
All right, I'm doing Roth 401k contributions into my company 401k every year.
00:27:51.359 --> 00:27:58.079
I actually self-direct mine and then I do Roth IRA contributions using the backdoor Roth IRA every year as well.
00:27:58.240 --> 00:28:05.039
And I'm compounding and building both of those accounts up because I want these two tax-free buckets, right?
00:28:05.279 --> 00:28:10.960
Because Congress only lets you put so much money in each bucket, I'm gonna use both buckets, both buckets, all right?
00:28:11.039 --> 00:28:12.160
I don't want to use either one.
00:28:12.319 --> 00:28:20.160
I want to drop as much money into each as I can to get that tax-free bucket of money that I can continue to invest and grow.
00:28:20.480 --> 00:28:24.559
So using both is good, but let's go through a little ordering here.
00:28:24.720 --> 00:28:26.799
I want you to think about this because everyone's a little different.
00:28:26.880 --> 00:28:31.039
You might be like, Matt, I'm the person who wants to drop as much money as possible, and so I'm just gonna go.
00:28:31.200 --> 00:28:35.200
But you might be like, Matt, I just I can kind of put five grand away a year.
00:28:35.359 --> 00:28:36.400
What should I do first?
00:28:36.559 --> 00:28:38.559
Well, let's think about this first.
00:28:39.440 --> 00:28:45.759
If you have a 401k at somewhere where you work where they do a match, you should go there first.
00:28:46.640 --> 00:28:51.759
Because if you have someone that offers you a match, we want you to do what we call matching out.
00:28:51.839 --> 00:28:52.880
It's free money.
00:28:53.039 --> 00:29:00.160
It's it's if they're doing a hundred percent return up to say 4%, they're doubling your money.
00:29:00.319 --> 00:29:08.799
If I make$100,000 a year and I put in four grand and they're gonna match 4% of my salary, they put in four grand because they're matching 4% dollar for dollar.
00:29:08.960 --> 00:29:13.039
I now have$8,000 in my 401k, but it was only$4,000 of my money.
00:29:13.119 --> 00:29:15.279
I have a hundred percent return on day one.
00:29:15.440 --> 00:29:18.480
It is very hard to find an investment that's gonna beat that.
00:29:18.799 --> 00:29:26.079
So start there, you could do a Roth 401k contribution, and the company can do a match of dollars as well.
00:29:26.240 --> 00:29:38.400
Now, when they do the match, there's a new rule where employer contributions can be Roth dollars, but most corporate 401ks are still doing the match on traditional dollars.
00:29:38.880 --> 00:29:41.440
So you want to look into that and be clear.
00:29:41.680 --> 00:29:47.279
Hey, HR 401k administrator, how is that match coming in?
00:29:47.440 --> 00:29:49.200
Can I have it be Roth dollars?
00:29:49.440 --> 00:29:57.519
Now, when the company does a corporate match of traditional dollars, it's not income to you, it's not taxable to you, right?
00:29:57.599 --> 00:30:03.599
The company takes an expense, but it just goes right into your into your traditional 401k bucket.
00:30:03.839 --> 00:30:17.119
If the company does a match of Roth 401k dollars, which you can elect for them to do in some many 401ks are starting to, you know, over time it's gonna get more common here, but this is still relatively new in law the last couple years.
00:30:17.680 --> 00:30:21.920
If the company matches Roth dollars, they're gonna send you a 1099.
00:30:22.079 --> 00:30:31.200
So in that example, if I if I put in 4 grand and the company put in 4 grand of Roth dollars, they're actually gonna send me a 1099 for 4,000 bucks.
00:30:32.000 --> 00:30:36.240
That goes into my taxable income because this is money that I basically made.
00:30:36.559 --> 00:30:37.119
All right.
00:30:37.519 --> 00:30:42.559
So a little new, but the match, just keep that in mind.
00:30:42.640 --> 00:30:48.960
If you do the match and you want Roth dollars on the match too, which I like, you will pay tax on that$4,000 coming in.
00:30:49.039 --> 00:30:50.480
But you don't pay tax on the traditional.
00:30:50.559 --> 00:30:57.359
But remember, if the company drops the match in of traditional dollars, that's gonna grow and come out, and I'm gonna be paying taxes on the way out.
00:30:58.880 --> 00:31:05.359
Okay, once I get the match on the 401k, then I want you to go to a Roth IRA.
00:31:05.440 --> 00:31:09.839
Don't put more money in the 401k because you haven't limited investment options.
00:31:10.000 --> 00:31:12.960
So now all the money going in the 401k is just your dollars.
00:31:13.119 --> 00:31:17.519
So there's no doubling of the money here or 100% return with the match.
00:31:17.680 --> 00:31:19.680
After you've got the match, get out.
00:31:20.079 --> 00:31:24.880
Now roll over to the Roth IRA where you can put in the 7,500 bucks a year.
00:31:24.960 --> 00:31:28.400
Again, if you're 50 year older, this is 8,600 bucks a year.
00:31:28.880 --> 00:31:36.480
And the reason I like going to the Roth IRA now is um, even though it's still your own dollars as well, I have greater investment options.
00:31:36.640 --> 00:31:45.359
If I want to do a brokerage IRA and pick individual stocks, or I want specific index funds or whatever, I'm not stuck to the 401k plan menu at my employer.
00:31:45.599 --> 00:31:47.920
Also, I might be someone who wants to self-direct.
00:31:48.079 --> 00:31:59.920
I might be wanting to invest my Roth IRA into a private fund, into a real estate deal, oil and gas, precious metals, crypto, all the stuff you can do like that we do every day at directed IRA with our self-directed Roth IRAs.
00:32:00.079 --> 00:32:04.640
So just you're gonna have greater investment options with the Roth IRA.
00:32:04.720 --> 00:32:07.519
And also they have pretty reasonable fees.
00:32:07.839 --> 00:32:14.640
Generally, on a corporate 401k, the average total fees in on a 401k is one and a half percent.
00:32:14.880 --> 00:32:16.079
You just don't see it.
00:32:16.319 --> 00:32:19.119
You're you're just getting nickeled and dimed everywhere, you just don't see it.
00:32:19.200 --> 00:32:23.200
So if you have a hundred grand in there, you're actually paying$1,500 a year for that account.
00:32:23.440 --> 00:32:28.240
So um I know the IRA fees are a lot of times more transparent.
00:32:28.400 --> 00:32:31.359
Um, and you can see those, but just keep that in mind.
00:32:31.519 --> 00:32:36.079
Um, I generally like the IRA because you have more control of investment options with it.
00:32:36.160 --> 00:32:42.000
Um, you're not stuck to the 401k, your 401k administrator, it's not locked up with there with your employment and all that.
00:32:42.240 --> 00:32:44.160
I get more freedom with the IRA.
00:32:44.319 --> 00:32:49.680
And then last, I'll just say I don't want you thinking of either or, think of both again.
00:32:49.759 --> 00:32:57.920
Um, and then when you leave that Roth 401k with that employer someday, if that happens, you can roll those dollars to the Roth IRA you already have.
00:32:58.000 --> 00:33:03.200
You will have satisfied the Roth IRA five-year role because you've already had a Roth IRA for five years.
00:33:03.519 --> 00:33:06.480
So um using both is great.
00:33:06.640 --> 00:33:09.839
I use both because it's a way I can just get more money in, right?
00:33:10.160 --> 00:33:14.480
There's only so much the IRS lets us put in of Roth dollars and have these tax-free buckets.
00:33:14.559 --> 00:33:21.599
So I want to use both buckets because I want to maximize how much tax-free growth I can get and how much tax-free income I can have in retirement.
00:33:21.759 --> 00:33:27.440
Now, if you're a solo K person, the dynamics could change a little bit here because you get no match.
00:33:27.680 --> 00:33:35.839
So I might bypass the Roth IRA if you're someone who wants to drop a lot of money in and just say, just do solo K and come back to Roth IRA later.
00:33:36.000 --> 00:33:41.200
If you're someone that's like, Matt, I just want to put five grand a year in, let's just do the Roth IRA.
00:33:41.279 --> 00:33:43.599
Even if you are self-employed, it's just simpler.
00:33:43.680 --> 00:33:44.880
We we can just start there.
00:33:45.039 --> 00:33:47.200
So everyone's situation is a little unique.
00:33:47.279 --> 00:33:48.480
So um just keep that in mind.
00:33:48.559 --> 00:33:51.279
Now remember the slide deck that I've been referencing here.
00:33:51.359 --> 00:33:57.759
Um, if you're new, there's a link in the description below where you can access and get an email of the slide deck.
00:33:57.839 --> 00:33:58.720
So go check it out there.
00:33:58.880 --> 00:34:00.240
We've got a lot of details in there.
00:34:00.400 --> 00:34:15.760
We have the chart there with the differences and um, and then all the stuff I've been uh going through today on getting money in, tax rules, investment options, differences between Roth IRA versus Roth 401k, getting the money out, and then of course using both.
00:34:16.079 --> 00:34:16.639
All right.
00:34:16.880 --> 00:34:18.159
Enough, Matt.
00:34:18.719 --> 00:34:20.239
Or at least all Matt.
00:34:20.320 --> 00:34:21.840
It's time for your questions.
00:34:22.079 --> 00:34:25.679
So if you have some questions, and I think Jordan might have some queued up.
00:34:26.000 --> 00:34:29.840
We do have some good questions here, uh, and fun, fun with screen names.
00:34:30.000 --> 00:34:31.920
I'm just glad you're trying to read them rather than.
00:34:32.400 --> 00:34:33.119
Yeah, using me.
00:34:33.360 --> 00:34:35.599
So so I'm sorry if I butcher this.
00:34:35.840 --> 00:34:45.760
Maylin 2360 asks, can I get a low-interest asset back loan from a regular Roth IRA, um, not a self-directed Roth IRA?
00:34:46.159 --> 00:34:46.480
No.
00:34:47.280 --> 00:34:54.320
You can't you can't get a loan off of your IRA assets to yourself.
00:34:54.639 --> 00:35:04.079
So I don't I don't know if that's what the question is, but like you can have a brokerage account and you can say, hey, I want to get a loan against this brokerage account.
00:35:04.159 --> 00:35:08.079
I'm gonna go buy a house or I'm paying off high interest debt.
00:35:08.239 --> 00:35:11.519
And so you can use your brokerage account as collateral.
00:35:11.760 --> 00:35:13.519
But your IRA, you can't do that.
00:35:13.599 --> 00:35:19.199
You cannot use that as collateral for a loan you're taking to yourself, nor could your IRA lend you money.
00:35:19.360 --> 00:35:29.679
Like we have a lot of obviously with self-directed IRAs, if you had a self-directed Roth IRA directed IRA, you can lend your IRA and basically be a private lender with your IRA, but you can't lend yourself money.
00:35:29.840 --> 00:35:32.159
That's called a prohibited transaction.
00:35:32.639 --> 00:35:35.519
So sorry, it's a no-go.
00:35:36.239 --> 00:35:39.599
All right, we have another question from uh Narali105.
00:35:39.920 --> 00:35:46.800
Can I do a backdoor Roth IRA if my husband is if my husband and I are married filing separate?
00:35:47.199 --> 00:35:49.840
Ooh, yes, absolutely.
00:35:50.239 --> 00:35:57.280
Um you're gonna be, and you would do that if you're exceeding the single rates, because if you're married filing separate, you're gonna be on the single rates.
00:35:57.360 --> 00:36:02.320
Your tax trend gets a little more complicated, but that's not gonna preclude the backdoor Roth IRA.
00:36:02.559 --> 00:36:06.880
So um absolutely, don't worry about it, do the backdoor Roth IRA.
00:36:07.119 --> 00:36:07.440
Okay.
00:36:07.760 --> 00:36:13.280
Um, and we have this kind of goes into prohibited transactions territory again with self-directed IRAs.
00:36:13.440 --> 00:36:20.159
Um, if if we own a family business, um, can we invest in it with our Roth IRA?
00:36:20.559 --> 00:36:23.119
Depends on the ownership of the family business.
00:36:23.360 --> 00:36:28.000
So um, as Jordan mentioned, there's something called the prohibited transaction rules.
00:36:28.079 --> 00:36:32.559
It's like four chapters in my book are just on primitive transactions.
00:36:32.719 --> 00:36:35.119
I'm looking over here because my book's over there.
00:36:35.280 --> 00:36:36.639
Okay, we got some, we got books.
00:36:36.719 --> 00:36:36.960
Okay.
00:36:37.199 --> 00:36:38.559
Third edition just came out.
00:36:38.639 --> 00:36:38.960
All right.
00:36:39.039 --> 00:36:41.280
I talk about how to use a self-directed Roth diary.
00:36:41.440 --> 00:36:42.880
By the way, the audio book's coming out.
00:36:43.039 --> 00:36:44.239
Kudos to Jared.
00:36:44.480 --> 00:36:47.760
Four chapters on primitive transactions.
00:36:47.920 --> 00:36:52.960
What that rule is about is when you have an IRA, you can invest it into private deals.
00:36:53.119 --> 00:36:57.039
You can put it into a small business, a private equity fund, a real estate deal.
00:36:57.199 --> 00:36:59.840
But the IRS is like, but you can't just put in any deal.
00:36:59.920 --> 00:37:06.000
We don't want your IRA investing in a business you personally own, or your spouse, or your parents, or your kids.
00:37:06.159 --> 00:37:13.920
We don't want your IRA, it can buy real estate, it can buy a rental, it could flip a property, but we don't want it buying property that you already personally own.
00:37:14.480 --> 00:37:18.000
So when you ask, can my IRA invest in a family business?
00:37:18.239 --> 00:37:21.360
My question is, who in the family owns that business?
00:37:21.519 --> 00:37:25.840
If you're like, oh, it's my brother's, cool, yeah, your IRA could invest in that.
00:37:26.000 --> 00:37:29.360
They're not what's called a disqualified person or prohibited party.
00:37:29.519 --> 00:37:37.599
Your IRA could invest in your brother, your sister's real estate deal, business, startup, big business, small business, doesn't matter.
00:37:37.679 --> 00:37:39.920
Your IRA could be a shareholder in that.
00:37:40.320 --> 00:37:46.000
Um also, let's say it's like your uncle or cousins or other more distant family members.
00:37:46.159 --> 00:37:46.719
Totally cool.
00:37:46.800 --> 00:37:48.480
Your IRA could invest in that.
00:37:48.719 --> 00:38:00.159
But if 50% or more of that family business is owned by you, your spouse, your parents, or your kids, the business itself is prohibited and your IRA could not invest in that.
00:38:00.400 --> 00:38:03.039
So that's again the primitive transaction rules.
00:38:03.199 --> 00:38:06.159
We have podcast episodes on it on the directed IRA podcast.
00:38:06.239 --> 00:38:07.199
We have articles.
00:38:07.360 --> 00:38:12.800
We can even just probably drop the directed IRA primitive transaction guide and page in here.
00:38:12.880 --> 00:38:14.559
That's probably the quickest resource.
00:38:14.719 --> 00:38:17.119
So you might not want to dig into the book if you know.
00:38:17.199 --> 00:38:18.639
I don't know, maybe you do.
00:38:19.519 --> 00:38:23.519
It's 20 bucks, it's not that much, but it'll be coming out on audio too.
00:38:23.760 --> 00:38:30.480
So this came in from Salsa Rican, Salsa Rican 3097.
00:38:31.039 --> 00:38:33.119
So you did not want to have to do this one.
00:38:33.599 --> 00:38:34.880
Um Jordan.
00:38:36.960 --> 00:38:39.440
That's like it's actually Salsarican.
00:38:39.519 --> 00:38:40.159
Okay, sorry.
00:38:40.400 --> 00:38:42.159
Geez, I'm not salsa.
00:38:42.239 --> 00:38:42.719
I don't know.
00:38:42.880 --> 00:38:44.079
You don't know, you know.
00:38:44.559 --> 00:38:48.639
Give me like a a dot, a period here, a dash, something.
00:38:48.719 --> 00:38:49.039
Okay.
00:38:49.360 --> 00:38:52.400
So I'm going with salsa recon 3097.
00:38:52.639 --> 00:38:58.400
Ask which one is more beneficial for low-income earners or retired persons?
00:38:58.960 --> 00:39:00.800
I would say the Roth IRA.
00:39:00.880 --> 00:39:01.920
It's the easiest.
00:39:02.480 --> 00:39:04.000
$7,500 a year into it.
00:39:04.079 --> 00:39:06.719
If you're 50 year older,$8,600 a year.
00:39:06.960 --> 00:39:07.760
I like that.
00:39:08.239 --> 00:39:10.639
You don't worry about your corporate 401k.
00:39:10.719 --> 00:39:18.559
I guess I guess I would say if you do have a, if you're still working where at a corporate 401k, you can be putting money into that if they have the match.
00:39:18.719 --> 00:39:23.039
So I'd actually go there first because you've got you're going to get some free money from your employer.
00:39:23.199 --> 00:39:34.880
Um, but if you don't have that, a corporate 401k where you work, or um, or maybe you do have a 401k where you work, but they don't have a match, I would just do the Roth IRA.
00:39:35.119 --> 00:39:41.840
Now, you technically, when you ask that question about retired persons, you can contribute to a Roth IRA at any age.
00:39:41.920 --> 00:39:47.039
There used to be a rule that said you can't contribute to a Roth IRA after age 72.
00:39:47.199 --> 00:39:48.559
That rule went out the window.
00:39:48.639 --> 00:39:53.360
Okay, you can contribute to a Roth IRA at any age as long as you have earned income.
00:39:53.519 --> 00:39:56.159
And Social Security income is not earned income.
00:39:56.320 --> 00:40:06.320
So when you ask or retired persons, I'm kind of like, yeah, I just need to make sure you have earned income from a self-employment or a job, that's going to be your earned income.
00:40:06.639 --> 00:40:14.239
All right, next question was from J Audio DB 1674.
00:40:14.400 --> 00:40:15.360
Again, who knows?
00:40:15.519 --> 00:40:17.119
That's my guess, best guess.
00:40:17.360 --> 00:40:27.199
So if my employer matches 5% of my Roth 401k contributions, are their contributions also tax-free when the time comes to withdraw them?
00:40:27.440 --> 00:40:28.559
Great question.
00:40:28.800 --> 00:40:30.719
Um, it depends.
00:40:30.880 --> 00:40:40.559
I know that answer sucks, but I would say my guess is if you're not sure on how your employer is doing this, they're probably matching with traditional dollars.
00:40:40.719 --> 00:40:55.199
That is the most common way, and that's traditionally, I hate to use that word again here, but that's how 401k providers have typically done this is even if you're doing Roth dollars as the employee, the employer just puts in traditional contributions for the match.
00:40:55.360 --> 00:41:03.119
So you probably have a bucket at your 401k provider of Roth dollars, what you put in and traditional dollars, that's essentially your match.
00:41:03.599 --> 00:41:10.239
Now, because Secure 2.0, which passed and went into law two years ago, it's relatively new.
00:41:10.480 --> 00:41:20.960
Under Secure 2.0, the employer could do Roth contributions if you elect and if they provide it, where the match is Roth dollars.
00:41:21.280 --> 00:41:24.159
Most 401k providers haven't got there yet.
00:41:24.320 --> 00:41:27.760
The IRS guidance, even after two years, has been terrible.
00:41:27.920 --> 00:41:33.440
Um, the 401k plan administration industry has not rolled this out super quick.
00:41:33.599 --> 00:41:34.639
So it's there.
00:41:34.800 --> 00:41:36.639
There are employers that are doing it.
00:41:36.800 --> 00:41:38.559
It's just not as common.
00:41:38.800 --> 00:41:48.800
And remember, if your employer is doing matching Roth contributions, where the employer match that they're putting in are Roth dollars, you will be getting a 1099.
00:41:48.960 --> 00:41:53.519
So the the dollar amount that they throw in as the match is taxable income to you.
00:41:53.679 --> 00:41:59.360
Okay, because this is money like Roth dollars, you're are kind of sometimes called post-tax dollars.
00:41:59.519 --> 00:42:02.320
You pay tax on them first and then you put it in.
00:42:02.559 --> 00:42:07.440
So that's why um you actually get a 1099.
00:42:07.519 --> 00:42:08.000
All right.
00:42:08.159 --> 00:42:13.519
When they're withholding it off of your W-2 and off your paycheck, your Roth dollars, you're paying tax on that.
00:42:13.599 --> 00:42:18.239
It's not a deduction, it still shows his income on your W 2 that goes on your 1040.
00:42:18.639 --> 00:42:26.079
Next question came in from blue 3749, says, You always make great videos.
00:42:26.159 --> 00:42:27.039
Thank you very much.
00:42:27.280 --> 00:42:33.119
Can you explain how to get the total 72K in the Roth solo 401k, please?
00:42:33.280 --> 00:42:42.159
I thought I could only get 24K employee contribution in the Roth, and the rest 475 goes into the regular 401k, that is the employer contributed.
00:42:42.320 --> 00:42:43.440
That was my understanding.
00:42:43.599 --> 00:42:44.400
Am I wrong?
00:42:44.639 --> 00:42:45.840
No, you're right.
00:42:46.000 --> 00:42:49.599
That it's true, but you can still get to the 72,000.
00:42:49.760 --> 00:42:52.960
So, so let's let's just do some math here, okay?
00:42:53.199 --> 00:42:58.960
So um, the first bucket you're gonna fill and the easiest is that 24,500.
00:42:59.039 --> 00:42:59.440
All right.
00:42:59.599 --> 00:43:02.800
Now we're talking about a solo 401k, all right?
00:43:02.880 --> 00:43:10.239
So because you're the employer, you can do the biggest match or employer contribution possible because you're such a great employee.
00:43:10.400 --> 00:43:15.760
The corporate 401k is if you're an employee somewhere, is not gonna do this, but just getting that out there.
00:43:16.239 --> 00:43:22.000
Okay, so if I put 24,500 in as Roth employee contributions, that's the max I can do.
00:43:22.159 --> 00:43:23.760
Let's say you're under 50.
00:43:24.079 --> 00:43:27.760
Um, the total I can get in is 72,000.
00:43:27.920 --> 00:43:35.039
That leaves me with 47,500 that I could still put in to the solo 401k.
00:43:35.119 --> 00:43:38.559
Well, Matt, I've already maxed out the employee contribution of 245.
00:43:38.960 --> 00:43:40.480
How do I get more money in?
00:43:40.719 --> 00:43:41.920
You have two options.
00:43:42.239 --> 00:43:48.719
Option one is do an employer contribution of 47,500.
00:43:48.960 --> 00:43:49.360
All right.
00:43:49.519 --> 00:43:59.760
Now, the way you put money into a solo 401k as an employer is you get to put in 25% of whatever your W 2 is.
00:44:00.480 --> 00:44:03.599
So let's say you had a$100,000 W 2.
00:44:03.920 --> 00:44:08.159
The employer contribution, maximum amount you can put in, is$25,000.
00:44:08.880 --> 00:44:16.239
So what do I need to get to how much W 2 do I need to put in$47,500?
00:44:16.400 --> 00:44:17.440
Is really the question.
00:44:17.679 --> 00:44:18.880
$190,000.
00:44:19.039 --> 00:44:20.719
You need$190,000.
00:44:20.960 --> 00:44:24.639
25% of$190,000 is$47,500.
00:44:25.519 --> 00:44:36.239
So if you're following the math here, and sorry for mathing out here, but um if I have a W 2 of$190,000, I can do an employer contribution of 25% of that, which will be$47.5.
00:44:36.559 --> 00:44:49.199
Now I have hit the$72,000 total because I had$24,500 in on employee side,$47,500 in now on the employer side, and that is$72,000.
00:44:49.360 --> 00:44:50.559
I hope I did the math right.
00:44:50.639 --> 00:44:52.079
Was anybody checking?
00:44:52.480 --> 00:44:52.800
Okay.
00:44:54.719 --> 00:44:56.320
Yeah, everybody here's like, what?
00:44:56.639 --> 00:44:57.119
What?
00:44:58.000 --> 00:44:58.320
Okay.
00:44:58.880 --> 00:45:00.800
I think I nailed it actually.
00:45:01.119 --> 00:45:06.800
Saying I even did the I divided$47,500 by 0.25 to get to$190.
00:45:06.960 --> 00:45:08.880
We'll have to run the tape back and just confirm.
00:45:09.199 --> 00:45:10.800
I mean, yeah, that was pretty good.
00:45:11.199 --> 00:45:13.039
Saying, you know, pretty good.
00:45:13.519 --> 00:45:15.199
Um, I'm not even an accountant.
00:45:15.280 --> 00:45:16.880
I'm just a I'm just a dumb tax lawyer.
00:45:16.960 --> 00:45:17.599
What do we know?
00:45:17.920 --> 00:45:27.119
Okay, so we we do have one more kind of a buzzer beater uh uh live question, and we're gonna allow it because it's a great question.
00:45:27.280 --> 00:45:27.440
Okay.
00:45:27.920 --> 00:45:31.440
But when Matt starts going rapid fire, guys, we we've got to get questions in before then.
00:45:31.519 --> 00:45:33.599
Yeah, because we can't stop that momentum sometimes.
00:45:33.920 --> 00:45:34.880
It's like in the groove.
00:45:35.039 --> 00:45:36.239
I got the calculator out.
00:45:36.400 --> 00:45:36.719
Right.
00:45:36.880 --> 00:45:38.159
And the math is mathing.
00:45:38.480 --> 00:45:41.760
I mean, guys, don't like get questions in early.
00:45:41.840 --> 00:45:44.000
But this one's a really good one, so went ahead on that.
00:45:44.079 --> 00:45:46.639
This is from Lil N7784.
00:45:46.960 --> 00:45:50.880
And they ask, I would like to do a Roth conversion from my 401k.
00:45:51.039 --> 00:45:56.239
Should I roll over to an IRA first, presumably, and then convert to a Roth IRA?
00:45:57.280 --> 00:45:58.400
Good question.
00:45:58.800 --> 00:46:03.840
Um, I assume this is a 401k at an employer where you don't work.
00:46:04.320 --> 00:46:06.079
Because if that's let's run with that aside.
00:46:06.320 --> 00:46:07.280
Okay, let's let's run with that.
00:46:07.360 --> 00:46:14.320
Because if you're in that scenario, you can roll the traditional 401k dollars out to a traditional IRA and just do a Roth conversion.
00:46:14.480 --> 00:46:16.320
That is probably easier.
00:46:16.639 --> 00:46:25.840
401k providers are slow, dated on how they process stuff, and not as excited to talk to you.
00:46:26.000 --> 00:46:26.719
I'll just say that.
00:46:27.280 --> 00:46:29.199
Like, you're more like a problem to them.
00:46:29.280 --> 00:46:31.199
They're like, oh, somebody needs something.
00:46:31.440 --> 00:46:34.000
Uh a customer?
00:46:35.119 --> 00:46:35.760
Oh god.
00:46:36.159 --> 00:46:37.280
We we tried to.
00:46:37.440 --> 00:46:42.400
Can't you just chat us on our AI chat that will, you know, run you in circles?
00:46:42.719 --> 00:46:45.599
So um you can go either way.
00:46:45.840 --> 00:46:49.440
The downside, I would say, on so let's go pros and cons.
00:46:49.599 --> 00:47:01.440
I think the pros are rolling the money out from the traditional 401k to a traditional IRA and just doing a Roth conversion is probably faster because you can control that the IRA side better.
00:47:01.679 --> 00:47:10.880
We actually have what we call a Roth conversion app at directed IRA if you're wanting to self-direct your account, where we just open both a traditional and Roth at the same time.
00:47:11.039 --> 00:47:17.119
We receive the rollover in the traditional, we immediately convert it, and you can close out the traditional IRA.
00:47:17.199 --> 00:47:20.400
So at the end of the day, you basically just have the Roth IRA.
00:47:20.480 --> 00:47:21.760
It's a two-step process.
00:47:21.920 --> 00:47:23.679
It is temporarily two accounts.
00:47:23.840 --> 00:47:32.960
It might seem like more, but on the IRA side, we just we just feel like we can do things faster and better than your 401k administrator.
00:47:33.119 --> 00:47:42.480
Now, on the other hand, you could say, well, let me just convert it with my 401k administrator now to Roth, and then I'll just roll the Roth 401k dollars to a Roth IRA.
00:47:43.039 --> 00:47:44.239
You can do that.
00:47:44.639 --> 00:47:56.880
What I would say is maybe give it a shot with your 401k administrator and test out how quickly they are responsive to you and and um is how how difficult that process appears to be.
00:47:57.039 --> 00:48:04.320
If it seems pretty simple and they got their crap together, you can just do it with your 401k administrator, get to Roth dollars, then roll out to Roth IRA.
00:48:04.559 --> 00:48:14.880
So I guess for me, if I'm in your situation, I would first kind of test how good is it, how good is my 401k administrator?
00:48:15.199 --> 00:48:19.280
Last question here came from SZ7362.
00:48:19.760 --> 00:48:24.719
And they ask, how do you move money from a Roth 401k to a Roth IRA?
00:48:24.880 --> 00:48:26.159
Any limitations?
00:48:26.400 --> 00:48:40.239
Well, the first thing is if you have a Roth 401k with an employer, you typically can only move the money from the Roth 401k once you are no longer an employee, or you've reached retirement plan age.
00:48:40.400 --> 00:48:43.679
There's some exceptions here, something called an in-plan service rollover and stuff.
00:48:43.760 --> 00:48:56.559
But that the two main ways that you kind of get unlocked from your employer 401k is you no longer work there, or you've reached retirement plan age, which in most plans is 59 and a half, in some plans is 55.
00:48:56.960 --> 00:49:01.360
What that allows you to do is now I'm not locked into the company 401k.
00:49:01.440 --> 00:49:02.800
Okay, I'm Jim Halpert.
00:49:02.880 --> 00:49:04.480
I no longer work at Dunder Mifflin.
00:49:04.800 --> 00:49:08.159
I went to go my do this sports business that he did in season six.
00:49:08.400 --> 00:49:09.280
Yes, something like that.
00:49:09.360 --> 00:49:13.280
I don't know what season it really was, but yeah, he went to do some sports business with I forget who.
00:49:13.519 --> 00:49:14.000
Athlete.
00:49:14.400 --> 00:49:15.119
Oh, athlete.
00:49:15.199 --> 00:49:19.599
Okay, we're getting some good, all right, some good office, office trivia today.
00:49:19.840 --> 00:49:22.800
Um, and I don't was Robert California his boss at that point.
00:49:22.880 --> 00:49:24.000
I don't know who's the who was the movie.
00:49:24.559 --> 00:49:25.840
He was the underrated one, Robert California.
00:49:26.239 --> 00:49:27.679
I loved Robert California.
00:49:27.920 --> 00:49:29.440
I liked him as much as Michael Scott.
00:49:29.519 --> 00:49:29.920
I really did.
00:49:30.079 --> 00:49:31.119
Robert California was great.
00:49:31.360 --> 00:49:34.320
Will Farrell, I forgot who his character was, but he wasn't as good.
00:49:34.480 --> 00:49:35.920
No, he was like the first new boss.
00:49:36.480 --> 00:49:37.679
Yeah, he was he was okay.
00:49:37.840 --> 00:49:38.800
Robert California was great.
00:49:39.119 --> 00:49:40.079
It was James Spader, right?
00:49:40.239 --> 00:49:40.559
Yeah, okay.
00:49:40.800 --> 00:49:41.920
James Spader was great.
00:49:42.159 --> 00:49:43.360
Anyways, okay.
00:49:43.599 --> 00:49:44.079
All right.
00:49:44.239 --> 00:49:45.119
Let's go back.
00:49:45.360 --> 00:49:49.119
You're Jim Halper, you had the Dunder Mifflin Roth 401k.
00:49:49.280 --> 00:49:52.400
You're working with you're working at Ath lead now.
00:49:52.719 --> 00:49:54.880
All right, you're no longer an employee at Dunder Mifflin.
00:49:55.360 --> 00:49:59.760
Well, you can roll that money out of your Roth 401k to a Roth IRA.
00:49:59.920 --> 00:50:03.199
Or let's go back to this and let's say that you are Creed.
00:50:03.679 --> 00:50:07.119
You still work at Dunder Mifflin, but you're over 59 and a half.
00:50:07.280 --> 00:50:11.440
Even though you still work there, you could roll your Roth 401k to a Roth IRA.
00:50:11.679 --> 00:50:12.000
Okay.
00:50:12.320 --> 00:50:15.840
So um, so those are the two most common.
00:50:15.920 --> 00:50:18.639
You no longer work there or you are reached retirement plan.
00:50:19.039 --> 00:50:20.719
But let's say that you're Pam.
00:50:21.360 --> 00:50:30.000
You always worked at Dunder Mifflin, you still work at Dunder Mifflin, you're not 59.5, your Roth 401k is gonna stay there as a Roth 401k.
00:50:30.159 --> 00:50:32.639
Um, there are something called in-service rollovers.
00:50:32.719 --> 00:50:34.719
I don't want to get too technical and we're wrapping up.
00:50:34.880 --> 00:50:36.880
Maybe I'll cover that in the advanced strategies, actually.
00:50:36.960 --> 00:50:37.599
I'll just save it.
00:50:37.760 --> 00:50:45.760
Let me just say there's a couple workarounds to that um on how you could possibly get money out, even if you're not 59 and a half and even if you still work there.
00:50:46.000 --> 00:50:46.880
It's called a cliffhanger.
00:50:46.960 --> 00:50:47.840
Yeah, a little cliffhanger.
00:50:48.000 --> 00:50:49.360
Look at something to come back for.
00:50:49.519 --> 00:50:52.079
Um, well, thank you everybody for tuning in live.
00:50:52.159 --> 00:50:55.199
Remember the slide deck in the link in the description below.
00:50:55.360 --> 00:50:57.920
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00:50:58.000 --> 00:50:58.960
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00:50:59.039 --> 00:51:01.679
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