Best Retirement Options for Freelancers

Episode Transcript

(00:02) welcome everyone to the directed Ira podcast this is Matt soron joined by the incredible Mark J kler thank you sir and we are here today for you the Freelancers the independent contractors the people out there hustling making money that don’t have a 401k your company never gave a match there is no company it’s you so we want to talk about how you should be saving for retirement you know it’s funny I was talking to a freelancer the other day and they were actually sad they were like yeah I’m you know I’m I’m not an
(00:31) employee anymore I I don’t have all these benefits and all this stuff I’m like what oh my gosh I would want I would people are dreaming to be you oh my gosh exactly and and that’s from a tax and legal standpoint I’m not just talking about flexibility in your schedule the no glass ceiling you can build what you want choose your clientele that that’s all great but from a tax inlegal standpoint and that’s the message today you can really do some cool things to save taxes and build wealth that the average employee cannot
(01:00) do and so uh Embrace this and by the way you’re going to become an employee of your freelance company that’s kind of spoiler alert can I say that yeah I don’t know I mean there’s so many strategies we can dive into we want to laser focus though in on retirement plans um there’s what entities should you use what Tax Strategies should you be implementing there’s a lot there but we’re going to focus on retirement plans that you should be considering and how to build and grow that long-term wealth one thing we’ve noticed with people who
(01:29) are freelance ancers independent contractors small business owners is they think their business itself is their retirement plan and they just reinvest all of their money back into their business and Mark even wrote a book about this business owners guide to Financial Freedom we’ve seen that be a disaster for people okay we’ve seen that not work instead you should be reinvesting in your business but also setting some money aside retirement accounts have great tax benefits and therefore for long-term wealth building
(01:56) because we want you to have like a retirement that you’re looking forward to not one that you’re dreading also keep in mind another caveat when we say retirement plan we do not mean Wall Street products can I repeat that so many people think 401K I hate Wall Street me do too we do too and sometimes I mean I love my I’ve got money in the market but what we’re saying is you need to know that your retirement account that we’re going to be talking about today could be real estate notes syndication Venture Capital crypto
(02:28) whatever you love so get over it this is not we’re not trying to sell you stocks bonds and mutual funds although some of you may want that in your retirement you get to choose also M we got levels here can you explain that not everybody is going to be the same answer here yeah and I think that’s the hard thing is there are some strategies that are a little more advanced um but you’re level three okay some of you can go level three right out of the gate because you’re like I’m crushing it I’m making great money um let’s get me hit me to
(02:56) level three Matt Mark some of you are like guys I’m barely eeking it out I’d like to put some money aside though you might be a level one and then of course some of you in the middle level two so we want to hit that make sure you guys know what your account options are what’s the optimal order of how you should be using those to be setting money aside yeah and I I just want to hit the 7030 rule uh a very common uh Financial principle that’s out there is that at the very least you want to be living on 70% of your after taxable
(03:26) income so this takes some planning this is exciting because as a freelancer you can sit down go okay how much do I think I’m going to bring in this year okay what’s my estimated tax rate fed in state okay here’s what it here’s my real take-home okay I’m going to carve out 10% for maybe charitable giving or some a future savings account for something special 10% for uh long-term retirement and kind of another 10% for short-term type Acquisitions or Investments um I love it was Kevin Hart that did an incredible fun interview on YouTube
(04:00) where like whatever I make I I I say 50% that’s go into the IRS I’m not going to be thinking about that that’s not my money money then on this other 50% I’m like okay I’m going to take half of that and go that’s not my money that’s my future and I’m going to put it in real estate I’m going to put a retirement accounts whatever I want that’s going to go over here that’s 50% this other half that’s what I get to live on now in the big SCH that’s 25% he’s saying I his income level a little higher than most probably but he’s saying I’m going to
(04:29) live on that 20 5% of my after tax income I’m going to get well sorry he started with his 100% income 50% goes to the IRS then that remaining half he’s going to go 50% to savings 50% to living on so it’s more of a 50/50 rule after tax so the point I’m getting at here is Matt really hit a vein I over the years took a lot of my profits and drove it right back into my business I didn’t peel off 10% or 20% or 30% and just put it in some other alternative Investments and I should have and I regret that so far the BET has paid off but it’s very
(05:04) risky because when I do exit some of my businesses it will pay off I’m still crossing my fingers but it’s scary you need to have that other nesting yeah and there’s tax advantages to the IRAs and 401ks and no matter what type of account you’re using an IRA a 401k traditional and a Roth when you put money in it and invest it that money grows and you pay no tax on the returns you keep investing it you grow it you make money that account does not pay taxes okay it’s building and growing long term and so there’s different benefits on a
(05:36) traditional you get a deduction when you put it in a Roth account you don’t but on the traditional account you pay tax on the way out but on the Roth account there’s no tax on the way out so there’s some different perks here and different rules we’ve got other videos and shows on what’s a Roth IRA versus traditional IRA but the general principle here I want to make sure every understands is it’s tax advantaged okay like I don’t pay taxes as I’m growing it like think of you making money personally or investing it and you made 100 Grand
(06:03) no you you made 70 after you pay federal and state taxes on it maybe it’s long-term capital gain some state taxes like now you’re reinvesting 70 if I can reinvest a 100 every and I make a 100 every penny gets to keep growing and compounding that’s Building Wealth for you in the future so that’s unique benefit to retirement accounts okay now Matt I know you’ve really articulated or put together a kind of this level one two and three options uh for retirement account savings uh but I want to just step back for 60 seconds and build the
(06:33) framework here if you’re a freelancer you are a small business owner uh if you’re going to be making more than $50,000 which most of you listening are you’re going to be an S corporation or an LLC taxed as an S corporation spoiler alert get over to our Main Street business podcast and watch or some podcast or videos on the escort versus LLC when how why once you’re in that ES Court position you’re saving more in taxes and now you’re going to figure out that percentage how much do I want to set aside for the future how much do I
(07:08) need to live on and how much am I going to reinvest into my expansion and growth and scaling and it’s going to change every year it’s going to vary and that’s okay it could vary by quarter but the big picture Point here is know that you’re a business owner know that you’re going to have a structure typically an S corporation you’re going to set up a payroll procedure for yourself it’s going to save you a ton in FICA taxes and then you’re going to start dealing with these percentage allocations issues so let’s just assume now that you’re
(07:36) going to start peeling away 10 20 30% or more for the future and the more money you make the more you can put away and the more money you make the cooler the strategies so level one Matt level one everybody should be doing period level one is the Roth IRA the Roth IRA you can put $77,000 a year and now when you put money in the Roth IRA you don’t get a tax reduction the government’s like thank you for saving $7,000 for your future we are not giving you a tax deduction today but you’ve got a great deal when you invest that money there’s
(08:06) no tax as you’re growing and investing it and it comes out taxfree later in retirement it is a tax-free vehicle okay and so we want to get everybody started at first can you get 7K put away in a year that’s a little over 500 bucks a month can I get that set aside so for level one I want to make sure you can get 7K done don’t move forward here to anything else stay here until you can do 7K yeah and that do it put it on autopilot do auto withdrawals set up that Roth account maybe you want to buy crypto with it and save uh uh for and
(08:40) with you sorry invest using an alternative strategy at directed ira.com you can set up a Roth IRA right now you could trade you could do crypto you could build it and pull it for real estate and for many Freelancers they had an old job where they were W2 they have this old 401K languishing somewhere that they don’t even know what it’s invested in bring that into the party bring it to the party so you can pull that and start chunking away at it and turning it into a Roth and now you’re on an investment and watch some of our videos on chunking
(09:11) Roth IRAs we have a video on that so take that old 401K and bring it to the party in level one you’re making around 50 to 100 Grand a year if you’re making 50 to 100K a year you should be able to put away 600 a month get on that plan first get committed to it make it a habit pull your old money bring it together learn a little bit stage one okay stage one all right level two we want to level up here okay level two is if you’re making let’s say maybe you’re making between 100 and 200k a year we’ve assumed you you’ve already done the Roth
(09:44) IRA you’ve already done 7K and you’re like I want to do a little more and you’re already in the S corporation yeah and you already have you’d be using the S corporation structure that’s going to save you self-employment tax that’s more money in your pocket which you know what that could actually fund your Roth I entirely savings on that alone could fund your fre Roth every year okay um that’s free money there that’s the free money yeah you know what I mean that’s free Mone there for you okay so now there is something called a backdoor
(10:11) Roth thye once you start getting in higher income levels where you’re making more than 146,000 single 230,000 married that adjust every year but that’s what is for 2024 once you’re making more than that you need to start looking at doing what’s called the backdoor Roth IRA because you’re going to hear a lie out there yeah and the LIE is you make too much money to do a Roth IRA and you know what I want to say You’re going to hear incompetent statements because a lie means they know better and they’re telling you a fib
(10:40) they’re not telling you the truth the the reality is there’s a lot of incompetent accounting and financial advisors out there that just take that face value if you make too much money you can’t do a Roth there’s a backdoor Roth strategy everybody uses it it’s been around for years it’s a it’s honest ethical it’s tax strategy that’s well founded in tax law uh get over to our other videos on the backd door Roth strategy so if you’ve already heard well guys level two I have to give up on the Roth no you’re going to learn the backd
(11:12) door Roth strategy simple and easy so here’s the cool part level one level two level three You’re Building yeah you’re stacking yes so level two level two we’re still going to do the Roth and again if you might be over that high income o it’s just going to be a backdoor Roth IRA and the same thing at 7K a year don’t get a tax deduction but it grows and comes out taxfree now we want to look though at doing what’s called a solo 401K okay a solo 401K is a 401k plan for you this is specific for you Freelancers and self-employed
(11:42) business owners where the government has said hey we want to let you do a 401k we know 7K is not enough a year you can do this on top of the Roth and you can do this on top of the Roth and we know that if you worked in Corporate America and you had a day job where there was a 401k that you would have a 401k program where you could do 23,000 a year as an employee in the company you work at could throw in some money too well they offered the solo k for self-employed people you could put $69,000 a year on top of the 7K of the Roth IRA so I can
(12:12) put $69,000 a year into a solo 401K now I want to you know Matt and I debate things so I’m going to say at level two what I want to say is the 69 topic to me comes into to play on level three because now you’re making that up to yeah yeah you everybody level narrow it down for yeah let me just say spoiler alert that 69 number that’s going to come in level three but here’s what I like at level two You’re Building upon your 7K you’re still doing that auto depit now you’re going to add the solo 401K which is a $23,000 contribution so
(12:50) now you’re doing 30k a year and when you’re making between 100 and 200 you can say all right I can do that 23 maybe I’ll even do a little company match based on that payroll strategy you guys are talking about with the escort so level two is I’m going to go from s anywhere to maybe 30 35 and and you get to choose it could be it could be 7 plus 20 it could be 7 plus 10 or 15 but you that first 23,000 can go straight in as Roth money off of that little es Corp strategy the company could do a little match and that’s level two and you’re G
(13:22) to and if you’re married you may even be adding your spouse in that level two level you’re just kind of playing with it yeah yeah and I think um and and so you don’t have to throttle to 69 I want to get to that here in a second yeah that’s more level three 69,000 okay okay what are we talking about here geez know we’re making this really enticing everybody’s trying to get there very fast you know all right slow down okay 23,000 the reason Mark said that number is that’s the employee contribution number so you can put in
(13:52) $23,000 a year cuz you are the employee of your own business and that if you made 23,000 you can put in in 23,000 so it’s really easy to get that first 23 in and again maybe you’re making 150k a year and you’re like I’ve already got the 7K I need to do another 10 or 20K on top of that I don’t I can’t just like Drop in 69,000 but I could do another 10 or 20K super easy with the solo okay that’s this is the strategy where you can do the 1020 and maybe in three or four years you’re doing 40 or 50 and you keep building up of how much your
(14:23) earning potential is and you’re getting your more and more money into this solo K based on your income totally and before we go to level three we got to stay here for a minute where there’s some onion to peel away here couple other points this solo 401K there if you choose to self-direct which you wouldn’t be on this podcast if you didn’t have a little bit of insight onto the self-directing strategy you get to be the trustee of that 401k so now there’s no financial advisor fee you’re setting this whole deal up for maybe, to
(14:52) $1,500 depending we we do it here at the law firm you’ve got this solo 401K you’re rolling in your old 401K from that old job now you’ve got this bucket and you’re the trustee of it you could set up llc’s go do real estate we’ve got the crypto 401ks here you could uh put them in syndications do hard money loans now you’re taking that solo 401k and really getting some kick-ass returns yeah and I think this is where people start getting excited about building retirement because what we’ve noticed is a lot of entrepreneurs Freelancers small
(15:24) business owners they don’t like Wall Street products they’re not excited about an annuity an ETF or a Target date Fund in their IR for K but they’re like wait a second I’m a real estate guy that’s what I do I’m that’s in my business assment you’re telling me I can buy real estate in my 401k yeah that’s what we’re telling you you’re not going to do that at a broker dealer like at TDM trade but you can do it with your Roth IRA here at directed Ira you can do it at your Roth your solo 401K that you’re doing through it
(15:54) directed our our Law Firm KK so is setting it up so these accounts are not as Mark said at the very beginning restricted to Wall Street you can invest in a small business in crypto in a private Fund in a venture capital and startup these are all assets that your IR a 41k here we’re talking about canot and we’re so excited many of you may have just discovered this podcast and you haven’t listen to any of our other ones you’re like oh my gosh these guys actually can walk and chew gum this is interesting um go back and please listen
(16:23) to the first 10 to 20 podcasts of our uh directed Ira podcast series uh we’ve got over 100 episodes now or more and that first 10 to 20 really go through the basics so don’t get overwhelmed just just know it’s there if you want to go check it out now here’s another cool feature of level two you can say well hey I I’ve got a knack for options and ETFs and S&P 500 funds that I really like and I really like my portfolio on wall keep it that’s great you can have the IRA doing one thing and the solo 401K doing another you can do two
(16:55) different things in the solo 401K you can keep your old 401K and do things you get sky is the limit and the and this is we’re doing a consultation with one of our tax lawers on the law firm side what we call a comprehensive consult they can look at your overall picture we call it a trifecta what do you have in real estate what do you have in life insurance what do you have in the market what do you want to do with your small business is your es Corp as efficient as it should be they can do a plan for around 1,600 to 2,000 we have different
(17:23) levels there because depending on the complexity of your life and and start with a comprehensive consult and go oh my gosh this is pretty cool take it to your accountant take it to your adviser you don’t have to fire everybody get a second opinion and that’s what we’ve been doing for years and just growing it exponential rates all right let’s talk about going to level three okay is there anything else in level three you can self-direct oh you could add your spouse in level two yeah you could add your spouse and they need to be actually
(17:48) working in the business and then you do need to put them on payroll a lot of people are like should I add my spouse on payroll in my small business like only if you need to like don’t automatically do that cuz you think they need need Social Security or something we’ve shot other videos about that but if you’re like no I want them to start putting some money away in the 401K now we see a good reason to add your spouse on the perel and and let’s get real see before you even go to level three you can double down if you are married and
(18:14) typically if you’re if you don’t have a prenup or something odd it’s going to be a marital asset anyway so when you’re combining as you and your spouse and putting money away for retirement you’re really doing it for both of you and you’re getting more bang for your buck in an efficient way with not a lot of headache so level two for those that are married couples and a in a marriage that you’re playing you know building upon you know stay here for a minute really learn what you’re investing in get really eek out and and bring everything
(18:44) you can out of level two and it really is because your spouse may have their own side hustle they may have a day job in a 401k you can have both yeah super cool yeah all right level three 200k plus all right level three yeah you shouldn’t really be hitting this one unless you’re 200k plus and it might even be 300K plus depending on you know your living expenses lifestyle yada yada all right you’re making at least the 200k we want you to still do back door Roth IRA that’s not level one still going level one we’re still level one
(19:13) and I want you to still do that 23k is the employee contribution but now there’s little extra thing you can do there’s two options you have here might to lay it out in two options okay one is you can just do the match okay what depending on how much you’re taking in your W2 which you should have an escorp if you’re making this much money in your small business okay that’s a noer you should have an S corporation which means you’re getting a W2 you can take 25% of whatever the W2 is and they make an additional employer contribution see
(19:47) when you have a solo 401K you’re the employee in that business but you’re also the employer you’re both right so the government’s like well we’ll let you put money in as the employee plus the employer so I did my 23,000 as an employee that’s the max by the way if you’re 50 year older you get to do another 7,500 but now I get to do 25% of whatever my W2 is let’s say your W2 was 100 Grand just so I can do the math easy okay that means I got to throw another $25,000 on top of the 23 now I’m at 48 wow in contributions yeah in fact let’s
(20:20) even now some of you might have said whoa whoa whoa where’s Waldo that went a little fast let’s back up and we’ll go through this again level one you’re putting away Seven Grand if you’re underage 50 8 Grand if you’re 50 or older level one level two you’re like okay I’m going to be using the es Corp obviously gosh I can’t sized that enough and if your accountant is all jacked up on high salary and you got to do reasonable comp and they got to stick up their butt please get a second opinion on that you accountants out there check
(20:46) out my Main Street tax prob program where I stand behind all my reasonable comp strategies and advice and C classes on this topic approved by the IRS approved by the IRS level two level two you’re going to at least put put yourself on payroll and do 23 Grand if you’re under age 50 30,500 if you’re 50 or older remember that’s level two on top of the seven or eight so now if you’re under age 50 you’re putting in 30k if you’re over age 50 you’re putting in 385 wow okay now level three is this okay to summarize level three Matt says
(21:22) now let’s do that match so if your salary is a hyy now we’re putting another 25 on top oh you got your house in the mix oh my gosh right so you’re now leveling up and this is where this other figures start to come into play the 69,000 and if you’re over age 50 it gets to be oh boy uh 74 76 7 765 765 on top of level one so so this is where you can start to really throw down and it’s it’s insane it’s so fun yeah and and the nice thing on this and this is kind of a new rule is that can be all Roth dollars so if you want
(22:08) now some people are like all right Matt now I’m up I’m making 300K a year now I want tax deductions more I’m in like the 39% tax bracket now you know 37 what’s the highest 37 yeah 37 and a half yeah so I’m in the highest tax bracket 37 I’m I got State I got State on top of it and so Roth I Love Roth and I love that when I was in a 20% tax bracket but now if I go traditional the deduction is twice as much and I get that so when a lot of clients particularly now as we’re starting to approach year end that we start kind of looking at yearend tax
(22:39) planning here in the last quarter of the year it’s like all right I need tax deductions well you might be like I just want to take traditional I could you know that that number I gave you 23,000 plus another 25,000 in the match you could do all traditional that’s a $48,000 tax deduction this year your 300,000 of income went down to 252,000 of taxable income or you could go Roth see this is where you get options and you be like no I want to build it and do it all Roth which you can do the match can be Roth this was a change in 2023
(23:08) the match used to have to be traditional but now the match can be Roth as well so a lot of cool options out there yeah no I I love it and so we’ve termed this ability to create this massive Roth account for you and or your spouse the mega backdoor Roth because again your income’s high so we got to go to the back door because you’d want to walk in you you all want to be in the Frat party what’s the name of the Frat uh capaa I don’t know no caparo caparo that’s right your jokes iaro I know I forgot kaaro I was trying to I was teeing that up for
(23:43) you so you want to go into the Frat party me play golf yes terrible yeah fight kaar rooth you want to go through the front door you make too much money you can’t come in but we know the animal house back door you’re John Belushi you’re going to walk around the back door and get into that Roth party you want to be in that party and then you want to double down so that’s where you’re in level three doing what’s called the mega backdoor Roth which is this 69 or 765 depending on your age times two if you’re married and you want
(24:13) to go there so this is where we have the influencers on YouTube the Freelancers the really successful business owners the professionals that are finally in the latter end of their career and they’re making that 500k plus so they’re the 1% of the 1centers and we’re grateful for we’re glad we’re happy for you we’re not dissing on you like some groups might we want to help you put that money away for the future bless your family your legacy let’s get get there and so um that’s level three which you might and we got videos on the mega
(24:45) back door Roth and podcast on that yeah yeah so I think that’s the road map and so I think for everybody you want to decide where you’re at are you in this level one level two level three it really comes down to what’s your income and what are you willing to set aside to start contributing but I think the clients that we’ve seen that have success are the ones that have the discipline for it and there’s really two components to it I think there’s really two components because we have clients like largest client $400 million Roth
(25:10) IRA guys like that’s insane we have a lot of a few others 100 million plus and a lot over 10 million I think a lot of people are like how did they do that two things they consistently put money away and they invested it very well now this this over here everyone can do everyone can can have the discipline to put money away now it might be your level one and I you know but you can have the discipline to at least do that the next one is a little more different but I’m telling you who has the most success entrepreneurs
(25:41) Freelancers there’s they’re self-directing they’re not going and buying a mutual fund or an ETF they’re self-directing they’re investing in real estate they’re investing in private companies they’re doing private money lending they’re investing in crypto they’re investing in the things that they know that can get a better return than being in a crappy mutual fund or the stock market and that is how they’re able to grow and get exponential returns where they’re in the tens of millions hundreds of millions of dollars so those
(26:05) are the two ways you need to be successful we want to give you the three levels here so you know where to get started and I loved what Mark said earlier there’s a lot to this go back to the first 10 episodes learn about self-directing because once we get the money in and you’ve got these contributions and these numbers and we’ve talked about is you’ve done it for three or four years you got to be really good at making the Investments we want to get invested and stuff that gets you excited that’s get a good return and
(26:29) that’s going to build and grow your IRA yeah I I love it and the the last point I’d make and I’m going to take a dig at it and we’re doing a we’ve got to get our show done on this the nice thing about this is you can turn the tap up or down depending on how the year is going I understand that freelance income Can it can be volatile right one year you’re killing it the next year is down market conditions industry conditions so the beauty of this is you can dial it up or dial it down continue to self-direct and
(27:01) invest life insurance doesn’t give you that op option when you you’re going to get the pitch let me just tell you right now you’re going to get the pitch come in and buy this big old life insurance policy which technically creates some wonderful tax-free income down the road there’s some great strategies there it technically works and there’s nothing wrong with adding some life insurance to the mix but to us that’s kind of comes after and maybe we’re a little jaded but I like the flexibility of turning the tap on or off and adding life insurance
(27:31) when I have the stable income to support premiums because when you do life insurance you got to support that premium hell or high water with and so uh go that route look at life insurance be careful to choose a life insurance premium strategy that no matter what happens you can maintain with this the beauty is you can dial it up or down you’ve got your life insurance strategy over here you’ve got your real estate rental strategy over here you’re bringing together several strategies at Bear to really build that American dream
(28:02) and we get that we get that we’re not all in one box yeah yeah so that’s a wrap man I think we I think we nailed it I mean I liked it I hope you guys liked it you know subscribe to the podcast the channel wherever you’re at right now and um go check out directed ira.com that’s where we’re helping clients across the country maybe you need a solo maybe you need an IRA um our team can certainly help um but whatever you do take action because this is your retirement it’s one you going to look forward to or one you’re going to dread and the size of
(28:32) your retirement account has some impact on that love it all right thanks everybody see you next week