Unlocking Unique 401(k) Strategies You Haven’t Thought Of

Episode Transcript

(00:00) there’s a report on 401K millionaires that talks about what are the common characteristics of 401k millionaires they contribute to their retirement account as soon as possible not the deadline the company match I can convert to Roth I could convert that to Roth even if I took tax deductions earlier let’s say the last 5 years I’ve been contributing to my company 401K and I’ve been doing traditional dollars because I wanted the tax deductions but Matt I made too much money there’s no income limit on Roth conversions that was like
(00:25) a rule 15 years ago that got changed so there’s no income limit so you can always convert to Roth we’re going to be talking about unique 401K strategies some cool things you can be doing with your 401k I know a lot of people like boring 401ks and guys there are 900,000 people at Fidelity alone that have a million dollars in their 401K this is a tried andrue method to grow and build wealth there’s ways you can supercharge it by self-directing it we want to hit some of the cool strategies you may not have thought about that you can be doing in
(00:53) your 401k and we’re going to go hard and fast at this um there’ll be additional podcasts or articles you’re going to want to refer to we mention those as we go through this we just want to kind of like you know just like rifle shot some of these cool strategies and we really are I I don’t even think we have the full list yet because once we get into it we always think of something kind of fun I’m going to start with what I think is the number one coolest thing about a 401k that millions of Americans don’t know and that is you can self-direct it
(01:23) now at your day job 401K that you’re currently employed you can’t uh unless they want to adopt a plan that will allow it but they’re beholden to Wall Street which they’re not going to allow so it’s out there you can do it you could have a group 401K that’s self-d directable but no Fidelity is not going to even bring that up or offer that so here’s the point though you can self-direct a 401k so someday when you leave your job or you have a solo 401k if you’re an entrepreneur you can control what it’s invested in I think
(01:53) that’s pretty cool unique thing that a lot of people don’t realize is that it doesn’t have to always be stocked bonds and mutual funds yeah when Mark says self-directing we’re talking real estate the rental property down the street private money lending investing in a small business in a startup in a preo company buying crypto that’s all stuff your 401k and Ira can buy now there’s ways you get to that that’s what our whole directed Ira podcast is about but let me hit the next one that I think everyone can do regardless of what you
(02:18) want to invest into and that is the match and out strategy o I love that Mark J kler loves this one um I don’t know who coined it but I think you might have coined that yeah and I want to here I’m going to write on your list cuz I want to give you some love here too is get your money in as soon as you can I’m going to let you do that one okay so I will say matching out is something that I’ve uh kind of coined over the years and that is uh and I was at a a Monday Night Football uh party uh this week oh so good football’s back oh
(02:52) my gosh it’s like life begins again life is good again you know the world still is rotating so anyway uh I was there with with this young person that was telling me about their cool new job and they were just beaming they were so excited about the company culture and he said the day you start here we get to participate in the 401K now I don’t know when it’s going to fully vest you know like if he quit tomorrow I don’t know if the company match is going to roll with him but that’s whole other topic but I was like
(03:17) dude that’s pretty cool you can play in the company 401K on day one he’s like yep and I go what’s your match and he said it’s 6% I go wow that’s pretty healthy that’s very unique out there a 6% match especially for brand new employees but what that means is if he makes a 100 Grand they’re going to put in up to $6,000 if he puts in 6,000 they’ll put in $6,000 if he puts in 5,000 they’ll put in 5,000 if he puts in 7,000 they’ll put in 6,000 the matches up to 6% of his salary if he plays now what I told him is great make sure your match sorry
(03:52) you’re taking advantage of the whole match find out what that number is go to HR tomorrow and make sure that you’re putting aside that money because you’re doubling your money that’s a double every time he puts in a $1,000 they’re going to match it I mean that’s a hell of a return and then get out don’t put in another dollar over what they’re willing to match match and get out and you may say why it is because I would love you to go now at home and do your Roth IRA or your health savings account accounts that you can immediately take
(04:23) advantage of and control them turn dial them up dial them down invest them in unique ways I’d rather see you maxing out your personal Roth and your HSA next then if you’re killing it go back and Ratchet up that 401k at work a little if you want but at least get the match and then get out yeah and the thing with the match is that 100% return dollar for dollar 4% is the most common this guy had a good deal at 6% and you might have something better but 4% is pretty common and so but the investment options are so
(04:56) much better in a Roth IRA you have more control of what you can do with the money a lot of for k plans have a mutual fund lineup or some Target day funds the Returns on those aren’t as great even if you just buying the S&P 500 in your Roth IR alone self-directing the fees so that’s why we’re like let’s go get the match because that is super valuable but then we’re getting out now you’re going to go to the next thing which is the Roth IRA and if you’re like I can’t do a Roth IRA Mark and M I’m high income we’re going to do a backdoor Roth IRA
(05:21) okay we got podcast episodes on that now the next thing okay so we number one was you can self-direct number two take advantage of the 100% match get the hell out some may think that’s not unique but the matching out is the unique feature there um because I just want to reemphasize that everybody at work says oh I’ll just put my I’m going to put in the maximum amount I can in the 401K yeah do up to the match see that’s I want to repeat that that’s the subtle difference here don’t just max out your 41k at work because you don’t get to
(05:55) control those Investments as much you still put in the max in a sense by going out and playing with your Roth and your HSA that’s the Unique Piece I didn’t we didn’t say Max and out we said match out so that example Mark gave the guy that making 100K 6% 401K match he puts in six the company puts in six but it only costs him $6,000 now this guy might be like guys I’m willing to put in $113,000 a year should I drop another seven into the the company 401K what we’re saying is no go open a Roth iron and drop that $7,000 in the Roth IRA you
(06:33) you might want to do some crypto in that you might want to build that little Roth IRA up and then do some real estate partner with some family and friends do I’ve got a crypto mine in my Roth IRA I’ve done cows before I’ve got real estate in my Roth matth you’ve done real estate in years lots of real estate private money lending you know uh investing in private companies pre-ipo stuff like that’s all stuff you can do and that’s and that’s so that Roth iy could be self-directed but again it could even just be the S&P 500 for now
(06:59) until it’s building up so so depending on where you’re at we’re trying to optimize these dollars in the best way possible third unique strategy what do you like I like the Roth conversion okay inside of 401k you can convert to Roth you can do that inside of 401 the company match I can convert to Roth I could convert that to Roth even if I took tax deductions earlier let’s say the last five years I’ve been contributing to my company 401K and I’ve been doing traditional dollars because I wanted the tax deductions but Matt I
(07:26) make too much money there’s no there’s no income limit on Roth conversions that was like a rule 15 years ago that got changed so there’s no income limit so you can always convert to Roth this year I converted my law fir our Law Firm 401K which I have I have a lot of traditional dollars in it been contributing it for a long time I self-direct it by the way it’s a little unique i self-direct r 401K of course I’m going to do that but um I converted the whole thing to Roth o RI the Band-Aid off dude hundreds of
(07:54) thousand dolls is going to hit me on this 1099r but I’m I’m willing to take short-term pain for long-term gain okay so I’m taking the Roth I’m going to I’m going to grow this taxfree it’s going to come out taxfree so I ran the calculators on it and it was like a no-brainer in my scenario um because I get all this taxfree growth moving forward so you’re just full of all sorts of little cool you know shortterm pain for longm gain oo that’s the that’s the motto of the Roth conversion that’s the that’s the whole thing of the Roth
(08:25) conversion I’m going to write a note here that’s private okay it does suck right now and you will hate it if you convert to Roth cuz you’re going to get a 1099 1099r you will hate it but um in 10 years you’re going to be like man that was a genius move okay I got a unique one we we didn’t even talk about this before the show okay you can convert to Roth inside your 401k you’re day job 401k or you’re solo doesn’t matter the one is I was going to say you can contribute your 401k deferral can be Roth right which is a new law that’s
(08:57) you’ve always been able to the employee deferral Roth yeah um and uh and your income doesn’t matter with that either that’s right no back door Roth stuff required for the 401K no income limit on doing Roth the employer contribution is the new rule where you can do Roth dollars as the company match so that passed two years ago the IRS finally got around to barely putting some rules together on it so company 401ks are coming around so this is a new thing 2024 you have to wait for your company to adopt this but you can say hey I want
(09:29) the company match to be Roth yeah so that that’ll be taxable in that’s different than what I’m talking about but I love that so let’s I’m going to stick with Matts here from moment this is a new unique provision that you could walk into HRA tomorrow HR Human Resources tomorrow and say hey hey that company match you’re doing for me that 6% or 4% I want it to be WTH and they may look at you glossy out and go we can’t do that oh no you can I demand it get it done that’s the new law that was passed last year so okay what I’m saying
(10:01) is has any of you listening been told by your accountant you make too much money to do a Roth IRA you may have heard that right well your WTH your deferral on your 401k there’s no income rule on the deferral if you make too much money it can be Roth yeah you could and a lot of people miss that you could be making tens of millions of dollars and still be able to do Roth 401k contributions so Roth I’m going to write that down here Roth 401k contribution no income limit that’s a unique thing yeah because you can’t you got to do a
(10:33) back door a two-step with the Roth IRA to do that but not with the 401K yep you’re going through the front door in the Roth 401k yeah Love That Let’s Talk About You self-employed people for a second cuz a lot of these other ones that we’re going to hit can really help self-employed people we get a lot of self-employed people who are like Matt I didn’t have a 401k at a day job I’ve been self-employed I’m I’m a consultant I’m a real estate agent I’m a real estate investor I a contractor and I just don’t have employees I mean I got
(11:02) some 1099 people or whatever but I never had a 401k what can I do you can do a solo 401K we freaking love the solo 401K there’s a special right now going on and our law firit directed on this where you can save money to set one up but you can do what’s called a solo 41k that’s a 401k plan just for you the self-employed person you put $69,000 a year in it it’s freaking awesome and uh get over to our sister podcast the Main Street business podcast for all things solo 401K we just recorded I think it’s almost a 45 minute
(11:31) podcast that just goes through all the benefits of a solo get over there okay I’m going to say number seven unique 401K uh strategy is you can many people don’t know you can have two 401ks you can have three 401ks for example you can have the 401K at work where you’re doing the matching out then you have this little side gig you’re doing and you have set up a solo 401K for that and that’s pretty amazing and then your spouse maybe your spouse is a realtor and they’re they’re they’re making money over there and they’re maxing out a
(12:01) little solo 401K themselves and they put you on payroll in that too so you could be doing three 401ks now it doesn’t mean you can double down triple down on your 401k deferral your 401k deferral is only is still 23,000 but you could do 10 here five there and eight there you could do you could do a deferral in all three 401ks now I I don’t know that’s not for everybody it depends but at least I like the day job 401k and the solo for your side hustle 401K yeah you can do that and I love that because that goes back
(12:34) to the one of the earlier ones we talked about the match and out because that’s in that scenario you would do the match at the day job 401K only put enough money in there because you’re going get the match then the rest you’re going to go drop in your solo 401k before you do the Roth IRA because I got a solo K now where I can start contributing more dollars than I could even do in a Roth IRA so that’s assuming you you want the Sol okay and that’s where you’re going to try and build your wealth all right can I do one that’s related to that
(12:59) number eight yeah you can do a 401k and an IRA a lot of people don’t think that they can do that so you can have a 401k at work you could have the solo 401K on your side hustle and you can still do a Roth IRA individually and then again you’re told well you make too much money or I make too much money to do a traditional IRA fine do the Roth yeah or you can’t do a Roth IRA because you have a 401k back door Roth IRA that’s what we’re doing it gets around all these rules and they’ll what I do every year yeah they’ll say well you can’t you’ll
(13:32) hear this out there and I’ve got a table here that says if you have a 401k at work then and you make too much money you can’t do a traditional IRA oh you can you just don’t get a Rite off for it and then you convert it to Roth on day two and got back door you’re in and you’re in the party everybody wants to be in cam Roth but sometimes you can’t go in the front door John BL you had to go in the back door you know that was you know you want to be in that that party I mean they’re having a toga party you’re looking up there going oh my gosh
(13:59) Jim balushi is up there having a toen party at that I want to be in that party you can go in the back door it’s quite obvious obvious so get over to our podcast on the backdoor Roth um oh my gosh this is so good so you can have a Roth and a 401k oh my gosh man I want to say it number nine the mega we say that’s that’s an A List right you you run with that baby all right let’s talk about the mega backdoor Roth Now I want to talk about just for your 401k you can combo in the Roth IRA here maybe you want to top it off with
(14:31) that but the mega backdoor Roth is something you can do and this is if you’re high income you’re making good money you’re like Matt I can do $23,000 a year in my 401k at my job and I got the match and I got out maybe I went and did 7,000 in a Roth IRA and I’m like more I want to do more yes you can you can contribute up to $69,000 a year into your 401k well Matt I put in 23 my company match was seven I’m only at 30 in my 401k I go home and do my and I my Roth IRA so there 7 I’m at 37 but you said I can do up to $69,000 a year in my
(15:06) 401k I got 39,000 left how do I do that do you know how we learned this too it was from some oil rig guys up in Montana or South Dakota cuz they showed up and said we’re doing more and we’re like how the hell are you doing more yeah that’s exactly they’re doing it Fidelity wasn’t like you know and so and this is what they’re doing they’re making a couple hundred grand a year they live dirt cheap they got like housing and everything and you know and so they go make all their Mone and a seasonal and then they’d come back live with their
(15:31) family but they were maxing out their 401ks really cool so and now we’ve done it with so many clients over the years you know and so that other 39K though that’s left in the company 401K now hear me out on this because this is really important this is an after tax contribution this is what the oil rig guys did yeah after tax contribution in the 401K up to $39,000 sometimes this is called the mega back door rth now the cool thing about this is after tax contrib utions can be rolled out of the 41k plan to a Roth IRA immediately you don’t have to
(16:04) wait till you leave you don’t have to be 59 half you can immediately roll that out into a Roth IRA or leave it in the 41k or leave it in the RO but why why would I do that if I want to self-direct and I already got a Roth IRA over here I drop 7K in I want to roll it out immediately to a Roth IR now what happens it’s after tax so you didn’t take a tax deduction on it there’s no there’s no fee to convert it it automatically gets rolled to uh Roth IR dollars so there’s no tax to convert because you you didn’t take a deduction
(16:31) on it and so that’s the mega back door RO now there’s a couple caveats that one let’s say you’re a business owner with employees let’s take me okay we have a 401k plan Law Firm we got one UND directed other companies we’ve got employees if you were a 5% or more shareholder in a company with other employees you can’t do this yeah and another but if you’re solo you actually could because you don’t have other employees to worry about it’s just you yeah so your day job 401k uh you could do this or you could come
(17:01) do it in your solo if you don’t have employees and what’s interesting here let me button this down because you may say no slow down what’ you do see this is where these oil rig guys they were like they had so much extra money they were like I want to do more I want to figure it out and they literally figured out and they went into HR at the oil DG company and said I want to put more in and they go you can but you don’t get a ride off for that and so they were scratching their head there’s no more match you already got the Maxum yeah you
(17:30) already got ma why would you do that and they said no no no put it in there is this after tax contribution and they go it’s going to be on your W2 you’re going to pay tax on that and you don’t get a write off for that why would you do that and you go and they said because on day two I’m going to tell you to send it over to my Roth IRA and there’s no tax because it’s already included in their W2 see that’s the that’s the unique trick is oh it’s in your W2 you’re willing to pay tax on it yeah I got all this extra money I don’t mind paying the
(18:03) extra tax on it you were going to pay on it a whether it’s in my W2 already just popping into my 401k and then you you don’t it doesn’t reduce your 4 it doesn’t reduce your reduce your W2 like a normal traditional would and they go okay and then on day two they go send it to my Roth yeah no tax now I will say some sophisticated employers that do have a lot of higher other income in you know are familiar with this strategy yeah okay and these oil rig guys like pioneered it for themselves and so this is a well-known strategy you know you
(18:36) can get out there it’s a little complicated as you dig into it but we gave you the the process on how to do that it wasn’t well known to us we figured okay number 10 well there was a new Revenue ruling this this came out through um um not a revenue ruling there was a case about this and this was like 2014 or something so it kind of came about through case law of like can you do this and it was a loophole that a lot of people like I don’t think that works and then it was like oh no it works yeah all right so number 10 unique
(19:02) 401K you want to say rollover I don’t know what R roll over again I don’t know is that you can you can roll funds from an old 401k into your new 401K you might want to roll them to an IRA to because you have more investment options let’s say number 10 is no udfi okay you want explain okay yeah so let’s say you decid to do a Sol K or your self-directing the 401K one of the rules is when you use an IRA to go by real estate which is very common you can get a loan to go buy a property like I want to buy a property
(19:33) for 100,000 but I only have 40 I can go get a mortgage for the other 60,000 has to be what’s called a non-recourse loan now if you’re like doing that with an IRA the IRS says cool we’ll let that $40,000 you don’t pay tax when you make money but the 60,000 you have to pay a tax called udfi on the profits from the debt piece it’s a little tricky to summarize it’s unrelated debt financed income on that 60 because you leveraged your IRA so the IR says we’re going to tax that income as debt financed income yeah we let you
(20:05) have more purchasing power with your IRA to buy more assets than you could have otherwise done because you didn’t contribute enough and we’ll let those profits go and build in your retirement account in a tax deferred manner for traditional taxfree and a Roth but you got to pay a little tax and it’s 20% on the capital gains then you pay 37% Max on on the rental but that’s for Ira now solo KS have an exemption to that on leveraged real estate where there’s no UDF when your 401k Sol K included is investing in leverage real estate all
(20:33) right we do need to wrap it up though you got a final well I love 10 10 unique strategies um I but I I’ve got to say one more and this is a unique 401K strategy and that’s when you have the solo and you’re married and so you say you know what I want to double down but I don’t want to pay a ton of f to put my spouse on payroll and see some people will put their spouse on payroll in their small business because they think it’s good for Social Security it’s not the time I’d like you to put your spouse on payroll is the so the stay-at-home
(21:08) dad or stay-at-home mom can play in the 401K as well and so we want to find that sweet spot where we don’t pay them too much in salary but they can do their 23 Grand and a little company match so there’s there’s unique strategy of putting your spouse on payroll in the solo 401K so if you have a side hustle again you have your day job 401K matching out then you got your side hustle and you want to put the remaining contribution in there cool well your spouse may not have a day job they could be a stay-at-home mom or dad and they
(21:40) get to do 23 Grand wow so if you paid them around 25 because you got to gross it up for FICA so you put them a $25,000 W2 and they say I’ll put it in my 401k they’re their W2 might be zero so it’s a zero W2 they end up with 23 Grand and their 401k and you got a ride off in your side hustle yeah for 25 Grand those are traditional yeah and that would be a traditional they could do Roth but the beauty of that is oo I’ll put my spouse on payroll for 25 take a ride off in my side hustle for 25 Grand and my spouse
(22:15) gets a W2 for zero and I got 23 sitting in his or her 401K that I can now self-direct with my contribution because I did match an out I got my match at work then I come and played in my solo 401K on my side hustle doubl down with my spouse’s contribution too now we got more to play with we could go buy a rental property with that we could go do some crypto we could go do a hard money loan and instead of this crappy mutual fund at my day job that’s why you’re doing the match now and so if you have that side hustle I think that’s
(22:49) that has to make the list don’t you think yeah yeah was that 11 now that was number 11 we’re at 11 wow do we 12 12 12 Commandments 12 you know it’s kind of got a ring to it 12 unique okay do you want to do the set to 401K what was this get your oh um get you get your money in early oh yeah yeah okay let’s find let’s finish on this one yeah cuz I love this this is something you really taught me all right this is a good tip because one of the things in putting money in a 401 came particularly those that have solo
(23:17) Cas self-employed is like they’re like when’s the deadline to put it in when’s the very last minute yeah when’s the last day I could put money in my 401k or even the supply to Ira too because I get a Rite off for last year yeah yeah and it is true it is kind of cool wa I can wait till a deadline and that’s cool and your solo case it’s it’s like plus your tax return extension you’re putting money in in September of 2025 to get a 2024 deduction can I say it one more way before you tell them the real strategy okay is that again this year if you’re
(23:46) hearing this right now and you got your day job 401K you got a side hustle you could create the 401K now decide how much you want to put in it for this year’s write off and you don’t even have to put any in until next year so you’re like o I want to capture that write off in 2024 but I don’t have to put the money in until September of 25 o I like that so some may say that’s a unique strategy that’s good not Matt soron yes I mean I like it because if we forgot about it or we’re doing it after the fact we’re trying to get this in I love
(24:19) it but this is bad from an investment perspective because what do you do when you put money in you invest it and it grows we need our money to work for us if I’m not investing the money it’s not investing in growing and so there’s a report on 401K millionaires that talks about what are the common characteristics of 401k millionaires one of the common characteristics is they contribute to their retirement account as soon as possible not the deadline they’re like okay I’ve made you know 40K this year it’s March I’ve got my 40K
(24:47) already in my retirement account or whatever my Max contributions are and I think that is a better Pathway to success in Building Wealth get your money in early get it invested get it working for you don’t be the one turning in you know your retirement plan contributions when the homework deadline hits I love it homework deadline get in in as soon as you can don’t wait till the last minute yeah all right well that was 12 cool unique strategies for the 401K grateful that you’re here with us this is um such a powerful podcast and
(25:15) if you found a unique strategy in there that’s Golden Nugget for you please share this with your friend uh family member give us a five star we’d really appreciate it gets the word out there cuz we’re really trying to do something different yeah we will see you next time thanks everyone