Look up Mega-Back-Door ROTH. Business owners can contribute about $59,000 annually, post-tax. A defined Benefit Pension Plan can allow a business owner to contribute up to $300,000 annually, pre-tax.
Mr Dave - You are converting company match to Roth because 1. you might not plan to retire or 2. you have good wealth built you want hassle to investment for kids or 3. avoid RMD hassles. But for many middle class Americans thats not a wise advise to share. Once they retire they could withdraw at lower tax rates because one will have not much income and they will be in lower tax brackets, it is wiser to convert then.
Amazing video, A friend of mine referred me to a financial adviser sometime ago and we got to talking about investment and money. I started investing with $150k and in the first 2 months, my portfolio was reading $274,800. Crazy right!, I decided to reinvest my profit and get more interesting. For over a year we have been working together making consistent profit just bought my second home 2 weeks ago and care for my family.
Hi. I’ve been forced to find additional sources of income as I got retrenched. I barely have time to continue trading and watch my investments since I had my second child. Do you think I should take a break for a while from the market and focus on other things or return whenever I have free time or is it a continuous process? Thanks
@@lennoxmutterick6434 However, if you do not have access to a professional like Clementina Abate Russo, quitting your job to focus on trading may not be the best approach. It is important to consider all options and seek guidance from reliable sources before making any major decisions. Consulting with an AI or using automated trading systems can also be helpful in managing investments while balancing other commitments.
The $200,000 income (AGI) limit Dave mentions is only for married people. For us single folk, our max AGI is $144,000 before we lose the ability to directly contribute to a Roth IRA.
I was told by a large investment holdings company that you have to pay tax on an inherited Roth IRA, they said that only the original investor gets the tax free withdrawal, but when it passed on to a child and I take to money out I have to pay tax on it, and the account has to be closed in 10 years. This is opposite from what I thought a ROTH IRA would be and they said cause it is an Inherited Roth IRA you don't get the same benefit as the original investor, and you have to take RMD on the Roth. Any ideas or advice
Remember, Dave…structure correctly you can actually grow the Roth money tax-free & uninterrupted for 10 years BEYOND the passing of the SECOND spouse. Either required or suggested to the non-spousal beneficiaries.
@@thedeerking5350 even if your doing a backdoor Roth? Backdoor is the money put into traditional Roth is after tax money and then converting that to Roth.
I don't know that the backdoor conversion is a loophole. That implies it happened accidental the government wants money now instead of waiting for your retirement.
@@RealGalaxyGamers yes they would but the government is not known for their financial savvy look a how they handled social security they would gladly trade a dollar today for 88 dollars 50 years from now.
At this point my only income is coming from stock investments which are taxed. Can I deposit those gains into a back door ROTH? Or...Do I need to create a company say "ABC investments" and pay myself so the gains can be from earned income?
S&P funds are usually 1-2 yr money holding funds according to DR. Honestly, it’s not a terrible thing to have a small portion of your net worth in. You do need to remember that DR is much richer then you so maybe follow some of his advice.
@@RealGalaxyGamers Over time, no mutual fund outperforms the S&P 500, but you pay a portion of the salaries of those stock analysts who aren’t getting better results for you. That’s why an S&P 500 fund is better.
@@humblekind4189 Seriously. Because it’s not true, and the track record mantra Dave repeats like a broken record is not a prediction of future performance.
The one thing is to be careful about with backdoor Roth is doing conversations when there are other existing rollover IRAs. If you have these and do a non-deductible IRA contribution, it will convert part of the rollover IRA which gets taxed. You cannot specify which IRA contributions get converted, it just takes it pro rata out of whole between rollover and non-deductible IRA.
@@dec1slh it's not that you can't keep track of which money is post tax and which is pretax. The IRA requires that you lost all IRA money and then you get a tax break on the part that's your IRA basis. If you have ten accounts with $10k, one of which I all post tax, you will still only get 10% knocked off the taxes no matter which account you pull it from. The only way to avoid it is to have the money in non IRA accounts, which is why it was recommended to rollover direct from 401k to 401k. That is how you avoid pro rata.
Why do you have to be a high income earner to do this? Why cant you just be making 90k/year and feel like you want to put more than 6500 into Roth IRA?
Dave REALLY needs to learn about how much better ETFs are taxed. You don’t pay cap gains until you sell it, unlike mutual funds where you pay for their turnover every year. Its far more efficient for all taxable investors. Dividends obviously taxed the same on both.
He knows, and he discussed those fine details recently with a sophisticated caller. He even said he has a substantial amount in ETFs. Yet he continues to tell all but the very few most sophisticated callers to follow the four-mutual fund plan with an ELP.
@@evanserickson No mutual fund outperforms the S&P over time. They are a waste of money and their expense ratios have a dramatic negative impact on investor profits over time. S&P 500 ETF is best.
Instead of 'always', would suggest 'often'. If you expect your tax bracket to be lower in retirement, or if you have a substantial amount in Trad IRA that would need to pay conversion on using backdoor strategy, would be two situations it may not be. And more generally, following diversification principles, including tax diversification, can lead to better outcomes. Ex: In retirement pull first $xx,000 up to a then-current low-bracket threshold from a Traditional, then pull from ROTH any cash flow needs above that break, would be better outcome than paying high-rate now on 100% of those monies. imho prob good to have at least some chunk in traditional IRA, unless your income streams would reliably put you in top tax bracket through retirement, in which case you probably arent directly making these decisions anyway, lol.
@@indianatime ah shoot I did not mean to type ‘always’ there! I’m on the same page with you for the numbers since it does come down to current vs. future tax brackets. Thanks for catching this!
A Roth is definitely worth considering. So much depends on your age and financial situation. I funded both pre-tax and Roth retirement accounts during my high earning years. I wanted the tax diversification. I plan on doing some Roth conversions between now and age 72 to reduce my overall balance of pre-tax money. Those RMDs can really bomb your finances if you're not careful.
with D ramsey i feel there is always something not explained fully and also "difficult" to understand for ppl that have a hard time understanding financial language.
The non-technical language being used is so...frustrating. It's not "rolling it to a Roth". It's performing a conversion to a Roth IRA. It's no an after-tax Traditional IRA. It's making a non-deductible contribution to a Traditional IRA.
You are incorrect. You can't CONTRIBUTE directly to a Roth IRA, but you can certainly own one. Instead you open a traditional IRA account and a Roth one, then you contribute non-deductible contribution into the Traditional IRA account. Wait a day, then transfer it (roll it over) to the Roth IRA account for free since its after tax money and you got no tax benefit for making the contribution. If you own your own business there is a much bigger opening to contribute $60,000+ to a Roth IRA regardless of income limits because you as the business owner pay the money to an after tax 401(k) to the max and then you set up the 401k plan to allow in service transfers and then transfer the money to a Roth.
If you work for a company that offer 401k and you max your yearly contribution and have another job that offer 457b and also max out yearly contribution and you make more than the limit that is set by the IRS . Can you still open a traditional IRA and do back door Roth ?
Yes, IRA limits are an entirely different thing. If you're not eligible due to income you can't contribute directly to a ROTH IRA so you make a non-deductible contribution to a Traditional IRA, wait a day and then convert it to ROTH for free.
When I have read about a back door Roth it has been from people that contribute after tax money to a 401k, and then convert the entire account balance to a Roth. The employer match goes into a separate pretax account. Any additional tax due on the conversion would be only for any growth in the after tax account they converted.
That's the "mega backdoor" method. The regular backdoor method involves making non-deductible contributions to a Traditional IRA, then converting all the monies to Roth.
I agree with Aaron Taylor. Dave Ramsey's approach is tailored for people that need to concentrate on one thing at a time. You are much better off getting that employer match and some money in your retirement account and using the rest of your funds to knock out your debt. Dave also tells people to get rid of the smallest at first regardless of interest rate, but mathematically you could very well be much better off by knocking off the high interest rate debt first. But you need to stay motivated.
The limits are as follows: For 2023: Between $138,000 and $153,000 for single filers and $218,000 and $228,000 for joint filers. For 2024: Between $146,000 and $161,000 for single filers and $230,000 and $240,000 for married couples filing jointly.
The bill did fail but it's important to note that it's technically still on the table. Uncle Sam doesn't have this as a priority but it will be addressed definitely by 2023.
No it won’t be addressed. The Biden admin NEVER really supported the bill and they ONLY wanted to look like they did. That’s how the left plays their supporters. Unless we elect a REAL FDR (progressive), and congress to support that person, nothing in this country will change. The status quo is “divid conquer” while the rich take everything.
@Prey R Shocker....anytime Demonrats are in political majority power...prices on everything ( fuel...food ) basically doubles while pay....DOESN'T for the working people...
I don’t think you understand how a Roth IRA conversation works. You are not avoiding taxes it’s not a service. You are simply contributing after tax dollars” money you were taxed on that’s limited to 8k a year. “Not much money” to contribute in an account that average joes can pay into because it’s more tax efficient. You are still paying taxes on that 8k a year because it was income. It’s not wrong for someone to contribute to a Roth because they have a higher income. It’s literally in the IRS tax code.
It's the same money regardless of the vehicle its put in. What you get to keep of what is already yours is determined by which one you use. How is that "paying for services you use"? One way the government steals more from you than the other, who would willingly take less so the government could waste more of their hard earned dollars? The government is the least effective way of providing anything to anyone especially when the resources can only be gained by force in the first place. Is it comforting to know that whatever you think the government spends money on that is worthwhile was obtained by shaking people down by threat of having their freedoms taken away? How can that possibly be justified morally? If someone commits an armed robbery against you in order to throw 80% in a toilet and patch one pothole, is that you being treated fairly? Should you be grateful and your life could have been ended in order to accomplish that? Obviously not, and that's the entire tax and spend system. That's how it works. No one would give them a dime if they couldn't be forced to pay, come on!
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Look up Mega-Back-Door ROTH. Business owners can contribute about $59,000 annually, post-tax.
A defined Benefit Pension Plan can allow a business owner to contribute up to $300,000 annually, pre-tax.
Gotta love the knowledgeable callers!
Mr Dave - You are converting company match to Roth because 1. you might not plan to retire or 2. you have good wealth built you want hassle to investment for kids or 3. avoid RMD hassles. But for many middle class Americans thats not a wise advise to share. Once they retire they could withdraw at lower tax rates because one will have not much income and they will be in lower tax brackets, it is wiser to convert then.
Enjoyed the video. Thanks for sharing
Amazing video, A friend of mine referred me to a financial adviser sometime ago and we got to talking about investment and money. I started investing with $150k and in the first 2 months, my portfolio was reading $274,800. Crazy right!, I decided to reinvest my profit and get more interesting. For over a year we have been working together making consistent profit just bought my second home 2 weeks ago and care for my family.
Hi. I’ve been forced to find additional sources of income as I got retrenched. I barely have time to continue trading and watch my investments since I had my second child. Do you think I should take a break for a while from the market and focus on other things or return whenever I have free time or is it a continuous process? Thanks
@@lennoxmutterick6434 However, if you do not have access to a professional like Clementina Abate Russo, quitting your job to focus on trading may not be the best approach. It is important to consider all options and seek guidance from reliable sources before making any major decisions. Consulting with an AI or using automated trading systems can also be helpful in managing investments while balancing other commitments.
@@BrandonIvan-c6e Oh please I’d love that. Thanks!
@@lennoxmutterick6434 Clementina Abate Russo is her name
Lookup with her name on the webpage.
They have changed the rules since. A company can now match a Roth.
The $200,000 income (AGI) limit Dave mentions is only for married people. For us single folk, our max AGI is $144,000 before we lose the ability to directly contribute to a Roth IRA.
Exactly
Back door Roth may be gone next year, no one knows. So anyone who has the right situation to be able to do it, should do it!
I doubt it the democrats are going to be shellacked next year and mansion will not vote on the big bills which is all they seem to propose.
2030!
I was told by a large investment holdings company that you have to pay tax on an inherited Roth IRA, they said that only the original investor gets the tax free withdrawal, but when it passed on to a child and I take to money out I have to pay tax on it, and the account has to be closed in 10 years. This is opposite from what I thought a ROTH IRA would be and they said cause it is an Inherited Roth IRA you don't get the same benefit as the original investor, and you have to take RMD on the Roth. Any ideas or advice
google is your friend: from IRS website "Withdrawals of contributions from an inherited Roth are tax free..." look yourself for more particulars
Remember, Dave…structure correctly you can actually grow the Roth money tax-free & uninterrupted for 10 years BEYOND the passing of the SECOND spouse. Either required or suggested to the non-spousal beneficiaries.
What is the "pay to conversion" part? It cost money to do the actual conversion from traditional IRA to Roth IRA?
@@thedeerking5350 even if your doing a backdoor Roth? Backdoor is the money put into traditional Roth is after tax money and then converting that to Roth.
I don't know that the backdoor conversion is a loophole. That implies it happened accidental the government wants money now instead of waiting for your retirement.
The gov would get more money at your retirement if they waited.
@@RealGalaxyGamers yes they would but the government is not known for their financial savvy look a how they handled social security they would gladly trade a dollar today for 88 dollars 50 years from now.
The backdoor Roth is a provision written in the tax code by congress.
At this point my only income is coming from stock investments which are taxed. Can I deposit those gains into a back door ROTH? Or...Do I need to create a company say "ABC investments" and pay myself so the gains can be from earned income?
Did mine last week. I’m far from rich not even close to a millionaire. BS if they end it.
I have heard Dave talking about the S&P 500 index fund several times here lately. Normally all he talks about are actively managed mutual funds.
S&P funds are usually 1-2 yr money holding funds according to DR. Honestly, it’s not a terrible thing to have a small portion of your net worth in. You do need to remember that DR is much richer then you so maybe follow some of his advice.
@@RealGalaxyGamers Over time, no mutual fund outperforms the S&P 500, but you pay a portion of the salaries of those stock analysts who aren’t getting better results for you. That’s why an S&P 500 fund is better.
That’s not true, I invest in funds with 30-40 yr track record that do better even after subtracting expense ratio.
@@aaronstevens9937 can you share the ticker symbols of those funds so I can research them?
@@humblekind4189 Seriously. Because it’s not true, and the track record mantra Dave repeats like a broken record is not a prediction of future performance.
How do you do that? Is there any video showing how to go about doing this?
The one thing is to be careful about with backdoor Roth is doing conversations when there are other existing rollover IRAs. If you have these and do a non-deductible IRA contribution, it will convert part of the rollover IRA which gets taxed. You cannot specify which IRA contributions get converted, it just takes it pro rata out of whole between rollover and non-deductible IRA.
@♜pinnedby Ramsey Everyday Millionaires STOP SPAMMING
Which is a good reason to keep rollover money in a separate account if at all possible.
@@lynnebucher6537 No, it needs to be rolled over to a new company 401k plan if a person wants to do a backdoor Roth.
@@lynnebucher6537 it doesn't matter if it's a different account
@@dec1slh it's not that you can't keep track of which money is post tax and which is pretax. The IRA requires that you lost all IRA money and then you get a tax break on the part that's your IRA basis. If you have ten accounts with $10k, one of which I all post tax, you will still only get 10% knocked off the taxes no matter which account you pull it from.
The only way to avoid it is to have the money in non IRA accounts, which is why it was recommended to rollover direct from 401k to 401k. That is how you avoid pro rata.
Why do you have to be a high income earner to do this? Why cant you just be making 90k/year and feel like you want to put more than 6500 into Roth IRA?
You can, the people talking were all above the limit, thus this is their only option to get ANYTHING into a Roth.
$8000? Wouldn't it be $12000 for him and his wife? $13000 in 2023.
Dave REALLY needs to learn about how much better ETFs are taxed. You don’t pay cap gains until you sell it, unlike mutual funds where you pay for their turnover every year. Its far more efficient for all taxable investors. Dividends obviously taxed the same on both.
to my knowledge he makes money through these advisors he recommends
He knows, and he discussed those fine details recently with a sophisticated caller. He even said he has a substantial amount in ETFs. Yet he continues to tell all but the very few most sophisticated callers to follow the four-mutual fund plan with an ELP.
I wonder what funds the ELP’s recommend. I’m assuming some will be ethical and offer low cost mutual funds.
@@evanserickson No mutual fund outperforms the S&P over time. They are a waste of money and their expense ratios have a dramatic negative impact on investor profits over time. S&P 500 ETF is best.
@@genxx2724 not true
Great conversation
Trying to get as much money in a Roth as you possibly can is often a good idea.
Instead of 'always', would suggest 'often'.
If you expect your tax bracket to be lower in retirement, or if you have a substantial amount in Trad IRA that would need to pay conversion on using backdoor strategy, would be two situations it may not be.
And more generally, following diversification principles, including tax diversification, can lead to better outcomes. Ex: In retirement pull first $xx,000 up to a then-current low-bracket threshold from a Traditional, then pull from ROTH any cash flow needs above that break, would be better outcome than paying high-rate now on 100% of those monies. imho prob good to have at least some chunk in traditional IRA, unless your income streams would reliably put you in top tax bracket through retirement, in which case you probably arent directly making these decisions anyway, lol.
@@indianatime ah shoot I did not mean to type ‘always’ there! I’m on the same page with you for the numbers since it does come down to current vs. future tax brackets. Thanks for catching this!
A Roth is definitely worth considering. So much depends on your age and financial situation. I funded both pre-tax and Roth retirement accounts during my high earning years. I wanted the tax diversification. I plan on doing some Roth conversions between now and age 72 to reduce my overall balance of pre-tax money. Those RMDs can really bomb your finances if you're not careful.
with D ramsey i feel there is always something not explained fully and also "difficult" to understand for ppl that have a hard time understanding financial language.
Because he half knows
I feel the same way and he’s constant defense of the rich as if they’re victims is so twisted.
The non-technical language being used is so...frustrating.
It's not "rolling it to a Roth". It's performing a conversion to a Roth IRA. It's no an after-tax Traditional IRA. It's making a non-deductible contribution to a Traditional IRA.
Or nondeductible/after tax contribution to a 401K, where the plan allows in-service distribution. Not all of them do.
What is the difference between an after tax Traditional IRA contribution and a non-deductible Traditional IRA contribution other than the phrase used?
It is not a loophole. It is explicitly allowed as of the 2017 Tax Cuts and Jobs Act.
It was allowed before that
@@dec1slh You are correct, but it wasn't explicit until then.
When you say roll stuff to Roth minute 4:39, do you mean roll it into you 401k Roth because high income earners cannot open a Roth IRA?
You are incorrect. You can't CONTRIBUTE directly to a Roth IRA, but you can certainly own one. Instead you open a traditional IRA account and a Roth one, then you contribute non-deductible contribution into the Traditional IRA account. Wait a day, then transfer it (roll it over) to the Roth IRA account for free since its after tax money and you got no tax benefit for making the contribution. If you own your own business there is a much bigger opening to contribute $60,000+ to a Roth IRA regardless of income limits because you as the business owner pay the money to an after tax 401(k) to the max and then you set up the 401k plan to allow in service transfers and then transfer the money to a Roth.
That is a back door Roth or mega back door Roth.
@@lchristianrojas3713it’s everyone and NOT created by a mega head. My lord
If you work for a company that offer 401k and you max your yearly contribution and have another job that offer 457b and also max out yearly contribution and you make more than the limit that is set by the IRS . Can you still open a traditional IRA and do back door Roth ?
Yes, IRA limits are an entirely different thing. If you're not eligible due to income you can't contribute directly to a ROTH IRA so you make a non-deductible contribution to a Traditional IRA, wait a day and then convert it to ROTH for free.
When I have read about a back door Roth it has been from people that contribute after tax money to a 401k, and then convert the entire account balance to a Roth. The employer match goes into a separate pretax account. Any additional tax due on the conversion would be only for any growth in the after tax account they converted.
That's the "mega backdoor" method. The regular backdoor method involves making non-deductible contributions to a Traditional IRA, then converting all the monies to Roth.
So let's call it Baby step 8?
I hope it will extend till 2025 or 2030. I’m on building up my emergency fund at the moment.
Stop giving up your employer match. Dave's babysteps are going to cost you hundreds of thousands of dollars.
I agree with Aaron Taylor. Dave Ramsey's approach is tailored for people that need to concentrate on one thing at a time. You are much better off getting that employer match and some money in your retirement account and using the rest of your funds to knock out your debt. Dave also tells people to get rid of the smallest at first regardless of interest rate, but mathematically you could very well be much better off by knocking off the high interest rate debt first. But you need to stay motivated.
Thank you for the explanation. Love Dave!
Dave loves going in the back door
Roth IRA limit is 130k not 200k
200K if you are married. Maybe Dave is speaking for himself.
Yep. You’re both right
Married filing jointly is 214 k
The limits are as follows: For 2023: Between $138,000 and $153,000 for single filers and $218,000 and $228,000 for joint filers. For 2024: Between $146,000 and $161,000 for single filers and $230,000 and $240,000 for married couples filing jointly.
This didn’t age well
Is the 200k limit gross or AGI?
AGI
ETFs in taxable
PUT IT IN DIVIDEND STOCKS...
The bill did fail but it's important to note that it's technically still on the table. Uncle Sam doesn't have this as a priority but it will be addressed definitely by 2023.
No it won’t be addressed. The Biden admin NEVER really supported the bill and they ONLY wanted to look like they did. That’s how the left plays their supporters.
Unless we elect a REAL FDR (progressive), and congress to support that person, nothing in this country will change.
The status quo is “divid conquer” while the rich take everything.
Not sure why my comment was deleted....wtc? mod?? I'm just trying to HELP your viewers...sincerely
I wish Dave would skip all those snarky political statements.
Why? it plays a big part in retirmemnet and investing. Government robs peoples retirement
@@t206kid you worry about Dave's retirement? pff
@@webfreakz im worried about mine as is he
It was a fact.. not a snarky statement
@Prey R Shocker....anytime Demonrats are in political majority power...prices on everything ( fuel...food ) basically doubles while pay....DOESN'T for the working people...
rich people paying for the services they use = being punished 😂
I don’t think you understand how a Roth IRA conversation works. You are not avoiding taxes it’s not a service. You are simply contributing after tax dollars” money you were taxed on that’s limited to 8k a year. “Not much money” to contribute in an account that average joes can pay into because it’s more tax efficient. You are still paying taxes on that 8k a year because it was income. It’s not wrong for someone to contribute to a Roth because they have a higher income. It’s literally in the IRS tax code.
It's the same money regardless of the vehicle its put in. What you get to keep of what is already yours is determined by which one you use. How is that "paying for services you use"? One way the government steals more from you than the other, who would willingly take less so the government could waste more of their hard earned dollars? The government is the least effective way of providing anything to anyone especially when the resources can only be gained by force in the first place. Is it comforting to know that whatever you think the government spends money on that is worthwhile was obtained by shaking people down by threat of having their freedoms taken away? How can that possibly be justified morally? If someone commits an armed robbery against you in order to throw 80% in a toilet and patch one pothole, is that you being treated fairly? Should you be grateful and your life could have been ended in order to accomplish that? Obviously not, and that's the entire tax and spend system. That's how it works. No one would give them a dime if they couldn't be forced to pay, come on!
It’s crazy how these people call into the show for questions that can be easily Google’d.
They want this man’s opinion, not someone else’s.
Enjoyed the video. Thanks for sharing