The Ideal Order of Investing

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Today in the final part of my 8-part “Wealth Building” series where I break down the ideal order of investing so you can maximize tax-advantaged accounts, grow wealth, and avoid costly mistakes. From emergency savings to Roth strategies, HSAs, real estate, and beyond, I show you the step-by-step roadmap to financial freedom. I’ll break down the key milestones and give you clear, actionable advice on the sequence of investments that will set you up for financial success. Whether you're just starting out or looking to optimize your portfolio, this guide is for you.

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Transcript

SPEAKER_00 0:12

Welcome everyone to Wealth Office Hours Live. This is Matt Sortson. Excited to be with you today. This is the season finale. You've been here for the first eight episodes of season one of Wealth Office Hours Live. Congratulations. You have made it. We have a banger of a final episode for you today, trying to bring it all together on tax advantaged accounts, ways to invest. What do I do next? What is the optimal order that I should be investing and thinking about all of these strategies to grow and build wealth? We're focusing on retirement accounts, tax advantaged accounts, and common investment strategies. You've probably heard about. This is important. I wanted to end with this topic because this is your starting point to know what to do next. A lot of people hear all these strategies and things you can do to grow and build wealth, but they don't know what to do next. What do I do next? Because that's different for everybody. So why don't you be thinking about what do I do next? And this will tell you what you should be doing next and what to be thinking about after that and so forth. So wanted to end it eight-part series. For any of you on right now, though, I want to know, drop a comment in here if you've been on any other prior episodes of the first eight episodes. I'm still wanting to make a certificate for this. And when I say I want to do it, I mean Jordan, can you figure out a certificate? Oh yeah. Oh yeah. Because if you've seen all eight, we need to give people a certificate. Because this is inaugural stuff. I mean, and we'll listen to the I mean honor system. If you've been on all eight and you tell us you're gonna get a certificate. There's no test. Okay. There's no test. We obviously did not take attendance. Although I know some of you have been on. We know some of the usernames and handles that we've seen week by week that have been on this. But thank you everybody for being here. It's an honor to that you're taking part of your time to be here to learn and um entrusting me with that uh time. So let's dig into it. Remember, you can download the guide. I actually have a guide on what I'm gonna talk about today. That's the ideal order of investing guide. Click the link in the description below for today's live, and you can access that. Also, if you download the guide or if you sign up for the newsletter at my website, mattsawensen.com, you will be put on my newsletter list. We are gonna send out all eight of these, how you can get access to them, along with a workbook, which will be a compilation of a number of resources, including the slide decks. As you're gonna see today, the slide deck is highly uh, it's got a ton of valuable information in and of itself. So we're gonna be going through it, but it's a great resource point if you want to come back to it. So make sure you download the guide below. You'll get a ton of information as well as get signed up for the newsletter, which in a week or so you'll get access to all eight if you've missed any. And you'll also get the workbook, which will include the slide decks and some associated resources. Okay, let's dig into it. And let's start. What should I do first? What is the first step as I'm thinking about growing and building wealth? Well, the first step is an emergency savings account. I know it is not exciting. That's not where people want to start. Everyone wants to think about investing and opening up accounts and starting a business and alternative assets and all these things. That is not where we start building wealth. You need an emergency savings account first. If you lose your job or if you're self-employed and lose your source of income, your customers, whatever it may be, your business. We need some type of savings account to help supplement some income or unexpected expenses that can come up. A car breaks down, an AC unit goes out, whatever it might be that comes up in life, medical, we don't know what it is. We need some type of savings account that can provide a backup for an emergency outside of our regular monthly expenses. Now, I differ on this from many people. Dave Ramsey, a lot of other people will say three month minimum, minimum of three months in an emergency savings account. I'm a one month kind of guy. I'm like, let's get one month taken away because I want to get to investing faster. This one month is just gonna sit in a savings account. Maybe it's in a money market fund or it's in a high yield savings account, getting some interest. But guys, you're putting one month of expenses in here. Okay, maybe this is five grand. We're not putting a lot of money here. It's just gonna be that amount. You get it done, and maybe your expenses go up over time and you need to get maybe 10 grand in there, 15 grand in there. I don't know what your monthly expenses are, but let's get started there. But I want to get to investing quickly because I need money to start working for me, right? But this is the starting point. We need to get that done. Let's get it set aside. Here's why I differ. When we get to the next thing you should do, which is a couple down the road here, like a Roth IRA. Remember, I can take money out of a Roth IRA whenever I want. The contributions in a Roth IRA come out tax and penalty free at any time. It's only in the investment growth and gains that I have to wait until I'm 59 and a half. So don't stress about the putting money in a Roth IRA because I can get that back. It's just like a savings account, it just happens to grow and come out tax-free if I let it ride and I don't need to draw on it. All right, so step one, we get the emergency savings account done. Step two, if you have a 401k at work, you need to take advantage of the match. Most 401ks offer, let's say, a 4% match of your salaries, which basically means, hey, if you put in 4% of what you make, we as the company will match that and put in 4%. So let's say you make $100,000 a year and you put in 4% of your pay, $4,000. We as the company will put an additional $4,000 in your 401k. So you have eight grand now for that year in your 401. You only put in four and you immediately doubled your money. This is high in priority of what you should be thinking about. If you have a 401k at work, a 403B, an employer that offers a match for retirement savings, you should be contributing up to the amount to get the match and stop. Okay. Don't fund the full employee contribution amount, $23,500, unless the company's matching. Just fund it enough to get the match. We're going to come back to the 401k later. Depending on your situation and income, you may put more in the 401k. But first, again, we're getting off first base, step one, step two here, emergency savings account. If you have a 401k or employer sponsored plan with the match, contribute enough to get the match and get out. Now you might have a company that does a 50% match. You put in 4,000, they'll put in 2,000. Still do that. Okay. That's a 50% return on day one. Go find an investment that'll get you a 50% return guaranteed on day one. They're hard to find. Okay. So we want to go grab that. After we have done the 401k match, I want you to think about paying down any high interest debt. Now, a lot of people say, pay off your debt first. Don't put money in the 401k. I totally disagree with that because the math disagrees with that. If I put, if I'm getting 100% match at my employer, I put in four grand, that's now $8,000. If I took that same $4,000 and instead pay down high interest debt and didn't contribute to my 401k, I lost $4,000. That's a that's costing me money. I know you're like, yeah, but you're paying down a credit card that has 18% interest to give up 100% return. I can do math. That's not a good idea. Okay. I know we don't like debt. Okay. I know Dave Ramsey is gonna like pop his head out here, or maybe he'll comment on my video. I don't know. Probably not. Probably not. Um, but and I love Dave Ramsey, but this is where I would differ. Let's pay off high interest debt in step three. Okay. Now, when we're talking about high interest debt, I'm not talking about your mortgage. I'm not talking about your student loans if you got a low rate. I'm talking about credit card double digit type interest. Credit card at 18% that's crushing you. Why? You're not ready to invest yet. The best investment you can make when you have credit card debt is paying off your debt. It's costing you at least 18% a year. It is very hard to find returns that guaranteed will pay you 18%. But I know I can get a guaranteed ability to get out of that 18% or more by simply paying off the credit card. All right. So I know it's not fun. I know we want to get to investing, but let's pay down the high interest debt in step three. And remember, we did already do some investing because we went and got the match from our company 401k. Now, when you get to paying down high interest debt, if you have lots of different accounts, multiple credit cards or lines of credit, whatever it might be, that's installment debt. It's not like a mortgage or something like that on an asset or even a car loan. It's at a reasonable rate for a reasonable car. Okay, we're talking about high interest, unnecessary debt. How do we pay that down? How do I decide which ones to pay first? Well, the Dave Ramsey snowball method is let's take your smallest debt that you have. So if I've got three credit cards, one with a $1,000 balance, one with the $10,000 balance, and one with a $25,000 balance, Dave Ramsey would say, pay down the one with a $1,000 balance. I don't care what the interest rate is, get the win, pay off the smallest bounce, and then focus every penny on the next one at $10,000 and the next one at $25,000. So leave your largest balanced ones to pay last. Well, that's good. And I know there's psychology around that of why people like that strategy, but it's flawed because it will take you longer to pay it off. If instead I applied my available income to pay down the highest interest debt, which would be called the Matt Swanson Avalanche, debt avalanche strategy. I don't know. Someone else has probably used that, huh? Is this I heard it was yours. Okay. All right. Okay. All right, I'm claiming it. Okay. The Matt Swanson Avalanche strategy, okay, much more powerful than a wimpy snowball, okay, is we pay off the highest interest debt because that's causing the most drag on our net worth. Why would I pay the lowest interest debt? Let's pay down the highest interest debt. And if it is the one that's $25,000, and but it's at 25%, and I got another credit card at 12% for $1,000. I'm gonna let that $1,000 ride at 12%. I'd rather take $1,000 of available cash that I have to pay down 25 to 24 if it's at a higher interest rate. Okay. So let's focus on paying down the high interest debt. Um, first, you could be a snowball person. I'm just saying it'll take you longer. Let's just take care of it as quickly as possible, like an avalanche. Okay. All right, step four. Okay. We paid down high interest debt. We matched it out in the 401k. We have an emergency savings account. Now we're at the Roth IRA. I love the Roth IRA. Here I could put $7,500 a year. And I want you to try to max out the Roth IRA. A lot of people start getting asking a lot of questions at this point. Well, Matt, I'm putting all my investable money in a 401k. It's locked up. I've got to drop money into this Roth IRA. What if I need it? I don't like that. Shouldn't I just do a brokerage account or a something like that? Because I what if I want the money next year? I don't want to tie it up until I'm 59 and a half. I mean, maybe I do, maybe I don't. I want some choices. The Roth IRA has one unique piece to it that no other retirement account has. And that is, if I put $7,500 in it, I can pull that $7,500 out next year, next month, in five years, 10 years. It doesn't matter. I don't have to be $59 and a half. You can always access your contributions to a Roth IRA. It's just the earnings and growth that waits until you're $59 and a half. So if I put $7,500 in a Roth IRA for 10 years, $75,000 of contributions, and that account is now worth $125,000 because of the investment growth. So I have $50,000 of investment growth, $75,000 I put in the Roth IRA over 10 years. I can pull out $75,000 whenever I want. I could be $45 and pull it out. I could be $50, I could be $25. Okay. It doesn't matter. You can access that money whenever you want. It's only the earnings and growth that waits until you're 59 and a half. Now, for those of you that are high income, and we had a question come in here from pink orange horse or pink organic horse. Oh, without spaces in here, this is hard. Okay. Let's show that one up to her. You guys got to see how hard this handle is, guys. Okay. This was from a question that came in um on an earlier on an earlier video that says, Matt, we make 150K. Is that high income? We don't feel like it is. And what this is getting at is the IRS has said if you are high income, you make more than 150 grand a year single. It's actually 153 or 252,000 a year, if you're married, you cannot contribute money to a Roth IRA through the front door. This is a regular Roth IRA contribution of 7,500 bucks going directly into a Roth IRA. So if you are high income and pink organic course, that is it is it is tough. That's a tough one. And you can throw me a bone on that one. I mean, that was, you know. Um, but yes, the IRS thinks you're high income. Because what the IRS said, and I should say Congress when they created Roth IRAs, is they said, we don't want rich people to have these because they grow and come out totally tax-free. They don't need another tax shelter place to go put their money. This is meant for ordinary Americans. So they said, if you're a high income earner, and this adjusts every year, this goes up every year for inflation, you can't do this strategy. So it's 152 single, 252 married. However, there is a backdoor Roth IRA strategy that gets around this. If your high income over that 152 single, 252, sorry, 153 single, 252 married, you're gonna put your 7,500 bucks into a traditional IRA is a non-deductible contribution. What that means is you just don't take a deduction for it. You're gonna convert that $7,500 using a Roth conversion over to the Roth IRA. There is no income requirement on Roth conversions. There used to be, but about 10 to 15 years ago, Congress changed the rule and said, you can convert over to Roth whenever you want, but you can only make a direct contribution to a Roth if you're under the income limits. So this created the backdoor Roth IRA loophole that is probably the most used loophole in the entire tax code. I think more Americans use this loophole than any other loophole. I use it, many of our clients use it at directed IRA because, as Pink Organic course said, it doesn't seem like you're high income. Really? I can't even do a regular freaking Roth IRA if I make if I'm single and I make more than 153 grand, or I'm married and make more than 252k. So just do the backdoor Roth IRA. No, that's a strategy. I've got a lot of other content on that. I've got videos on my channel on the backdoor Roth IRA that gets into more detail on that. But just wanted to flag that uh here on the Roth IRA. Now, accessing backdoor Roth IRA contributions is a little tricky because that's a Roth conversion. It's not a regular Roth contribution. The Roth conversion has to sit for five years before you can pull it out. But I'm 46. I just turned 46 on Tuesday. I know. I'm 46. Let's say I did a backdoor Roth in 2026. In 2031, I'm not 59 and a half yet, I'll be 51. I could pull that 7,500 bucks out. The investment returns and growth, though I'll get that at 59 and a half. But each backdoor Roth IRA contribution you have has a five-year window of the contribution amount where you'll be able to pull that out, which I should say is the conversion amount, really. So getting a little technical there. Sorry, that was Matt Sorns and I get a little, I'm like, this is important to know. And I'm getting behind. So, but fun fact, okay, fun fact on the backdoor Roth IRA. You can't still access those contributions. Remember the five-year rule. All right, health savings account, HSA. I like the HSA after the Roth IRA. Remember, the HSA is has the triple tax threat benefit. I put money in, I get a tax deduction. I invest it, it grows and comes out tax-free for medical or healthcare expenses. And that can be at any age. So there's a lot of different ways people think about the HSA. Some people put the money in as a contribution and spend it directly out to basically get a deduction on their medical. This could be your co-pays, you know, before you're meeting your deductible, this could be your dentist, prescription drugs. Lots of things qualify under an HSA as a medical expense. So some people use it as just, hey, I don't get a tax deduction on my medical. Um, but if I put the money in the HSA, maybe I got $2,000 in medical every year, I can get the tax deduction for two grand and I'll spend it immediately out for that $2,000 of medical that year. That's a level one HSA. Okay. And I like that. I used to do my HSA that way. That's not how I do it anymore, or how smart, savvy investors do it. The level two HSA is I'm gonna put my money in. It's $4,400, by the way, for an individual, $8,750 family that you can put in each year. And I'm gonna have my medical, but I'm not gonna spend it out yet. I want to keep that money growing and invested because it's growing tax-free and it's gonna come out tax-free for medical later on. And I get to decide when to pull the money out. So if I have medical in 2026 and I have an HSA and I put in for my family $8,750 in medical for 2026, and let's say I had $8,750 in medical between me and my family that year. Well, I could take all of that out right now. No tax. And I got a deduction of $8,750. But I don't think that's smart. What you can do instead is let that money grow. Why don't I wait until I hit retirement? Again, I'm 46. Let's go 19 years now to 65, the most common age people retire now. And now I retire at 65. I that money got to grow for 19 years. But that 8,750 of medical I actually had in 2026, I can still pull out 8,750 19 years later. So the medical you have qualifies no matter when it happened. It doesn't have to be the year you pull it out. So I like the level two strategy for people who like being tax savvy, who want their money to stay invested with no tax on the investment returns, every dollar is compounding and it's going to come out tax-free later. Remember, one of the biggest expenses we have in retirement is medical. So having a big HSA becomes a huge asset and benefit to you in retirement. You will be able to use it. You'll be able to spend it down for the medical you have in retirement and the medical you had in building up this HSA if you weren't taking out distributions. All right, let's get to step six. How many total steps did I have again? I'm like, am I going fast? 15. All right. Okay. I'm gonna I'm I'm gonna move faster. Step six. This is gonna go faster. Okay. Max out your 401k contributions. Okay. I don't just stand in front of a teleprompter and read this. I want to let you know that, guys. Okay. This is, I mean, Jared prepared my slide deck for me, but this is from my stuff we've done before. I just forget. I'm, you know, I'm 46. Okay. I'm feeling old. Okay. I'm having a complex about this.

SPEAKER_01 21:06

All right. Stormbreaker said, I mean, he's going for like brownie points here. He said you look 26. I appreciate that. Yeah. I appreciate that.

SPEAKER_00 21:14

It's a good skincare routine and Botox. So yeah. Fun fact. Uh, all right, step six. We're going back to the 401k. Max out your 401k contributions. I don't want you putting more money in your company 401. Your company 401k usually has limited investment options, maybe some target date funds, a mutual fund. You have limited investment options of what you can invest in. So let's just put our money in there to get the match because I know I get 100% return on that. So I'm I'm not an idiot. I'm gonna go get that. But after that, we're gonna pay off high interest debt. And then let's do the Roth IRA and HSA, because I can invest those in whatever I want. I could buy a mutual fund or target date fund if I wanted. Or I could buy an index fund, or I could invest in an individual stock. I could self-direct it and buy real estate with my IRA or crypto with my HSA. I could invest in a private fund with my Roth IRA. Okay, that's what we do at our company, directed IRA. IRA accounts, HSA accounts, Roth IRAs, they can be invested in private assets. Or they could be invested in an individual stock or index fund. I'm just saying in the IRA space and HSA space, you have a much wider option of investments that allows you to choose the best investment possible that's going to grow your account. Whether that's the rental property down the street, the private fund, the index fund, the individual stock. I just have more options. The 401k, I've got a menu. I can pick what's on the menu typically. All right. Okay, but because they're still tax advantage accounts, I can come back to the 401k here and you can put 24,500. This is 2026 numbers, 23.5 for 2025, but 24,500. Um if you're under 50, if you're over 50, you get another, what is that? 8,000? It's another 8,000, yeah, it's a 32,500. So um now there's more you can do here. I'm gonna come to the mega backdoor Roth in a second. That's more money in a 401k, but just know. I mean, maybe I put, let's go back to that. You made 100K. Um, you put 4,000 in, you got the match of 4,000, you got 8,000 total. Well, I have 20,500 left, I can still contribute just as an employee, right? The employer's not dropping any more money in. I work at corporate America, I'm in the Dunder Mifflin 401k. I went to Toby and HR and I filled out the paperwork. I got my contribution set up and I got the match. But now I've got 20,500 left I could possibly put in. Now, if you're making 100K, you're not gonna probably have that much money left, especially if you did the Roth IRA at HSA. Um, but you might have a little bit more that you could put in under this example. So this is when we're gonna come back to the 401k. After we've looked at doing the employee contribution, if if that's not enough. Now, if that's enough, if you're like, well, I had an extra 5K, Matt. So I just dropped that in as an employee contribution. It was within the amount, I had 20,500 left. I could throw in another 5,000 and invest it. Great. Let's drop that in the 401k. Because you had no more Roth IRA amounts. Um, but what about the mega backdoor Roth 401k? All right, a lot of people talk about this strategy. I love it. Again, I've got a video just on this strategy. This allows me to put up to $72,000 into the 401k a year. It's not just the $24,500, it's $72,000 per year that I could be getting in the 401k total. Now let's go back again. Let's say I already have eight in the 401k from step two, the matching out. I put in 4K. Actually, let's change the number here because you're not doing the mega backdoor on 100k. We have a we have an example here. Let's say you're making 200 grand. Okay. You put in $8,000 to get $8,000 of the match, right? Because I have to put in 4% to get the match. So that's $8,000. And the employer put in $8,000. So I've got $16,000 already in the 401k. Now I've got a total of $72,000 that I can get in here. So let's just take 16 minus 72. That is, I know we got other math here. Um, let's see, what do we got? This shouldn't be that hard. Um, that is 56. Okay. Yeah? You guys on your calculators? Okay, 56. All right. I needed some I need some assurances there. I don't know why. Okay. And I'm a tax lawyer, not a CPA, guys. Okay. All right. So I've got 56,000 left that can go into the 401k essentially. The easiest way to do it is just put that in as an after-tax contribution. You could do an employee contribution and max out the employee, and then you'll have the rest left as after tax. It really doesn't matter. You get there the same way. The bottom line is the IRS says you can't get more than 72K in a 401k. So if I had 16K already because I put my 8K in for the employee contribution, I got 8K as a match. That's 16. That means I got 56,000 left. You can drop that in as an after-tax employee contribution to your company 401k. There's studies I've seen that are approximately 60% of company 401k plans allow for after-tax employee contributions. Now, the important point of the Mega Backdoor Roth 401k is the plan must allow for the after-tax employee contribution. And if it does, you're going to make it. Again, you it can be the difference of what's already in your 401 after you put in money and you got any match in employer contributions. Whatever's left up to 72K is what you can put in as after tax. If you're over 50, you get to do the extra 8,000 too. But the critical part is you do not leave the money as after tax money in your 401k. That is stupid. After tax money has different tax rules, it has to be tracked separately. It's a total pain in the butt. What you want to do is you want to convert that. And most people that are in a company 401k are going to just roll it out to a Roth IRA. After tax money in a company 401k is not restricted until you leave retirement or hit 59 and a half. I can move money out of a 401k at the company I work for at any age, even if I'm still there, for after tax dollars. And I can roll that out to a Roth IRA at any time. A Roth IRA can receive after tax contributions and receive it directly into the Roth IRA as Roth IRA dollars. No Roth conversion required. I didn't take a deduction on the after-tax money. So there's no conversion needed to pick it back up. It's after tax money. That's what a Roth IRA is. But the nice thing about the Roth IRA is it's going to grow and come out tax-free like regular Roth IRA dollars. Now, if you have a solo 401k, and this was a question from Trey Perry, who said, if I'm in a solo 401k, do you recommend rolling it out to a Roth IRA? Not necessarily. If you have a solo 401k, or sorry, this was who asked this one? Oh, G S IRA C USA. G S Ira C USA asked this question. Um if you have a solo 401k and you're doing the mega backdoor Roth, you can just move that to the Roth 401k account, which would require an actual Roth conversions because we're going to convert the after-tax dollars in the 401k, which it's its own bucket, to Roth 401k dollars. If you're in your company 401k, we typically don't like that because in a company 401k, you have the menu of where you're limited to invest of the mutual funds or target aid funds that you have available. So I like rolling that out to a Roth IRA because now you have more investment options of what you could do with the money. In a solo K though, solo Ks are open architecture. You can invest it in whatever you want. You could buy an individual stock, you could do a target date fund, an index fund, you could buy a real estate deal, buy crypto, invest in a private company. The solo Ks, the ones we do, at least at directed, can be self-directed. So when we're talking solo K and a mega backdoor Roth, I just put it in the Roth 401k. That's what I do. But if you got the company 401k, you're typically rolling that out to a separate Roth IRA, whether that's a brokerage IRA, because you're doing stocks or index funds, or that is a self-directed IRA, like at our company directed IRA, because your IRA is investing in a private company, in a real estate deal, in a private fund, crypto, whatever investment you believe is the best asset. Okay, step eight: a kids' Roth IRA for college. I know what you're thinking, Roth IRA for kids. Hang with me here. Roth IRAs for kids are great for any of you small business owners or real estate investors whose kids truly work in your business. Okay. For example, I did kids' Roth IRAs for my oldest daughters. They would come to my office every week and literally clean it. I would do a couple hours of work. My kids clean the office 52 weeks a year. I paid them for that, but I didn't pay them. I mean, I actually put the money in their bank account because they had team checking accounts, and I would transfer that to their Roth IRA. And that was a contribution that they were putting into their Roth IRA because they had earned income from the business, which I was expensing, which was great, because I got a tax deduction. I was in a high tax bracket. They're in a zero income tax bracket because they're below the standard deduction. And but they did have earned income and were able to contribute that to a Roth IRA. So remember, kids can't have a Roth IRA unless they have earned income. Now, if you have kids that work in your business, or maybe they have a summer job or a part-time job, they're in high school. Um, even though they're spending their money from their summer job or their part-time job, um, you can still contribute to a Roth IRA for them with your own dollars. It just can't exceed the amount that they've earned through the year. Okay. So as long as the kid has earned income, they can actually contribute to a Roth IRA, where that's their own employment or they've worked for you in your business, or even on for any of you with a rental property. Um, okay, one thing I would say here, and I would just update this in the deck. Um modeling, qualifying income. That one is a little sus, okay? That's one that I don't, I'm like, let's edit that out of the deck actually. I see a lot of people that'll be like, Matt, um, I put my kids on my Instagram page for my business, and I paid them five grand and I put it in their Roth IRA. I'm like, that that's not reasonable. That's not a reasonable expense. Would you have really paid someone five grand to be on your Instagram page? Like, was that well, it was my kid, you know. I mean, I know I oh, okay. All right. I mean, I just think that's a tough one with the IRS. So careful on the modeling income for those trying to pay your kids. Um, make sure it's something that actually adds value that you have had to pay for, and you can't pay them more than what you have had to pay someone to do that actual job. Now, maybe your kid is an actual professional model and they're collecting their regular rate. If so, congratulations. They definitely need a Roth IRA. Let's get them going. Okay. Um, all right. Now here's the other thing. Remember, on the Roth IRA, and this is your kids, that's $7,500 going in every year. And let's say you do that for five years. Okay, let's say you start this when they're 15 and you help them with it and through their 20 until they're 20. All right. Um, let's say 7,500 bucks for five years. Oh, dang it. What is that? That's uh 37.5? Okay. Were you guys doing the math? Okay. Oh, it's it's on the diet. Oh, oh, is that the oh, it's the example. Great. I would usually do 10-year examples because I can do the math easier, but I'm like, but then that kid was working at age eight or 100. That wasn't good. Okay. All right. Thank you. So we got 37,500 in of contributions. Let's assume it grew, 15,000 with the growth. That 15K, they're gonna need to let ride. They can't touch it. And maybe you don't, they don't have to touch the 37,500 either. But I'm just saying they can access that $37,500 early if you needed to for college savings to pay for tuition or living expenses, vocational training, start a business, a wedding, uh buying their first home, whatever. They can pull this money out of that Roth IRA at any time, no tax, no penalty, just the growth is what's gonna have to wait until they're 59 and a half. But the fact that they have that account now, the compounding they're gonna have over the next 45 years, excuse me, until they hit 65 is massive. This will be a multimillion dollar Roth IRA, even if they don't put one more cent into it. They just let this money stay invested and grow.

unknown 34:43

All right.

SPEAKER_00 34:43

Now let's say you're like, Matt, I my kids don't have a job. I don't have a small business to pay them out of, or I do have a business and there's nothing they can do legitimately. What else can I do? Well, you can do the Trump account. This is brand new. Cutting edge. Starting July 4th, 2026, right around the corner here. Trump accounts are rolling out and will be official. This was part of tax legislation last year, the one big beautiful bill. You can put $5,000 a year into a Trump account for your kids. You could put it for your grandkids too, doesn't matter. But each child under age 18 can have $5,000 a year put into a Trump account. This is invested in US companies in the stock market. This is going to be done through actually, Robinhood is partnered on the first version of this through the Treasury Department. You can go to trumpaccounts.gov to learn more. That's where you actually set up the account. But this is basically index funds, low-cost index funds. Think of like the S P 500 of where the money can be invested. You can't self-direct it, you can't do a real estate deal or a private company or private fund, but you can invest it in index funds and domestic stocks in the US economy. Now, this money is gonna grow. It compounds, which is the great part of it. No taxes. But you didn't get a deduction to put in the five grand. One thing I don't like about Trump accounts is I don't put I don't get a deduction to put the five grand in every year, is it grows and invests, I don't pay tax. I like that. But when I pull the money out, I have to pay tax on the way out. That's not great. And a way around that though, and what we like to do in the strategy is when the when the child's account, when the child reaches age 18, their Trump account turns into a traditional IRA. Okay, that's just in the tax code, that's what it turns into. Once they hit age 18 that year, it's a traditional IRA. But I don't want that money coming out as a traditional IRA. I'd rather have that be Roth dollars. So let's do a Roth conversion. When your kids are in their low income years, between 18 and 25, or in the even in their 20s in general, they're gonna be in their lowest incoming years they're gonna have in their whole lifetime. Let's convert that Trump account, which is now a traditional IRA because they're 18, over to Roth dollars. Maybe we chunk it over a few years. Maybe by the time they hit age 18, the account's got 75 grand in it, and I convert 25 grand each year. They're gonna be at a zero to maximum 20% tax bracket, which will be the lowest tax bracket they're likely to be in their lifetime. So it's a great time to convert, get the money to Roth. Now, at a young age, they've got a Roth account with a large balance, 75 grand in it. That's a large balance for someone that young that's gonna grow and compound over time. I've got videos on the Trump account going into detail on that. So make sure you check out that video and particularly this Roth conversion strategy. The Trump account on its own, to me, is not that exciting until the IRS issued guidance on Trump accounts clarifying that it turns into a traditional IRA at H18, which allow which can be converted to Roth. And by the way, the amount you convert to Roth, what's taxable on the Roth conversion is only the investment growth. The original contributions they consider basis in the Trump account, and you don't pay tax on that amount. So that $5,000 I put in every year, um, that is not taxable to convert to Roth because I never took a deduction. It's only the investment growth that will be taxable when I convert it over to Roth. Now there's another kicker on this. If you had a child between years 25 and 2028, I believe, is that four-year window, you get an extra $1,000 that the government is just giving you for free. One time. Any child born between 2025 and 2028. Let's clarify the years there. Do we have that in the slides? That's the free thousand bucks you get to set up a Trump account. Even if you're not going to put five grand into it, everybody should be claiming that it's a free thousand bucks your kid will get as a head start that'll be invested for them in an account in their name, and you can and you will pay zero for that. That'll be free money from the government. All right, education savings accounts. There's a lot of different accounts here. There's 529s we'll talk about here in a sec, but let's just focus on the ESA educational savings account. You can put $2,000 a year into this. You can invest it in any asset, and it grows and comes out tax-free for qualifying educational expenses. This could be room and board, this could be tuition. We've seen clients self-direct Coverdale ESAs into real estate deals. I've seen clients tuition at Ivy League schools paid from these ESAs to community colleges, all over the map here. Okay. And but these ESAs can be invested. When we get to the 529 here, they're invested, but your investment options are restricted into state-managed funds that, for whatever reason, have the worst investment performance of any other category of funds you will ever find. And these are supposed to be the 529 plans we're so excited about to help offset the cost of education for our kids. They just happen to have the most ridiculous and crappy returns you will find in the entire investment market. A Coverdale, on the other hand, sorry, a little opinionated there. A Coverdale, on the other hand, I have investment choices. I can only put 2,000 in, that kind of sucks. But I have better investment options, even if it's like just the SP 500 index fund. I can't even buy through that with the 529. Okay. I have to invest in these like state-approved type funds. So an ESA, you got more investment options. I could put it all into one stock. I could put it all into Tesla. I could put it on the SP 500. I could put it into crypto. I could put it into a private asset. Um, all those are the private asset stuff, is what we do at directed IRA, of course. So consider the SA if you want to have more control of the investment, but just know only two grand on how much you can put in. The 529. Now, the 529, I can put way more money in. If you're married, you can be putting $38,000 a year in per child. And there's even ways you can superfund this to put more money in by taking a number of years of contributions. So just know if you have a large lump sum of money and you want to just get it into the 529, there are ways you can actually contribute in one year that they call it like superfunding that takes up a few years of contribution opportunity. But otherwise, the standard contribution amount for a married couple, you'd be able to both put in 19 grand for a total of 19, or excuse me, for a total of 38. If you're single, you can put in 19,000. And again, restrictions on what you can invest, but it also comes out tax-free for college education savings. Now, the Coverdell and the 529, you do not get a tax deduction to put the money in. It comes out tax-free, but you don't get a tax deduction. The only account where you get a tax deduction to put the money in, and it comes out tax-free, is the HSA. Okay. Traditional, tax deduction on the way in, taxes on the way out. Roth, taxes on the way in, no tax deduction, but no tax on the way out. Coverdale in 529, no taxes on the way out for education, qualifying expenses, but I didn't get a tax deduction on the way in. Okay. So just know that the tax perks are vary between all these different account types. Remember, this guide in the deck, which has the details, make sure you sign up, get the download the guide below. You'll be on our newsletter and you'll get um we're gonna send out all a workbook that'll have all the deck and additional resources. So just know that'll be coming out to you guys shortly. Okay, step 12. We're gonna make it. We're gonna make it. Step 12. I'm having a good time though. I don't know. Are you guys having a good time? Let me know in the chat. Hopefully, you're learning something. Um, all right. Taxable brokerage account. I'm finally to the taxable brokerage account. Now you might not have kids, so you're like, I skipped all the kids stuff, Matt. Or you might be like, my kids ain't going to college. I don't believe in it, or whatever. My kids just not college material. Okay, I don't know. You can skip those. Okay. Me personally, I just wasn't like, I was like, I'm gonna make my kids get scholarships and I'll otherwise figure it out. And that's what might work. It actually worked for me. But a lot of people, well, frankly, a lot of people, this is really common. In fact, we had an employee at directed IRA, used to be a financial advisor before working for us, and he was trained when talking to people that it's are new to investing, that parents of children are more likely to establish a 529 for their kids than they are a Roth IRA for themselves. So start with a 529 because that draws on their emotion more, and they are more likely to establish that account and start investing for their kids' success than for their own freaking retirement. Okay. I don't believe in that. You might be that type of person, and I'm just saying that's an order of when to do it. If you really want to save for your kids' college, which is a good thing. I'm not saying don't do that. I'm just saying that's not what I did, and that wasn't my way of approaching approaching that. But you have to take care of yourself first. Okay. Put on your own mask first. Make sure that your future is taken care of. Otherwise, your kids will have to be taken care of you because you're going to be broke because you had a big 529 for them, so they didn't have to pay to college. But then you're going to be broke and your kids are going to have to be bailing you out later. All right. And you do not want to be in that situation. That is stressful. I've seen people in that situation. It's not good. They feel very dependent on their children, which is not a position you want to be in, even when your children are adults, or maybe especially when they're adults. Okay. Have a little independence in your older years. You should not have to financially rely on your children. Take care of yourself first. After that is when we're getting to putting money aside for our kids. All right. Now we're at taxable brokerage account. Again, it's debatable. You could have done this earlier on. The thing about the taxable brokerage account is it's more midterm money, right? It's investing. It's not short-term money where I'm going to need it quick. I'm not putting in a brokerage account if I need it next month, but it's also not, you can't touch it till you're 59 and a half. Okay. Brokerage account can be a great place to start investing money, especially if you've maximized your tax advantage accounts, putting money into a brokerage account to buy whether it's just the index fund, the SP 500, keeping it simple. Many advisors do that. The Peter Maluks, the Tony Robbins of the world, uh, lots of people, Warren Buffett, are like, don't overthink it. Just go buy the SP 500 or other index or other similar index funds. Um again, you could have different theories. You could be a wizard of the stock market, and maybe you're buying all the right stuff. Uh, but the point here is the market in general goes up over time. We're trying to invest for the long haul. It might not be till 59 and a half, and maybe this is something you access at 59 and a half, but it is something that we can draw on earlier. There's no penalty to get it earlier. There will be taxes because you have to sell assets, right? And you might have a long-term capital gain if you've held it for a year, which is 20% federal max rate. So, but I like it as a midterm savings vehicle, midterm wealth that also can turn into a big tool you can use later on in retirement because you've built up that asset that is invested and grown over time. Just know as you're getting dividends and reinvesting or as you're doing trades and repositioning your portfolio, you will have taxes, and that does eat into the returns a little bit. Um, so the tax-advantaged accounts, if you don't need to touch it and it's just for 59 and a half, will get you more money at the end of the day than a taxable brokerage account because there's no taxes eating up into the retirement account, but it does eat a little bit into the returns on the brokerage account, even if you're just holding, because you'll have some dividend income. Um, so you'll have a little bit of that. And of course, you'll have the capital gain when you sell at some point to access that money. Now, there's other strategies you can take loans against the portfolio, there's the buy, borrow, die strategy. I've got a new video coming out on that. You'll see. I've got an old one on it too. It's an oldie but a goodie. So um think of the taxable brokerage account.

SPEAKER_01 47:00

Classic.

SPEAKER_00 47:01

Yeah. All right. I don't know what's gotten into me today. Okay. Rental properties.

SPEAKER_01 47:09

I've been doing the finale.

SPEAKER_00 47:11

I've been doing, I've been doing way too much video today. I am like kind of delirious. I don't know. Okay, step 13, rental properties. Okay. Again, I might you could put this ahead of brokerage account. This could be before mega backdoor stuff. Um, and maybe you're even self-directing your Roth IRA or your solo 401k for any of you self-employed, and your investment asset is rental properties. Okay. But think about it a little later. All right, let's get some of that easy stuff off the table here. Um, but rental properties are a very proven wealth-building strategy. Now, the real estate market's been on a roller coaster over the last three to four years, with interest rates being really low and then spiking super high. Um, but when we think of rental portfolios, and I've got a rental portfolio when I've seen it with my clients over the years as a business and tax lawyer, helping clients grow and build well, setting up estate plans, I realized a couple things. Wealthy people had a lot of real estate, business interests, retirement accounts, and stock portfolios. Those were the things that we would ask for, and that and that they were always the things that were filled in with large amounts that were like, oh, you have a lot of money. It's either in one or four of those or a combination of all those things. There's been more millionaires made from real estate than any other asset class. So we've got to keep put rental properties here on the list. Now it might be harder right now to cash flow rental properties, excuse me, because of where the pricing has gone, homes have gotten expensive and interest rates are higher than they've traditionally been, um, or at least over the last 10 to 15 years. So it's a little harder to cash flow rental property today than it might have been five years ago. But there's still opportunities to buy, and there's definitely great markets. I'm even buying more real estate myself. So uh one tip though, this is just one strategy. Even if you're not like, man, I don't want to go search rental properties. One thing I like to do, and it is three of my current rental properties, which are all multi-million dollar properties, they're not small little single-family rentals. I mean, they're single family, but they're nice properties. Three of them are former homes that I used to live in that was a personal residence. And I have a strategy. I don't sell assets. If I accumulated a property that's a good property, if I got it at a great rate in terms of a mortgage rate where I refinanced it down when rates were low, why would I sell that asset if I can rent that property out and cash flow it, cover the expenses, capture the appreciation? That's a great way to grow and build wealth. Now I know a lot of people think, but Matt, I want to sell that property because I've got a capital gain in it and I'll get no tax on the gain. I know that's tempting. We want to sell that. Maybe it's gone up 200 or 300 grand, and there's no tax when you sell your home up to 250 single, 500,000 married. There's a sell of home exemption. You might want to sell it and get the equity out. But I'm just saying, if you don't have to, don't do it. Maybe you want to move to another location, and if you can afford the new home or get to the other location without having to sell your existing one, it can be a great strategy again to continue to build assets, keep assets that you've already acquired if you have a good debt on it, and in your market, where that is the rental income will cash flow the property because now I got someone else paying down the mortgage. I may have been in the property five years already. So I'm I'm better into the amortization schedule where more of my payment on the mortgage is going to pay down principal as opposed to interest. So I like that strategy. It's been one that's worked for me. I've also, frankly, learned it from a lot of my clients over the years. So if you don't have to sell your home when you move out of it and you're upgrading or you're moving to a new new location, school district, city for whatever reason, maybe keep that old one if it makes sense in your specific situation. That's kind of the easy way to do it. Um uh for any of you. And this is just thinking over your lifetime. Now, you might be someone that's like, well, Matt, my my real estate market sucks. Okay, I get it. Sell that property, use that money from the game to go buy a property in the market that's better, that would be a better investment property than the market where your home's at. You that's a great uh way to think about it, too. All right, step 14 here alternative assets. We love alternative assets. I have a conference, the alt asset summit, alt assetsummit.com, by the way. We had a great um uh conference last year, and our new one is gonna be in Southern California, October 22nd, 23rd. 22nd, 23rd. Thank you very much. Um, so get signed up for that. Altassetsummit.com. Are tickets discounted right now? Are they early bird still or no?

SPEAKER_01 51:50

Um, we actually still have early bird.

SPEAKER_00 51:52

Okay, it's still early bird on the website, so get over there. You don't want to miss it. We've sold that out. Our last one, we had great live attendance at the one in Phoenix last year. We're going to Orange County, California. Um, great location for this. It's at the West end there. Um, so we'd love to see you there at the Alt Asset Summit. But at that summit, and at this stage here, once you've started, you thought about rental real estate. You know, we've gone through just some of the retirement accounts, we've paid down debt. I'm starting to think about alternative assets. Now, these could be rental property we just talked about. Maybe it's a fund of rental real estate. Remember, it's maybe it's buying a small business or investing in a private equity fund. Maybe I'm doing private lending secured on real estate, investing in oil and gas. I'm buying crypto or precious metals. Okay. And as you're thinking about these assets, just know you don't have to own them personally. Your IRA can own them. Okay. That's what our company directed IRA does. Your IRA can own a private asset. It doesn't just have to buy stuff on the stock market. It can, but that's not what your IRA is limited to. It's only limited to that if it's at a brokerage company and brokerage IRAs limit you to brokerage product. But if you have a self-directed IRA, what we do at our company direct IRA, you can invest in all these alternative assets. But the reason I have it later on here in the list is not to give you a pitch on directed IRA, but it was a great time for it, you know. So I mean, I, you know, whatever. Uh that's what we're doing here, guys. Yeah. Um, is I don't want you to start here. I think a lot of people are like, they don't even have an emergency savings account. They haven't been maxing out their 401k, they haven't paid off their high interest debt, and they're so excited to invest in cryptocurrency or to buy precious metals or to start a small business or to buy a small business. And even if they're doing creative strategies to acquire these things, they don't really have a solid financial situation. Any distress that can happen in any of these ventures can be very stressful. So this is something we layer on later. All right. This is not something, this is the very first thing you get into. And I see that, particularly with a lot of people in their 20s. They're so excited to invest in these cool assets. And I get it. I love them. They're cool, they're exciting, they're fun to learn. It's it's I'm more interested in investing in this stuff than I am the stock market. But let's learn a little bit first. Let's get some foundational stuff done. Let's get our financial house in order, and then let's come over and determine a right amount to allocate to these types of assets. All right, step 15. We're at the end of the show here. Step 15 is now we're talking about paying off your low interest debt. I don't want you focused on low interest debt. Your mortgage that's in single-digit rates, let's say below 8, 7%. Maybe this is a uh student loan that you have. I mean, if this is let's say below 7%, I would not focus on paying this down. Start investing. You can invest your money, particularly if this debt is against an asset like a home. Now let's refinance that when we get an opportunity if rates are lower. You could get six and a half right now, let's say. But maybe when rates get down to six or five and a half at some point, if that happens, you can you can refinance that down. But let's keep that asset. I know again, the Dave Ramsey's of the world think all debt is evil. Let's pay off debt, even low interest debt. I think that's foolish. If I can make a better return on the money by investing it, why would I pay off low interest debt? If I have mortgages at 3%, why would I focus on paying that off when I can make a pretty easy investment? I mean, you can put money in a CD at 4% at a bank. All right. Why I mean there's a lot of investments you can you can expect over time a seven to 10% return. All right. Now you might not get it every year, and then the stock market would be a classic example of that. But over time, it can return that. So I'd rather invest that, get greater growth on the investment returns. And that investment returns can pay for this cost of debt that I have on other assets, plus get me ahead financially. Because the goal here is we're making financial decisions that keep more money in our pocket and help us build wealth faster. Making a mistake on some of this stuff is going to take you longer to build wealth. If I'm paying off a mortgage at 4%, that's gonna set me back. I could have otherwise used that capital to maybe put get an investment return of 8%. But now I took that $100,000 to pay off this mortgage that I had left at 4%. That seems foolish to me. So that's why it's at the end here. Don't worry about paying off low interest debt. If you've accumulated significant financial assets, you've gotten already here to step 15, and you're like, Matt, it just I want the satisfaction and the peace of mind of paying off all of my debt, even my low interest debt, fine, do that. It's probably a bad financial decision. Your money could otherwise be allocated to grow and build you more wealth. But if it makes you feel better, you can make bad decisions now because you're at step 15. Making bad decisions at step one, two, and three, you will stay at step one, two, and three forever. Okay. But here, it's okay. All right, do that stuff. That's what you're into. It'll give you that peace of mind. But frankly, if you've gotten this far and you're at step 15, you probably know better. Uh so but you know, had to be said, a lot of people still ask this question Matt, I'm financially secure. Should I still pay off my low interest debt? Or some people get the Dave Ramsey fear of God put into them and they're like, should I pay off my 3.5% mortgage or should I invest? And Dave Ramsey's like, pay off your mortgage because debt is of the devil. So, all right, and I love Dave Ramsey. If you're listening, Dave, thanks for all your great work. Uh I don't know why I think that's so funny. I'm just, I'm just like, did you guys put something on my drink? What's going on?

unknown 58:01

No.

SPEAKER_00 58:02

All right. Uh, it's been one of those days, guys. Uh, all right, remember, you can download this full guide. I've got a guide walking you through all the different steps and the ideal order to do this stuff. Click the link below. You can hit that QR code as well. Also, you're gonna get on our news, my newsletter for Matt Sorensen. And make sure you're checking your email next week because we'll get out a the series on all eight, along with the associated slide deck and resources and materials to help you grow and build your wealth. Make sure you are subscribed to the channel though. If you are still listening right now, I went for 56 minutes. If you're still listening, I think you listened, you enjoyed something, or you really have nothing else to do, or you're hate watching, I don't know. But give me a subscribe, all right? Just because just you won't regret it, all right. And uh turn on notifications so you don't miss future videos. Remember, we go live every Thursday at four o'clock Pacific time. Love to see you next week. Thanks everyone for tuning in. See you next time.