Roth IRA vs Roth 401(K)...Where Should You Put Your Money?

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In Part 2 of the Roth IRA Mastery Course, I break down the key differences between a Roth IRA and a Roth 401(k) so you can decide where to put your money for maximum long-term, tax-free wealth. We cover contribution limits, the core tax rules that make Roth accounts the most powerful retirement vehicle available, and the critical differences in withdrawal flexibility between the two accounts. We also walk through income limits on Roth IRA contributions, the backdoor Roth IRA strategy for high earners, and how to use both a Roth 401(k) and a Roth IRA at the same time to maximize every tax-free dollar you can legally protect.

One of the most underutilized strategies we cover is self-directing your Roth account — instead of being limited to stocks, bonds, and mutual funds, you can invest your Roth dollars into real estate, private companies, private equity, and crypto. An IRA can invest in these alternative assets as long as it is held at a custodian like Directed IRA.

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Transcript

SPEAKER_01 0:14

Welcome everyone. It's Wealth Office Hours Live. Excited to be with you today talking about Roth maxing. That's right. How you can put more money in your Roth accounts. We want to max those out. This is the one account type the government has incentivized us to save in and told you. And it promised you. It's in the law. But everything you make in this account, you don't have to pay taxes on. And when you pull it out later in retirement, after age 59 and a half, zero taxes as well. In my mind, this is the first account you should be putting money into as you're thinking about saving and investing. Do not skip this one. This is huge. We want to be investing in it and taking advantage of it. Now we're going to be talking about the Roth IRA and the Roth 401k. This is season two of Wealth Office Hours. Um, episode one of season two was just about the Roth IRA. Today I'm going to contrast the Roth IRA versus the Roth 401k. This is episode two, season two, I guess. And um, we're gonna have an episode three right after this, which is gonna be advanced Roth strategies. So season two is a three-episode series. Season one was more about wealth building in general. Go back and watch it. It's on the YouTube channel. Talked about all these things about wealth building, tax strategies, legal strategies, entity structuring, real estate, investing, retirement accounts, brokerage accounts. We kind of hit all of the things from a big picture, but we're drilling down right now. And this season two is all about the Roth. So let's dive into Roth IRA versus Roth 401k. And let's talk about six areas. I'm gonna go into six different areas on the Roth IRA versus Roth 401k. We're gonna talk about how do you get the money in. We're next gonna talk about the tax rules. And there's a lot of stuff in here, many people do not know. I happen to be a tax lawyer, run a big company called Directed IRA, where we have 25,000 retirement accounts, the most common of which is a Roth IRA. So we're gonna break down some of the cool things you can do with it that you probably aren't even thinking about. Third, we're gonna talk about investment options. How can you invest these accounts? Fourth, we're gonna go over the differences between the Roth IRA and Roth 401k. And then we're gonna be going over getting the money out of these accounts. How do I access this money at retirement or earlier? And then we're gonna go over how do I use both of these accounts? Can I do the Roth IRA and the Roth 401k together? How does that work? So we got a lot to cover today. Um, this is really substantive, a lot of great info, in my humble opinion. Um, you'll be the judge by the end of this. Uh, but we have a deck. And so with all of this info, I'm gonna be dumping on you. We do have a deck. It's in the description in the link below, right? Or I look like a dummy and I'm just doing this. Okay, it's in the description. There's a link in there. You can, I think, put your email in and you'll get the uh you'll get the deck. Last but not least, today's Wealth Office Hours episode is brought to you by the Alt Asset Summit. The Alt Asset Summit is going to be October 22nd and 23rd. This is a live event hosted by Directed IRA. There's a number of other sponsors, but my company, Directed IRA, hosts this every year. It's two days hearing from other experts in different investment categories, from real estate to private equity to venture to precious metals to crypto, some of the tax and legal strategy associated with it. There'll be CPAs, attorneys, even financial advisors speaking about this. So it's really two days condensed. Meet other like-minded investors learning about alternative assets specifically. Um, it'll also be streamed virtually, but we'd love to see you there live. We had 250, 300 people, I think 300 plus at the last one that we did in Phoenix. I think we'll have more at this one coming up again, October 22nd, 23rd, Costa Mesa, California. That's Orange County area in Southern California. Um catch the virtual stream if you can't make it out there, but we'd love to see you there live as well. And do we have a discount code we want to throw out yet? It's just code client. Oh, just code client. Okay. Don't share that with anyone. Um, and all right, I got the go from Jordan. So all right, let's dig back into it and talk about the Roth IRA, Roth 401k, and getting the money in. So Roth IRAs, 401ks, Roth 401ks, the government only lets you put so much money into these accounts every year. Now you can invest it and grow it as much as you want, but the government says, hey, this account and retirement accounts in general, these are like tax advantaged. So we're not going to just let you dump as much money in there and then go invest it. We're only going to let you put so much money in every year. So, because of that limitation, you want to be consistent about getting the money in and starting as early as possible, because that's how you start compounding and growing this. And remember, in a Roth account, Roth IRA or Roth 401k, that money's growing. We're investing it and you pay no taxes on it. And then it comes out entirely tax-free later in retirement. Now, in a Roth account, when I put money in and for a Roth IRA for 2026, it's $7,500 a year. When I put that $7,500 a year into the Roth IRA, I do not get a tax deduction. Traditional IRAs you get tax deduction or traditional 401ks, you get tax deductions when you put the money in, where you get to reduce your taxable income by $7,500. And the the catch with the traditional, though, is you don't pay taxes as you grow it, but when you pull it out and that money's grown and is invested, you're paying taxes as you're distributing the money later in retirement. So the Roth is frankly the exact opposite. You put the $7,500 in, no tax deduction. But now the growth and what's coming out later in retirement, you pay zero taxes on. So the amount for 2026 for Roth IRAs is $7,500. If you are $50 or older, you get an additional $1,100 you can put in for $8,600. So I can put that in every year, and we're gonna go. What if you're a high income earner? We'll talk about that here in a second. Now, if we contrast this with a 401k, I want to break down two different 401k types. There's the corporate 401k person where you're an employee working for a company that has a 401k. There's another 401k user that's the self-employed 401k user. And this is someone who will use what's called a solo 401. So let's talk about the most common, which is I work at a corporate job. Okay, I'm Jim Halpert. I work at Dunder Mifflin. I have the Dunder Mifflin 401k. All right. So in that scenario, with a 401k at an employer where you work, you can put in $24,500 a year as the employee. All right. If you're 50 or older, you can put $32,500. If you're age 60 to 63, there's a new kicker for years 25 to 28, where you can actually put 35,750. Um, but everybody can at least put in, regardless of your age, $24,500 in Roth 401k dollars. Now, this is coming out of your paycheck. Most 401k providers have a match, we'll talk about here in a second. Um, but and and you want to get that. So if I'm working at a company that offers a 401k, and let's say I make 200 grand a year, and they say, well, we match 4% of your salary dollar for dollar. So if you put in 4% of your salary, we'll put in 4% of your salary into the 401k. So 4% of my salary if I'm making a hundred, 200 grand, is eight, eight thousand dollars. And so they're saying, if you put in eight grand, we'll put in eight grand. So that's eight thousand dollars as an employee contribution. That goes against your $24,500. And then they're dropping in $8,000 as a match, which is an employer contribution. That doesn't eat into your $245. That's the company putting money in. All right. Now they can put in money up to the total of your $0.1k being up to $72,000. So they've got another $40,000 in change they could put in in matches. Most corporate 401ks never do that. I would say, and say most, I'd say all. I've never ran into a corporate 401k that maxes out the employer contribution for their employees. Um so, but but the the important point here is if you have a match from your employer, that does not count against the dollars you can put in as an employee. And remember, 245 is the amount you can put in. Now we're gonna get to advanced strategies in the episode three here that we'll get into the mega backdoor Roth 401k, where you can put more in as an employee. And I'll dig into that strategy in the next episode. But for now, let's just leave it there. You can put 245 in. Again, if you're over 50 or over in that year's 60 to 63, you can put more of those amounts are on the deck. Now let's contrast this to someone self-employed. If I'm self-employed, I can have something called a solo 401k. This is for people who are self-employed with no employees. We see a lot of consultants, real estate agents, brokers, just people who have a small business, maybe even, or even a side hustle. They might even have a 401k a day job, but they have a side hustle of their own business where they have a solo 401k. So the solo 401k is meant for a self-employed person that doesn't have other third-party employees. They might have business partners or family that works in the business. They don't have other third-party employees. So the IRS lets them have something called a solo 401k. It's just kind of like a 401 for yourself. And in the solo 401k, the reason I talk about it separately than the corporate 401k is even though you can put in still $24,500 as an employee that can be Roth dollars, the rest of the money you put into the 401k is called an employer contribution, but it's still coming out of your pocket. It's really just coming out of the business account, right? It's still coming from you because you're the owner of the business if you're someone who's self-employed. So in the solo 401k for 2026, you could be putting in a maximum of $72,000. Because you're the employee and the employer, you could decide to max the whole thing out and max out employee contributions, and you can max out the employer contributions because you're such a good employee. Why not? That's how you can get to $72,000 a year in a solo $0.1k. Now, technically, could I do $72K in my corporate 401k where I work? Yeah, but you don't get to decide the employer contributions. You could max out 245 as an employee. That's your choice. Those are come, that's coming off of your paycheck. But is my employer going to put the rest in to get me to 72? Probably not. Again, we'll get to the backdoor Roth 401k, the mega backdoor, um, in the next episode. There are some workarounds there if you want to do more. Um, but for now, just contrast, you might be the self-employed person with the solo K. You might be the person with the corporate 401k, or you might be that person that actually has this business on the side and you still have a corporate 401k where you work. So those are the dollars that can get in. The Roth IRA is less, but it's simpler because any individual can have an IRA. The 401k I can put more in, but it is through my employer, unless I'm that self-employed person with the solo 401k. All right. So now we're getting the money in every year. Okay, we're putting the money in. We know the tax rules here, and we just have a little breakdown here on the slides of remember, these accounts are all growing tax-free. The money can be invested as I'm making money on this, whether I'm investing the IRA in stocks or an index fund or real estate or a private company. Like the gains are building up on the retirement account. It's not going on my 1040. All right. Um, so both accounts, the Roth 401k and the Roth IRA, have that same tax-free nature. No taxes as you're investing it, no taxes on the way out once you get to 59 and a half. The Roth IRA, though, has some flexibility in how I can get the money out, though. And this is one of the unique rules for Roth IRAs that I love, which is whatever contributions you put into a Roth IRA, you can take out with no tax or penalty at any time. So let's say I put $7,500 into the Roth IRA for 10 years for $75,000 of contributions. And let's say over that 10-year window, I had investment returns of $50,000, so the account's worth $125,000. Well, let's say I'm age 45 or 50, and I'm like, I want to take out that $75,000 I put in. You can take it out now. The contributions you put into a Roth IRA can always come out tax and penalty free at any time. It is only the earnings and growth, in this example, that 50 grand, that you would have to wait until you're 59 and a half to pull out tax and penalty free. So little unique rule there with the Roth IRA that I can access those dollars earlier. A Roth 401k, you cannot do that. All right. Once those contributions are in, tax and penalty to get it out early. So just know that's a very unique rule just for the Roth IRA, where your contributions come out, can come out early, tax and penalty free. By the way, just a note, for those of you that are high income earners doing the backdoor Roth IRA, that strategy kind of works, but you have a five-year clock on each contribution of when you put it in to when you can get it out. Um we'll cover that in the next episode on advanced Roth strategies. All right, Roth 401k withdrawals. Basically, when I pull out with the Roth 401k withdrawals early, you have to take them out pro rata. You don't get to say these are contributions. I'll take the contributions first because there's no tax or penalty. These are the earnings. They just don't let you do that. That's why this uh early withdrawal strategy of contributions doesn't work with the Roth 401k. Um, okay, another rule on the tax side, you need to know. Um, and actually, we'll get to some withdrawals. There's something called a five-year rule. Let's we'll we'll dig into that um later here in a second. Okay, so we got the money in. We all know the tax, the basic tax rules on this grows and comes out tax-free. I can get the money out of the Roth IRA that I put in the contributions, penalty and tax-free at any age. Roth 401k, I can't do that. I'm gonna have penalty or tax to pull even the contributions out early. But let's, I got the money in. What are my options to invest those dollars? Most people are familiar with a Roth IRA or Roth 401k, investing in index funds or the stock market, even if you're buying individual stocks, or maybe it's a mutual fund, a target date fund in your 401k. A Roth IRA is gonna have much greater investment options, whether you have a brokerage IRA and you're buying individual stocks, or you're doing a self-directed IRA, which is what we do at our company, directed IRA. And I'm investing that IRA into real estate deals, I'm doing private lending, I'm buying crypto, I'm investing in a startup, in a private fund, in a venture capital deal. Like self-directed Roth IRAs is, I mean, it's what I do with my own account, and we and we have 25,000 plus accounts of clients that do this every day, is they're investing in these private assets with their Roth IRA. But Roth IRAs in general, because you're the individual owner, and that's the IRA part of the of the account, you know, is this isn't an individual account. You are the decision maker on how it's invested, and you can choose where to put the account. In IRA world, you decide do you want to use Merrill Lynch? Do you want to use directed IRA? Do you want TD Ameritrade? Do you want Robinhood? Okay, that's up to you. You're the decider and you determine how to invest the account in the IRA world. Once we get over to your corporate 401k and think of Jim Halpert at Dunder Mifflin and the Dunder Mifflin 401k, he doesn't have a say in what 401k company is being used. He has no say of what investment options he has. If he's an employee at Dunder Mifflin, he gets the Dunder Mifflin 401k. Dunder Mifflin uses Vanguard, he's going to use Vanguard. Dunder Mifflin makes you buy target date funds, he's gonna have to buy target date funds. Okay. So in the corporate 401k, where you're working, you're an employee. This is common, this is just how it is. Okay. It's not Dunder Mifflin's fault. Okay, it's just how it is in that space for the most part. Well, it is a little bit, but it's just how it is in the 401k space. Your investment options are what your employer decided or the advisors or companies that they engage to offer that 401k plan. All right. It's a menu, you can invest as long as something's on the menu. If we contrast that, though, with your solo 401k, because you're the business owner in the solo 401k, you can decide to self-direct it. You can let it be open architecture, whether that's individual stocks, self-directing, doing a real estate deal, a private fund, a private equity deal, whatever you want to do. It's up to you because you control what the investment options is in a solo 401k, just like you get to do in an IRA. But just know if you're someone that has that corporate 401k where you're an employee where you work, it's nice because you get the match and your employer's giving you that match, which is some free money. You always want to do that. Um, but you typically are gonna have limited investment options of target date funds, mutual funds, index funds, which isn't the end of the world. It's just they're not letting you invest in the best investment you can find. They're letting you invest in the best investment that's on their menu. All right. Um, so you just have to live with that. Okay. Uh all right, where are we at? I got investment options. Okay, differences. Shout out to Jared on the slides. These slides are great. Thank you. Uh all right. This needs a chart, okay? So we had to do a chart to break down the differences because there are a little nuances between them. There's a common theme again of growing and coming out tax-free, but there is some nuance here on it. So let's just hit a couple things. We've talked about some of them already. Um the employer match. You're not getting that in an IRA. You get it in a 401k. The contribution limits higher in a 401k than an IRA. Um, loans. You can't take a loan from the IRA to yourself. If you have a 401k, whether it's a solo 401k or a 401k at work, most 401ks, the corporate 401ks out there, allow these these loans. They don't have to, but most do. But there's something called a participant loan in the 401k world, where you can lend yourself half the balance of the 401k not to exceed 50 grand total. So if I have a $200,000 401k, I could get a total loan, max amount of $50K, because it's half the balance not to exceed $50,000. And that loan is something where you can basically get the money out of the 401k. Maybe you need it to buy a home, that you're starting a business, you're paying off high interest credit cards, financial emergency, medical, whatever it is. Okay, you can just access the money in your 401k and lend it to yourself. Now you have to pay it back at prime interest plus 2%, which is gonna put you around 7% ish, let's say. And you're paying that interest back plus the total loan amount you took from the 401k, it's going back to your 401k. All right, so that's just a mechanism that's kind of nice for a 401k that lets me get that money early if I need it. And but I get to put it back in the 401k later through this loan strategy, which I like because it gives me access, but it lets me get it back in there so I can let it keep compounding later. So if I'm 35 and I'm like, ah, I'm starting a small business or I'm buying a house or something, and I need that 50 grand, but I can catch back up in the next few years. I like that I can get that 50 grand back in. So for the next 20 years or whatever, I'm still building and investing growing for my retirement. That money can get back in and get compounding. Um so that's the participant loan that you can do in a corporate 401k. Most of them offer it, not all, but I'd say 95% plus due. And your solo 401k, you can use that loan option as well. Um, okay, one other thing that's unique in the IRA that doesn't apply to the 401ks is Roth IRAs have high income phase outs for standard contributions. So if you make more than $153,000 a year single or $242,000 a year married filing joint, you can't just put $7,500 into a Roth IRA every year. The IRS is like, these accounts grow and come out tax-free. We don't want the rich to use them. So if you're a high income earner over these limits, you can't put $7,500 a year in the front door into a Roth IRA. Now I'm going to get to the backdoor Roth IRA here in a second, but Roth 401k accounts don't care. They don't care your income limit. There's no income restriction. So you can be putting as much money in a Roth 401k every year as you want. You could be making millions of dollars a year. Doesn't matter. You can just do Roth contributions in the regular way as you're building and saving in a Roth 401k. So let's come back to the Roth IRA. Let's say you're someone who's over the income limits. What do you do? Well, you can do something called a backdoor Roth IRA. This is like the most commonly used tax loophole in the tax code, all right? And this is a this is a strategy where you essentially put Put $7,500 into a traditional IRA is what's called a non-deductible contribution. You put $7,500 in a traditional IRA and you don't take a tax deduction. And then you convert that $7,500 over to a Roth IRA. The reason this backdoor Roth IRA works is Congress at first, when they created this income restriction, they said, if you're over these income limits, you can't contribute to a Roth IRA, nor can you do a Roth conversion. But about 15 years ago, Congress changed the rules and said, actually, you can do a Roth conversion. You still can't put the contribution in the front door, but you can convert traditional dollars to Roth. Now, Congress did that because it was a way to raise revenue. They wanted people to convert traditional IRAs to Roth IRAs, high income earners, because they wanted to raise revenue now. Congress was greedy, and Roth Conversions created tax now. So they changed the rules on it. Well, that left this door open for the backdoor Roth IRA, whereby now I can just put $7,500 in a traditional IRA. I don't need a tax deduction for it. Who cares? Some of you might be, well, Matt, I'm high income and I have a 401k at work and I do a Roth IRA. I don't get a deduction to putting the money in. Who cares? Don't worry about it. Everyone can do $7,500 no matter what. Your income, you got a 401k at work, you can do $7,500 a year non-deductible in a traditional IRA. We're going to convert that to Roth dollars. When I convert non-deductible dollars from traditional to Roth, there's no tax on the conversion because I didn't take a deduction. All right. So that's the backdoor Roth IRA. You can do $7,500 a year. Again, it's three steps. You have a traditional IRA, you put $7,500 into it, and then you convert it over to Roth. Traditional IRA, $7,500 non-deductible contribution, converted to Roth. That's your backdoor Roth IRA. Now it's not that difficult to execute. If you have an advisor, they definitely know the strategies. And if they don't, you should fire them. Most CPAs that are smart and tax savvy understand this rule. A lot of IRA providers, even the Fidelities or Swabs of the World, have like a structure of this. We have a package just called a backdoor Roth IRA. And we'll dig into more of it because there are some mistakes people make and some traps on it, but we'll hit that in episode three. I just wanted to note if you're that high-income earner and you're looking at this chart saying, well, Matt, what about me? Can I do a Roth IRA? Yes, you're gonna do the backdoor Roth IRA. Make sure you're subscribed to the channel. So you'll get notified when we go live to talk about it in uh episode three. And I have some other videos on YouTube already on this. So okay. I think I'm good on differences, and I'm sure you're getting questions, Jordan. I'm gonna be ready. We have a bunch of okay. So we got this couple. So I'm gonna come to you guys in a second, keep throwing in questions. Um, do we have anything going on in the chat that I need to? I mean, who's gonna win the World Cup?

SPEAKER_00 24:57

I so no World Cup uh hot takes yet. No world cup hot, but we did get we did get a lot of uh from Nemo from Stormbreaker, they both got their diplomas. Okay, Stormbreaker has it hung up on his wall.

SPEAKER_01 25:10

I like that. So I like that.

SPEAKER_00 25:12

I mean, they take it seriously. Our best students are like top of the rung.

SPEAKER_01 25:16

I like that. Thank you. I, you know, uh if any of you didn't, you know, we sent up a number of diplomas out. Thanks to those that are on that got yours. Um, so if you watch all seven, eight, how many episodes was it? Eight episodes. All right, okay. Okay, eight episodes. If you watch all of them and we're it's an honor system and you let us know, we'll send you a diploma um for wealth office hours. Uh, you can put it up on your wall. They look pretty good. I thought they looked pretty good. Jared did a good job on them.

SPEAKER_00 25:47

Yeah, I mean, Stormbreaker, if you want to get a pick and let's just see what it looks like, yeah, we might post it. Is it you never know?

SPEAKER_01 25:53

Is maybe it's right next to his PhD degree. Yes, exactly. I don't know. I don't know. Exactly. Uh Harvard diploma. Yes. Yeah, you know, I maybe had to take down the Harvard diploma to put this one up just to, you know. Yeah. You know, there's only so much room. Um uh okay. Uh well, we had fun with it. And I appreciate you guys uh chiming out. Um all right, let's go to getting the money out. Um, the whole point of using the Roth account is that one day we want to get the money out. We want to live off of this sacrifice of this money we set aside that we saved and the time and effort we put into investing it and managing this. We want to pull this money out one day. Now, there is most of everyone's familiar with you don't get to pull money out of a retirement account until you're 59 and a half. There's another quirky rule for Roth IRAs and Roth 401ks called the five-year rule. And what the five-year rule is, let's just talk about it for IRAs, is it says, hey, you must have a Roth IRA for five years and be 59 and a half in order to get the earnings, the growth, and the gains out tax-free. So let's say you're someone that's 58, you've never had a Roth IRA before, and you start putting money into it and you got investment gains and growth. And now you're 62. You're like, well, I want to start pulling all this money out. I want to pull the contributions out and the gains. Can I do it? Nope. Because you haven't had a Roth IRA for five years. So you would have to wait until you're 63 in that example, in which case you would have had five years of having a Roth IRA and over age 59 and a half. Now, if you're someone that's saving earlier, this isn't gonna matter. Um, and and really that clock on a Roth IRA ticks the first day you have a Roth IRA. And it's not, and it's once you have had one Roth IRA for five years, you're good. Okay, you don't need to like every Roth IRA doesn't need to be in existence for five years. It's just you've had one Roth IRA for five years that qualifies you and qualifies all your Roth IRAs. So when you're 59 and a half, you can pull not only the contributions out, penalty and tax free, but also all of that earnings and growth. Um, also, one thing on the Roth IRA that's unique when you do hit 59 and a half, is you don't have to take the money out if you don't want to. Many people are familiar with um traditional IRAs or even traditional 401ks that have something called RMD, required minimum distributions. And that usually hits at age 73, and it says, Hey, you need to start pulling money out of this account. We gave you tax deductions on this traditional account, you invested it, but we need to get some tax revenue. So you need to pull the money out because traditional IRAs, they got to pay tax on the distributions. So traditional IRAs and 401ks have this RMD rule where they're forced to start pulling money out at age 73. Roth IRAs don't have it. So you don't even need to worry about it with the Roth IRA, and that's a huge benefit to the Roth IRA because you can keep investing it and compounding it under your schedule and your timeline. And also, I think the Roth IRA is the last account you touch in terms of your wealth building and all the assets you're going to use in retirement. Because I'm telling you, the best account you could leave your kids, the best inheritance someone could give you is a Roth IRA. Your kids could receive that as an inherited Roth IRA. They can continue investing it for another 10 years. Well, over 10 years, if they invested at a 7% rate of return, they can double the size of that account and it still comes out tax-free. So the Roth IRA is awesome. It's a great account to inherit. Remember, it gets to compound for another 10 years after you pass away, even, which makes it twice as valuable to your kids if they are smart about it and can you continue to invest it and grow it themselves. So um, so I love the Roth IRA. We don't we have no RMDs. I mean, obviously, draw on it if you need to. I mean, have a retirement you love and enjoy. I don't want you to be like, you know, cheap and don't just leave everything to your kids. But I'm just saying, if you don't need to, this is the last account to touch. All right, now Roth 401Ks, and this will apply to the corporate 401k or your solo 401k. There's a new rule that came into effect a couple years ago, which is Roth 401ks don't have RMD either. It used to be this weird rule that you know your Roth 401k, even though it was Roth dollars and the IRS collected no revenue when you pulled the money out because it wasn't taxable, you still had to do RMD. Well, Congress changed that in Secure 2.0 a couple years ago. So now Roth 401Ks have no RMD, just like Roth IRAs. Let's dig into using both. Um, I I don't want you to think, hey, this is Roth IRA versus Roth 401k. This is more Roth IRA and Roth 401K. All right, I do both. All right, I'm doing Roth 401k contributions into my company 401k every year. I actually self-direct mine and then I do Roth IRA contributions using the backdoor Roth IRA every year as well. And I'm compounding and building both of those accounts up because I want these two tax-free buckets, right? Because Congress only lets you put so much money in each bucket, I'm gonna use both buckets, both buckets, all right? I don't want to use either one. I want to drop as much money into each as I can to get that tax-free bucket of money that I can continue to invest and grow. So using both is good, but let's go through a little ordering here. I want you to think about this because everyone's a little different. You might be like, Matt, I'm the person who wants to drop as much money as possible, and so I'm just gonna go. But you might be like, Matt, I just I can kind of put five grand away a year. What should I do first? Well, let's think about this first. If you have a 401k at somewhere where you work where they do a match, you should go there first. Because if you have someone that offers you a match, we want you to do what we call matching out. It's free money. It's it's if they're doing a hundred percent return up to say 4%, they're doubling your money. If I make $100,000 a year and I put in four grand and they're gonna match 4% of my salary, they put in four grand because they're matching 4% dollar for dollar. I now have $8,000 in my 401k, but it was only $4,000 of my money. I have a hundred percent return on day one. It is very hard to find an investment that's gonna beat that. So start there, you could do a Roth 401k contribution, and the company can do a match of dollars as well. Now, when they do the match, there's a new rule where employer contributions can be Roth dollars, but most corporate 401ks are still doing the match on traditional dollars. So you want to look into that and be clear. Hey, HR 401k administrator, how is that match coming in? Can I have it be Roth dollars? Now, when the company does a corporate match of traditional dollars, it's not income to you, it's not taxable to you, right? The company takes an expense, but it just goes right into your into your traditional 401k bucket. If the company does a match of Roth 401k dollars, which you can elect for them to do in some many 401ks are starting to, you know, over time it's gonna get more common here, but this is still relatively new in law the last couple years. If the company matches Roth dollars, they're gonna send you a 1099. So in that example, if I if I put in 4 grand and the company put in 4 grand of Roth dollars, they're actually gonna send me a 1099 for 4,000 bucks. That goes into my taxable income because this is money that I basically made. All right. So a little new, but the match, just keep that in mind. If you do the match and you want Roth dollars on the match too, which I like, you will pay tax on that $4,000 coming in, but you don't pay tax on the traditional. But remember, if the company drops the match in of traditional dollars, that's gonna grow and come out, and I'm gonna be paying taxes on the way out. Okay, once I get the match on the 401k, then I want you to go to a Roth IRA. Don't put more money in the 401k because you have limited investment options. So now all the money going in the 401k is just your dollars. So there's no doubling of the money here or 100% return with the match. After you've got the match, get out. Now roll over to the Roth IRA where you can put in the 7,500 bucks a year. Again, if you're 50 year older, this is 8,600 bucks a year. And the reason I like going to the Roth IRA now is um, even though it's still your own dollars as well, I have greater investment options. If I want to do a brokerage IRA and pick individual stocks, or I want specific index funds or whatever, I'm not stuck to the 401k plan menu at my employer. Also, I might be someone who wants to self-direct. I might be wanting to invest my Roth IRA into a private fund, into a real estate deal, oil and gas, precious metals, crypto, all the stuff you can do like that we do every day at directed IRA with our self-directed Roth IRAs. So just you're gonna have greater investment options with the Roth IRA. And also they have pretty reasonable fees. Generally, on a corporate 401k, the average total fees in on a 401 is one and a half percent. You just don't see it. You're you're just getting nickeled and dimed everywhere, you just don't see it. So if you have a hundred grand in there, you're actually paying $1,500 a year for that account. So um I know the IRA fees are a lot of times more transparent. Um, and you can see those, but just keep that in mind. Um, I generally like the IRA because you have more control of investment options with it. Um, you're not stuck to the 401k, your 401k administrator, it's not locked up with there with your employment and all that. I get more freedom with the IRA. And then last, I'll just say I don't want you thinking of either or, think of both again. Um, and then when you leave that Roth 401k with that employer someday, if that happens, you can roll those dollars to the Roth IRA you already have. You will have satisfied the Roth IRA five-year role because you've already had a Roth IRA for five years. So um using both is great. I use both because it's a way I can just get more money in, right? There's only so much the IRS lets us put in of Roth dollars and have these tax-free buckets. So I want to use both buckets because I want to maximize how much tax-free growth I can get and how much tax-free income I can have in retirement. Now, if you're a solo K person, the dynamics could change a little bit here because you get no match. So I might bypass the Roth IRA if you're someone who wants to drop a lot of money in and just say, just do solo K and come back to Roth IRA later. If you're someone that's like, Matt, I just want to put five grand a year in, let's just do the Roth IRA. Even if you are self-employed, it's just simpler. We we can just start there. So everyone's situation is a little unique. So um just keep that in mind. Now remember the slide deck that I've been referencing here. Um, if you're new, there's a link in the description below where you can access and get an email of the slide deck. So go check it out there. We've got a lot of details in there. We have the chart there with the differences, and um, and then all the stuff I've been uh going through today on getting money in, tax rules, investment options, differences between Roth IRA versus Roth 401k, getting the money out, and then of course using both. All right. Enough, Matt. Or at least all Matt. It's time for your questions. So if you have some questions, and I think Jordan might have some queued up, let's fire them. We'll take live questions first. I think I have one, two, three, four, five, six, seven. I think I have about 10 questions in already that I was supposed to hit, but let's take live questions first.

SPEAKER_00 37:44

We got a lot, Jordan. Uh well, we've got the prepared questions, and then we do have some good questions here. Uh, and fun, fun with screen names. Um it's always fun on YouTube. I like it. Okay. I'm just glad you're trying to read them rather than. Yeah, using me. So so I'm sorry if I butcher this. Maylin 2360 asks, can I get a low-interest asset back loan from a regular Roth IRA, um, not a self-directed Roth IRA?

SPEAKER_01 38:12

No. You can't you can't get a loan off of your IRA assets to yourself. So I don't, I don't know if that's what the question is, but like you can have a brokerage account and you can say, hey, I want to get a loan against this brokerage account. I'm gonna go buy a house or I'm paying off high interest debt. And so you can use your brokerage account as collateral, but your IRA, you can't do that. You cannot use that as collateral for a loan you're taking to yourself, nor could your IRA lend you money. Like we have a lot of obviously with self-directed IRAs, if you had a self-directed Roth IRA directed IRA, you can lend your IRA and basically be a private lender with your IRA, but you can't lend yourself money. That's called a prohibited transaction. So sorry, it's a no-go.

SPEAKER_00 39:03

All right, we have another question from uh Narali105. Can I do a backdoor Roth IRA if my husband is if my husband and I are married filing separate?

SPEAKER_01 39:13

Ooh, yes, absolutely. Um, you're gonna be, and you would do that if you're exceeding the single rates, because if you're married filing separate, you're gonna be on the single rates. Your tax trend gets a little more complicated, but that's not gonna preclude the backdoor Roth IRA. So um absolutely. Don't worry about it.

SPEAKER_00 39:33

Do the backdoor Roth IRA. Okay. Um, and we have this kind of goes into prohibited transactions territory again with self-directed IRAs. Um, if if we own a family business, um, can we invest in it with our Roth IRA?

SPEAKER_01 39:49

Depends on the ownership of the family business. So um, as Jordan mentioned, there's something called the prohibited transaction rules. It's like four chapters. Is it four chapters, Jared? Okay. Four chapters in my book are just on prohibited transactions. I'm looking over here because my book's over there. Okay, we got some, we got books. Okay. Third edition just came out. All right. I talk about how to use a self-directed Roth diary. By the way, the audio book's coming out. Kudos to Jared because he did all the hard work on it. That's why I was asking because he's been in my book more than he probably wants to be. So four chapters on primitive transactions. What that rule is about is when you have an IRA, you can invest it into private deals. You can put it into a small business, a private equity fund, a real estate deal. But the IRS is like, but you can't just put it in any deal. We don't want your IRA investing in a business you personally own, or your spouse, or your parents, or your kids. We don't want your IRA, it can buy real estate, it could buy a rental, it could flip a property, but we don't want it buying property that you already personally own. So when you ask, can my IRA invest in a family business? My question is, who in the family owns that business? If you're like, oh, it's my brother's, cool, yeah, your IRA could invest in that. They're not what's called a disqualified person or prohibited party. Your IRA could invest in your brother, your sister's real estate deal, business, startup, big business, small business, doesn't matter. Your IRA could be a shareholder in that. Um, also, let's say it's like your uncle or cousins or other more distant family members. Totally cool. Your IRA could invest in that. But if 50% or more of that family business is owned by you, your spouse, your parents, or your kids, the business itself is prohibited and your IRA could not invest in that. So that's again the primitive transaction rules. We have podcast episodes on it on the directed IRA podcast. We have articles. We can even just probably drop the directed IRA primitive transaction guide and page in here. That's probably the quickest resource. So you might not want to dig into the book if you know. I don't know, maybe you do. It's 20 bucks, it's not that much, but it'll be coming out on audio too. So all right. Do we have another question? Uh let's hit some prepared questions. Okay, all right. Cool. There's some great ones here. Um this came in from Salsa Rican? Salsa Recon 3097. So you did not want to have to do this one. Um Jordan, you're gonna do that. That's like it's actually Salserican. Okay, sorry, geez, I'm not salsa. I don't know. You don't know, you know. Give me like a a dot, a period here, a dash, something. Okay. So I'm going with salsa recon 3097. Ask which one is more beneficial for low-income earners or retired persons? I would say the Roth IRA. It's the easiest. 7,500 bucks a year into it. If you're 50 year older, 8,600 bucks a year. I like that. You don't worry about your corporate 401k. I get, I guess I would say if you do have a if you're still working where at a corporate 401k, you can be putting money into that if they have the match. So I'd actually go there first because you've got you're gonna get some free money from your employer. Um, but if you don't have that, a corporate 401k where you work, or um or maybe you do have a 401k where you work, but they don't have a match, I would just do the Roth IRA. Now, you technically, when you ask that question about retired persons, you can contribute to a Roth IRA at any age. There used to be a rule that said you can't contribute to a Roth IRA after age 72. That rule went out the window. Okay, uh you can contribute to a Roth IRA at any age as long as you have earned income. And Social Security income is not earned income. So when you ask or retired persons, I'm kind of like, eh, I just need to make sure you have earned income from a self employment or a job. That's going to be your earned income. All right, next question was from. J Audio DB 1674. Again, who knows? That's my guess, best guess. So if my employer matches 5% of my Roth 401k contributions, are their contributions also tax-free when the time comes to withdraw them? Great question. It depends. I know that answer sucks, but I would say my guess is if you're not sure on how your employer is doing this, they're probably matching with traditional dollars. That is the most common way. And that's traditionally, I hate to use that word again here, but that's how 401k providers have typically done this is even if you're doing Roth dollars as the employee, the employer just puts in traditional contributions for the match. So you probably have a bucket at your 401k provider of Roth dollars, what you put in and traditional dollars, that's essentially your match. Now, because Secure 2.0, which passed and went into law two years ago, it's relatively new. Under Secure 2.0, the employer could do Roth contributions if you elect and if they provide it, where the match is Roth dollars. Most 401 providers haven't got there yet. The IRS guidance, even after two years, has been terrible. Um, the 401k plan administration industry has not rolled this out super quick. So it's there. There are employers that are doing it. It's just not as common. And remember, if your employer is doing matching Roth contributions, where the employer match that they're putting in are Roth dollars, you will be getting a 1099. So the dollar amount that they throw in as the match is taxable income to you. Okay, because this is money like Roth dollars, you're are kind of sometimes called post-tax dollars. You pay tax on them first and then you put it in. So that's why um you actually get a 1099. All right. When they're withholding it off of your W-2 and off your paycheck, your Roth dollars, you're paying tax on that. That's not a deduction. It still shows his income on your W 2 that goes on your 1040. Next question came in from blue 3749, says, you always make great videos. Thank you very much. Can you explain how to get the total 72K in the Roth solo 401k, please? I thought I could only get 24K employee contribution in the Roth, and the rest 475 goes into the regular 401k that is the employer contributed. That was my understanding. Am I wrong? No, you're right. That it's true, but you can still get to the the 72,000. So let's let's just do some math here. Okay. So um the first bucket you're gonna fill and the easiest is that 24,500. All right. Now we're talking about a solo 401k, all right? So because you're the employer, you can do the biggest match or employer contribution possible because you're such a great employee. The corporate 401k is if you're an employee somewhere, is not gonna do this, but just getting that out there. Okay, so if I put 24,500 in is Roth employee contributions, that's the max I can do. Let's say you're under 50. Um, the total I can get in is 72,000. That leaves me with 47,500 that I could still put in to the solo 401k. Well, Matt, I've already maxed out the employee contribution of 245. How do I get more money in? You have two options. Option one is do an employer contribution of 47,500. All right, now the way you put money into a solo 401k as an employer is you get to put in 25% of whatever your W 2 is. So let's say you had a $100,000 W 2, the employer contribution, maximum amount you can put in is $25,000. So what do I need to get to how much W-2 do I need to put in $47,500? Is really the question. $190,000. You need $190,000. 25% of $190,000 is $47,500. So if you're following the math here, and sorry for mathing out here, but um, if I have a W-2 of $190,000, I can do an employer contribution of 25% of that, which will be $47.5. Now I have hit the $72,000 total because I had $24,500 in on employee side, $47,500 in now on the employer side, and that is $72,000. I hope I did the math right. Was anybody checking? Okay. Yeah, everybody here's like, what? What? Okay. I think I nailed it actually. Saying I even did the I divided $47,500 by 0.25 to get to 190. We'll have to run the tape back and just confirm. I mean, yeah, that was pretty good. Saying, you know, pretty good. Um, I'm not even an accountant. I'm just a I'm just a dumb tax lawyer. What do we know?

SPEAKER_00 49:14

Okay, so uh we we do have one more kind of a buzzer beater uh uh live question, and we're gonna allow it because it's a great question. Okay, I like it. But when Matt starts going rapid fire, guys, we we've got to get questions in before then. Yeah, because we can't stop that momentum sometimes. It's like in the groove. I got the calculator out. Right.

SPEAKER_01 49:35

And the math is mathing.

SPEAKER_00 49:36

I mean, guys, don't like get questions in early, but this one's a really good one. So went ahead on that. This is from Lil N7784. And they ask, I would like to do a Roth conversion from my 401k. Should I roll over to an IRA first, presumably, and then convert to a Roth IRA?

SPEAKER_01 49:55

Good question. Um, I assume this is a 401k at an employer where you don't work. Because if that's let's run with that assignment. Okay, let's let's run with that. Because if in you're in that scenario, you can roll the traditional 401k dollars out to a traditional IRA and just do a Roth conversion. That is probably easier. 401k providers are slow, dated on how they process stuff, and not as excited to talk to you. I'll just say that. Like, you're more like a problem to them. They're like, oh, somebody needs something. Uh a customer. Oh my god. We we try to. Can't you just chat us on our AI chat that will you know run you in circles? So um I you can go either way. The downside, I would say, on so let's go pros and cons. I think the pros are rolling the money out from the traditional 401k to a traditional IRA and just doing a Roth conversion is probably faster because you can control that the IRA side better. We actually have what we call a Roth conversion app at directed IRA if you're wanting to self-direct your account, where we just open both a traditional and Roth at the same time. We receive the rollover in the traditional, we immediately convert it, and you can close out the traditional IRA. So at the end of the day, you basically just have the Roth IRA. It's a two-step process, it is temporarily two accounts. It might seem like more, but on the IRA side, we just we just feel like we can do things faster and better than your 401k administrator. Now, on the other hand, you could say, well, let me just convert it with my 401k administrator now to Roth, and then I'll just roll the Roth 401k dollars to a Roth IRA. You can do that. What I would say is maybe give it a shot with your 401k administrator and test out how quickly they are responsive to you and and um is how how difficult that process appears to be. If it seems pretty simple and they got their crap together, you could just do it with your 401k administrator, get to Roth dollars, then roll out to Roth IRA. So I guess for me, if I'm in your situation, I would first kind of test how good is it, how good is my 401k administrator? Okay. So all right, final answer. Okay, last question. Unless you had somebody in another buzzer beater. No, no, we've cut them off. Okay, double over time. Okay. Um, last question here came from SZ7362, and they ask, how do you move money from a Roth 401k to a Roth IRA? Any limitations? Well, the first thing is if you have a Roth 401k with an employer, you typically can only move the money from the Roth 401k once you are no longer an employee, or you've reached retirement plan age. There's some exceptions here, something called an in-plan service rollover and stuff. But the the two main ways that you kind of get unlocked from your employer 401k is you no longer work there, or you've reached retirement plan age, which in most plans is 59 and a half, in some plans is 55. What that allows you to do is now I'm not locked into the company 401k. Okay, I'm Jim Halpert. I no longer work at Dunder Mifflin. I went to go my do this sports business that he did in season six. Yes, something like that. I don't know what season it really was, but yeah, he went to do some sports business with I forget who. Athlete. Oh, athlete. Okay, we're getting some good, all right, some good office office trivia today. Um, and I don't was Robert California his boss at that point.

SPEAKER_00 53:37

I don't know who was the who was the who was the underrated one, Robert California.

SPEAKER_01 53:41

I loved Robert California. I liked him as much as Michael Scott. I really did. Robert California was great. Will Farrell, I forgot who his character was, but he wasn't as good.

SPEAKER_00 53:49

No, he was like the first new boss.

SPEAKER_01 53:51

Yeah, he was he was okay. Robert California was great. It was James Spader, right?

SPEAKER_00 53:55

Yeah, yeah. James Spader was great.

SPEAKER_01 53:57

Anyways, okay. All right. Let's go back. You're Jim Halper, you had the Dunder Mifflin Roth 401k. You're working with you're working at Ath lead now. All right, you're no longer an employee at Dunder Mifflin. Well, you can roll that money out of your Roth 401k to a Roth IRA. Or let's go back to this and let's say that you are Creed, you still work at Dunder Mifflin, but you're over 59 and a half. Even though you still work there, you could roll your Roth 401k to a Roth IRA. Okay. So um, so those are the two most common. You no longer work there or you are reached retirement plan. But let's say that you're Pam. You always worked at Dunder Mifflin, you still work at Dunder Mifflin, you're not 59 and a half, your Roth 401k is gonna stay there as a Roth 401k. Um, there are something called in-service rollovers. I don't want to get too technical and we're wrapping up. Maybe I'll cover that in the advanced strategies, actually. I'll just save it. Let me just say there's a couple workarounds to that um on how you could possibly get money out even if you're not 59 and a half, and even if you still work there. Called the cliffhanger. Yeah, a little cliffhanger. Look at something to come back for. Um, well, thank you everybody for tuning in live. Remember the slide deck in the link in the description below. Um, this will be on YouTube, so come back and watch it. Please share it with your friends. And if you haven't subscribed to the channel, what are you waiting for? I mean, I'm begging you. My subscribers are counts been, you know, we've slowed down a little bit. So Angel cares about this, all right? He yeah, Angel needs some subscribers. So subscribe to the channel. We seriously want to give you awesome education information. Uh, we have a lot of videos coming out. We'll be coming live um as best we can as much as possible. So make sure you're subscribed so you don't miss out on any future videos or lives. We'll see you next time.