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Making a lot of money has its perks, but there are also some challenges that go along with it. Like, what if for some reason Beyonce is not available on your birthday weekend? And where do you keep your shoes if your closet's already filled to the brim with rare timepieces? I can't find my driving moccasins anywhere! But there's another issue high-income earners sometimes deal with, and it has to do with investing.
First world problem I know, but we live in the first world. Let me remind you. Welcome to America. You see, when it comes to saving for retirement, I like to keep it simple. 15% of your gross household income into tax-advantaged retirement accounts, like a 401k or Roth IRA, until you get the mortgage paid off. Then you can increase it to your heart's delight. But what if you make so much money that you've maxed out those tax-favored retirement accounts
and still haven't hit 15% of your income. What do you do then? Invest in luxury claw machines that only take Bitcoin and only dispense NFTs of virtual real estate and Minecraft? Don't do that. Just try and stop me. In today's video, we'll look at five investment options for you high-income earners out there. And even if your income isn't that high, stick around so you will know what to do when you finally get promoted from assistant to the regional manager to senior assistant to the regional manager. So I guess...
This will just be my office. No. But first, hit those like and subscribe buttons and share this with all of your wealthy friends who own driving moccasins. They could probably use some help in several areas. Why can't I have the things that I want? Okay, let's jump into our list of five investment options specifically for high income earners. First up, a backdoor Roth IRA.
Now, this is a wealth hack that allows high income earners to still enjoy the tax advantages of a Roth IRA. Here's why that's a big deal. High income earners might not be able to contribute to a Roth IRA because of IRS income restrictions. For 2024, if you earn $161,000 or more as an individual or $240,000 or more as a couple, you cannot directly contribute to a Roth IRA.
But as the old adage goes, where there's a loophole, there's a way. And don't worry, this one's perfectly legal. Unlike the window tint you got on that Dodge Charger. And let me tell you, no matter how loud and annoying that engine is, it will never be loud enough to mask your lack of self-esteem, Bryce. Totally uncalled for. Why is it always 23-year-old guys driving those things? Or midlife crisis, Bryce. That kind of rhymes. No! No! No!
All right, here's where the loophole comes in with the backdoor Roth. You see, the federal government says you can legally convert a traditional IRA into a Roth IRA regardless of your income. So here's how this would work. You can contribute up to $7,000 in 2024 or $8,000 if you're 50 or older to a traditional IRA. Then as soon as that money is transferred to the traditional IRA, you can convert it into a Roth IRA. And that's pretty much it.
Best hack since the Konami code. Now, the simplest way to do this is to fund that traditional IRA with after-tax dollars. This means that your contribution is non-deductible once you fill out IRS Form 8606 and complete your tax return. So the benefit here is that you've already paid taxes on that investment. So from here on out, you can enjoy tax-free growth and tax-free withdrawals once you reach age 59 1⁄2. Okay, the next investing option for you high-income earners is a mega backdoor Roth.
Now I know that sounds like a complicated wrestling move invented by a wealthy nine year old, but it actually is as incredible as it sounds. This is where you go above and beyond your 401k contribution limit with after tax dollars, and then roll that over to the Roth side. So here's what that looks like.
According to the IRS, the maximum amount you can contribute to a traditional 401k with pre-tax dollars in 2024 is $23,000 or $30,500 if you're 50 or older. But some employers allow you to make after-tax contributions once you've reached
that pre-tax limit. So if you decide to go this route in 2024, you can actually contribute a maximum of $69,000 total or $76,500 if you're 50 or older. Now that limit includes that $23,000 you put in plus any money your employer put in if you have a company match and any after-tax contributions you make. So the total all has to stay within that limit. For example,
For example, let's say you contribute the max of $23K and your employer matches $5K for you. Now you have $28K in there, so you can still contribute an additional $41K for that grand total limit of $69K. Okay? Got it? Capisce? We good? Moving on.
The next step would be to convert this after-tax contribution to a Roth account. So if you have a Roth option with your 401k, you may be able to convert the funds over to a Roth 401k. This is called an in-plan Roth conversion, and you can ask your HR folks if it's possible for you. Or if your plan allows it, you can roll the contributions over to a Roth 401k.
over to a Roth IRA outside of your employer. Now, needless to say, the Mega Backdoor Roth is a fantastic option once you've already maxed out your 401k and pulled off a backdoor Roth IRA. All right, next up, we've got the Health Savings Account or HSA if you're hip with it. This is a special kind of savings account that can help you pay for medical expenses completely tax-free.
The money in your HSA can be used to pay for things like doctor visits, prescriptions, or other qualified medical expenses. And before you ask, yes, Jerry, toenail fungus treatment is a qualified medical expense, I checked twice, both toes. Brother, eww.
Now, HSAs are one of the greatest tools out there because they are triple tax advantaged. Your contributions are tax deductible. The growth is tax free and withdrawals are tax free when you use the money for those qualified medical expenses. But here's where the wealth hack comes in. Once you've contributed a certain amount, usually a threshold of about a thousand bucks, you can start investing any amount above that with an investment account through the HSA. So it becomes sort of a health IRA, if you will.
And if you invest wisely, this account can grow to be a big old pot of money that will help you cover the cost of medical expenses in your later years, which can get pretty pricey. In fact, the average couple retiring today will rack up $315,000 in health care expenses. And that's not even including long-term care costs.
And remember, as long as you're using the money in your HSA to pay for medical expenses, you get to use it tax-free. And yes, that includes all the money in there that came from the growth of your investments. But wait, there's more. Get this. Once you turn 65, you can take money out of the HSA investment account and spend it on whatever the flip you want, like a ball of yarn, some whorehound candy, or some fun seasonal decor from Cracker Barrel.
Just keep in mind that for those non-medical withdrawals, you'll have to pay taxes like you would with a traditional 401k or a traditional IRA. But still, pretty sweet deal and a great bonus retirement account for those high-income earners. And speaking of sweet deals, I want to give you the hookup with Delete.me, one of the sponsors of today's video. I love what these guys do. Delete.me will find and remove your personal info from these data broker websites out there to help keep your data away from online scammers, spammers, and data thieves.
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So get 20% off any Delete Me plan by going to this website, joindeleteme.com slash george, or you can always click the link in the description. This video is also brought to you by Tello, a mobile service provider that can help you shave down the cost of your phone plan. Now, even if you have a crazy high income, that is no excuse to overpay for a phone plan in today's world.
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in the description. Okay, back to investing options for high income earners. Next on the list, taxable brokerage accounts. Once you've maxed out your tax favored plans like your 401k, 403b or IRA, you can still save your money wisely by investing it in a brokerage account. These are taxable investment accounts that you open directly with a bank or brokerage firm and they allow you to purchase basically any type of investment.
stocks, bonds, mutual funds, index funds, exchange traded funds. And side note here, stay away from single stocks and stick to index funds and mutual funds. If you're going to invest in this type of account now with a brokerage account, there's no contribution limit or income limits, which is beautiful. So you can invest as much as your little heart and giant income desires. You can also take money out at any time for any reason without having to pay penalties, which can be super important. If you want to retire before 59 and a half and you need an income stream, that's called a bridge account.
But remember, you will have to pay taxes if you receive dividends, earned interest, or made a profit when you sold the investments. That's called capital gains. So when would I invest in a taxable brokerage account? Well, once you've already checked off the backdoor Roth, maybe a mega backdoor Roth, and maxed out an HSA. And the reason is simple. It's smart to take advantage of the tax advantage investments first.
With a brokerage account, you're using after-tax money that you'll pay taxes on again when you sell for a profit. Thanks, government. But hey, at least you're growing your money, and over the long haul, if you invest wisely, it's way better than earning some interest in a savings account or stuffing your cash in a pickle jar and burying it behind your house. And speaking of houses, the next investment on our list is real estate. Investing in real estate has become super popular, and it makes sense. Because if you do it right, it can lead to some serious wealth building.
And over time, real estate almost always goes up in value. And if you've got a great tenant and some paid for real estate, the cash flow starts to add up real quick. But real estate is also the most hands-on and time-consuming of all of the investment options I've laid out for you. So do not rush into this unless you've done your research and you have a passion for it. And do the math to see how much money you'd actually make after you've done your research.
after all of your expenses. Things like property taxes, homeowners insurance, utilities, general maintenance and repairs, tenant vacancy, and repairing that toilet in that rental house because one of the tenants irreparably damaged the P-trap during a funeral for one of his hamsters.
- Yeah, do you wanna just, I think we'll go for an open casket. - Anyway, before you go out and buy a rental house or an office building or an abandoned Long John Silver's, make sure you talk to people who have actually done this whole real estate thing, because they can tell you what it's really like, and then you can decide if it's right for you. And please, I am begging you, never ever borrow money to buy investment real estate. I know, it's controversial. Only in buy investment properties when you can pay cash for them. And I know it's gonna take longer and you're gonna hate me for that,
but I don't care what some get-rich-quick, roided-up, limp-biscuit-looking idiot said on some social media video. It's very risky to do it with leverage. And yes, paying cash is going to take longer, but it will also be a way more peaceful journey and reduce your stress and risk. If you want to go this route, start small, buy something you can afford, and grow slow. And please, make sure you do your homework before you buy land, a rental property, or any other investment for that matter.
And by the way, always, always pay off your own house before you buy investment property. In fact, I recommend you pay off your house before you start investing more than 15% of your income anywhere. Once your mortgage is paid off and you have zero debt in your life, that's gonna give you this amazing thing called margin. And you can then start pumping money into the options we've talked about today. And here's the deal. Some of these things may sound easy, but when it comes to investing, a hasty mistake can cost you a whole lot in the long run. And there's only so much we can cover in a quick YouTube video.
So whether you're a high income earner or you're just getting started in your career, always talk with an investment professional before you choose any of these investment options so you can avoid making a huge tiny mistake. And if you want to find a good investment pro that's trustworthy, that can help you build wealth the right way, be sure to check out the article I'll link below to find one you can trust. As always, like, subscribe and share this video with anyone you know who's learned the hard way, you never flush a hamster. And if you want a beginner's guide to investing,
Be sure to watch this next video that I'll also link in the description below. Thanks for watching. See you next time.
