Mike Metzger, CFP®, CRPS® Lifepoint Financial Design

About Mike Metzger, CFP®, CRPS®

When I got started in financial planning over a decade ago, I didn’t understand how the industry could ignore real estate as a valuable investment. It was from that early experience that I knew I didn’t want to conform to the industry norm.

In order to offer objective advice, it was going to take rebuilding the financial practice model – to include real estate investments.

Owning real estate investments myself, and having a spouse as a Realtor, I know the benefits that real estate brings to the overall financial picture. Real estate professionals are the hardest working people I know. But with so many pieces, it can be difficult to make the most of your business, properties, investments, and family life.

Having helped hundreds of individuals, I bring a real estate focus to help successful real estate professionals seek to reduce their tax burden, increase their cash flow, and put a plan in place so that they can retire one day pursuing a steady and consistent income stream.

As your financial partner, my goal is to give you the financial confidence to focus on what you enjoy most!

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Recently Published

3 Strategies to Invest in Real Estate With Little Effort

November 22, 2022

To many, investing in real estate can sound enticing, but it also may seem a bit scary. After all, you might not have a green thumb or know how to hammer a nail without serious risk of injury. I can promise you that I am definitely one of those people!

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5 Investment Opportunities to Consider During The Next Recession

November 16, 2022

By Mike Metzger, Founder | CERTIFIED FINANCIAL PLANNER™️

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The Non-Deductible IRA Strategy For Future Financial Growth

September 19, 2022

By Mike Metzger, Founder | CERTIFIED FINANCIAL PLANNER™️


For my clients, high income real estate professionals, retirement savings can be limited relative to overall household income. That’s because there’s income phase out limitations set forth by the IRS. This prevents people from being able to use certain retirement vehicles.

For many, you may have one spouse who is self-employed, while the other spouse works as a W-2 employee. This is not very uncommon for real estate agents, for instance. But, if the self-employed spouse contributes to their Solo 401(k), for example, and the W-2 spouse contributes to their employer retirement plan, then making an additional Roth or Traditional IRA contribution Is not allowed. Specifically, when Married Filing Jointly household income is more than $129,000 for traditional IRA’s and $214,000 for Roth IRA’s (2022).

So, if you want to make sure you are putting as much income as you can towards retirement, the IRS restricts your ability.

Or maybe there is a way…

Making Non-Deductible IRA Contributions

As mentioned before, the IRS limits your ability based upon income to make deductible contributions. But, they, of course, will take your money if you want to make NON-DEDUCTIBLE contributions.

How does this work?

The first thing I would recommend doing is opening a separate IRA account from any other IRA’s that you might have. Then you would contribute non-deductible money into the account (When you file your tax return, you would not claim it as deductible).

The Benefit:

The money that you fund into the account can grow tax-deferred into investments of your choosing, just like a normal deductible IRA. The previous option was to open a taxable brokerage account to invest additional income for the future. However, you are stuck paying capital gains tax and income tax on that type of account.

The non-deductible IRA allows that money to begin working for you right away, while avoiding capital gains and income tax during the course that those funds remain inside the account. So, you can either invest in some sort of index fund or trade stocks in the account while deferring the taxes on any of those trades.

Non-Deductible Contributions into a 401(k).

Some employer-provided retirement plans may allow for additional non-deductible contributions.

Most people know the maximum allowed contributions into a 401(k) plan. Let’s say your spouse works as a W-2 employee for a big company. That company has a 401(k) that employees are allowed to contribute part of their salary into that 401(k) plan. Usually, you can either elect a certain percentage of salary to be contributed or you can state a specific dollar amount.

However, for 2022, the IRS only allows a maximum employee contribution of $20,500 for those employees under 50 years of age. That is the max that you can put into the 401(k) plan.

Now, the employer might have a matching contribution where they will put in their own money into your 401(k). This is typically something like 3% of your first 6% contributed to the plan.

But, if you earn a high income, this is still pretty limiting on how much you can put into a retirement plan.

Some 401(k) plans have a provision that allows for additional non-deductible contributions into the retirement plan with no contribution limitations. So, you might be able to add an additional $40,000 into the plan to grow tax deferred. You won’t get a tax deduction for the contribution, but you can avoid capital gains tax for years to come on those added funds. This can really pad your retirement and have the added growth of avoiding taxation.

The Backdoor ROTH IRA Solution

In all of the scenarios previously described, there is a way to take those non-deductible contributions and turn it into tax-free growth.

It’s called the Backdoor ROTH strategy.

Here’s what you do:

Once you make your non-deductible, you would immediately convert those funds into a ROTH IRA. Meaning, before you invest those funds in the traditional IRA or 401(k), immediately convert those funds into a ROTH account. It’s a loophole that has existed for some time that many high income earners take advantage of.

What’s the benefit?:

Although, you still don’t get a tax-deduction for the contribution, now that money can grow tax-deferred and withdrawn* tax-free. There are very specific rules around this, so it’s important to consult your CERTIFIED FINANCIAL PLANNER™ and CPA before implementing.

The backdoor ROTH can be a huge wealth builder, so it’s something to try and take advantage of before the IRS officially closes this loophole! It’s already been on the table for discussion many times before, including the most recent Build Back Better Plan.

Wrapping Up

Many are unaware of the ability to make non-deductible contributions to their retirement plans. But, doing so can really help build for a more confident financial future. Whether it’s non-deductible IRA contributions or a backdoor ROTH, additional tax-deferred savings can be of really big value later in life.

Better to start now, then later!

If you have any questions, don’t hesitate to reach out,

TALK TO MIKE

Disclosures:

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.

The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

Contributions to a traditional IRA may be tax deductible in the contribution year, with current income tax due at withdrawal.  Withdrawals prior to age 59 ½ may result in a 10% IRS penalty tax in addition to current income tax.

*The Roth IRA offers tax deferral on any earnings in the account. Withdrawals from the account may be tax free, as long as they are considered qualified. Limitations and restrictions may apply. Withdrawals prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Future tax laws can change at any time and may impact the benefits of Roth IRAs. Their tax treatment may change.

Traditional IRA account owners should consider the tax ramifications, age and income restrictions in regards to executing a conversion from a Traditional IRA to a Roth IRA. The converted amount is generally subject to income taxation.

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

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Disclosure

The annual XYPN membership fee paid by this firm is in consideration of a variety of services and benefits provided by XYPN to its advisor members - including the ability to be listed in this Directory. For a complete description of current XYPN member benefits, please refer to the Membership Benefits section of this website. For current membership pricing, please refer to the Pricing section.

XYPN, due to the compensation it receives from advisors in the form of the annual membership fee, has an incentive to list only these such advisors in the Directory. This creates a material conflict of interest.

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