Reimagining Relationships in Early Retirement

Our 2 Cents – Episode #195

Reimagining Relationships in Early Retirement

After a short break, we return bringing you another great episode of Our 2 Cents! In today’s episode, Steve and Gabriel explore the challenges of retiring earlier than planned and delve into the dynamics—and potential tensions—when spouses retire at different times. Plus, we tackle an intriguing and detailed listener question you won’t want to miss! Listen in now using a link below!

1. Retiring Unexpectedly?:
   • Explore recent research that underscores the importance of planning for early retirement and highlights potential challenges you may encounter along the way.
2. When Spouses Retire at Different Times:
   • Discover how sudden lifestyle changes that accompany retirement can reshape relationship roles and dynamics.
3. Listener Question:
   • “What is a mega backdoor Roth 401(k) contribution?” – SGL Client

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Podcast Transcript

Announcer: You are listening to Our 2 Cents with the team from SGL Financial, building wealth for life. Steve Lewit is the President of SGL Financial and Gabriel Lewit is the CEO. They’re here to discuss all the latest in financial news, trends, strategies, and more.

Gabriel Lewit: Well, welcome back to Our 2 Cents. We hope you had a wonderful Thanksgiving break, and we know we did, but I’m back here with Mr. Lewit senior.

Steve Lewit: Yeah. You ran quite a shindig at your place. It was great.

Gabriel Lewit: Yeah. Yeah. We had a holiday Thanksgiving extravaganza.

Steve Lewit: And your wife made the best turkey ever.

Gabriel Lewit: It was very, very good this year.

Steve Lewit: It was amazing. It was literally amazing.

Gabriel Lewit: I was actually quite unhappy though, because people that left took leftovers, and then I was excited to have a plate of turkey the next day, only to find out most of the turkey had been taken.

Steve Lewit: It was at my place.

Gabriel Lewit: So, I ended up eating mashed potatoes for about three days straight.

Steve Lewit: Mashed potatoes and stuffing.

Gabriel Lewit: Because I made entirely too much mashed potatoes, which I think this was one of my best years for it, if I may be so bold to say.

Steve Lewit: It was very good. And we do hope you all had a wonderful Thanksgiving too, because ours was amazing.

Gabriel Lewit: Indeed, indeed, indeed, indeed. All right. Well, we’ve got a good lineup here for you today of different topics to keep you informed and entertained, of course.

Steve Lewit: Well, I’m looking at a topic that we are not going to talk about, but I just discovered this is so important. I love breakfast sandwiches. Every morning I have an egg and a slice of bacon or turkey, and it’s what I eat in the morning, and I just discovered that Hamilton Beach has a breakfast sandwich maker and I can make fresh, because I buy my frozen.

Gabriel Lewit: Oh, the microwaveable ones?

Steve Lewit: Yeah. You put them in two minutes and it’s really pretty good. But this, I can have fresh eggs and fresh everything for 30 bucks.

Gabriel Lewit: Not including the food.

Steve Lewit: I’m so excited. I’m going to buy one today.

Gabriel Lewit: Okay. Well, you’ll have to report back.

Steve Lewit: Yeah, no, we were going to do a show on cooking stuff, right?

Gabriel Lewit: Well, no. One of our next episodes I’m not going to talk about it, it’s not a cooking show, so I don’t want it to be too frequent, but we’re going to talk a little bit about making ideal sandwiches as a follow-up to our Best Scrambled Eggs, a popular episode we had a couple of weeks back.

Steve Lewit: That’s probably why this is sitting in front of me.

Gabriel Lewit: It could be. It could be. You spoiled the thunder for my future show, but it’s okay.

Steve Lewit: It’s only one part. Should I tell you about the other ones in here? No? Okay.

Gabriel Lewit: Not today.

Steve Lewit: What have we got on tap today, Mr. Gabriel?

Gabriel Lewit: On tap, you’ve got Bud Light, Coors Light.

Steve Lewit: Yeah. Wise Guy.

Gabriel Lewit: Modelo.

Steve Lewit: Modelo.

Gabriel Lewit: Yeah. We’re going to talk about what happens, well, we’re going to do some listener questions later also, but we’re going to talk about what happens if you are forced to retire unexpectedly.

Steve Lewit: Well, yeah. I have probably in the past month, I think I have three or four couples that have been downsized and they come and say, “Steve, guess what? We’re retired,” he is like out of nowhere.

Gabriel Lewit: Well, that’s kind of the idea, right? What do you do when that happens? I mean, obviously you don’t go to work the next day, but how do you handle your finances? It can be a surprise for many. It can be a little bit stressful for many, and there is a way to be aware of this on the radar and have a plan for this, and that’s really what we’re going to dig into here. Now, first and foremost, some statistics for you data nuts. The Trans America Center for Retirement Studies finds that most Americans, actually 60%, retire earlier than expected.

Steve Lewit: And that is a surprise to me. I thought… We have clients that come in and say, “We want to return retire a little early before Social Security, before Medicare,” and we had a lot of those conversations. I had no idea that most people in America, or a good percentage, have to retire earlier than planned. Forced retirement.

Gabriel Lewit: And sometimes that’s due to, as you mentioned, a downsizing of a company, that’s very common. Naturally. Sometimes it’s, “Hey, we just laid you off.” Other times it’s, “We’re going to lay you off and here’s an optional benefits package if you want to accept it.” I’ve had clients with that.

Steve Lewit: Definitely.

Gabriel Lewit: Sometimes it’s a company gets merged with another company or bought out and voila, they lay you off, and other times it has to do with health issues. Maybe you’re in a job where you’ve got to do something lifting-related or stand on your feet all day and you’ve got health issues that force you out of your job. So there are lots of reasons why somebody might end up retiring earlier than expected, unexpectedly, forced to retire, and that can really catch some people unaware.

Steve Lewit: Yeah. I have a plumber client that can’t plumb anymore because he can’t carry the pipes because it’s killing his back. And then I believe I have a client, I think he’s lays floors and is on his hands and his knees.

Gabriel Lewit: Can’t floor anymore?

Steve Lewit: He can’t floor anymore. So no floor, no plumb.

Gabriel Lewit: Doctor can’t doctor anymore.

Steve Lewit: No, doctors do pretty good. Although I do have a dentist whose hands shake and he’s still practicing, and I am like, I keep suggesting maybe he shouldn’t, but that doesn’t go down too well.

Gabriel Lewit: Yes, yes, yes, yes, yes. That would be one where if I was at the dentist and they’ve got the drill going and their hands are shaking-

Steve Lewit: And they’re shaking.

Gabriel Lewit: Yeah. Might look for somebody new or put a little comment in the suggestion box.

Steve Lewit: Retire now.

Gabriel Lewit: Yes. Yes, yes. Okay. So yeah, as we talked about, why do people retire earlier than planned, health issues, disability, layoffs, very, very common. But that’s going to be most of the unexpected things. Sometimes, I guess you could say family, health emergency, mom, dad needs your help full time if you could afford it. But that wouldn’t be super unexpected necessarily, but potentially, but the most common is going to be layoffs, right?

Steve Lewit: And that comes pretty quickly. It’s not like you have a warning that I’m going to be laid off.

Gabriel Lewit: Not usually.

Steve Lewit: Or a warning that I’m going to get hit by a truck or warning about any of these.

Gabriel Lewit: Well, I did have a client just the other week that had heard rumblings in their company that there was going to be some layoffs, and of course, he’s already a client of ours. So naturally we were talking about, “Well, do you want to model that?” What if you lose your job? Would you get another one? That’s a very good question to ask. Would you or would you need to? And oftentimes you’ll hear that response. Well, I guess if I didn’t need to work, I wouldn’t, but maybe I would keep my eyes out for what’s out there. So what’s the financial impact of that? Well, if you’re unprepared and you don’t have enough money saved up, you are going to be, I think, number one, very stressed out about this unexpected layoff. So how do you prevent that from really catching you off guard? I think is really that the key of being prepared for this, which is that the core of financial planning is being prepared.

Steve Lewit: I’m with you. I’m waiting.

Gabriel Lewit: I was asking you the question

Steve Lewit: Oh, that was the question.

Gabriel Lewit: It was.

Steve Lewit: Okay. Could you say it again with an uptick at the end of the sentence?

Gabriel Lewit: I had the uptick and then I rambled.

Steve Lewit: Oh, okay.

Gabriel Lewit: But the question was-

Steve Lewit: I missed the uptick.

Gabriel Lewit: What would one do to prepare for the possibility of an unexpected layoff or loss of job?

Steve Lewit: So, when you do a plan, when we do a plan, we’re planning what happens in different time periods in different events. What happens if a spouse passes? What happens if a child needs private schooling? What happens if kids are going to college? And then there’s what happens if I lose my job. So in a good plan, you can pick periods and say, “Okay, if I want to quit tomorrow or I get fired tomorrow, will we be okay?” And you just run scenarios about that so you know where you stand when something happens, it’s not a surprise .When you’re caught by a surprise, then you’ve got to scramble. But if you know it’s coming, “I got downsized, okay, it’s going to be tight on my budget, but we have that all planned out,” you’re way ahead of the game.

Gabriel Lewit: Yeah. I think it’s really that simple, and we maybe don’t need to compound too much more on that, but at the end of the day, you want to have a game plan. A what-if that you run, a scenario, whatever you want to call it, that says, “Here’s what this would look like if this happened to me.” And if you have any concern whatsoever that that’s on the radar for you or is a possibility and you want to see what that looks like, you’ve got to come on in and we’ve got to run that scenario for you in your plan.

Steve Lewit: Well, think about what makes people nervous or uptight or aggravated or emotional is fear of the future. And what I believe the human mind wants to do is make things… I can predict things. Everybody wants to be able to predict things. Well, you can’t, but you can create a plan that handles all these different predictions, unless it’s something crazy outside of the norm, like a black swan event, and make your life more predictable. And that’s why people who plan, and this has been documented all over the place, have more peace of mind.

Gabriel Lewit: They do. Yeah, much more. So that’s really what we wanted to talk about there, it has popped up a handful of times. There’s companies downsizing, there’s concerns about how the economy’s going to fair. This could be something that might impact you, and if you do have questions on that, we’re here to help you. I do want to say one other thing too, which is we generally, as planners for most people, would advise that you have a savings emergency fund, which is really there for these kind of situations where you could, let’s say it was going to take you at worse a year to find a new job, especially if you’re older, it could take you longer to find a new job.

Steve Lewit: Or never.

Gabriel Lewit: Or never. Ageism is really a real thing where people get downsized because they’re probably the highest salary at their jobs.

Steve Lewit: So now I want to say one more thing too.

Gabriel Lewit: Yes.

Steve Lewit: Which is what you said, one more thing too. If you are downsized, consider not going back to work. There’s no rule that says you have to go back to work unless of course you can’t afford it. But I’ve seen enough people downsize in the past few years where they say, “Well, maybe this is the time.” Maybe the universe is sending us a message, or maybe this is really the time to retire and open up their minds to consider that instead of just locking themselves into, yeah, we got to go out and find another job.

Gabriel Lewit: And I think part of that, however, the reason why it’s an unexpected retirement is maybe they can’t get a new job.

Steve Lewit: Which is unexpected too. And they put plenty of talented people out there.

Gabriel Lewit: Yeah, that’s what I was referencing about the ageism thing is I have a lot of clients that have come to me that choose to retire because no one’s hiring or at least they’re not hiring them or interviewing them.

Steve Lewit: They can’t even get interviews because of their… They don’t say it’s because of their age, but they can’t. Everybody knows that that’s why.

Gabriel Lewit: So yeah, if you have questions about those concerns, want to run that scenario in your plan, we are here for you. Give us a call 847-499-3330, or go to sglfinancial.com, click contact us and we can schedule a time to talk about that.

Steve Lewit: Yep.

Gabriel Lewit: All right. Well let’s see. We also have another retirement related theme here today, which is part of maybe today’s focus, all right, which is, are you ready for this, Mr. Lewit?

Steve Lewit: I’m ready, willing, and hopefully able.

Gabriel Lewit: I hope you’re able. I mean, it’s just talking. So what would cause you to be unable to talk?

Steve Lewit: I don’t know. I don’t know. You never know. You might bring up something that I don’t know about that.

Gabriel Lewit: So, there’s an interesting article that prompted this. I thought it would go really well with the forced retirement portion. Gosh, I can’t talk today. When spouses retire at different times, tensions break out.

Steve Lewit: Oh, that’s so cool, don’t they ever. That’s a great one.

Gabriel Lewit: Yeah.

Steve Lewit: Yeah.

Gabriel Lewit: So, let’s say you were forced to retire, or you just choose to retire, and your spouse is not retired.

Steve Lewit: Yeah. Good luck to you.

Gabriel Lewit: You are doing what’s called retiring at different times.

Steve Lewit: Yeah. Good luck.

Gabriel Lewit: And what happens with this is sometimes not what you would hope for, which is tensions amongst each other in the relationship.

Steve Lewit: Yeah. Now what kind of tensions, Gabriel, might those be?

Gabriel Lewit: Oh, I’m sure, happy conversations, peaceful discourse, kind, thoughtful comments.

Steve Lewit: It’s like when one partner is lounging around and the other partner is dressing to go to work, when the dinner isn’t prepared by the other partner who’s had too much to do during the day of nothing and stuff like that.

Gabriel Lewit: Well, no. So here, let me read you the first opener from the article because I think it’s a good way to position things here. It says, “When Lydia Sheckles.”

Steve Lewit: No, no, that’s not her name.

Gabriel Lewit: It is, yes. “When Lydia Sheckles’ husband lost his civil service job at age 57,” hence you see what happened there, he lost it, he didn’t quit. “In 2006.” Now obviously they’re talking to older, retired folks here. “He opted to retire rather than look for another job in his environmental engineering field, and she urged him to reconsider retirement because the couple had taken out loans to finance home maintenance projects, pay for their daughter’s college costs, but he had no interest in working, and then Sheckles 53 at the time became the sole earner and had to finish building their retirement savings on her own.”

Steve Lewit: Well, there’s a lot to unpack in there. There are so many emotions. Does she view her spouse in the same way? Does she lose respect for him? Does he lose respect himself? Normally in our society, the man is the breadwinner. Does he get down? Does he get depressed? Was this guy a financial advisor?

Gabriel Lewit: Funny enough, Lydia was.

Steve Lewit: Lydia was.

Gabriel Lewit: The gal.

Steve Lewit: She loved our job.

Gabriel Lewit: Well, so here’s what’s interesting. Is this a direct money question, Mr. Lewit?

Steve Lewit: Well, yeah, it’s a money question and I think it’s more of a relationship and communication question. When life changes, the dynamics change in a relationship. Financially that’s simple to see, “Hey, he’s not working, we need money, so I better get the job done.” I mean, it’s that simple.

Gabriel Lewit: Well, and in the case where someone’s downsized unexpectedly, if one spouse is feeling like, “Oh, we really still need the money,” and then the other is like, “We’ll probably be fine. I’m not going to go back to work,” this little thing called resentment, it can start to really build. And resentment starts off small and then it gets bigger and bigger and bigger, and one spouse can feel very resentful that the other is at home sleeping in until 10 A.M and then head into the gym and just taking it easy and chilling when the other has to get up at 7:30, get ready, commute to work, drive.

Steve Lewit: Yeah, you’re retired, every day is a Saturday. No problems today. What’s your problem, honey?

Gabriel Lewit: Yeah, yeah. Great day today for me. So how do you handle that if you… Now let’s say it wasn’t even unexpected, let’s just say one… I have a lot of clients that have younger or older spouses, depending on which spouse you are. For example, one just turned 65 and they’re married to a 57-year-old. So the one that turned 65, “Well, I was planning to retire when I can qualify for Medicare, so I’m going to hit the retirement button and honey, you’re 57, you get to work for the next eight years.”

Steve Lewit: Yes. Thank you. Well, interestingly enough, some of those working spouses don’t mind that.

Gabriel Lewit: Some don’t.

Steve Lewit: Because they really love what they’re doing and it’s like, I don’t want to sit home and have to make up stuff. I love what I’m doing, so I’m happy to work for eight years. What we try to build in to our plans, Gabriel, and this well folks, is if we know there’s an age difference or one spouse is going to suddenly be home and the other isn’t, we plan in a contingency, let’s see what happens if you both want to retire, because that working spouse may turn around in three years and say, “Hey, I want to retire too.”

Gabriel Lewit: Yeah. Well, we do facilitate these conversations. I’ve also had in reverse the 65-year-old and the 57, I’ll use in this example, the 57-year-old wants to keep working, not ready yet, likes their job, “I think I want to work until 65.”

Steve Lewit: Absolutely.

Gabriel Lewit: And the 65-year-old is like, “Oh, I’m burned out, honey. I’m ready to hang up the shoes, but I don’t want to be home all alone.”

Steve Lewit: Now there’s pressure on her to retire.

Gabriel Lewit: Or in this case, he keeps working and he’s resentful.

Steve Lewit: If he can.

Gabriel Lewit: Well, in this case, he’s gainfully employed.

Steve Lewit: Okay. He didn’t get fired.

Gabriel Lewit: No. But he may not want to retire and feel forced to have to work just because the spouse wants to work and he doesn’t want to retire alone because for a lot of people retirement… It depends on what you envision as retirement. Are you traveling? A lot of people it’s travel. If you have a spouse-

Steve Lewit: Spouse doesn’t want to travel.

Gabriel Lewit: You often want to travel with your spouse.

Steve Lewit: I want to travel with my buddy. But that that you talked about, those feelings percolate under the surface and that’s the danger of it, they just percolate and percolate and nobody addresses them in the relationship. She’s working, he’s at home or vice versa, or he’s at home and she’s always been home alone and now she’s got to deal with him every day and she doesn’t want to deal. She’s lost her freedom. All those things percolate under the surface unless there’s good dialogue. In fact, I would say all relationships are built on good dialogue and communication, the willingness to really talk to each other. And I don’t know about you Gabriel, but I don’t think most people have the skills to really do that. We’re not generally good communicators about emotions and things like that.

Gabriel Lewit: Yeah. And it sometimes does come up in our meetings. I had one couple once that was saying, “Yeah honey, I don’t want you to retire if I’m still working.” And he actually said that in the meeting and they had to hash it out a little bit.

Steve Lewit: You do therapy on Sundays, right after my therapy that I do on Sunday.

Gabriel Lewit: Sure, absolutely. So this is obviously a complex subject. We’re not therapists. We do deal with money and we deal with some of the… Trying to get spouses and couples on the same page I think, is really important and we can help you with that if you are seeking a good starting point, at least to kick off the conversation there, if you think this is something that could be relevant to you.

Steve Lewit: Yeah. Just to understand that there are a lot of difficult dynamics that happen when one spouse retires before or later than another spouse and usually that’s the case, Gabriel. I think I have very few couples that have retired at the same time. One has always been two years later or five years later or two years earlier or five years earlier, and it creates a real undercurrent in the relationship. So you’ve got to be really careful.

Gabriel Lewit: All right, so yeah, that’s our talk about retirement today. What happens if you lose a job? What happens if you retire at different times? How do you navigate some of those challenges? If we can assist you with those, give us a call here, 847-499-3330, or of course, go to sgffinancial.com, click contact us.

Steve Lewit: Yes.

Gabriel Lewit: Now total segue here, but the Chicago Bears got smoked on Thanksgiving.

Steve Lewit: How about the New York Giants?

Gabriel Lewit: Well.

Steve Lewit: They got smoked on Thanksgiving.

Gabriel Lewit: Yeah, we’re a Chicago company.

Steve Lewit: Two losers here.

Gabriel Lewit: So, they fired their coach, and they now are, we’ll see how they do this weekend, but they’re in need of a new coach. So me, I’m very excited. If you don’t know this, I’m a die-hard Bears fan, so I am tired of losing as we’ve been losing every season for almost 10 seasons now.

Steve Lewit: Is this the ESPN version of our podcast?

Gabriel Lewit: No, I just felt like-

Steve Lewit: Where did this come from?

Gabriel Lewit: I told you; it was just a random out of left field segway.

Steve Lewit: Oh, okay. I thought you were leading somewhere, like who is the quarterback of your team or your financial team or, I thought you were going to segue into that.

Gabriel Lewit: I do have a lot of analogies, but today this was just me talking about the Bears.

Steve Lewit: Do you need a hug?

Gabriel Lewit: No, a high five.

Steve Lewit: I’ll give you a hug.

Gabriel Lewit: This is exciting news.

Steve Lewit: Yeah.

Gabriel Lewit: They’re looking for what they call a leader of men to coach the team.

Steve Lewit: I thought the last coach they thought was a leader of men.

Gabriel Lewit: Well, turns out he was not a leader of men.

Steve Lewit: And he couldn’t watch his watch.

Gabriel Lewit: And the prior coach was not a leader of men.

Steve Lewit: No time management there either.

Gabriel Lewit: Yeah. Yeah, exactly. All right, well we’ve got a few listener questions here to round out our show today, and the first one is relevant because it’s the time of the year for what we call Roth conversions, is a very popular time. I did have a client, this wasn’t a listener, he does listen to the show, but he didn’t email me, he just came in and he asked me to bring it up on the show in one of our meetings. He said, “What about a mega backdoor Roth 401k contribution?”

Steve Lewit: So, Gabriel, give our clients a short lesson on backdoor Roth.

Gabriel Lewit: Yep. So his question was, what is it? That was the question. He said, “I heard about this. Gabe, can he explain to me what this is?” Well, let’s start with something akin to it, but a little simpler called a backdoor Roth contribution, which is two parts. It’s a non-deductible IRA contribution. So if your income is too high, you can’t contribute to a Roth. If your income is below a certain level, then this is easy, you just contribute to a Roth. So let’s say your income’s too high, you’re phased out, you still could make a Roth contribution potentially using a backdoor Roth methodology. What you do is you do an after-tax IRA contribution. So you do not get a tax deduction for it. So you take seven or eight grand, depending on your age, that’s in your bank account. You put it in an after-tax IRA and you immediately convert that. Step two is convert it to a Roth IRA. If done right, and there are nuances to this, so don’t just run off and do it, please, then it will not be a taxable event. And voila, you achieve your goal of getting your money into the Roth IRA, which you were otherwise prohibited from doing.

Steve Lewit: So, it’s a way I can get into a Roth through a backdoor by taking non-qualified money, putting it into an IRA, and then converting that to a Roth.

Gabriel Lewit: After-tax IRA.

Steve Lewit: Which I couldn’t do directly.

Gabriel Lewit: You couldn’t go direct to the Roth.

Steve Lewit: So that’s why they call it a back door instead of a front door.

Gabriel Lewit: Exactly. And then there’s a second thing called a mega backdoor Roth 401K contribution. It’s a long word. So let’s start with a mega. So why mega versus regular? Well, if this is using your 401k, and what a lot of people don’t know is your 401k has a maximum contribution limit higher than what most people think. Most people think I can contribute a certain amount every year that’s tax-deductible. I get a match and that’s the most you can contribute. I think it’s, was it 20,500, I think is the contribution limit for this year. Plus if you’re over 50, you get a catch-up.

Steve Lewit: Okay. Might be higher, I’m not sure.

Gabriel Lewit: Yeah, maybe 22,000. They always get mixed up.

Steve Lewit: I’m going to say 24.

Gabriel Lewit: Well, let’s confirm. Okay, 401L max contribution limit. Producer Katie will Google this here. Gosh, I was way off. 23,000.

Steve Lewit: I was a little over. With the-

Gabriel Lewit: With the catch-up, it’s initial 7,500. So yeah, 30,000 basically. Well, so you can actually put in up to 69,000, again, give or take a few bucks but you can’t put it in as a pre-tax deduction.

Steve Lewit: How did you get 69?

Gabriel Lewit: It’s the rules. It’s the IRS rules.

Steve Lewit: Say that again. You lost me on that one.

Gabriel Lewit: This is why I’m saying, this is why nobody knows about it.

Steve Lewit: But I should know about it.

Gabriel Lewit: You should.

Steve Lewit: I’m an advisor.

Gabriel Lewit: You do know about this.

Steve Lewit: You gave me a left turn and I was still going straight. So explain me the turn you took.

Gabriel Lewit: There is a… It’s a little confusing. The 401 contribution limit is 23,000 for salary deferrals.

Steve Lewit: Yes.

Gabriel Lewit: And 69,000 for a combination of employee salary deferrals, employer match amounts, and additional employee after-tax contributions.

Steve Lewit: Oh, okay. So that is over and above the actual salary deduction. You’re allowed to put in more money.

Gabriel Lewit: What most people don’t realize is there’s an after-tax, non-deductible IRA. You fund it, you don’t get a tax deduction, but you can fund the IRA with after-tax dollars and then have it be permanently tax deferred if you wanted to, and that’s what you use in the backdoor Roth contribution. You can do the same thing in a 401K up to that maximum limit of 69,000. Again, a couple things, your plan has to allow for this, number one, so we’ll get to that in a second. Once you’ve made that maximum additional contribution, it’s again after-tax dollars, you can then immediately convert it, if your plan allows it, to a Roth 401K or Roth IRA. So as an example, let’s say you maxed out $30,000 in your regular pre-tax contributions. Let’s say for simplicity, you didn’t get a match. You could then contribute an additional $39,000 in an after-tax contribution, into your 401K.

Steve Lewit: Into your 401K, exactly.

Gabriel Lewit: If your plan allows it, and then again, if your plan allows it, convert that to a Roth inside the 401K.

Steve Lewit: That’s correct.

Gabriel Lewit: The net result is you just contributed an extra 39,000 to a Roth account.

Steve Lewit: Roth account, which you could not do through the front door.

Gabriel Lewit: Correct. So it’s called a mega backdoor Roth 401K contribution.

Steve Lewit: If your plan allows it.

Gabriel Lewit: Now many plans don’t. Some plans do. The other thing too is you have to have this money that you would otherwise not be spending that you also want to save. So some people don’t save that much, but for certain people this can be a very powerful tool and it just reminded me that, I don’t know if we’ve talked about it much on the show, maybe a hundred… What episode are we on by the way? 195? Oh, we’re getting close to 200.

Steve Lewit: Really?

Gabriel Lewit: Yeah, so maybe 147 episodes or something, we talked about this.

Steve Lewit: I’m not even tired of this. I love doing this. Really, 190? Really?

Gabriel Lewit: Yeah.

Steve Lewit: 195 times, we’ve sat here and done this thing?

Gabriel Lewit: Yeah.

Steve Lewit: Wow. Folks, we’re so happy you’ve joined us on all these podcasts. That feels great.

Gabriel Lewit: You know what we should do? Maybe for the 200th episode, we go back to the very first one and see what we actually talked about and talk about it again or something. That would be interesting.

Steve Lewit: That would be fun.

Gabriel Lewit: Maybe the first one and the hundredth one or something.

Steve Lewit: I want to start videoing so people can see us in action.

Gabriel Lewit: Well, yeah, so circling back, check with your plan provider. I think certain plans with Fidelity I think tend to offer this a little more easier than some, some are very obscure, but it’s a very unique option and now you know that it exists.

Steve Lewit: Now does that cause complications on withdrawing money? Because now you’ve got Roth, you’ve got non-qualified… Oh no, it’s not. It’s still a Roth. I take that back. No question. Folks, I answered my own question. I’m not even going to tell you what it is.

Gabriel Lewit: All right. Amen,

Steve Lewit: It’ll just confuse you.

Gabriel Lewit: Yeah, well, that’s the question. That’s the answer. We did have more listener questions, but we’re bumping up on our time here. Let me just think real quick if there’s anything else I could say about the mega backdoor Roth 401K contribution.

Steve Lewit: Is there a quick listener’s question we can squeeze in here?

Gabriel Lewit: Not a quick one.

Steve Lewit: Not a quick one? They’re all complex?

Gabriel Lewit: I will say, since we’re on the topic of it, if you happen to do a backdoor Roth IRA contribution, there is something called a pro rata rule, which is why I said don’t just rush to do these. There are some times when you may not actually be eligible to do it without paying taxes on the conversion portion of them, so.

Steve Lewit: That is correct. That’s where I was going when I said, is that make it more complicated when you withdraw money if you’re using after-tax dollars in a qualified plan, when you take money out, you have to rata rule about it, and that’s complicated.

Gabriel Lewit: Now folks, anytime you ever make an after-tax IRA contribution, if you do not convert it to a Roth, you have to have really good records because people have done this, inadvertently then mix your after-tax contributions with your pre-tax contributions, forget that you made after-tax contributions and then pay tax again, you take it out in the future and double tax yourself inadvertently. I can assure you, the IRS doesn’t care if you do that, but you would lose tax dollars.

Steve Lewit: Yeah. And you just can’t pull out the after-tax part of your Roth and not pay taxes. It has to be in proportion to-

Gabriel Lewit: Of your IRA, you mean?

Steve Lewit: Yeah. The after tax.

Gabriel Lewit: Well, yeah, if you’re talking about the pro rata rule. Yes. So yeah, lots there we could unpack if you have questions on that or anything we talked about, retirement, retiring early, what if scenarios, how to handle disagreements or resentment with your spouse about money in retirement, that’s what we’re here for. Call us anytime, we’re here to help, 847-499-3330 or go to sglfinancial.com, click contact us and or send us an email at info@sglfinancial.com. And don’t forget to send the show to all your friends. We love having more and more listeners and we really do appreciate in the spirit of Thanksgiving all of our listeners, and thank you so much for tuning into the show.

Steve Lewit: Stay well, everybody. Have a wonderful week. We’ll see you next week.

Gabriel Lewit: Go Bears.

Steve Lewit: Go Giants. Bye now.

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