Q&A: Mega Backdoor 401(k), Medical School Debt, & Losing a $50K Investment

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0:30You're about to make a trade. Which you do you listen to? Is it get optioning those options? Or let's do a little research. Learn more at finra.org slash trade smart. Hey everyone and welcome back to the Rich Habits Podcast, question and answer edition. These are our Thursday episodes where we answer your questions as if we were in your shoes. And this is a very special Thursday, Robert, because it is Thanksgiving. I hope everyone is enjoying the turkey, enjoying the cranberry sauce, making the gravy, got the sweet potatoes with the marshmallow on top of it. Maybe a little bit of green bean casserole with some of those little crunchies on top.

1:10I think it's like a green onion crunchy there that my dad used to do. Thanksgiving is awesome. Big fan of the holiday. And I hope y 'all are enjoying it. And we appreciate you turning into the show regardless. Definitely. I was going to say, don't forget to mention the sweet potatoes. Back in the day, it seems like everywhere I went, no one had sweet potatoes. I don't know why. So I would bring them myself so I could make them just right. Because some people don't do the marshmallows and they don't do the cinnamon. You got to have the cinnamon in there. So definitely a good call out. Let's get into the episode, though.

1:40Let's do it. But before we do, I think it's only appropriate, right, a day of thankfulness to just share our thanks to all of you for the continued support of the Rich Habits podcast since February of 2023. because of your support over the last two and a half years we've been able to impact millions of people's lives positively we've been able to host some incredible events we've been able to do some incredible things we've got this newsletter we got the rich habits network we've been able to have incredible people on the show like reed hoffman harley finkelstein john who saw hill bloom candace nelson we just had bob pasani right all these incredible guests i mean we're just we are living the dream right now.

2:19And it's because of your support. So if I've not made it very clear, let me be as clear as possible. Thank you for your support. We're incredibly grateful and we can't wait to continue to make you proud, get you excited to come back every week for the show and take rich habits to the moon. We definitely have a lot of cool things on the horizon for 2026. And it's crazy to think we are coming up on three years of the rich habits podcast. I couldn't be more grateful to each and every one of you because, you know, it started with the dream. And here we are three years later, making what I believe is an incredible impact on so many of you that are struggling a little bit here and there, trying to figure out the mindset, the business strategies, the investment strategies, personal finance, all of those things.

3:02So I live one of the greatest lives because I get to do this every single week with Austin and with all of you. Well, Robert, speaking of investment strategies, a very good investment strategy is to just have one in general, right? Because if you ever want to stop trading time for money in your nine to five or your hourly job, you need a nest egg that's growing for you over time. And the easiest way anyone can begin investing towards their future is on public.com. They make it incredibly simple to build a multi-asset portfolio, including ETFs, stocks, bonds, crypto options, and more. And they also offer access to industry-leading yields of up to 3.8 % APY for that emergency fund.

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4:20So our first question comes from Kaylee F. Kaylee sent us this question via email at richhabitspodcast at gmail.com. As you all know, we receive questions via email and Instagram DMs at richhabitspodcast. Got a couple of those in this episode as well. So let's jump into Kaylee's question. Kaylee says, hi, Austin and Robert. I'm a longtime listener and I've learned so much from your podcast. This is my third question submitted. Unfortunately, I'm zero for two so far, but I don't think you've brought up this on the show yet. And maybe a lot of people are wondering what to do in this situation as well.

4:53Kaylee, that's why we always continue, right? We got number three here. Three's getting answered. So thank you so much for the persistent question asking. So Kaylee says, you always say match beats Roth beats taxable. My husband and I currently match both our pre-tax 401ks. Both employers match in full, which is amazing. then we max out our backdoor Roth IRAs and then everything else we can afford to save goes into our brokerage which is like the kids 529s and a custodial brokerage account so kind of both of those now my husband has the option for a mega backdoor Roth through his work where should this fall in priority we're struggling to come up with a plan to incorporate this new opportunity thank you so much for considering my question so here's what's going on Kaylee your husband now has an incredible opportunity to get up to$70 ,000 contributed to this mega backdoor Roth 401k.

5:48Now, if you're listening to this, you're like, wait a second, I thought you could only put up to like 23 ,000 or whatever it is into a normal 401k. How am I getting 70? So what this means is your husband is able to now max out his 401k contribution limit this year of 23 ,500. But your husband's employer is now offering the opportunity for them to also contribute up to$46 ,500 into this account, making it a total contribution from your husband and your husband's employer of$70 ,000. Now this type of retirement account strategy thing going on here is very uncommon, right? I don't know a lot of people in the real, you know, normal 401k nine to five that is being offered something like this.

6:32So that's really, really cool that your husband has this option. Where does it fall in the match beats Roth beats taxable? I personally would follow this general framework that if you're investing 25 % of your annual pre-tax salary slash income, you guys are probably good, right? Like if you want to invest, I guess I'm trying to say here is like theoretically speaking. And again, I don't know how much money you guys make on an annualized basis combined, but$70 ,000 that gets invested to a retirement account per year is probably overkill for a lot of people, right? Especially if this is a retirement account that can't touch until they're 59 and a half years old.

7:16So if I were in your shoes, I would say, okay, match beats Roth beats taxable up to the match, get the free money. You mentioned you've got match in full, which is amazing. Max out that Roth, right? Definitely do that. Now you go back to the match, like we always say, and assuming you have autonomy, it's like, cool, we can essentially max that out if we want up to that 25 % sort of figure there. But then I would now weigh that with like, okay, if I'm investing up to 25 % of my pre-tax income, and this is a Roth, and it's actually going to be post-tax there for you, how much does that like leave me for the 529s and in that sort of bridge account?

7:54I wish I had like a perfect number for number framework for you, but because now it's getting so complex, it really comes down to personal preference. How I personally do it, and again, personal finance is personal, I like to get a lot of money turbocharged and invested into these retirement accounts because I want to make sure that I have millions of dollars of after-tax profits in my own mega backdoor Roth solo 401k because I'm self-employed. So I've got about 200 grand, 250 grand right now in my own account. And that's after a couple of years of the 70 ,000 a year contribution. So like if I were you, I don't see an age here, but maybe there's a world where you guys get up a couple hundred thousand in one of these accounts, right?

8:38And then maybe you pull back on the aggression a little bit and kind of now deviate those funds to that 529 in that bridge account, because it's a good thing to want to have a lot of money in these retirement accounts, especially if they're tax advantage like a Roth is. And Robert can talk about this. A mistake people make is they're like these net worth millionaires, but they can't touch the money. So it's a balance between getting a lot of money in this mega back door Roth 401k versus having money to allow you to retire early and do the 529 stuff. Yeah, Austin, I think you nailed it perfectly because so many people think retirement, retirement, retirement, but they don't realize you have to have a balance between your traditional brokerage account and your retirement account because you don't want to be a net worth millionaire or a net worth multimillionaire, but not have access to these funds to allow you to retire early if you wanted.

9:27So I love your breakdown. I think it's exactly right. I would keep doing what they're doing, but not go overboard in the retirement accounts and really build up the traditional brokerage and the 529 accounts because that way they have access to the funds anytime they want, and they will not put themselves in harm's way where they have all this equity in the home and all this money in the retirements, but they don't have any money to live life in their 40s and 50s because it's all tied up. So I love that breakdown. And Kaylee, last thing here for you before we move on is only put in that$70 ,000 if you can, of course, control what it's invested into, right?

10:03If that money is invested into a bunch of hocus pocus, right? But you're like, oh, I could put 70 grand into it. It's like, do you really want to? Right? So just, I know you probably do that, Kaylee, because you're very prudent. You've listened to the show for a long time. So you wouldn't even be considering that if you couldn't control it, but just wanted to call it out just in case. Now, our next question comes from AA. AA says, Hey, Austin and Robert, I found your podcast at the beginning of this year, and I'm so glad I did. I'm married and I'm 30 years old. I recently reached$100 ,000 in my taxable account,$20 ,000 in our taxable joint account, 50 ,000 in my own Roth IRA.

10:39I gross 350 to 400 ,000 myself as a doctor since about a year ago. My wife makes 70 ,000 a year, but will make more after she finishes residency. We have an emergency fund, about 50 ,000 inside of that. I have a solo 401k, but just recently opened that up. So nothing in it just yet. I also have student loans, about 150 ,000. So here's my question. Should I lump some pay off my loans first with interest rates ranging between four and six and a half percent with the market possibly slowing down or do a combination of that with moving funds into my 401k. Other major spending include my mortgage, which is about$3 ,000 a month, utilities, and then a lease payment of a car at about$700 a month.

11:21So living pretty below my means here. So let me just get this straight, Robert. What I'm hearing is our friend AA is a doctor making$350 to$400 a year. AA has$150 ,000 of student loan debt between 4 % and 6.5 % interest rates. They've got about$100 ,000 in their taxable, another$20 ,000 in a taxable brokerage account,$50 ,000 in their Roth IRA. So they've got, let's call it,$170 ,000-ish invested. And so they're asking, do I aggressively pay down the student loans? Do I continue to invest or do a blend of both? So what's your take on that? Yeah, they're in a great situation, but I would definitely not take the lump sum and pay off these student loans because they don't have a large nest egg right now.

12:03And we want to keep that compounding. What I would say is I would do a really strong, honest budget, figure out where I'm at. And I would accelerate my savings of money that comes out every single month and goes towards knocking out the higher interest loans first to get those knocked off. I think it said six and a half percent were the higher ones. Knock those off first. Then I would go to the lower, lower until you get them paid off. But I would not go backwards and take the money out of the funds I've already put away that I'm building on. And I would do the hybrid like was mentioned in the question of doing some on the student loans and some towards the future at the same time.

12:40Because, you know, on average, let's say that the S &P 500 returns 10 % a year. We want to make sure that positive arbitrage is going into their bank accounts, especially because they're so young at 30 years old. That gives them a very long time horizon for this money to compound and build on itself. So that's what I would do. I think that's a great call out. How I see this with AA is their combined after tax monthly income is about$24 ,000, right? So this is like being conservative. I know you mentioned California, right? So higher taxes over there. So you're talking about, let's call it$24 ,000 a month is what you're taking home.

13:18You mentioned you've got a$3 ,000 a month mortgage here. you've got a$700 a month card payment your utilities I would imagine all in you guys could easily survive off of anywhere between seven to ten thousand dollars a month you're a doctor you deserve to have a little bit of you know you did school for a long time right so like you're good there so that really unlocks now let's call it$15 ,000 a month of margin with that$15 ,000 a month of margin that's$180 ,000 a year that you can put into a taxable brokerage account I would love to see you focus on that for the next one, two, three, four, five years.

13:53I agree with Robert, like our rule of thumb when it comes to student loans is you don't want to begin paying off these like low interest student loans until you have the same amount or more invested in the markets, right? And so that number for us here is 150 ,000 because that's what you have in student loans. And yeah, you have 170 ,000 in the markets, which is great. But like, I don't know, why not make it 360. Why not make it, you know, 500, 600 ,000, like do this for another two years, add 360, maybe even 400 ,000 to your brokerage account. Now you've got half a million in this account. And then yeah, you can now kind of flip flop, right?

14:31Instead of focusing on aggressively investing, you already got your half a million dollars invested. Now aggressively over a one year period of time, right? Because you have this 15 ,000 a month margin, right? 180 ,000 a year, 180 minus 150, which is what you owe on your student loans, is a two-month margin. So in 10 months, you'll be able to pay off your student loans. So focus on getting your base, that nest egg growing for you over the next two years. Get it up to that, let's call it 500 ,000 range, because you can easily do that. And now once that's invested and growing for you, right, you're not behind when it comes to investing.

15:04Flip-flop, focus on those student loans, get them paid off quickly. And now you've unlocked what would probably be close to a$2 ,000 a month payment inside of your monthly budget. And if you want to splurge a little bit with that extra 2k, be my guest. So our next question comes from OE. OE says, Hi, Robert and Austin. Thank you for the great platform you've created. You've advised that match beats Roth beats taxable. But does that advice hold true if I want to retire out of the United States where my cost of living is significantly lower. I'm 32 and I currently earn$280 ,000 a year. I have no debt and$180 ,000 in my brokerage account,$100 ,000 in a retirement account, and$10 ,000 in my high yield savings account.

15:48I intend to retire and spend most of my time in West Africa holding dual citizenship with the United States and in Europe where I would need significantly lower income to retire. Should I then contribute more to a traditional retirement account rather than a Roth retirement account? as my current effective tax rate is about 20 to 22%, coupled with 11 % state and local income taxes. My monthly rent is$2 ,500 in New York City for a one-bedroom apartment, coupled with an 11 % state and local income taxes. What do you all think about my current situation and how should I best retire out of the country?

16:25Robert, I'll let you kick this one off. This one's fun. Yeah, you're in a great position, OE. Great job getting so much money set aside and invested. You've got all your bases covered. You're making a high income. And I love the plan. Here's what I would do personally. It seems like you want to travel. You want to have a blast. You want to kind of live off the grid, do all these fun things. I think you do need to focus less on the retirement account and really focus on building and letting the money compound in this traditional brokerage account. Because then you have access to the money whenever you want.

16:57There's no penalties for early withdrawal. And you get to rock and roll and do your own thing. I love this plan for you because that way you can retire whenever you want. You can go from country to country and you'll be in a great shape because you're building it so early on. At 32 years old, even if you were to retire in 18 years at 50 years old, having both the traditional, the bridge account and the retirement account, both rocking and rolling, puts you in a really free spot to be able to do what you want to do. So I think it's a great plan. So OE, if I'm reading this question correctly, your main question resides in the fact that you are essentially paying an effective tax rate every year of 33%.

17:39And we all know Roth contributions are after taxes, where traditional contributions are pre-tax. And so we always say match beats Roth beats taxable. But you're over here asking, should it be in my situation, match beats traditional IRA beats taxable. So the traditional IRA is pre-tax contributions, the Roth IRA is post-tax, and your post-tax is 33%. And so you're saying instead of paying 33 % right now, so I have guaranteed, you know, after tax, you know, income in retirement, should I instead write off that contribution against my 33 % effective tax rate, knowing I will pay taxes in retirement, but because I plan to live out of the country, my spending and effective tax rate in retirement should be materially lower than this 33 % I'm paying right now.

18:31So you're saying, do I somehow arbitrage the difference there? If I read that question correctly, I kind of had to back into that in my brain here. I think that's what you're asking. I think it makes sense. I think it's a valid question to ask, especially if you think that you're going to only be taking out 30, 40, 50 ,000 a year in retirement versus the, you know, call it 80, 90, 100, 120 ,000 a year in retirement that you might be if you were living in the United States. So if you're saying, hey, I can essentially save 33 % on my contributions today, knowing that in the future, I'll be paying 15 % in arbitrage of that difference, be my guest.

19:10I do not plan to live out of the country when I retire. I plan to live in the United States. I plan to spend money as normal, like have a retirement plan. But in your unique situation, and we've said it four times on this episode already, right? Personal finance is personal. I think this makes sense. So if you did want to focus on beefing up that traditional IRA because it is a pre-tax contribution, be my guest. Love it. Love it. Before we get into our next question, though, listen up, folks. You can lock in a 6 % or higher yield with a bond account on public. But remember, your yield isn't locked in until the time of purchase, so you might want to act fast.

19:46Lock in a 6 % or higher yield with a diversified portfolio of high yield and investment grade corporate bonds only at public.com forward So our next question comes from Nathan L. Nathan says, hi, Robert and Austin. My name is Nathan, and I've been an avid listener of your podcast for about three years. Thank you for what you do. My question is, I have$50 ,000 invested into a private REIT, real estate investment trust, called Diversa Fund. And there was a five-year vesting period that will mature this December 2025. The company recently pushed out that mature date to December of 2026 due to soft market conditions, but I've seen multiple complaints and lawsuits against the company and I personally am worried if I'm going to even recoup my investment.

20:36I've contacted an attorney in California because that's where Diversifund is based. He said there isn't much I can do until the investing period is over, so what do you all suggest I do? To give a little background, my wife and I are 40 and 39 years old. We gross about$220 ,000 a year in Texas. Our combined net worth is above$600 ,000, and our only debt is our mortgage, which we owe about$140 ,000 at 3%. Thank you again, Nathan. Robert, what would you do? And if you were Nathan's shoes here, right? You invested$50 ,000 into a REIT that's promising you the world. And that REIT ended up saying, oh yeah, we're just going to like give it another year, soft market conditions.

21:17Like how would you feel? What actions would you take to maybe preemptively get ahead of what could not be? So yeah, I'll let you, I'll let you take it away here. Yeah. I've been down this road many times in my storied career. And unfortunately you're in a tough spot. I'm going through it right now with a REIT on an oil drilling company that I've owned for many, many years. And here is, let me step back for everyone else that is listening. First and foremost, be careful where you invest money in these REITs. Do the research because anyone can put together a slick website, make a cool deck, give a great presentation, but make sure you do the homework to understand what is their track record?

21:59What has their internal rate of returns that IRR been for previous projects for their investors? What is the overall plan to make sure you don't get in this situation? Because a lot of people just get excited. They get cash. They want to invest in real estate and they don't do the research. So that's for everyone else. In this situation, Nathan, the thing I would do first and foremost is I would say, Hey guys, not happy. What I would like to do is get a copy of all the PNLs with all the fee structures and everything for the last three years. So I can take a look and make sure everything is in alignment with what I agreed to when I joined this and invested the money.

22:38Second, I would also ask the question, once you get your ducks in a row, are you freezing all future fees? This is very important because if they really do care and they're saying we're pushing this back because of a soft market, then they're likely going to freeze fees or discount all the fees for everything they do for management and carry and all this other stuff to be able to make it better for you guys because of the extended wait period. Those are the two main things I would start with. But from a legal perspective, you don't have much of a leg to stand on because you can't really do too much.

23:14You could try to file a lawsuit. You could try to find other investors to go in with you to go after them, maybe with a small class action lawsuit. But in most instances, you're just going to have to wait and see. But do those two things in the meantime, because you'll at least know more about where you stand and if they're being egregious with their fee structures. Oh, yeah. Just looking at this website and you're right. You know, it's got they got all the slick AI powered photos and it looks, you know, the emojis and, you know, they got all this stuff to make it seem like it's awesome and cool and everything.

23:51It's sad that companies like this exist. And let's give them the benefit of the doubt that, yes, soft market conditions and you all are owed your money. Let's assume you're going to get your money back. And after they sell, which probably some sort of commercial apartment or whatever they ended up using your money for, you're going to get your money back. Benefit of the doubt. I'll say that because who knows? If I were in your shoes, I would do what Robert said. You guys have a net worth of$600 ,000,$50 ,000 sucks, but it's not going to ruin your life, right? So I would also begin to have some self-reflection and come to terms with like, wow, if I lose this$50 ,000, what lessons did I learn from this?

24:29What red flag should I have caught earlier. How can I approach investing in real estate again in a different manner that makes sense to me? Does it mean buying publicly traded REITs like VNQ or IYRI that are ETFs that you can sell in an instant to get your money out? Does it mean using a different, you know, trusted platform that's been around longer like Fundrise, for example, right? So like, if I were you, I really wouldn't beat myself up too much about this. We've all lost money with investments that seem cool, like really don't beat yourself up on this. What's most important is how you move forward, the lessons you learn from this.

25:07And again, fingers crossed, I hope you do get your money out. I would expect them to do that. I hope as interest rates continue to come down as they have for the last several months now, hopefully that will make it easier for them to exit whatever their commercial real estate sort of project is here and return you your money, even if it's at a little bit of a loss. So our next question comes from Alex. Alex says, hello, Austin and Robert. My name is Alex. I've watched every single one of your episodes up until now. You guys are incredible. Thank you for everything you do. Thank you so much, Alex.

25:37It means a lot to us. Alex says, just to start off, my situation is probably similar to a lot of people. I'm 24. I've opened up a Roth IRA on public, but I've not yet started depositing funds. I've got a rental property, which I currently rent and I've had the last three years, brings in about$200 a month of profit. I make$77 ,000 a year and after bills and expenses, I save about$1 ,000 a month. I just got engaged. We're currently in the midst of building a home. I have a couple thousand dollars saved in a high yield savings account right now, but I would like to get started and I want to see the roadmap and what that looks like for me at this stage of my life.