Making $400,000 Is Causing Problems With Investing

Nate is on the line in Phoenix welcome to the Dave Ramsey show Nate hey how are you there better than I deserve how can I help hey I've got a question that I feel like I should know the answer to I've been listening to you for like 12 13 years and surprisingly I don't know my own answer so I own my own business and I'm trying to figure out first of all I'm on baby step 4 4 5 & 6 I'm trying to figure out if I should be doing 15% of my gross or my net I guess question 1 but I've got kind of a follow-up to that okay the it gross before taxes not gross revenues okay Cibola income not after-tax income so when I ask someone what their household income is they tell me before taxes typically sometimes or they'll say after tax either one and I'll convert it back while I'm talking to them if you've been listening if you heard me do that so if you mean if you say I make $100,000 that means you your business made a profit of $100,000 but you hadn't yet paid your federal income tax and that would be 15% of that number is what we're recommending and maybe step 4 okay so that part I was on I was on point so I thought that was correct so my follow-up is so based off of my income 15% I'm I can't get to 15% because I'm maxed on all of my so we have fully funded symbols from my wife and I and we have fully funded our rocks that we have been done a back door so with that we still have room to go and I don't know how to get there because as far as I know the only thing above to play what 18 19,000 and your simple yeah okay and your wife working for the business as well yeah so you put you put 38 in there right okay and to backdoor Ross so another 13s or 41 so you're making Bank baby right and that yes so what are you making like 400 grand yeah yeah okay for you absolutely awesome man good for you well here's the thing you're not gonna go broke saving forty five thousand dollars a year you're gonna be a millionaire just doing that very quickly right that's pretty substantial savings in just those two government accounts the simples and the Roth's and you can set the symbols up as Roth's – I think can't you I know I don't I don't think so um I think you can you might want to check on that but I may be wrong that's aside nuance in the discussion okay but what can you do after that you've maxed out all that's available to you it's that simple in terms of tax protected retirement plans the only other thing you could do to get to 15% would be to just invest in some mutual funds and what I do there and I'm in the same boat you're in is I actually use for my shorter term investing no load index funds because I'm not investing for the long term I'm gonna roll that over into real estate after it gets enough in there okay so I'll take just an S&P 500 fund because it has a low turnover ratio even if you don't go that route look for low turnover ratio and here's why here's what that means the turnover ratios how many times they sell the stocks inside the mutual funds in a year so if they had a 50 percent turnover ratio that means I sell half the stocks in a year which activates all the capital gains on those stocks if you own the mutual fund and it's not in a retirement account okay and we're not in one we're out we're out in the cold here that we're talking about so if you had a low turnover ratio meaning they sold almost none of the stocks a year like 3% turnover ratio okay which which an index fund is an easy book place to find that like an S&P 500 it'll have a 3/4 percent turnover ratio that means that the stocks are growing and they're and they're not activating the capital gains because they held them it's like buying an individual stock or a rental pretty if you bought a share of stock for $50 and it goes up to $70 you don't pay taxes on the $20 until you sell it and that's all this is they're not selling it so you're not paying taxes on it see you in effect have tax deferred gain and if you hold it at least a year it's gonna be capital gains rate which in your case in my case is 20 percent so if I'm saving then when I have enough because I do are buy real estate I'm in real estate so one is I just use that account and when I get like a couple hundred grand in there I'll go buy a property okay and do you pay any sort of when you pull that out do you pay taxes at that time capital gains on whatever you pull out if you've left it in there at least a year if you didn't leave it in there a year it's gonna be ordinary income on your gain which your butt kicked on that but there's no penalty because it's just a it is a capital gain tax and it will be you know if you're over 400 it's 20% so your but still less than what you're paying on taxes your taxes are 40% almost so you know it's still half leave it in there a year let it grow and that's only on the gain you've already paid taxes it's an after-tax investment there's no shelter on it at all but it but if you left it alone ten years and it went up a million dollars you don't pay taxes on that gain until you cash it out just like if you own a rental house and it goes from 200,000 to 300,000 in value you don't pay taxes on that hundred thousand dollar gain until you cash it out and what tax people call realized versus recognized it's a realized gain but it is not recognized because I'm not activated that tax with the sale okay so your only thing what you were talking about with the with the low turnover you're only paying whatever your active or your capital gains would be would be only if it's turning over during that time other than that you don't pay anything until you check it out yeah okay and and if you held it at least a year your taxes on the gain are only going to be 20% not 40% like your income is so it's a great man it's a great deal and I use that tool all the time to save to buy a piece of ground or the office building or another piece of property or something and that's my my real estate thing and consequently what's ended up happening is I've ended up with more money in real estate than I have a mutual funds just because of its gotta not belong over that direction but it's kind of fun let's go I love real estate so it's easy for me to do that and if you want to just leave it in there if you like mutual funds better you just leave it in there let it grow that's okay too but at least you've still got tax deferred growth effectively because it's a capital gains type growth and you're not paying taxes on the until you cash it out and when you do it's only an ordinary income that's better than any annuity product out there because the new 'ti products when you catch them out are all taxed at ordinary income so this is a really sweet strategy and when you're killing it like you are man way to go I'm so proud of you great job man obviously doing a great job in the marketplace very well done

Author Since: Mar 11, 2019

  1. 2 Rich guys talking about how they cheat taxes…These are the kind of loopholes that need to be closed. Write your congressmen.

  2. Brokerage account/real estate. At that level of income you’re not going to want everything in tax protected accounts that you can’t touch until retirement anyway.

  3. The Contributing yo Roth advice wouldn’t apply to this guy thou, You can’t contribute to Roth if you make more than 130k a year

  4. For those of you wondering how to invest even more beyond the limits talked about instead of wanting to perpetuate false political stereotypes one avenue to think about is rental real estate. Before you say "I don't want to deal with that" you can hire a property manager. We take a cash flow of about 20K per year or 12% tax free thanks to depreciation offset. Then you have the benefits of equity growth for another 40K per year or 24%. Hard to beat that with taxable after tax mutual funds.

  5. Shovel extra money into a Large Whole Life policy that will build cash value gain around 4% interest and you can take tax free loans against it

  6. Gosh I hate when people make over 200k yearly then call in to brag this guy knows exactly what he’s doing….. and no if you make over 200k it’s not impressive at all if you retire a millionaire in fact if you don’t you should be ashamed

  7. This video sounded like advanced calculus being taught in Klingon…. literally no clue what they were talking about. 😂😂😂

  8. No load index fund… s and p fund Bc low turner over ratio.. capital gains tax after 1 year rather than regular income tax.

  9. Boo hoo call the wambulance. Get over yourself you make more than 95% of the working population and you are bitching

  10. I can't imagine myself being where I'm now without the help of Masterfixer, They sent $25000 to my bank account for me to invest and I'm really grateful to MASTERFIXER…. you can also contact Masterfixer on Gmail [email protected] DOT COM
    There is no doubt Masterfixer is legit and very Trustworthy

  11. Upgrade that SIMPLE to a 401(k) – higher contribution limits and a lot more flexibility with features and investment options. 🙂

  12. Dave: I want you to know that some people live in countries you probably never heard of and follow your advice every day! You are a great mentor and and an awesome man with integrity to his family and field! God bless you man!

  13. Came to the comments to read all of the inevitable “he just called to brag” posts from the all of the people with victim mentalities. Here’s a tip…I can save you a lot of time by letting you know that there is nothing you will learn from this channel. You are your own worst enemy…not your lack of knowledge of investing or handling money. You attitude will
    never allow for success. So, you might as well move on to something else.

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