5 Ways I Help My High-Earning Clients Build More Wealth

September 23, 2021

Congrats! You're earning more money than ever and your personal finances are in great shape. You've checked all of the "financial basics" boxes, maybe even more:

So, what's next?

When you're doing all the right things, pat yourself on the back. Then consider these five advanced ways to take your financial plan to the next level so you can keep growing towards your goals.

1. Backdoor Roth IRA conversion

Do you make too much to contribute to a Roth IRA? If you earn more than $140,000 (single filer) or $208,000 (married filing jointly) in 2021, the IRS says you're no longer eligible to contribute to a Roth IRA.

But, you're in luck. There's an IRS-approved workaround for high-earners called a backdoor Roth IRA conversion.

Here's how it works: You open traditional and Roth IRAs at the same time. You can contribute non-deductible dollars up to $6,000 for 2021 ($7,000 if you're age 50 or older) to your traditional IRA, and immediately convert these dollars to your newly opened Roth IRA.

Each year, typically around tax time, you can repeat this process to continue building the tax-free bucket of your overall retirement portfolio.


2. After-tax 401(k) contribution

If you're already maxing out your company's 401(k) plan, you're setting yourself up to afford what you want and need when retirement rolls around. Some employers even offer you the option to contribute even more than the $19,000 (2021) limit with after-tax 401(k) contributions.

This is an excellent way for high-earners to sock away even more money in a tax-advantaged investment account.

Here's how it works: First, check with your employer to see if they allow this type of 401(k) contribution. If they do and you're already maxing out at $19,500 for the year, you might be eligible to contribute an extra $38,500 ($45,000 if you're 50 or older) of non-deductible dollars. This total includes any employer match you're already getting, by the way.

There are potential tax implications, so be sure to check with your accountant or financial advisor before making this decision.

Either way, that's a huge win for anyone looking to maximize their tax-advantaged retirement money.

3. Mega backdoor Roth conversion

So far, we've covered backdoor Roth conversions and after-tax 401(k) contributions. A mega backdoor Roth conversion is when you combine the two, which is great if you want maximum flexibility and tax-free growth with your retirement money over the long-term.

And don't we all want that?

Here's how it works: Employees who are eligible to make after-tax 401(k) contributions can immediately convert this non-deductible portion of their 401(k) to a Roth IRA or Roth 401(k), depending on your specific employer's plan rules. 

A small caveat: Mega backdoor Roth conversions can include a lot of moving pieces. To avoid surprise tax bills and ensure this gets done correctly, seek the help of a qualified financial professional.

4. Charitable investment accounts

Do you want to support charitable causes over your lifetime? Maybe you care about mental health, donating to the local hospital, or supporting your church. And what if you received a big upfront tax deduction for your charitable goals?

That's the benefit of a donor-advised fund, AKA a charitable investment account.

Here's how it works: Opening a donor-advised fund is as simple as opening a brokerage account. You're able to donate cash, appreciated stock, even required minimum distributions, and receive a tax deduction for your contribution in the same year you made it. 

Year-over-year, the money in your donor-advised fund grows from the investments you choose, and you're able to slowly withdraw and donate this money to charitable organizations over your lifetime.

This is a popular strategy for high-earning tech and startup folks who have appreciated stock and want to minimize their tax hit while supporting causes they care about.

5. Mid-year tax strategy calls with a CPA

Are you sick of surprise tax bills? When your financial life becomes more complex (e.g. more investments, higher income, equity compensation, running a business), it's probably time to hire a CPA.

And not just to "do" your taxes. 

Here's how it works: One of the most valuable investments you can make is having a mid-year strategy call with a CPA you trust. During these mid-year tax-planning calls, a CPA will help you proactively look ahead at the next one to two years and make financial adjustments around your changing tax situation.

If you get paid in equity, own a business, recently got married, or bought a house, a mid-year tax-planning call is one of the first recommendations I make for new wealth management clients.

It's truly a no-brainer.