I Stopped Maxing My 401k | Now I Pay 0% Taxes on $126,700/Year

About this video

• Video Title: I Stopped Maxing My 401k | Now I Pay 0% Taxes on $126,700/Year
• Channel: Budgetdog
• Speakers: No speakers identified in the transcript.
• Duration: 00:14:20

Overview

This video explains tax optimization strategies for high earners, moving beyond the traditional 401k to build a multi-million dollar portfolio. It introduces an investment hierarchy, highlights the benefits of accounts like HSAs and Roth IRAs, and discusses advanced techniques such as tax-loss harvesting, direct indexing, and the real estate professional status loophole. The presenter also demonstrates a tax drawdown calculator to illustrate how to withdraw significant income tax-free.

Key takeaways

• Investment Hierarchy: Prioritize contributions beyond the employer 401k match, moving to Roth IRAs, maxing out the 401k, then HSAs, and finally taxable brokerages.
• Triple Tax Advantage (HSA): Health Savings Accounts offer significant tax benefits (tax-deductible contributions, tax-free growth, tax-free withdrawals for medical expenses) and should be maximized.
• Tax-Efficient Fund Placement: Assets should be placed in accounts based on their tax efficiency, with less tax-efficient investments like REITs ideally held in tax-advantaged accounts.
• Tax Loss Harvesting & Direct Indexing: These strategies allow for greater customization and tax management, particularly beneficial for high earners with large portfolios.
• Real Estate Professional Status: This loophole can offer significant tax benefits by allowing business income to be offset, but requires meeting specific service and hour thresholds.
• Tax-Free Withdrawals: By strategically balancing pre-tax, Roth, and taxable brokerage accounts, it's possible to withdraw substantial amounts annually with 0% tax liability, as demonstrated with a $126,700 example.
• Common Mistakes: High earners often make mistakes such as not utilizing the Mega Backdoor Roth, ineffective tax-loss harvesting, and over-relying solely on a 401k.