September 12, 2025 • 36 mins
Roth IRAs can offer substantial benefits. Tax deferred growth, tax free withdrawals and no Required Minimum Distributions. But if you are single and your Modified Adjusted Income is greater than $150,000 or your joint income exceeds $236,000, you are not eligible for a Roth contribution. However, there is a work around and it’s called the Backdoor Roth. We’ll explain how it works, the benefits and the rules, this afternoon on the Jon Sanchez Show at 3pm.
👉 Watch this episode on YouTube: www.youtube.com/@thejonsanchezshow
👉 To learn more about retirement planning and wealth management in Reno, visit: sanchezgaunt.com
Compliance Disclosure: This program is for informational purposes only and should not be considered investment, tax, or legal advice. The views expressed are those of the participants and may not reflect the views of Sanchez Gaunt Capital Management. Investing involves risk, including the possible loss of principal. Past performance is not indicative of future results. Always consult with a qualified financial professional regarding your individual situation before making financial decisions.
👉 Watch this episode on YouTube: www.youtube.com/@thejonsanchezshow
👉 To learn more about retirement planning and wealth management in Reno, visit: sanchezgaunt.com
Compliance Disclosure: This program is for informational purposes only and should not be considered investment, tax, or legal advice. The views expressed are those of the participants and may not reflect the views of Sanchez Gaunt Capital Management. Investing involves risk, including the possible loss of principal. Past performance is not indicative of future results. Always consult with a qualified financial professional regarding your individual situation before making financial decisions.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:01):
Good Wednesday afternoon to you.
Speaker 2 (00:02):
Welcome to the John Sanchez Show on News Talk seven
eighty k which it's a pleasure to be with you,
in a pleasure to be with my co host, mister
Jason Sanchez, gunt Capital Management, Big Jay. What's a good word?
He Darie Olsen is a lot richer today than he
was yesterday.
Speaker 3 (00:16):
I mean, wow, Yeah, insane move. I mean again, a
lot of it linked to a couple of big folks,
but Oracle was certainly the talk of the town. Obviously
there's some sad news in the after hours, but as
far as the markets were concerned, today, Oracle ended the
day up thirty six percent. What's that make Ellison number
(00:40):
two pre or close to?
Speaker 2 (00:44):
Yeah, he was number one when the stock was at
about up about one hundred bucks, and right now and
after hours it's at up eighty nine and including regular
session and after our eighty nine eighty four's where it
is right now. So yeah, he surpassed Elon today. It
becomes the world the world, not just in the US,
the world's richest man, folks. We're jumping this right into this,
(01:06):
so bear with us here. But it's kind of fun
to talk about He made one hundred billion dollars today
in the appreciation of the stock Betune yesterday's after hours,
in today's normal session, one hundred billion dollars.
Speaker 3 (01:21):
Incredible.
Speaker 1 (01:22):
How do we take our company public?
Speaker 3 (01:25):
Well, if only we could have a revenue backlog like
Oracle had, then yeah, we we'd also be very very happy.
But it was I mean, it just shows that, you know,
people identify one of the top firms in the space,
and if you wanted to transition from where you are
now to a technology of the future, you're going to
(01:49):
lean into folks like Oracle, And that really just showed,
you know, based on the move in the stock, there
was a little bit of a short base in it,
clearly just merely because they're numbers were in line last quarter.
Their numbers were a touch light this quarter. But really
what they said is they're expected revenue that they've already booked, right,
(02:09):
So these are deals that they have in the pipeline
are massive, to the point of a fifty plus percent
compounded annual growth rate over the next four years. So
that's why the stock shot up thirty six percent today
was high as up forty plus percent, just because you know,
the likes of open Ai, which was mentioned, but there's
(02:31):
others that they've truly already booked to build out data center,
linkage technology, et cetera for years to come. And that's
why the stock was such a moonshot today.
Speaker 2 (02:41):
Yeah, it really was. As I discussed on the show
yesterday with Corey and Dwight, they didn't have a good
quarter that they just reported on. They actually missed expectation
on both the earnings per share and the revenue, so
the top end the bottom line. But as exactly as
Jason's talking about it, it's what was booked right, and
was at thirteen hundred forty five percent improvement from a
(03:02):
year ago or something as some staggering thousand plus percent improvement.
And I don't know, you know, I I never used
to be this way before you came into my life.
Speaker 1 (03:12):
So I'm gonna blame you.
Speaker 2 (03:13):
But I look at stuff something like that and I
and I kind of look at it again. I use
the analogy and when eyebrow up and when eyebrowed down,
I'm like, hmm, you really had that big of one quarter.
Speaker 1 (03:24):
I mean, how do you you know?
Speaker 2 (03:27):
We learn a lot from doctor Denis Sanchez, right, he's
in there was in that corporate world, and things like
that take a long long time to book those type
of contracts and for all of them to hit I
shouldn't say all, but a vast majority of contracts of
that size to all hit in one quarter.
Speaker 3 (03:47):
I don't know it just it's a basic Yeah, A
couple of deals they had been working on that sort
of all came to fruition during that quarter. And remember,
I mean you guys talked about the rapidity of of
the adoption, right, And there's some companies that are you know,
uh in a spot that they know they have to
(04:11):
go do something, and these are big deals you're going
to commit to, uh, you know, a firm like this
to say, look again, I'll just make something up. You're
John Deere and you have no uh you know, sort
of technology all uh AI, artificial intelligence footprint whatsoever. But
(04:33):
someone in your technology team is like, look, imagine if, right,
we could take this data and get this.
Speaker 2 (04:41):
Imagine I said, kind of like our discussion internally, I imagine.
Speaker 3 (04:48):
Yeah, And that's what big companies are doing. And someone
is saying, look, we're going to either spend the money
and potentially be wrong, right, Like we're going to spend
all all this money and ultimately see one one hundredth
of the revenue we think we're going to get because
people are going to be like, great, I don't care
that your tractors can all drive themselves. Like farmer Joe
(05:10):
doesn't give a rats backside. He just wants to drive
it and his kids, don't you know what I mean? Like,
there's the technologists that are thinking of things, and then
there's sort of the practical users, right, so that's going
to be the hiccup for AI down to the road.
Speaker 1 (05:22):
Let's go back a little bit again.
Speaker 2 (05:24):
We were not even planning on talking about this, but
this is a great, great topic.
Speaker 1 (05:27):
Let's go back a little bit.
Speaker 2 (05:28):
You know, we, you and I, we live and eat
and breathe these data centers and what they do and
the you know, Amazon Web Services and Microsoft as you're
and all these major tech companies that we talk about
the cloud and these data centers. Let's take two seconds
and backup for those that don't know what the heck
we're talking about and what's a data center and why
are these companies like Oracle just gobbling up data center
(05:52):
space or building new ones as we're seeing around the country.
Speaker 3 (05:55):
Yeah. I mean, I'll keep it super simple, going from
two of our brains duct taped together to a million
brains duck to date together. And that's what a data
center is. It's just a really big, fast SuperBrain that
holds lots of information that's added to and appended to,
you know, And the faster you can be, the more
(06:17):
efficient you can be in sourcing information in one spot. Remember,
data takes time to move, right. We've talked about NASDAC
where they were co locating New York Stock Exchange. Same thing.
The people who had the stuff as close to the
exchange made the most money because they could react the fastest.
Right where to have these, you know, you go make
(06:39):
a call to Perplexity, Chat, GPT, copilot, whatever one you
decide you want to use. Think of all of the
data crunching it's doing. We just go, oh, I type
in a search and it gives me this back. Or
I want to create a video of a cat, you know,
you know, dressed in Star Wars gear assassinating mice that
look like you know, they're on the Star Like. Think
(07:01):
of what that takes to go create that thing. Think
of all the ways to do it, and then create
a video for you, right, And that's what these data
centers are is the more of them, the more processing speed,
the more space they have to store information. There's going
to be winners and there are going to be everyone else.
I promise you there's not going to be fifteen jat GPTs.
(07:25):
There'll be little agents where each of us have our
own thing that you know, Sanchez Gaunt can have clients
interact with the front end and we're not doing this tomorrow,
but you know, they never have to talk to a
person and it's just all this Q and A on
the front end of how do I roll over my
IRA or what's my RMD or all those sorts of
things that we've pre programmed all of our knowledge and
data into it. It can give them accurate answers. All these
(07:47):
companies are going to do it well. In order to
get that, they need to put it somewhere, right, We're
not going to build a server farm in our backyard.
It's too expensive. We probably aren't worried about latency, like
I don't need it, you know, instantaneously, because.
Speaker 1 (07:59):
Our doesn't make a difference to us.
Speaker 3 (08:01):
Right, our clients are not going to ping our API
and try to pull data and day trade with it, right,
but they want to have quick response, and that's why
we would just store all of our data Azure or
a data center of Oracles or something, and then build
all the AI the agent information there so that you
ask us a question, it's all in one place, it
(08:23):
spits out an answer. And think of all of the
companies out there, big and small that are going to
use this, and that's the bet that Meta and Microsoft
and Oracle, who builds a lot of the technology around
it what they're tasked with doing. So it's very exciting.
It will be a bubble at some point, but I
think it's a very investible space as we've seen now
(08:44):
and for years to come.
Speaker 2 (08:45):
And there's a lot of ways, folks, that you can
play that we can't get into any specific names. But
there's a real estate investment trust a rate that we
deal with that we have our clients in that this
is one of their largest holdings. I shouldn't say one
of the it is a large holding of a diversified
real estate portfolio that invest in these data centers, data farms,
whatever you want to call them. Because again, this is
(09:07):
the wave of the future. You don't hear a lot
about industrial or some of the other hot areas of
commercial real estate. Now now it's all data centers. Right,
Who's who's investing Because put it this way, folks, you
know a Meta, An, Amazon, et cetera. Don't think they're
going out and they're buying these data centers, right, They're
they're they're probably they're helping fund if not funding the
(09:28):
whole thing. But what they're doing is they're getting a
company like a real estate investment trust to come in
and buy that and then they will turn around and
lease that data center from aforementioned company. Right, there's tax advantages,
they're not tying up all their capital, and you know,
I could go on and on for all the various reasons,
but it is a very very hot area. And like
I agree one hundred percent, Jason, I think this is
(09:49):
an area that's going to continue to grow. But it's
just one of the ways that you can play quote
the AI game. Right, you don't have to invest into
a pure AI company. You can you can do the
infrastructure play. We've spent a lot of time talking about
the nuclear power facilities, right, and that's one of the
other big challenges of these data centers.
Speaker 1 (10:06):
Is how the heck are you going to power them?
Speaker 3 (10:08):
Right?
Speaker 1 (10:08):
You can't.
Speaker 2 (10:08):
You can't plug into Envy energy. If you're you're building here,
you can't plug into Envy Energy and go, hey, we've
got this, you know, five hundred thousand square foot data
center with a million servers sitting in there. It's not
that easy, right, They got a lot of times create
their own power, and that's why these little nuclear type.
Speaker 3 (10:26):
The SMEs you've got names like Vistra VST. That's up
one thousand percent in the last five years. And that's
what they do. They're just power generation that are tapped into.
You know, they're down in Texas. Guess what's also in Texas?
Google and Tesla and you know. So it's a new
exciting world and this, you know, the flip side is
(10:47):
a lot of these things have moved a lot too.
You know, you just want to keep a close eye
on valuation a little thing, so be diversified.
Speaker 1 (10:54):
The name of the game.
Speaker 2 (10:55):
All right, Well, we didn't get a chance to tell
you what we're going to be talking about today. Got
a very exciting topic. Cannot wait to man and that
we'll do that when we come back. Let's turn it
over to Jack Sapan. He's in the right now traffic center, Jack,
how we do look at that? Welcome back to the
John Sanchez Show. On this took seven to eighty k
O which with Jason gotten first before we get to
get into business again.
Speaker 1 (11:12):
And Jason briefly mentioned this at the beginning of the show.
Speaker 2 (11:15):
Our hearts and prayers and thoughts go out to Charlie
Kirk's family and and everybody out there, young vibrant voice
of America. Uh and obviously for Magma and so on
and so forth. But just a tragic, tragic loss today,
being shot down at a you know, on a university
campus of all things. And unfortunately, you know, I'm sure
most of you have heard he you know, he passed away.
(11:37):
And so yeah, like you said, Jason, just you and
I were chatting for the show, just a little bit
of a little little bit of a dark cloud over
everybody today with that.
Speaker 1 (11:44):
It's just a tragic scene.
Speaker 2 (11:46):
There's a lot of way too many crazy people out there,
way too many crazy people. All right, let me tell
you what we what we have lined up for you
this after And like I said, I'm very excited about this.
Been working hard on this for here all of you today, Jason,
I have we touched on this on Wednesday, or excuse me,
on Monday in track of the days touched on this
subject on Monday when we're talking about roth irays and things,
(12:09):
and we said, you know what, on Wednesday, we're going
to do a show that many of you have never
probably heard about before, and it's called a back door
wroth Right. So remember, folks, roth iras can do a
lot of things for you, right, substantial benefits, tax deferred growth,
tax free with draws, no required minimum distribution or what
(12:30):
we call r and ds. But if you're single, here's
the problem. If you're single and you have modified adjust
a gross income of about one hundred and fifty thousand,
you no longer can put your money into a roth ira.
You make too much money. Single one to fifty or
more can't do a roth ira. If you're married and
you make more than two hundred and thirty six thousand,
same thing, you can't fund a roth ira. So what
(12:52):
the heck do you do if you want tax free
with drus is? Remember, folks, the benefit of the roth
ira as long as you leave that money in for
age until age fifty nine, and a half or five years,
whichever is longer. You get to pull out all of
your gains one hundred percent tax free. So think about
that for a second. Think about in retirement having a
massive nast egg hopefully for you, that you get to
take out and not pay a dime of state federal
(13:14):
capital gains zero tax. Right, it's a dream for everybody.
So but again, a lot of people make more than
the one to fifty or the two hundred and thirty
six thousand. So there's a workaround, and we call it
again the backdoor Wroth. So what Jason are going to
be doing when we come back from the bottom of
the hour break is We're gonna explain how this works.
We're going to get into the benefits, the rules, because
(13:35):
like anything, you have to understand the rules and how
you can make this work. We're going to try to
get into some pros and cons and different things like that.
But Jason is it is a probably one of the
most powerful strategies in my opinion as far as retirement
savings is concerned. That I think very few people That's
why I was so excited to do this topic with you.
I think very few people even know that exists, but
(13:58):
they probably don't know about the funding rules. A lot
of people don't. It's not you know, really well published,
but much less how you get around it. And I
before you answer, I want to I want to bring
up a quick story so those of you folks, if
you want to read about this, it's really a phenomenal story.
Peter thiel Or, right, he was one of the you
know what's going with that, Yeah, one of the co
(14:19):
founders of PayPal right way back in the day. Right,
and he's gone on to you know, he's involved in
he's mister Silicon Valley basically. But way back in the
day when PayPal, when it was just an idea, he
took his This was oh, I don't even know.
Speaker 3 (14:33):
It was one hundred million bucks. It was a big number.
Speaker 1 (14:35):
No, not one hundred I think that.
Speaker 2 (14:38):
No, No, it was it was like five ten thousand
dollars A, yeah, it was.
Speaker 3 (14:44):
It was like next to nothing.
Speaker 2 (14:46):
But but the bottom line, he invested his wroth ira
using this back door strategy. You used his wroth ira
to buy his initial shares of PayPal. And I'm sure
he was given some et cetera. Well, that little tiny
investment is now worth I'll look it up during the
break to get the exact numbers, but significant sums, you know,
(15:07):
probably north of at least one hundred million dollars, if
not more, all tax deferred, all tax free.
Speaker 1 (15:13):
Right again, most people aren't going to do that.
Speaker 2 (15:16):
But as Jason and I will get into no we'll
call it probably in another month or so, we're going
to show you a way that you can do the
same type of thing you want to use an IRA
to invest into a business. Guess what, we now have
the solutions that we're gonna be able to help you with.
And so this is like a little primer, but you
got a lot of things that you're gonna you're gonna
really fall in love with as we go through this
topic today.
Speaker 3 (15:35):
Yeah, I mean again, we do this for lots of clients,
you know, and most of your hopefully four oh one
k's allow a traditional or ROTH option. Right, So this
is the we've filled up that bucket and now we're
looking for other places to invest. You can put infinity.
You could make infinity dollars and still contribute to a
(15:57):
traditional IRA. And again we'll get into the logistics, but
it's the thought of how do I make it a
wroth I don't want to pay taxes on in the future.
Here's a great way to do it to you know,
where you can pay the taxes now, which you had
to do anyway if you wanted to put it into
a traditional because you make too much. And I wouldn't
be surprised John wouldn't if they change this rule at
(16:19):
some point, just because.
Speaker 1 (16:19):
It challenged it a few times.
Speaker 3 (16:21):
Really, it's why say there's a max do you know
what I mean? Like it's kind of.
Speaker 2 (16:25):
Oh, I know, yeah, well it's the government's way, right, yeah,
And it was I'm going to if I remember, I
think it was probably two maybe three years ago. Remember
you and I were a little bit panic along with
other financial advisors, that they were going to do this.
Biden administration was trying to close this loophole of the
backdoor roth Ira and it kind of came down to
the you know, twelve hour and then they just took
it off the you know, the agenda. I forget if
(16:47):
it's the Senate someone in the center of the house
up to close it. But yeah, who knows how long
it'll remain. It's been around, like I said, for many,
many years, and but the government doesn't like it, folks,
because it's working. To share with you, in the strategy,
they're really not getting their money, you know, they're not
getting their tax dollars like they're gonna get when you
fund a traditional IRA and you pull the money out
(17:10):
of you know, some portion of it or all of
it when you retire and you get to pay you know,
taxable income on that roth IRA and you go to
pull that money out into the same scenario like I
said earlier, zero tax on there. So what do you
think the government's more favorable on the traditional where you
get to pay tax or the roth where you don't.
We know the answer to that one. So yeah, it's
gonna be a fun one. All right, my friend. We
(17:32):
touched a lot about Oracle in the first segment. What
else on your mind today in regards today's market action
kind of sloppy on the down side of things. Apples
under pressure, no follow through from y spp Yeah, yeah, we.
Speaker 3 (17:42):
Got August PPI. We're getting CPI tomorrow. I believe August
PPI Producer Price Index came in down one tenth. Right,
that's another nice feather in the cap of the rate cutters.
You know, prior was revised down to just a plus
point seven from a US zero point nine. So ultimately
(18:02):
the producer side is not reflecting the angst around tariffs,
and that's actually where it would show up first before
it translated over to the consumer side.
Speaker 2 (18:12):
So it went, well, let's the little caveat into that comment.
That was a big controversy when this report came out
this morning, and many are saying, will know better tomorrow.
That's true to get the CPIY they passing it through?
Speaker 1 (18:28):
Are they are?
Speaker 3 (18:29):
They are?
Speaker 2 (18:29):
They are the retailers passing it through, which it doesn't
appear to be at this point, but we'll know tomorrow,
or are they absorbing it?
Speaker 1 (18:36):
So and so forth. So I just want to throw
that one.
Speaker 3 (18:37):
Yeah, and you've heard from You've heard both, right, You've
heard some companies say they're eating it, others say they're
if they haven't started to pass it on, they're going
to Walmart talked about it specifically. So obviously companies are
going to be fairly opaque on what their strategy is.
We're going to jack all of it up to you,
right exactly, but it in in some cases the country,
(18:59):
it's is eating some of the costs, lowering their prices,
et cetera. So it's doing all sorts of things. And
then will the government allow it to go through with
the courts that are pushing back and forth. Obviously will
be nice and exciting as well, but yeah, PPI would
be the big one. Weekly mortgage applications grew at nine
point two percent. That's a good number of clearly rates
coming down. I got an email the other day from
(19:21):
a bank just being like, Hey, if you have a mortgage,
it could be lower by X, y and z, so
all those we'll start picking away. Yeah. I haven't seen
it for a while for.
Speaker 2 (19:29):
Sure, So definitely, Yeah, one tenth of a percent a
month over month decline on PPI. They're expecting three tenths percent,
and then we get to the year over year up
two point six percent. Expectation was about three point five percent,
So overall is great number. But again, if you're wondering
why the Dow lost two to twenty and NAS like
a small gain of six and the SMP small gain
of nineteen. But by the way, record setting day for
(19:50):
the sp and the nastack, it was salesforce that was
under pressure, down a little over nine bucks Amazon, which
I think Amazon was in just my reduct conclusion, Jason is,
you know, lost a little over seven bucks on Amazon.
I think that was related to the Oracle situation because
they got the business Oracle meaning and Amazon didn't. And
then Apple, yeah, you know, yesterday Jake was filling in
(20:14):
for Ross and he says he traditionally, how does Apple
perform after a big investors or a web conference type
thing like they do, And No, the numbers are actually
it actually goes up on average.
Speaker 1 (20:25):
I went back.
Speaker 2 (20:25):
The numbers are actually pretty good, not huge numbers. But boy,
didn't happen today. I mean, like I said, Stock lost
a little over seven bucks or so, and yeah.
Speaker 1 (20:33):
A little bit of AI enough times probably not.
Speaker 2 (20:36):
Yeah, you're probably right there there is something in there
or I don't know about you, but I'm not going
to go spend another you know, thousand dollars plus on
the iPhone seventeen because it's thinner and it's got a better,
you know, a stronger case. I don't care. I don't
go out and drop my phone. I have a case,
and I really care. If it's you know, this thick
or of this thing, I'm not gonna do it.
Speaker 3 (20:55):
But it's awesome when you take your case off. It
feels like amazing. Yeah yeah, yeah, it's so thin and
like that, I throw a big old case on it.
Speaker 2 (21:03):
Yeah exactly. All right, well we come back. Let's get
to our topic. How does the backdoor roth work. We're
gonna educate you on that, but first let's turned around
to Jack Saban. He's got new trafficking with her. Hey, Jack,
Welcome back to the John Sanchez Show on News Talk
seven eighty ko WIH with Jason Gott. Once again, we
lost two twenty on the data the nazuc row seventy
smp hire by nineteen all right, we're gonna get into
our topic, how does a backdoor wroth Ira work? But first,
(21:25):
as we promised you, we did do a little research
at the break in regards to Peter Thield, right, one
of the probably one of the, if not the biggest,
at least in my mind, he is the biggest success
stories of a roth ira that started with next to
nothing and became a whole bunch of money. So we
got the data. So between nineteen ninety nine and the
(21:46):
year twenty twenty one, mister Thield grew his wroth Ira
from two thousand dollars to five billion. So I was
way off on the growth side. Five billion dollars two
thousand and five billion in tax free.
Speaker 1 (22:03):
And how did he do it?
Speaker 2 (22:04):
He bought like one point five million shares of PayPal
when it was like worth point zero zero zero one,
like probably less than a fraction of a or about
a fraction of a penny. But we all know what
happened with PayPal, right, it ended up getting bought and
so on and so forth, and and uh so now
you know, at least as of this writing, he was
you know, his roth iray was worth about five billion.
(22:26):
And so Jason, you know, you take a guy like that,
assuming you know, he doesn't sell any any stock for
capital gains, you'll probably never pay the government another dime,
you know, because all you gotta do is just take
a little bit of money out, you know, a few
million here, a few million there from his wrath and
never paid dime attack.
Speaker 3 (22:40):
And so yeah, that's where we're gonna I thought he
converted way more. I was wrong.
Speaker 2 (22:43):
That's yeah, that's that's a it's a classic story. And
that's and that's folks kind of believe it or not. That's
kind of where this whole backdoor roth ira. You know
got started. So so once again, if you just joined us,
well we're going to show you is how to fund
a roth ira. If you are over the income limits,
which we will go over with you, that would normally
(23:04):
prohibit you from owning a roth ira. So we've got
a lot of points we're going to get started right here.
Let's start off on the eligibility side. So, like Jason
was mentioning earlier, let's go through the actual hard numbers.
If you are single and you make more than one
hundred and forty six thousand dollars, you can't put any
money into a roth ira. If you are married and
(23:25):
you make two hundred and thirty thousand and more, you
can't put money into a roth ira you are your spouse.
So you know, sounds like a lot of money, but
in reality it's really not right. When you start factoring
everything in, that makes a lot of people ineligible for
the wrath and so many feel like, well wait a
minute here, that's not fair. Well, that's just the way
the rules are at this point. Now, Jason, before we
(23:46):
go into the next one, you brought up an excellent point.
I want you to reiterate it. Give you all the
credit that no matter how much money you make, you
can fund a traditional IRA.
Speaker 3 (23:54):
Yeah. The contribution limits are based on age, so seven
thousand for under fifty eight thousand if you're over. But
it's a question sort of as John's point out, is
it deductible? Right? So yes, I can contribute to a
traditional IRA. I can put seven thousand dollars into it
if I'm forty five years old. But if I make
(24:15):
four hundred thousand dollars a year, I can't deduct that contribution,
which means it's technically after tax money. Because remember when
you put money into an IRA, it's coming out of
your wallet. It's not coming out in your pre tax
in your paycheck. It is you writing a check and
I'm just keeping it simplistic and deposited it into your
(24:36):
traditional IRA account. And at the end of the year,
your TurboTax, your CPA says, did you contribute to a
traditional IRA? Yes? I did seven thousand, Okay, Well your
income is x. You can't deduct that contribution, so it
is after tax money. It will still grow tax free
until you go to take it out. And inside of
(24:58):
that account, do you have a seven thousand dollars basis,
which means if it's now one hundred thousand and you
liquidate the whole account, you've got ninety three thousand dollars
of income and seven thousand of your own money back.
So long winded, but ultimately you can do it. It
just doesn't really give you all the benefits that a
roth does because you don't want to pay taxes on
(25:19):
any of it. It's just that doesn't get you there.
Your basis is there, but you still owe on all
the gains. In this case, if you do a backdoor wroth,
you don't know any money on the gains. You just
pay a little bit of tax now on your contribution.
Speaker 2 (25:34):
So why I mean you're paying tax on the contribution
going into the traditional but getting no tax deduction, and
you're gonna pay tax when you go to take it out,
where backdoor wroth you're putting money in that you've already
paid tax on. So now we're apples to apples, but
we're not gonna pay any tax when we go to
take the money out in retirement. And let's muddy the waters,
which we're not going to get into because we can
(25:54):
spend a whole show on this, and that is the
deductibility of the traditional IRA. Also, not only do you
have income limitation, but also if you participate or even
have a four to one K or similar type plan
offered to.
Speaker 1 (26:05):
You through your employee.
Speaker 2 (26:05):
A lot of people don't know this, you lose your
deductability of the traditional IRA. So there's, like I said,
just a ton of rules on that. But let's stick
to our topic, the backdoor roth. Okay, so just remember
one single, two thirty or or more married, you can't
contribute to the roth IRA same contribution limits as Jason
is eloquently mentioned, seven thousand if you're under a fifty
(26:27):
and eight thousand a year if you're fifty year older,
and that goes for you and your spouse. Now let's
move on to the conversion side of things because this
is where it starts to get real interesting. So okay,
sounds great, John, I'd love to have a pile of
tax free money when it comes to retirement. So how
the heck do I do that? So here's the strategy, folks,
(26:50):
here's the strategy.
Speaker 1 (26:51):
Ready, here we go.
Speaker 2 (26:53):
First thing you're going to do is you're going to
open a traditional IRA. Now you're going to find out
or hopefully we have time to get to it, but
you're gonna find out later. Don't co mingle this with
your existing IRA, and we're going to get into the
tax roles.
Speaker 3 (27:07):
So we create what's called a conduit account.
Speaker 2 (27:10):
Just to give you a term like good, thank you,
glad you threw that out there. Okay, So you're going
to create this brand new, fresh IRA, no matter whether
you have an IRA now or not, start a fresh one.
Speaker 1 (27:20):
Okay.
Speaker 2 (27:20):
So now you're going to put your let's say you're fifty,
over fifty years, let's say you're fifty five, You're gonna
put your eight thousand dollars.
Speaker 1 (27:27):
Into this newly created traditional IRA account.
Speaker 2 (27:32):
You're then going to have us or another firm immediately
create a roth IRA and then, as Jason said, it's
going to become a conduit in other words, you're going
to convert that traditional that eight thousand you just put in,
you're going to convert it to the roth IRA.
Speaker 1 (27:46):
Now, always, always, always.
Speaker 2 (27:48):
Make sure your tax professional is aware when you're going
to look at doing a backdoor WROTH Why because we
don't want you to bump up into a higher tax
bracket and for some other reasons, but always you know,
huddle up with them before. Okay, but when you can
divert that eight thousand, that's gonna be reported as taxable income.
Remember you're putting the money in the traditional you didn't
get a tax deduction. You're funding it with after tax
or you're funding it with the money. It's going to
(28:11):
become a taxable event to you. So you're gonna get
a ten ninety ninth end of the year if you
got the tax deduction going in. If you're just funding
it with after tax dollars, then the idea is don't
let the money grow. Right, So let me clarify that
I did a bad job explaining that pre tax money
where you took the tax right off with an existing IRA.
All right, great, it's gonna be taxable to you. That
eight thousand will be taxble you get it ten ninety nine.
(28:32):
But if you do what we're saying, start a brand
new WROTH or yeah, start a brand new traditional IRA,
fund it with the eight thousand you've already paid tax
on it, you're getting no tax deduction. Then turn it
over through the conduit and convert it to the Roth IRA.
The key is do not invest that eight thousand dollars,
right Jason, don't put it in and go, hey, six
months from now, I'm going to go buy oracle. And
you know, six months from now you're eight thousands turned
(28:53):
into twenty thousand. Because now you just created a taxable event.
We don't want you to have to pay taxes. Put
the eight thousand in, put it in the money market
portion of the traditional ira. Do the conversion. Your eight
thousand you put in should still be worth eight thousand
because it's just been a money market when it goes
into the roth ira. That is the fundamental aspect of
the backdoor wroth conversion. You're just converting money in a
(29:16):
traditional ira into a roth ira and then it can
start to grow. Now, when we come back from this break,
we're going to touch on again a big tax issue
that you need to be extremely well aware of and hopefully,
like I said, get your CPA involved in this whole thing.
But if you do your own taxes, we're going to
educate you on this side of it. Anything you want
(29:37):
to wrap up with on that portion, Jay.
Speaker 3 (29:39):
No, I think it's spawn on. It normally happens hand
in hand. You're going to contribute to the traditional ira.
We just make it a cash target for the portfolio,
and then immediately your son in a WROTH conversion, and
then it converts over into your new WRATH the conduit,
IRA says, with no money in it, you leave it
open into the future. And now you've just moved eight
thousand dollars into your ROTH account and we just get
(30:01):
it invested as we would based on your risk and goals,
and you're off for the races.
Speaker 1 (30:04):
There you go. I love it all right.
Speaker 2 (30:06):
Now, Like I said, there's a little tax rule, not
a little one, actually a big one. I'm saying that
facetiously that you absolutely need to be aware of. We'll
tell you what that is when we come back on
our subject, how does a backdoor wroth work? Let's turn
it over to Jack Saban. He's gonna wrap things up
in the right now traffic center. Hey Jack, welcome back
to the John Sanchez Show on News Talk seven to
eighty k O.
Speaker 1 (30:25):
Wait to a Jason GT. Once again.
Speaker 2 (30:26):
We finished down two twenty on the down nasdeck grows
seven in the SMB hied by nineteen but again record
finished for the NASDAK and the SMP. All right, our topic,
how does a roth backdoor wroth IRA work? So once again,
this is for those of you that are not eligible
to contribute to a roth ira because you make too
much money. Once again, to go over those numbers. If
you are single and you make one hundred and forty
(30:48):
six thousand or more, you can't contribute to the wroth.
If you are married, you can't, and you make more
than two hundred and thirty, you can't contribute to the wroth.
So how do we get money into the roth if
we make more than that amount of money. That's the
back door roth strategy that we're going over with you.
So remember, just to reiterate one more time, how you
do this. You open up a clean don't use your
(31:09):
existing and you're gonna find out why don't use your
existing IRA. And let's say you got one hundred grand
in your existing IRA, and then you want to put
in your eight thousand because you're over fifty. Don't do
that right, put in your eight thousand into a brand
new IRA. We then convert that over into a roth IRA,
and you funded it with after tax dollars. You're moving
it to the roth. Now it doesn't matter how much
(31:30):
money you make. You can do that backdoor wroth. So
that eight thousand, which normally, had you not heard today's topic,
that eight thousand you put in your IRA, you didn't
get a derection grows tax defer it. You pay taxes
when the money comes out with the wroth backdoor wroth.
Speaker 1 (31:43):
Same thing.
Speaker 2 (31:44):
You're putting money you've already paid taxes on into the
IRA you converted immediately. That's the key one more time.
Don't let that money grow. As Jason said, they put
it in the money market portion. And then that eight
thousand you converted immediately into the wroth. And now no
matter how much money you mean, you can do the
back door roth strategy. But as with anything, you must
(32:04):
understand tax rules. And once again this is why you
want to get your CPA involved in your financial advisor
if you go to do this, because if you screw
this one up, it could really really cost you a
whole bunch of money. So there is a little rule
out there, and I say that tongue in cheap at
little rule out there that is called the pro rata rule.
Now you see what happens is the IRS doesn't allow
(32:26):
you to choose, pick and choose outside your traditional IRA
what money you want to do, like a lot of
people have pre tax money in their IRA, they have
post tax money into their IRA, so on and so forth.
Speaker 1 (32:36):
They don't allow you to do that.
Speaker 2 (32:38):
So they have a formula and it's called the pro
rata rule. And again I've got to go quick here,
so once again reach out to us if you want
to get more details. But essentially, this is a formula
where you take the after tax amount. So let's run
the numbers, chase. Let's just do hypothetical real quickly here.
Let's say, okay, let's use let's say you're under fifty. Okay,
(32:58):
so you put seven thousand dollars after tax into your
new traditional IRA. Okay, but let's say you have ninety
three thousand dollars already sitting in that IRA and in
the old pre tax IRA, right, ninety three thousand of
old money you got seven thousand you just put in
for a total of one hundred grand. Well, the rule states
that you have to look at your aggregate combined value
(33:20):
of all of your iras. And if you are self
employed and you have steps and simples and some other things,
you've got to include those. But bottom line is, you
go back, you look at what the value aggregate value
of all your iras were as of December thirty first,
So that one hundred thousand. Once again that we have, right,
ninety three thousand of old money seven thousand of new money.
Now you decide I want to convert that seven thousand
(33:42):
I just put in. So the formula is you take
one hundred thousand the aggregate value of your contribution and
your existing value, divide it by seven thousand your new contribution,
and that tells you what percentage of your backdoor rough
conversion is tax free. So seven thousand buy one hundred
thousand is what seven percent? So that means only four
(34:04):
hundred and ninety dollars is tax free. Of that seven
thousand dollars contribution, this made sixty five hundred and ten
dollars is taxable. So imagine if you have a very
very large IRA. I'm just using one hundred thousand as
an example. You had a very very large IRA, and
you're going, hey, man, this is a great strategy that
we heard about. Guess what, You're gonna be shocked when
(34:26):
you find out how much is really tax free. So, Jason,
that is again one of the biggest gotcha out there
when it comes to the back door off, and hence
why you need to work with someone that knows what
they're doing on these things.
Speaker 3 (34:35):
Absolutely absolutely, all right.
Speaker 2 (34:38):
Now, we're gonna kind of wrap things up with some
strategies to avoid the trap. So roll the pre tax
IRA funds into a four oh one K. This is
another strategy we're out of time to share with, but
this is another way that we kind of get around
this pro rata trap.
Speaker 1 (34:54):
Convert larger amounts.
Speaker 2 (34:56):
Sometimes you want to convert larger amounts all at once
if you're in a low tax bracket year because your
income is down. And Jason, you were just talking about
this personally, you got to track your basis carefully in
that's IRS Form eighty six oh six, so alto.
Speaker 3 (35:10):
That'll give you all that color of what's non deductible
versus deductible from historical inside the account.
Speaker 1 (35:16):
You got it.
Speaker 2 (35:17):
Next week we're going to talk about a super backdoor
ROTH conversion. How that one works. God bless ever, great afternoon.
We'll see more on the John Sanchez Show.
Speaker 1 (35:24):
This program was sponsored by Sanchez Gaunt Capital Management, LLC.
The material in this program was intended as general information
only and should not be taken as specific investment tax
or legal advice.
Speaker 2 (35:35):
None of the information on this broadcast was intended to
be a solicitation for the purchase or sale of any security.
Further information is available by contacting John at Sanchezgaunt dot
com or seven seven five eight hundred and one eight
oh one. John Sanchez offers securities and advisory services through
Independent Financial Group LLC, a registered broker Dealer and Investment
(35:56):
Advisor member FINRA SIPC.
Speaker 1 (35:59):
Securities offered only in States.
Speaker 2 (36:00):
John Sanchez is registered in Sanchez Gaunt Capital Management LLC.
Speaker 1 (36:05):
In Independent Financial Group LLC are unaffiliated entities.
Good Wednesday afternoon to you.
Speaker 2 (00:02):
Welcome to the John Sanchez Show on News Talk seven
eighty k which it's a pleasure to be with you,
in a pleasure to be with my co host, mister
Jason Sanchez, gunt Capital Management, Big Jay. What's a good word?
He Darie Olsen is a lot richer today than he
was yesterday.
Speaker 3 (00:16):
I mean, wow, Yeah, insane move. I mean again, a
lot of it linked to a couple of big folks,
but Oracle was certainly the talk of the town. Obviously
there's some sad news in the after hours, but as
far as the markets were concerned, today, Oracle ended the
day up thirty six percent. What's that make Ellison number
(00:40):
two pre or close to?
Speaker 2 (00:44):
Yeah, he was number one when the stock was at
about up about one hundred bucks, and right now and
after hours it's at up eighty nine and including regular
session and after our eighty nine eighty four's where it
is right now. So yeah, he surpassed Elon today. It
becomes the world the world, not just in the US,
the world's richest man, folks. We're jumping this right into this,
(01:06):
so bear with us here. But it's kind of fun
to talk about He made one hundred billion dollars today
in the appreciation of the stock Betune yesterday's after hours,
in today's normal session, one hundred billion dollars.
Speaker 3 (01:21):
Incredible.
Speaker 1 (01:22):
How do we take our company public?
Speaker 3 (01:25):
Well, if only we could have a revenue backlog like
Oracle had, then yeah, we we'd also be very very happy.
But it was I mean, it just shows that, you know,
people identify one of the top firms in the space,
and if you wanted to transition from where you are
now to a technology of the future, you're going to
(01:49):
lean into folks like Oracle, And that really just showed,
you know, based on the move in the stock, there
was a little bit of a short base in it,
clearly just merely because they're numbers were in line last quarter.
Their numbers were a touch light this quarter. But really
what they said is they're expected revenue that they've already booked, right,
(02:09):
So these are deals that they have in the pipeline
are massive, to the point of a fifty plus percent
compounded annual growth rate over the next four years. So
that's why the stock shot up thirty six percent today
was high as up forty plus percent, just because you know,
the likes of open Ai, which was mentioned, but there's
(02:31):
others that they've truly already booked to build out data center,
linkage technology, et cetera for years to come. And that's
why the stock was such a moonshot today.
Speaker 2 (02:41):
Yeah, it really was. As I discussed on the show
yesterday with Corey and Dwight, they didn't have a good
quarter that they just reported on. They actually missed expectation
on both the earnings per share and the revenue, so
the top end the bottom line. But as exactly as
Jason's talking about it, it's what was booked right, and
was at thirteen hundred forty five percent improvement from a
(03:02):
year ago or something as some staggering thousand plus percent improvement.
And I don't know, you know, I I never used
to be this way before you came into my life.
Speaker 1 (03:12):
So I'm gonna blame you.
Speaker 2 (03:13):
But I look at stuff something like that and I
and I kind of look at it again. I use
the analogy and when eyebrow up and when eyebrowed down,
I'm like, hmm, you really had that big of one quarter.
Speaker 1 (03:24):
I mean, how do you you know?
Speaker 2 (03:27):
We learn a lot from doctor Denis Sanchez, right, he's
in there was in that corporate world, and things like
that take a long long time to book those type
of contracts and for all of them to hit I
shouldn't say all, but a vast majority of contracts of
that size to all hit in one quarter.
Speaker 3 (03:47):
I don't know it just it's a basic Yeah, A
couple of deals they had been working on that sort
of all came to fruition during that quarter. And remember,
I mean you guys talked about the rapidity of of
the adoption, right, And there's some companies that are you know,
uh in a spot that they know they have to
(04:11):
go do something, and these are big deals you're going
to commit to, uh, you know, a firm like this
to say, look again, I'll just make something up. You're
John Deere and you have no uh you know, sort
of technology all uh AI, artificial intelligence footprint whatsoever. But
(04:33):
someone in your technology team is like, look, imagine if, right,
we could take this data and get this.
Speaker 2 (04:41):
Imagine I said, kind of like our discussion internally, I imagine.
Speaker 3 (04:48):
Yeah, And that's what big companies are doing. And someone
is saying, look, we're going to either spend the money
and potentially be wrong, right, Like we're going to spend
all all this money and ultimately see one one hundredth
of the revenue we think we're going to get because
people are going to be like, great, I don't care
that your tractors can all drive themselves. Like farmer Joe
(05:10):
doesn't give a rats backside. He just wants to drive
it and his kids, don't you know what I mean? Like,
there's the technologists that are thinking of things, and then
there's sort of the practical users, right, so that's going
to be the hiccup for AI down to the road.
Speaker 1 (05:22):
Let's go back a little bit again.
Speaker 2 (05:24):
We were not even planning on talking about this, but
this is a great, great topic.
Speaker 1 (05:27):
Let's go back a little bit.
Speaker 2 (05:28):
You know, we, you and I, we live and eat
and breathe these data centers and what they do and
the you know, Amazon Web Services and Microsoft as you're
and all these major tech companies that we talk about
the cloud and these data centers. Let's take two seconds
and backup for those that don't know what the heck
we're talking about and what's a data center and why
are these companies like Oracle just gobbling up data center
(05:52):
space or building new ones as we're seeing around the country.
Speaker 3 (05:55):
Yeah. I mean, I'll keep it super simple, going from
two of our brains duct taped together to a million
brains duck to date together. And that's what a data
center is. It's just a really big, fast SuperBrain that
holds lots of information that's added to and appended to,
you know, And the faster you can be, the more
(06:17):
efficient you can be in sourcing information in one spot. Remember,
data takes time to move, right. We've talked about NASDAC
where they were co locating New York Stock Exchange. Same thing.
The people who had the stuff as close to the
exchange made the most money because they could react the fastest.
Right where to have these, you know, you go make
(06:39):
a call to Perplexity, Chat, GPT, copilot, whatever one you
decide you want to use. Think of all of the
data crunching it's doing. We just go, oh, I type
in a search and it gives me this back. Or
I want to create a video of a cat, you know,
you know, dressed in Star Wars gear assassinating mice that
look like you know, they're on the Star Like. Think
(07:01):
of what that takes to go create that thing. Think
of all the ways to do it, and then create
a video for you, right, And that's what these data
centers are is the more of them, the more processing speed,
the more space they have to store information. There's going
to be winners and there are going to be everyone else.
I promise you there's not going to be fifteen jat GPTs.
(07:25):
There'll be little agents where each of us have our
own thing that you know, Sanchez Gaunt can have clients
interact with the front end and we're not doing this tomorrow,
but you know, they never have to talk to a
person and it's just all this Q and A on
the front end of how do I roll over my
IRA or what's my RMD or all those sorts of
things that we've pre programmed all of our knowledge and
data into it. It can give them accurate answers. All these
(07:47):
companies are going to do it well. In order to
get that, they need to put it somewhere, right, We're
not going to build a server farm in our backyard.
It's too expensive. We probably aren't worried about latency, like
I don't need it, you know, instantaneously, because.
Speaker 1 (07:59):
Our doesn't make a difference to us.
Speaker 3 (08:01):
Right, our clients are not going to ping our API
and try to pull data and day trade with it, right,
but they want to have quick response, and that's why
we would just store all of our data Azure or
a data center of Oracles or something, and then build
all the AI the agent information there so that you
ask us a question, it's all in one place, it
(08:23):
spits out an answer. And think of all of the
companies out there, big and small that are going to
use this, and that's the bet that Meta and Microsoft
and Oracle, who builds a lot of the technology around
it what they're tasked with doing. So it's very exciting.
It will be a bubble at some point, but I
think it's a very investible space as we've seen now
(08:44):
and for years to come.
Speaker 2 (08:45):
And there's a lot of ways, folks, that you can
play that we can't get into any specific names. But
there's a real estate investment trust a rate that we
deal with that we have our clients in that this
is one of their largest holdings. I shouldn't say one
of the it is a large holding of a diversified
real estate portfolio that invest in these data centers, data farms,
whatever you want to call them. Because again, this is
(09:07):
the wave of the future. You don't hear a lot
about industrial or some of the other hot areas of
commercial real estate. Now now it's all data centers. Right,
Who's who's investing Because put it this way, folks, you
know a Meta, An, Amazon, et cetera. Don't think they're
going out and they're buying these data centers, right, They're
they're they're probably they're helping fund if not funding the
(09:28):
whole thing. But what they're doing is they're getting a
company like a real estate investment trust to come in
and buy that and then they will turn around and
lease that data center from aforementioned company. Right, there's tax advantages,
they're not tying up all their capital, and you know,
I could go on and on for all the various reasons,
but it is a very very hot area. And like
I agree one hundred percent, Jason, I think this is
(09:49):
an area that's going to continue to grow. But it's
just one of the ways that you can play quote
the AI game. Right, you don't have to invest into
a pure AI company. You can you can do the
infrastructure play. We've spent a lot of time talking about
the nuclear power facilities, right, and that's one of the
other big challenges of these data centers.
Speaker 1 (10:06):
Is how the heck are you going to power them?
Speaker 3 (10:08):
Right?
Speaker 1 (10:08):
You can't.
Speaker 2 (10:08):
You can't plug into Envy energy. If you're you're building here,
you can't plug into Envy Energy and go, hey, we've
got this, you know, five hundred thousand square foot data
center with a million servers sitting in there. It's not
that easy, right, They got a lot of times create
their own power, and that's why these little nuclear type.
Speaker 3 (10:26):
The SMEs you've got names like Vistra VST. That's up
one thousand percent in the last five years. And that's
what they do. They're just power generation that are tapped into.
You know, they're down in Texas. Guess what's also in Texas?
Google and Tesla and you know. So it's a new
exciting world and this, you know, the flip side is
(10:47):
a lot of these things have moved a lot too.
You know, you just want to keep a close eye
on valuation a little thing, so be diversified.
Speaker 1 (10:54):
The name of the game.
Speaker 2 (10:55):
All right, Well, we didn't get a chance to tell
you what we're going to be talking about today. Got
a very exciting topic. Cannot wait to man and that
we'll do that when we come back. Let's turn it
over to Jack Sapan. He's in the right now traffic center, Jack,
how we do look at that? Welcome back to the
John Sanchez Show. On this took seven to eighty k
O which with Jason gotten first before we get to
get into business again.
Speaker 1 (11:12):
And Jason briefly mentioned this at the beginning of the show.
Speaker 2 (11:15):
Our hearts and prayers and thoughts go out to Charlie
Kirk's family and and everybody out there, young vibrant voice
of America. Uh and obviously for Magma and so on
and so forth. But just a tragic, tragic loss today,
being shot down at a you know, on a university
campus of all things. And unfortunately, you know, I'm sure
most of you have heard he you know, he passed away.
(11:37):
And so yeah, like you said, Jason, just you and
I were chatting for the show, just a little bit
of a little little bit of a dark cloud over
everybody today with that.
Speaker 1 (11:44):
It's just a tragic scene.
Speaker 2 (11:46):
There's a lot of way too many crazy people out there,
way too many crazy people. All right, let me tell
you what we what we have lined up for you
this after And like I said, I'm very excited about this.
Been working hard on this for here all of you today, Jason,
I have we touched on this on Wednesday, or excuse me,
on Monday in track of the days touched on this
subject on Monday when we're talking about roth irays and things,
(12:09):
and we said, you know what, on Wednesday, we're going
to do a show that many of you have never
probably heard about before, and it's called a back door
wroth Right. So remember, folks, roth iras can do a
lot of things for you, right, substantial benefits, tax deferred growth,
tax free with draws, no required minimum distribution or what
(12:30):
we call r and ds. But if you're single, here's
the problem. If you're single and you have modified adjust
a gross income of about one hundred and fifty thousand,
you no longer can put your money into a roth ira.
You make too much money. Single one to fifty or
more can't do a roth ira. If you're married and
you make more than two hundred and thirty six thousand,
same thing, you can't fund a roth ira. So what
(12:52):
the heck do you do if you want tax free
with drus is? Remember, folks, the benefit of the roth
ira as long as you leave that money in for
age until age fifty nine, and a half or five years,
whichever is longer. You get to pull out all of
your gains one hundred percent tax free. So think about
that for a second. Think about in retirement having a
massive nast egg hopefully for you, that you get to
take out and not pay a dime of state federal
(13:14):
capital gains zero tax. Right, it's a dream for everybody.
So but again, a lot of people make more than
the one to fifty or the two hundred and thirty
six thousand. So there's a workaround, and we call it
again the backdoor Wroth. So what Jason are going to
be doing when we come back from the bottom of
the hour break is We're gonna explain how this works.
We're going to get into the benefits, the rules, because
(13:35):
like anything, you have to understand the rules and how
you can make this work. We're going to try to
get into some pros and cons and different things like that.
But Jason is it is a probably one of the
most powerful strategies in my opinion as far as retirement
savings is concerned. That I think very few people That's
why I was so excited to do this topic with you.
I think very few people even know that exists, but
(13:58):
they probably don't know about the funding rules. A lot
of people don't. It's not you know, really well published,
but much less how you get around it. And I
before you answer, I want to I want to bring
up a quick story so those of you folks, if
you want to read about this, it's really a phenomenal story.
Peter thiel Or, right, he was one of the you
know what's going with that, Yeah, one of the co
(14:19):
founders of PayPal right way back in the day. Right,
and he's gone on to you know, he's involved in
he's mister Silicon Valley basically. But way back in the
day when PayPal, when it was just an idea, he
took his This was oh, I don't even know.
Speaker 3 (14:33):
It was one hundred million bucks. It was a big number.
Speaker 1 (14:35):
No, not one hundred I think that.
Speaker 2 (14:38):
No, No, it was it was like five ten thousand
dollars A, yeah, it was.
Speaker 3 (14:44):
It was like next to nothing.
Speaker 2 (14:46):
But but the bottom line, he invested his wroth ira
using this back door strategy. You used his wroth ira
to buy his initial shares of PayPal. And I'm sure
he was given some et cetera. Well, that little tiny
investment is now worth I'll look it up during the
break to get the exact numbers, but significant sums, you know,
(15:07):
probably north of at least one hundred million dollars, if
not more, all tax deferred, all tax free.
Speaker 1 (15:13):
Right again, most people aren't going to do that.
Speaker 2 (15:16):
But as Jason and I will get into no we'll
call it probably in another month or so, we're going
to show you a way that you can do the
same type of thing you want to use an IRA
to invest into a business. Guess what, we now have
the solutions that we're gonna be able to help you with.
And so this is like a little primer, but you
got a lot of things that you're gonna you're gonna
really fall in love with as we go through this
topic today.
Speaker 3 (15:35):
Yeah, I mean again, we do this for lots of clients,
you know, and most of your hopefully four oh one
k's allow a traditional or ROTH option. Right, So this
is the we've filled up that bucket and now we're
looking for other places to invest. You can put infinity.
You could make infinity dollars and still contribute to a
(15:57):
traditional IRA. And again we'll get into the logistics, but
it's the thought of how do I make it a
wroth I don't want to pay taxes on in the future.
Here's a great way to do it to you know,
where you can pay the taxes now, which you had
to do anyway if you wanted to put it into
a traditional because you make too much. And I wouldn't
be surprised John wouldn't if they change this rule at
(16:19):
some point, just because.
Speaker 1 (16:19):
It challenged it a few times.
Speaker 3 (16:21):
Really, it's why say there's a max do you know
what I mean? Like it's kind of.
Speaker 2 (16:25):
Oh, I know, yeah, well it's the government's way, right, yeah,
And it was I'm going to if I remember, I
think it was probably two maybe three years ago. Remember
you and I were a little bit panic along with
other financial advisors, that they were going to do this.
Biden administration was trying to close this loophole of the
backdoor roth Ira and it kind of came down to
the you know, twelve hour and then they just took
it off the you know, the agenda. I forget if
(16:47):
it's the Senate someone in the center of the house
up to close it. But yeah, who knows how long
it'll remain. It's been around, like I said, for many,
many years, and but the government doesn't like it, folks,
because it's working. To share with you, in the strategy,
they're really not getting their money, you know, they're not
getting their tax dollars like they're gonna get when you
fund a traditional IRA and you pull the money out
(17:10):
of you know, some portion of it or all of
it when you retire and you get to pay you know,
taxable income on that roth IRA and you go to
pull that money out into the same scenario like I
said earlier, zero tax on there. So what do you
think the government's more favorable on the traditional where you
get to pay tax or the roth where you don't.
We know the answer to that one. So yeah, it's
gonna be a fun one. All right, my friend. We
(17:32):
touched a lot about Oracle in the first segment. What
else on your mind today in regards today's market action
kind of sloppy on the down side of things. Apples
under pressure, no follow through from y spp Yeah, yeah, we.
Speaker 3 (17:42):
Got August PPI. We're getting CPI tomorrow. I believe August
PPI Producer Price Index came in down one tenth. Right,
that's another nice feather in the cap of the rate cutters.
You know, prior was revised down to just a plus
point seven from a US zero point nine. So ultimately
(18:02):
the producer side is not reflecting the angst around tariffs,
and that's actually where it would show up first before
it translated over to the consumer side.
Speaker 2 (18:12):
So it went, well, let's the little caveat into that comment.
That was a big controversy when this report came out
this morning, and many are saying, will know better tomorrow.
That's true to get the CPIY they passing it through?
Speaker 1 (18:28):
Are they are?
Speaker 3 (18:29):
They are?
Speaker 2 (18:29):
They are the retailers passing it through, which it doesn't
appear to be at this point, but we'll know tomorrow,
or are they absorbing it?
Speaker 1 (18:36):
So and so forth. So I just want to throw
that one.
Speaker 3 (18:37):
Yeah, and you've heard from You've heard both, right, You've
heard some companies say they're eating it, others say they're
if they haven't started to pass it on, they're going
to Walmart talked about it specifically. So obviously companies are
going to be fairly opaque on what their strategy is.
We're going to jack all of it up to you,
right exactly, but it in in some cases the country,
(18:59):
it's is eating some of the costs, lowering their prices,
et cetera. So it's doing all sorts of things. And
then will the government allow it to go through with
the courts that are pushing back and forth. Obviously will
be nice and exciting as well, but yeah, PPI would
be the big one. Weekly mortgage applications grew at nine
point two percent. That's a good number of clearly rates
coming down. I got an email the other day from
(19:21):
a bank just being like, Hey, if you have a mortgage,
it could be lower by X, y and z, so
all those we'll start picking away. Yeah. I haven't seen
it for a while for.
Speaker 2 (19:29):
Sure, So definitely, Yeah, one tenth of a percent a
month over month decline on PPI. They're expecting three tenths percent,
and then we get to the year over year up
two point six percent. Expectation was about three point five percent,
So overall is great number. But again, if you're wondering
why the Dow lost two to twenty and NAS like
a small gain of six and the SMP small gain
of nineteen. But by the way, record setting day for
(19:50):
the sp and the nastack, it was salesforce that was
under pressure, down a little over nine bucks Amazon, which
I think Amazon was in just my reduct conclusion, Jason is,
you know, lost a little over seven bucks on Amazon.
I think that was related to the Oracle situation because
they got the business Oracle meaning and Amazon didn't. And
then Apple, yeah, you know, yesterday Jake was filling in
(20:14):
for Ross and he says he traditionally, how does Apple
perform after a big investors or a web conference type
thing like they do, And No, the numbers are actually
it actually goes up on average.
Speaker 1 (20:25):
I went back.
Speaker 2 (20:25):
The numbers are actually pretty good, not huge numbers. But boy,
didn't happen today. I mean, like I said, Stock lost
a little over seven bucks or so, and yeah.
Speaker 1 (20:33):
A little bit of AI enough times probably not.
Speaker 2 (20:36):
Yeah, you're probably right there there is something in there
or I don't know about you, but I'm not going
to go spend another you know, thousand dollars plus on
the iPhone seventeen because it's thinner and it's got a better,
you know, a stronger case. I don't care. I don't
go out and drop my phone. I have a case,
and I really care. If it's you know, this thick
or of this thing, I'm not gonna do it.
Speaker 3 (20:55):
But it's awesome when you take your case off. It
feels like amazing. Yeah yeah, yeah, it's so thin and
like that, I throw a big old case on it.
Speaker 2 (21:03):
Yeah exactly. All right, well we come back. Let's get
to our topic. How does the backdoor roth work. We're
gonna educate you on that, but first let's turned around
to Jack Saban. He's got new trafficking with her. Hey, Jack,
Welcome back to the John Sanchez Show on News Talk
seven eighty ko WIH with Jason Gott. Once again, we
lost two twenty on the data the nazuc row seventy
smp hire by nineteen all right, we're gonna get into
our topic, how does a backdoor wroth Ira work? But first,
(21:25):
as we promised you, we did do a little research
at the break in regards to Peter Thield, right, one
of the probably one of the, if not the biggest,
at least in my mind, he is the biggest success
stories of a roth ira that started with next to
nothing and became a whole bunch of money. So we
got the data. So between nineteen ninety nine and the
(21:46):
year twenty twenty one, mister Thield grew his wroth Ira
from two thousand dollars to five billion. So I was
way off on the growth side. Five billion dollars two
thousand and five billion in tax free.
Speaker 1 (22:03):
And how did he do it?
Speaker 2 (22:04):
He bought like one point five million shares of PayPal
when it was like worth point zero zero zero one,
like probably less than a fraction of a or about
a fraction of a penny. But we all know what
happened with PayPal, right, it ended up getting bought and
so on and so forth, and and uh so now
you know, at least as of this writing, he was
you know, his roth iray was worth about five billion.
(22:26):
And so Jason, you know, you take a guy like that,
assuming you know, he doesn't sell any any stock for
capital gains, you'll probably never pay the government another dime,
you know, because all you gotta do is just take
a little bit of money out, you know, a few
million here, a few million there from his wrath and
never paid dime attack.
Speaker 3 (22:40):
And so yeah, that's where we're gonna I thought he
converted way more. I was wrong.
Speaker 2 (22:43):
That's yeah, that's that's a it's a classic story. And
that's and that's folks kind of believe it or not. That's
kind of where this whole backdoor roth ira. You know
got started. So so once again, if you just joined us,
well we're going to show you is how to fund
a roth ira. If you are over the income limits,
which we will go over with you, that would normally
(23:04):
prohibit you from owning a roth ira. So we've got
a lot of points we're going to get started right here.
Let's start off on the eligibility side. So, like Jason
was mentioning earlier, let's go through the actual hard numbers.
If you are single and you make more than one
hundred and forty six thousand dollars, you can't put any
money into a roth ira. If you are married and
(23:25):
you make two hundred and thirty thousand and more, you
can't put money into a roth ira you are your spouse.
So you know, sounds like a lot of money, but
in reality it's really not right. When you start factoring
everything in, that makes a lot of people ineligible for
the wrath and so many feel like, well wait a
minute here, that's not fair. Well, that's just the way
the rules are at this point. Now, Jason, before we
(23:46):
go into the next one, you brought up an excellent point.
I want you to reiterate it. Give you all the
credit that no matter how much money you make, you
can fund a traditional IRA.
Speaker 3 (23:54):
Yeah. The contribution limits are based on age, so seven
thousand for under fifty eight thousand if you're over. But
it's a question sort of as John's point out, is
it deductible? Right? So yes, I can contribute to a
traditional IRA. I can put seven thousand dollars into it
if I'm forty five years old. But if I make
(24:15):
four hundred thousand dollars a year, I can't deduct that contribution,
which means it's technically after tax money. Because remember when
you put money into an IRA, it's coming out of
your wallet. It's not coming out in your pre tax
in your paycheck. It is you writing a check and
I'm just keeping it simplistic and deposited it into your
(24:36):
traditional IRA account. And at the end of the year,
your TurboTax, your CPA says, did you contribute to a
traditional IRA? Yes? I did seven thousand, Okay, Well your
income is x. You can't deduct that contribution, so it
is after tax money. It will still grow tax free
until you go to take it out. And inside of
(24:58):
that account, do you have a seven thousand dollars basis,
which means if it's now one hundred thousand and you
liquidate the whole account, you've got ninety three thousand dollars
of income and seven thousand of your own money back.
So long winded, but ultimately you can do it. It
just doesn't really give you all the benefits that a
roth does because you don't want to pay taxes on
(25:19):
any of it. It's just that doesn't get you there.
Your basis is there, but you still owe on all
the gains. In this case, if you do a backdoor wroth,
you don't know any money on the gains. You just
pay a little bit of tax now on your contribution.
Speaker 2 (25:34):
So why I mean you're paying tax on the contribution
going into the traditional but getting no tax deduction, and
you're gonna pay tax when you go to take it out,
where backdoor wroth you're putting money in that you've already
paid tax on. So now we're apples to apples, but
we're not gonna pay any tax when we go to
take the money out in retirement. And let's muddy the waters,
which we're not going to get into because we can
(25:54):
spend a whole show on this, and that is the
deductibility of the traditional IRA. Also, not only do you
have income limitation, but also if you participate or even
have a four to one K or similar type plan
offered to.
Speaker 1 (26:05):
You through your employee.
Speaker 2 (26:05):
A lot of people don't know this, you lose your
deductability of the traditional IRA. So there's, like I said,
just a ton of rules on that. But let's stick
to our topic, the backdoor roth. Okay, so just remember
one single, two thirty or or more married, you can't
contribute to the roth IRA same contribution limits as Jason
is eloquently mentioned, seven thousand if you're under a fifty
(26:27):
and eight thousand a year if you're fifty year older,
and that goes for you and your spouse. Now let's
move on to the conversion side of things because this
is where it starts to get real interesting. So okay,
sounds great, John, I'd love to have a pile of
tax free money when it comes to retirement. So how
the heck do I do that? So here's the strategy, folks,
(26:50):
here's the strategy.
Speaker 1 (26:51):
Ready, here we go.
Speaker 2 (26:53):
First thing you're going to do is you're going to
open a traditional IRA. Now you're going to find out
or hopefully we have time to get to it, but
you're gonna find out later. Don't co mingle this with
your existing IRA, and we're going to get into the
tax roles.
Speaker 3 (27:07):
So we create what's called a conduit account.
Speaker 2 (27:10):
Just to give you a term like good, thank you,
glad you threw that out there. Okay, So you're going
to create this brand new, fresh IRA, no matter whether
you have an IRA now or not, start a fresh one.
Speaker 1 (27:20):
Okay.
Speaker 2 (27:20):
So now you're going to put your let's say you're fifty,
over fifty years, let's say you're fifty five, You're gonna
put your eight thousand dollars.
Speaker 1 (27:27):
Into this newly created traditional IRA account.
Speaker 2 (27:32):
You're then going to have us or another firm immediately
create a roth IRA and then, as Jason said, it's
going to become a conduit in other words, you're going
to convert that traditional that eight thousand you just put in,
you're going to convert it to the roth IRA.
Speaker 1 (27:46):
Now, always, always, always.
Speaker 2 (27:48):
Make sure your tax professional is aware when you're going
to look at doing a backdoor WROTH Why because we
don't want you to bump up into a higher tax
bracket and for some other reasons, but always you know,
huddle up with them before. Okay, but when you can
divert that eight thousand, that's gonna be reported as taxable income.
Remember you're putting the money in the traditional you didn't
get a tax deduction. You're funding it with after tax
or you're funding it with the money. It's going to
(28:11):
become a taxable event to you. So you're gonna get
a ten ninety ninth end of the year if you
got the tax deduction going in. If you're just funding
it with after tax dollars, then the idea is don't
let the money grow. Right, So let me clarify that
I did a bad job explaining that pre tax money
where you took the tax right off with an existing IRA.
All right, great, it's gonna be taxable to you. That
eight thousand will be taxble you get it ten ninety nine.
(28:32):
But if you do what we're saying, start a brand
new WROTH or yeah, start a brand new traditional IRA,
fund it with the eight thousand you've already paid tax
on it, you're getting no tax deduction. Then turn it
over through the conduit and convert it to the Roth IRA.
The key is do not invest that eight thousand dollars,
right Jason, don't put it in and go, hey, six
months from now, I'm going to go buy oracle. And
you know, six months from now you're eight thousands turned
(28:53):
into twenty thousand. Because now you just created a taxable event.
We don't want you to have to pay taxes. Put
the eight thousand in, put it in the money market
portion of the traditional ira. Do the conversion. Your eight
thousand you put in should still be worth eight thousand
because it's just been a money market when it goes
into the roth ira. That is the fundamental aspect of
the backdoor wroth conversion. You're just converting money in a
(29:16):
traditional ira into a roth ira and then it can
start to grow. Now, when we come back from this break,
we're going to touch on again a big tax issue
that you need to be extremely well aware of and hopefully,
like I said, get your CPA involved in this whole thing.
But if you do your own taxes, we're going to
educate you on this side of it. Anything you want
(29:37):
to wrap up with on that portion, Jay.
Speaker 3 (29:39):
No, I think it's spawn on. It normally happens hand
in hand. You're going to contribute to the traditional ira.
We just make it a cash target for the portfolio,
and then immediately your son in a WROTH conversion, and
then it converts over into your new WRATH the conduit,
IRA says, with no money in it, you leave it
open into the future. And now you've just moved eight
thousand dollars into your ROTH account and we just get
(30:01):
it invested as we would based on your risk and goals,
and you're off for the races.
Speaker 1 (30:04):
There you go. I love it all right.
Speaker 2 (30:06):
Now, Like I said, there's a little tax rule, not
a little one, actually a big one. I'm saying that
facetiously that you absolutely need to be aware of. We'll
tell you what that is when we come back on
our subject, how does a backdoor wroth work? Let's turn
it over to Jack Saban. He's gonna wrap things up
in the right now traffic center. Hey Jack, welcome back
to the John Sanchez Show on News Talk seven to
eighty k O.
Speaker 1 (30:25):
Wait to a Jason GT. Once again.
Speaker 2 (30:26):
We finished down two twenty on the down nasdeck grows
seven in the SMB hied by nineteen but again record
finished for the NASDAK and the SMP. All right, our topic,
how does a roth backdoor wroth IRA work? So once again,
this is for those of you that are not eligible
to contribute to a roth ira because you make too
much money. Once again, to go over those numbers. If
you are single and you make one hundred and forty
(30:48):
six thousand or more, you can't contribute to the wroth.
If you are married, you can't, and you make more
than two hundred and thirty, you can't contribute to the wroth.
So how do we get money into the roth if
we make more than that amount of money. That's the
back door roth strategy that we're going over with you.
So remember, just to reiterate one more time, how you
do this. You open up a clean don't use your
(31:09):
existing and you're gonna find out why don't use your
existing IRA. And let's say you got one hundred grand
in your existing IRA, and then you want to put
in your eight thousand because you're over fifty. Don't do
that right, put in your eight thousand into a brand
new IRA. We then convert that over into a roth IRA,
and you funded it with after tax dollars. You're moving
it to the roth. Now it doesn't matter how much
(31:30):
money you make. You can do that backdoor wroth. So
that eight thousand, which normally, had you not heard today's topic,
that eight thousand you put in your IRA, you didn't
get a derection grows tax defer it. You pay taxes
when the money comes out with the wroth backdoor wroth.
Speaker 1 (31:43):
Same thing.
Speaker 2 (31:44):
You're putting money you've already paid taxes on into the
IRA you converted immediately. That's the key one more time.
Don't let that money grow. As Jason said, they put
it in the money market portion. And then that eight
thousand you converted immediately into the wroth. And now no
matter how much money you mean, you can do the
back door roth strategy. But as with anything, you must
(32:04):
understand tax rules. And once again this is why you
want to get your CPA involved in your financial advisor
if you go to do this, because if you screw
this one up, it could really really cost you a
whole bunch of money. So there is a little rule
out there, and I say that tongue in cheap at
little rule out there that is called the pro rata rule.
Now you see what happens is the IRS doesn't allow
(32:26):
you to choose, pick and choose outside your traditional IRA
what money you want to do, like a lot of
people have pre tax money in their IRA, they have
post tax money into their IRA, so on and so forth.
Speaker 1 (32:36):
They don't allow you to do that.
Speaker 2 (32:38):
So they have a formula and it's called the pro
rata rule. And again I've got to go quick here,
so once again reach out to us if you want
to get more details. But essentially, this is a formula
where you take the after tax amount. So let's run
the numbers, chase. Let's just do hypothetical real quickly here.
Let's say, okay, let's use let's say you're under fifty. Okay,
(32:58):
so you put seven thousand dollars after tax into your
new traditional IRA. Okay, but let's say you have ninety
three thousand dollars already sitting in that IRA and in
the old pre tax IRA, right, ninety three thousand of
old money you got seven thousand you just put in
for a total of one hundred grand. Well, the rule states
that you have to look at your aggregate combined value
(33:20):
of all of your iras. And if you are self
employed and you have steps and simples and some other things,
you've got to include those. But bottom line is, you
go back, you look at what the value aggregate value
of all your iras were as of December thirty first,
So that one hundred thousand. Once again that we have, right,
ninety three thousand of old money seven thousand of new money.
Now you decide I want to convert that seven thousand
(33:42):
I just put in. So the formula is you take
one hundred thousand the aggregate value of your contribution and
your existing value, divide it by seven thousand your new contribution,
and that tells you what percentage of your backdoor rough
conversion is tax free. So seven thousand buy one hundred
thousand is what seven percent? So that means only four
(34:04):
hundred and ninety dollars is tax free. Of that seven
thousand dollars contribution, this made sixty five hundred and ten
dollars is taxable. So imagine if you have a very
very large IRA. I'm just using one hundred thousand as
an example. You had a very very large IRA, and
you're going, hey, man, this is a great strategy that
we heard about. Guess what, You're gonna be shocked when
(34:26):
you find out how much is really tax free. So, Jason,
that is again one of the biggest gotcha out there
when it comes to the back door off, and hence
why you need to work with someone that knows what
they're doing on these things.
Speaker 3 (34:35):
Absolutely absolutely, all right.
Speaker 2 (34:38):
Now, we're gonna kind of wrap things up with some
strategies to avoid the trap. So roll the pre tax
IRA funds into a four oh one K. This is
another strategy we're out of time to share with, but
this is another way that we kind of get around
this pro rata trap.
Speaker 1 (34:54):
Convert larger amounts.
Speaker 2 (34:56):
Sometimes you want to convert larger amounts all at once
if you're in a low tax bracket year because your
income is down. And Jason, you were just talking about
this personally, you got to track your basis carefully in
that's IRS Form eighty six oh six, so alto.
Speaker 3 (35:10):
That'll give you all that color of what's non deductible
versus deductible from historical inside the account.
Speaker 1 (35:16):
You got it.
Speaker 2 (35:17):
Next week we're going to talk about a super backdoor
ROTH conversion. How that one works. God bless ever, great afternoon.
We'll see more on the John Sanchez Show.
Speaker 1 (35:24):
This program was sponsored by Sanchez Gaunt Capital Management, LLC.
The material in this program was intended as general information
only and should not be taken as specific investment tax
or legal advice.
Speaker 2 (35:35):
None of the information on this broadcast was intended to
be a solicitation for the purchase or sale of any security.
Further information is available by contacting John at Sanchezgaunt dot
com or seven seven five eight hundred and one eight
oh one. John Sanchez offers securities and advisory services through
Independent Financial Group LLC, a registered broker Dealer and Investment
(35:56):
Advisor member FINRA SIPC.
Speaker 1 (35:59):
Securities offered only in States.
Speaker 2 (36:00):
John Sanchez is registered in Sanchez Gaunt Capital Management LLC.
Speaker 1 (36:05):
In Independent Financial Group LLC are unaffiliated entities.
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