Jude Wilson  00:42

here. Yeah, absolutely. It’s a concept that I’ve called the rocket Roth, how to explode your Roth and and really put fire behind it so that it has the greatest potential value for growth, okay?

 

Marc Killian  00:57

And that’s because that’s basically something that he did correct Exactly,

 

Jude Wilson  01:01

exactly, if you, if you research Peter Thiel, and no one knows for certain, but it’s estimated that his Roth is worth over $5 billion Wow, yeah, only Exactly. And can you imagine all that money coming out, tax free. Yeah, right,

 

Marc Killian  01:21

right. Wow, that’s crazy. Alright, so little backstory. So in the 90s, he bought PayPal shares for pennies, and he put them into the Roth, right? So interesting, interesting concept there. Now we’re not talking about that from a business angle, but we’re just kind of just kind of sharing the backstory a little bit. And so, I guess his thought process, right, was that you wanted to capitalize on the power of of this particular financial vehicle, again, the fact that you can grow the money, and, you know, tax or tax free, exactly

 

Jude Wilson  01:52

because when most potential clients come into our office and we analyze, you know, their financial affairs, a lot of people now have have a Roth. But one of the biggest mistakes that I see is the average client has a portfolio, whether it’s mutual funds or individual securities, right? The portfolio is diversified between stocks and bonds, and it’s usually some type of percentage between 6040 let’s say, right? That’s kind of the standard, yeah, yeah, that’s kind of the standard. And everybody’s heard of that, that, that saying, Don’t put all your eggs in one basket or diversify your investment. Sure, we’ve said it a bunch of times, right? Yep. But the next level is not only diversification, but asset location, where should you put your assets for the greatest potential growth and the greatest potential tax efficiency? And my, my argument, and the the beginning of the rocket Roth conversation that we’ve been having with clients is if you take $100,000 let’s say and you convert it from your IRA and you put it into your Roth. Let’s just for argument’s sake, say you put 100,000 into that Roth and you earn 2% well, it will take approximately 36 years for that $100,000 to double now,

 

Marc Killian  03:22

okay, yeah, I don’t have that much time left anymore, exactly,

 

Jude Wilson  03:26

exactly, but you’ll see where I’m going with this. So at two, at 2% that’s probably a pretty conservative investment. That’s very, very conservative. Yeah, yes, it’s probably some T bills, money market, something like that. Okay, but what if you were to take that same $100,000 and be slightly more aggressive? Most people would say that the stock market averages somewhere around eight, 9% over time. But let’s do org, yeah, yeah, yeah, but let’s be even more conservative than that. Let’s say 6% if you took that same $100,000 and invested in a stock that, over time, averaged 6% well, it will double in 12 years.

 

Marc Killian  04:09

Little better a little better

 

Jude Wilson  04:10

time. Yeah. So let me ask you a question, if you had an opportunity to grow your Roth, would you take the most conservative investment and put it in your Roth? Or would you take the most aggressive investment and put it in your Roth?

 

Marc Killian  04:24

That’s a good question. I mean, I think we can hear that, and we can hear the answer. Sounds like we should be taking being a bit more aggressive with it. What do people tend to do, like, when you are analyzing people’s portfolios when they come in? Do we tend to lean more towards the conservative side of things, or or are more people aggressive out there?

 

Jude Wilson  04:41

People tend to to have their investment strategy go across all their different accounts, whether it’s an IRA a Roth or just a traditional investment account, the same

 

Marc Killian  04:55

strategy across the different the different buckets, okay, the same

 

Jude Wilson  04:58

strategy. Across all different accounts, and what we’ve been helping clients with is the same amount of money, but reallocating it for the highest potential benefit. So let’s say you have a million dollars in total between your IRA, your Roth, and your traditional investment account. The concept of the rocket Roth, is to say you don’t necessarily need to change that 6040 percentage, but what you may want to do is that 60% that’s in this that is the allocated to stock, right? Have that be the greatest portion of your Roth, because that has the greatest potential for growth.

 

Marc Killian  05:38

So take your aggressive side, where you’re still trying to outpace inflation, and you’re still trying to grow the wealth and get a little, maybe a more aggressive in the Roth account, and then some of your safer or protected monies, right, the some of your sooner monies, then you maybe you want to get more conservative or safer with that. Is that what I’m hearing, exactly

 

Jude Wilson  05:55

what you’re hearing, because the way, Peter Thiel was able to get what some say is almost $5 billion was he took his PayPal stock before it had grown, and nobody knew at the time that PayPal was going to be the tremendous success that it was. But can you imagine if you bought PayPal before it exploded. Or if you bought Tesla or apple before everybody knew about it, sure. And that was, well,

 

Marc Killian  06:27

that’s what we all want, right? I mean, yeah, exactly. All one, yeah, exactly.

 

Jude Wilson  06:31

But if that was all in your Roth, that would not only accelerate the growth, but all that money coming out, tax free and, and that’s what we’re trying to get to with the Roth concept.

 

Marc Killian  06:44

So what are some of the common mistakes that people do? So like, if that’s the case, if we’re talking about being the aggressive versus non aggressive, when you’re kind of analyzing people’s stuff, do we, what do we have in ROSS do we have, like, our, I don’t know, bonds, or, you know, cash values, or, like, what are we what are you seeing? There

 

Jude Wilson  07:02

exactly a good portfolio. Most financial advisors are going to tell you, you’ve got to have some stocks or equities, you’ve got to have some fixed income or bonds, and you may have some cash. That’s the general construction of a of a good portfolio. The the argument that I’m making is you can still have a great portfolio, but having that same diversification that 6040 in the Roth does, doesn’t give you the opportunity for the most amount of tax efficient growth. So it’s all about it’s all about asset location in addition to diversification. Now,

 

Marc Killian  07:42

as always, when we’re talking about this stuff, we don’t want people to just run out and wholesale changes without seeing what kind of how it affects their strategy. But if you’re kind of appealing to people’s, you know, thoughts sense of, hey, look, what are we doing? You know, do I want to be more aggressive or whatever? What would be some suggestions to talk with your advisor on to kind of go and look through some of this stuff. Any thoughts there?

 

Jude Wilson  08:03

Yeah. Well, as you know, and we’ve talked about this on prior episodes at the firm, we like to have visuals to help people understand things. Sure. So we have the tax funnels, the pre tax, the post tax, and the tax advantage funnel. What I would recommend to people is, if you’re working with a good financial advisor who understands this type of stuff, or even your accountant, is to look at how you’re allocated among all those three funnels and see, does it make sense to reallocate some of your monies, particularly in the tax advantage funnel right take the more aggressive part of your total asset allocation and put it in to the Roth, or restructure the Roth so that has the most aggressive piece and the less aggressive piece to be, either in your IRA or Your your regular investment account, which we call non qualified account, right? So that’s, that’s should be the conversation you have with your advisor. What’s the what’s the tax consequence? Because you may have to, of course, move some money around to get to the the right percentages for you. But to your point, this shouldn’t be done willy nilly. Don’t listen to this episode and say, I’m just moving everything to equity. My Roth,

 

Marc Killian  09:24

yeah, because the strategy is sound I mean, like, why would you I mean, if you think about it that way, like, you know, kind of putting yourself in that position and saying, considering the the monies that I’m trying, I’m trying to be more aggressive with. Why wouldn’t I want those to be tax free, right? So, why wouldn’t I want them to be more in that raw I mean, it makes total sense. It seems so very obviously low hanging fruit, yet we tend to not maybe capitalize on that. But again, you still want to make sure that everything is done calculated, not just this sounds like a good idea, and it probably is a good idea. So let me just jump into it. Same thing with raw conversions, right? You know, just because you want to convert a million dollars from your traditional account to your Roth, because you want to get all tax efficient, well, cool, but don’t do it willy nilly, in case you Jack yourself up from a tax standpoint,

 

Jude Wilson  10:11

exactly and and there is some sense of urgency behind this, because reallocating probably one of the best times to reallocate is, as you’re thinking of Roth conversions, right? Money from an IRA or from a 401, k into the Roth. Well, to make to cross that bridge, there’s one big thing you got to do. You got to pay taxes on that money, and where are you

 

Marc Killian  10:38

paying it from, right? So people will often say, we’re okay, I want to convert and I want to use the money from that same account. But a lot of advisors will say, No, we don’t want to do that. You want to have the actual dry powder the cash, right, or whatever, exactly, okay, exactly.

 

Jude Wilson  10:51

And this, this is the strategy behind it, and why, I strongly suggest people look toward a financial advisor or CPA that really understands this, because as you make that conversion, that would be one of the best times to see how your percentages line up, or equity versus fixed income. The other sense of urgency behind this. And, you know, we don’t talk politics on the show. We talk about how the government, yeah, yeah, exactly.

 

Marc Killian  11:20

And we’re seeing a lot of stuff right now. So for asserted,

 

Jude Wilson  11:23

the the tax cut and Jobs Act is set to expire at the end of this year. Now there’s a lot of talk that, because Trump has won the election, that the Republicans will seek to extend that right, but it’s set to as as we talk today, is set to expire in December of 2026

 

Marc Killian  11:43

Yeah. And we’re in mid, no, 2025 Judy, yeah. Sorry, no, you’re fine. Yeah, expires issue. And we’re in mid March right now, at the time we’re taping this. So, I mean, there’s obviously stuff happening fast and furious, so we’ll see. You know, when they get to the tcja. I mean, they’ll have to do it, get to it soon if they’re going to extend it, that’s

 

Jude Wilson  12:04

for sure. Absolutely. So the sense of urgency behind this is that there’s things that we believe will happen, and then there’s things that we know it happened right now. We know it’s set to expire. And so before you implement this type of strategy, it’s important to know what the benefit might be to you and what the cost may be. That’s why we’ve created the tax calculator. And people can go to the tax calculator and find out what their potential exposure could be, yeah,

 

Marc Killian  12:33

and we’ll have the links in the show notes, as always, folks, but you just go to the tax bomb.com Again, the tax bomb.com to go check that out. But we’ll have links in the show below. So just, I guess, kind of finish yourself. Finish this off with asking yourself this question, you know, what would you place in in the rocket Roth if you had the chance to do that again, right? And so it would be, you know, pretty interesting to kind of get people’s thoughts on some of that. And would you want, you know, do you want to be more aggressive with this particular piece of your account? Now, I know it’s interesting that we’re talking about that at the time of recording this, because the market’s been a little choppy this month, just a little bit, a little bit, you know. But I mean, you know, it entered into a correction technically at the time we’re taping this, Jude, but a correction is 10% and corrections are normal. And we do need to be honest and say, look, a lot of stuff’s been heavily overweighted. The PE ratios out there have been pretty, pretty high for a lot of companies. So, you know, the fact that we’re seeing it, yes, it could be some of the tariff stuff, yes, it could be some of the different things happening with policies. All that stuff certainly factors into it. But you know, at the same time, you’ve got to have a grain of salt with this right because, and you also got to think about where are you at on your timeline? Because a correction is not necessarily bad if you get a chance to buy, you know, buy on the dip, right? All that kind of stuff. But again, is it part of your strategy? Don’t just do stuff willy nilly.

 

Jude Wilson  13:49

Absolutely. You know, everybody has heard Hey, in investing, you want to buy low, sure, sell high. We never do exactly, but we run for the hills when we see volatility like this, and this could not be the more appropriate time to not only look at your allocation again. Are you 6040, are you 8020, whatever that may be, right? But then also strategically plan on not only investment diversification, yeah, but asset location, where should your asset be placed among the different accounts that you have? All right? Well,

 

Marc Killian  14:27

we’ll wrap it up with that. So we really didn’t get too much into Peter story, because it’s out there all over the place, if you want to learn more about that. Guys, definitely very interesting. But it was really more important to kind of just talk about the concept of what he used to build this incredible wealth. And so maybe that’s something you know, worthwhile for you to think about on a more you know, normal scale, I suppose, but make sure that you’re having those conversations with your financial professional. Again, we’ll have links in the show descriptions below, so that if you need to reach out to Jude and get yourself on some time on the calendar, you can do so at the websites. We’ll have his main website, we’ll have the tax bomb.com website, all that stuff’s listed in. The descriptions below, don’t forget to subscribe to us on Apple or Spotify or YouTube for whatever podcasting or app you like using for consuming this kind of content, we certainly appreciate the support of the channel. Just click on that thumbs up and that notification bell so you catch new episodes when they come out of the Roth. Guide you. Thanks for hanging out buddy and breaking it down as always.

 

Jude Wilson  15:21

Let’s rocket your Roth.

 

Marc Killian  15:23

There you go. Let’s rocket that Roth, and we’ll talk to you next time here on the Roth guy.

 

Walter Storholt  15:32

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