High-earning young people, who have plenty of time to take risks, are often trying to save and invest as much as possible while they are making good money in order to accomplish a specific goal, such as early retirement.

But sometimes they lack a clear plan and a focused goal.

That was the case with a young computer consultant in the Pacific Northwest. He knew what his general goal was, but he did not have a well-organized method of getting there.

He was introduced through a lawyer friend to financial advisor Steve Larsen last April. The computer consultant became a client, and Larsen set out to organize and direct his financial plan.

Larsen is an independent advisor and president of Columbia Advisory Partners in Spokane, Wash., and manages approximately $200 million in assets. A CFP and a CPA, he is also the co-founder of PlannerDAO, a cryptocurrency educational community for financial advisors (“DAO” stands for “decentralized autonomous organization.”) Larsen is the co-founder of the Certified Digital Asset Advisor designation, as well as an adjunct professor of finance at Gonzaga University in Spokane, where he teaches classes in cryptocurrency and financial planning.

The client is in his early 30s and makes between $200,000 and $300,000 a year as an independent computer consultant. He had made a good start at saving, but his investments were all over the map with no clear strategy. When he was first introduced to Larsen, the client had $250,000 invested through a pretax solo 401(k), and he had saved $150,000 in cash. He had $20,000 in a Coinbase wallet that he managed himself, and one of his goals was to increase his cryptocurrency investment.

“In the initial conversation when he said he wanted to save aggressively, I asked him what his end goal was. He said he wanted to save as much as possible and limit his taxes so that he could retire in about 10 years. At that point, he was doing all of his investing himself with no coherent investment strategy. We needed to impose some order and reason to his planning,” Larsen says.

Under current IRS rules, the maximum employee deferral from a paycheck that’s allowed for 2021 is $19,500 ($20,500 in 2022).

The company contribution of profit sharing or matching funds for 2021 is $58,000, minus the employee deferral; therefore, it is $38,500 to $58,000 depending on what the deferral was. (The maximum is $61,000 for 2022, minus the employee deferral.)

IRS rules also allow the rollover of traditional Roth IRAs and 401(k) accounts to mega-Roth IRAs that provide tax-shelter strategies for retirement accounts. Mega-Roths provide permanent tax-free treatment to the accounts’ distributions, while at the same time increasing the amounts that can be put into the account each year. Larsen says a mega-Roth IRA was perfect for his client because the client wanted to save as much as possible, while limiting his tax liability.

Larsen says he set up the strategy in the following way for this client.

Every year the employee deferral will be put into a Roth IRA ($19,500 for 2021), which is the regular Roth IRA contribution, not the mega-Roth contribution, and will be used for cryptocurrency investments.

The remaining contribution of $38,500, which will come from the client acting as the employer, will be split between a tax-deductible employer contribution and an after-tax contribution, which is the mega-Roth IRA portion. The exact division for the allocations will depend on his tax situation for each particular year.

The after-tax mega-Roth portion counts toward the second portion (the $38,500), not toward the employee deferral. “This is the key to a mega-Roth IRA,” Larsen says.

Next, Larsen transferred the client’s existing 401(k) balance of $250,000 and invested it in Columbia Advisory Partners’ growth portfolio, held at the firm’s primary custodian, Charles Schwab. Accounts at Columbia Advisory Partners are diversified globally, across multiple asset classes.

“This client is comfortable with a high degree of risk, which gives him the potential for large returns,” Larsen says. “He wants to dedicate a large amount to cryptocurrency each year, and I determined that, for him, it made sense. One of our firm’s specialties is digital investing, which is why he chose us.

“We are using an 8% to 10% return on his investments as a planning guide, but in reality the cryptocurrency part will probably be outrageous returns or 0%,” Larsen says. “But at least now he has a strategy.” The cryptocurrency investment will be in the Roth structure, and the client’s traditional assets from the rollover of the investments he already had will be in ETFs and mutual funds.

“The novelty of it is that we are sending the investment funds to two different places: the traditional 401(k) part and the cryptocurrency Roth part,” Larsen says. “This plan opened up that additional Roth option for him so that he did not have to put the entire investment into cryptocurrency, which would not be good financial planning. Sending just the $19,500 annual salary deferral to the cryptocurrency account is better planning and allows for different investment objectives and standards for the two pots of money.”

Since the client had been handling his own investments in the past, once he brought Larsen and his firm on board he wanted to keep doing some investments on his own. “It was entertainment for him,” Larsen says. “I told him to go for it, but he soon lost the appetite for doing it himself, and he put all of the investments under our management.”

The client also wants his savings and investments to be as tax efficient as possible. By using pretax money for the 401(k), he is putting money aside at a time in his life when he is in a high tax bracket. His tax liability will probably be less in the future when the money is withdrawn. In addition, when money is withdrawn from a Roth, no taxes are owed. Ordinary income taxes are applied to the traditional part of the 401(k) because the money is put in before taxes.

The client wants to retire early in order to have more mobility and free time. He is earning a large income now, but he is on call 24/7, which is stressful.

The intriguing part of the plan Larsen developed for this client was the cryptocurrency feature, he says.

As digital currency is becoming more well known, “clients want to know what cryptocurrency is, how it works and, most importantly, if they should own any,” Larsen says. “If an advisor cannot answer these questions, you can bet that the advisor’s competitors will do so. Whether you believe digital assets are the future—like we do—or not, as a fiduciary, you need to understand this new financial ecosystem in order to give your clients the best advice possible.”

Larsen adds, “Crypto isn’t going away, but advisors who refuse to learn the fundamentals of it may be. With the plan for this client, we created a road map for high-income, self-employed business owners who have high risk tolerance and want to lower their tax bills.”