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.

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