Building Generational Wealth in Big Tech with a Mega Backdoor Roth IRA
There’s a big difference between earning a nice yearly salary and building generational wealth.
If all you want is to earn a couple hundred grand a year, hey –– more power to you, it’s nothing to sneeze at.
However, what really spoke to me working at Google, Meta, and Salesforce was all of the ways they help employees multiply their money.
Not only do these companies pay great salaries, they also are generous with RSUs (Restricted Stock Units), and give you access to fully legal “backdoor” accounts to grow your assets, tax-free.
To the point where, eventually, you have hundreds of thousands of dollars sitting in an account.
Today, I want to share a specific strategy that I took advantage of, which later allowed me to leave my job at Salesforce and start Kadima.
Maybe you aren’t planning on starting a business, but pay attention anyway, because this same strategy could help you fund ANY financial goal.
How Retirement Saving USUALLY Works
If you work in a Fortune 500, a startup, or most other companies, you have a 401(k) account.
The way it works is, you can set aside a maximum of $19,500 in pre-tax money in your 401(k) each year.
For each dollar you save, your employer wholly or partially matches your contribution, up to a certain percentage of your salary.
The standard advice to employees is to max out your 401(k) contributions and take advantage of the free money, AKA, the employer match.
I did that at American Express and UBS and everybody should do the same –– it’s a no brainer.
However, this is NOT, by itself, the retirement savings strategy that made me wealthy.
How Retirement Savings Works In Big Tech
As I covered in The Overnight 30% – 50% Raise You’re Missing Out On, Big Tech companies pay a lot more money to employees than other companies do.
When I got into Google in 2011, I not only got a $30,000 bump on my American Express salary, but $132,000 in Google stock (RSUs) as well.
As I progressed at Google, and later jumped to more senior roles at Meta and Salesforce / Tableau, my salary kept rising, and my RSUs climbed to pretty ridiculous heights.
These companies were paying me so much money that I didn’t even know what to do with it.
After some research and reflection, though, I figured out EXACTLY what to do and it paid off.
First, I maxed out my pre-tax 401(k) contributions in the standard way I just shared above.
Then, I figured out that you can set aside an additional chunk of after-tax money, and immediately roll it over to another retirement account called a Roth IRA.
By doing that, you never pay taxes on that money again.
Every 2 weeks, I would say to the company: “Please take money out of my after-tax 401(k) and move it to my Roth IRA.”
Some years, I would put aside nearly $40K more in after-tax money in the Roth IRA, on top of the $19,500 I had already set aside, pre-tax, in the company’s 401(k) account.
All of this money, of course, gets invested into the stock market from within the Roth IRA, where it grew even more.
After 5 years, you can then withdraw your invested assets from your Roth IRA tax free. The gain on the investments are taxed if you withdraw before 59 ½ years old, but what you put in, you can take out anytime after five years.
This financial maneuvering is literally what allowed me to quit my job at Salesforce in 2021 and launch Kadima.
Because I had set so much aside –– and paid my taxes on each individual transfer that I made from my 401(k) to my Roth IRA along the way –– I could take several hundred thousand dollars out with no tax liability.
Again: maybe you’re not looking to start a business, but it really doesn’t matter, because this same approach could help you leave money for your kids, buy investment property, establish an emergency fund, or do anything that requires money.
This strategy is called a “Mega Backdoor Roth” and you can read this excellent NerdWallet article for a more technical overview.
I simply wanted to make clear that these legal loopholes technically exist for EVERYONE…
But they only become viable when you start earning significant money at companies that actively help you take advantage.
Want a job that makes generational wealth possible?