Before reading this post, please remember that the Bible forbids any “trust in uncertain riches” instead of in the “living God, who giveth us richly all things to enjoy” (1 Timothy 6:17). If you are reading this because of money, but you are not born again, nothing in this post will benefit you eternally. Click here to find out how you can be saved from sin, death, and hell through the Lord Jesus Christ.
Also, please keep in mind that I am not a financial advisor, a tax advisor, or anything of the sort. What is below is just my opinion and I am not giving you advice about doing anything. If you want financial or tax advice, consult a professional, not me.
Also, if you have troubles paying off credit cards in full each month, maybe my opinion that you should stay far, far away from them is correct. I would encourage you to read my series on the dangers and rewards of credit cards here.
It also is not a good idea to go crazy with credit cards if you are about to try to get a home mortgage or something like that, although in my opinion the deal below is good enough to make it worthwhile even then.
There are two parts to this post. In my opinion:
1.) Contributing to a Roth IRA is a great financial vehicle
With the important caveats above in mind, in my opinion I believe there is a way to get more into your Roth IRA or a child’s Roth IRA without violating the $6,000 yearly contribution limit.
Why does this matter? Consider the Roth IRA calculator at the Biblical Financial Stewardship section at FaithSaves. Let’s say you add $1,000 into a Roth IRA at the age of 18 and never contribute to it again until (if God spares your life and the Rapture does not happen first) you reach the age of 65. If you got the average stock market rate of return of around 8%, the $1,000 would have become $37,000. Not bad to have your money grow to 37 times its original amount–all tax free at withdrawal. If you put $2,500 into a Roth IRA at age 18 and contributed $2,500 a year to it until you were 65, you would have over 1.2 million dollars with a average rate of return of 8%. If you put the same amount of money in the Christian-based, clean mutual fund the Eventide Gilead Fund, and earned the 18.63% lifetime rate of return it has earned since its inception (I am not saying that is realistic and you should not count on that), putting $1,000 in at age 18 and leaving it alone would net you $3,000,000, and $2,500 a year would get you over $48,000,000.
What if a five-year-old child was able to get $1,000 into a Roth IRA and never touch it until age 65? At 8% the $1,000 would become over $100,000! At 18.63% the $1,000 would become $28,000,000! At 8% the $2,500 / $2,500 scenario above would yield the five year old child over $3,000,000 at age 65, and the (likely too rosy) 18.63% rate of return on the Eventide Gilead Fund would leave the child with $450,000,000.
2.) A Loophole to Put More into a Roth IRA
It is, therefore, wise to max out a Roth IRA at the $6,000 limit if you can do it. However, there may be a way to get more than $6,000 a year into a Roth IRA without violating IRS rules. (Let me remind you again that I am not a tax professional nor a financial advisor.) You don’t want to violate IRS rules because the penalties are not very nice. So is there a loophole?
The American Express Platinum Card with Schwab allows you the option of redeeming the membership rewards points you earn from the card at 1.25 cents each. Points are deposited into your Schwab account (any ordinary citizen can open a Schwab checking or Roth IRA account). The Membership Rewards points you earn with Schwab are not cash–they are just points. The IRS has traditionally not recognized these as taxable income for that reason. Furthermore, when you redeem them into your Schwab account, you are not contributing income, but Schwab is depositing a bonus into your account. It is kind of like the way that sometimes brokerages give you a bonus if you roll money over from another institution to them; they sometimes add a bonus to your account, but it is not money that you contributed.
Right now the Schwab Amex Platinum card comes with an opening bonus of 100,000 Membership Rewards (MR) points. That can be deposited for $1,250 into a Schwab account–including a Roth IRA–and since you are not making a contribution, but Schwab is giving you a bonus that is not based on cash but on non-cash Amex Membership Rewards, it does not affect contribution limits (in my opinion, which I believe I have very good grounds to think is correct, but I am not a tax professional.)
A child can only put into a Roth IRA what his own income is–so if he makes $100 from mowing lawns, he can put that (or you can make him put it) into a Roth IRA. But since the Amex MR points are not cash, you could deposit them into his Roth IRA, and to the $100 he earned from mowing the lawn you could add $1,250 as a bonus. If you earned a lot of Amex MRs through other means, you could sock away a huge amount of money into his Roth IRA and secure your child’s financial future as much as it can be done with uncertain riches.
So let’s say you opened the Schwab Amex Platinum card and deposited the $1,250 opening bonus into his Roth IRA at age 5. You have just given your child $126,571 at an 8% rate of return at age 65. If the (high) rate of return on the Eventide Gilead Fund were to continue, at 18.63% just putting the bonus in from opening the Schwab Amex would give your child $35,300,000. Of course, the value of $1 is highly likely be less at that time because of inflation, but this is still a very, very good investment return–and you pay no tax at all when you take the money out at 65.
I don’t know the future and I have no way of knowing what will happen with investments as time moves on, but in my opinion it would be a wise financial decision to put as much as possible, as young as possible, into a Roth IRA.
The facts above were convincing enough for me to apply for the Schwab Amex Platinum, and to use practically the complete stash of Amex points that I had, not for amazing travel as I have been accustomed to using them, but for cash, specifically into a Roth IRA. I just got the opening bonus on my new Schwab card and, as I write this, have just moved the points from that opening bonus and practically all my other Amex Membership Rewards points into a Schwab Roth IRA. It was easy to do–maybe a five minute process to redeem, and about another five minutes to buy some God-honoring Eventide mutual funds.
The Amex Platinum card has a lot of extremely luxurious benefits. You get:
1.) $200 hotel credit
2.) $200 airline incidental credit
3.) $200 Uber / Uber Eats credit
4.) $240 Digital Entertainment credit (Audible, Peacock, etc.)
5.) $100 Saks 5th Avenue credit
6.) $100 Global Entry credit
7.) $179 CLEAR credit
8.) $300 Equinox credit
If you used all those credits, the card would save you over $1,500. Furthermore, they are calendar-year credits, so if you decided to open the card but then decided you didn’t want to keep it, you could use the credits this year and next year to get $2,000-$3,000 in savings before cancelling it, on top of the $1,250 opening bonus of 100,000 Amex MRs. You also get things like access to very nice airport lounges, Hilton gold status (free meal when you stay at a Hilton and room upgrades), and many other benefits.
For these ultra-premium benefits, Amex charges a nasty annual fee of $695. (If you keep a lot of money with Schwab they will refund you $100 or $200 off the annual fee, but that is only if you hold $250,000+ or $1,000,000+ with them.) Furthermore, the credits are not worth their face value but are worth what you would pay for them. For example, if you use Uber Eats once a month anyway, you might value the Uber Eats credits as near $200 in cash, but if you don’t care about the Equinox fitness credit (I don’t), you would value the Equinox credit as $0. Would I pay $100 for a Saks 5th Avenue $100 gift card? Nope. Most of their stuff is too expensive, although they do offer discounted items online. Would I pay $40? Maybe. If I paid $20 a month on Audible already for a subscription or audio books, then the $240 credit on digital entertainment is worth a straight $240. If I don’t, and have no use for the other options for the digital entertainment credit either, but I would pay half of that face value to buy audio books, then the credit is worth $120 to you. The $200 credits for their hotel collection is nice, but you can’t pick any hotel you want, so it is not quite worth a straight $200, although to me it is worth at least $100, I think, maybe more since when you book with Amex the hotel gives you nice things like expensive amenities, free breakfast, etc. In any case, that’s the sort of thing you have to do to value these credits.
In the first year, at least, getting 100,000 Membership Rewards (MR) points worth $1,250 makes the annual fee worth swallowing. Is the card a keeper after that? Perhaps, and perhaps not; it depends on how you value the credits and benefits.
The Amex Platinum has some bonus categories that earn 5 points per dollar spent. In non-bonus categories, it only earns 1 point per dollar. I therefore combine it with the Amex Gold card, which earns 4 MRs per dollar at grocery stores and dining, and the Amex Blue for Business card, which earns 2MRs per dollar on all spending categories where another card does not already give me something better. These can be redeemed into a Schwab IRA at 1.25 cents each–bypassing taxation and contribution limits (so take whatever rate you pay in income, social security, etc. tax on income and multiply the cash value of the points by that amount). The Blue for Business is a business card, but if you teach lessons, or sell things on Ebay, or do work as a handyman, etc. you have a business and can get a business card.
Membership Rewards can also be transferred to travel partners for very good travel redemptions–for example, you can transfer them to airline partners and fly, for example, in first class on ANA to Japan or to Europe and back for 60,000 MRs each way–which could be the cost of flying economy in cash, but instead you are flying in an amazing first class cabin that could cost you $20,000 if you paid cash. But this post is about Roth IRAs.
Schwab is reducing the cash redemption value of their points from 1.25 cents each to 1.1 cent each on September 1. I highly doubt that they are going to eliminate the cash redemption option entirely; I believe they will keep it, just at the lower value. But with that upcoming devaluation, now is the time to go crazy getting American Express Membership Rewards points and putting them into a Roth IRA at maximum value. If you have multiple Amex cards you can pool all your points and put them all into the Roth IRA. You could combine opening bonuses, for example, by getting a Schwab Amex Platinum (100,000 points, $1,250 tax-free into Roth IRA redemption value), an ordinary Amex Platinum (another 100,000 points, $1,250 tax-free into Roth IRA cash redemption value), an Amex Gold (60,000 MRs, $750 tax-free into Roth IRA redemption value) and an Amex Blue for Business (10,000 MR opening bonus, or $125, with no annual fee and 2 MRs per dollar, a good keeper card for the long term), and get $3,375 that you never have to pay tax on put into a Roth IRA to grow tax free. If you did those four cards, and put them into an IRA of an 18-year old and got 8% until 65, just the credit card bonuses, if you never contributed again, would be over $125,000 at 65. If you put them into a Roth IRA of a 5 year old, at 65 it would be $341,000. If you get more than one Platinum card you can then double up on all the credits (or for the first year you can both use the credits now and then again in the new year so that you can triple-up or quadruple-up on them if you and a spouse both get the cards; that could be $800 for use at hotels, as well as $800 at Uber Eats or Uber, $800 for airline incidentals, etc.; you could get enough credits for a nice trip as well as a financially beneficial Roth IRA contribution.)
The opening Membership Reward point bonus for each card requires certain spending in the first months after opening the card, but if you are not able to meet that requirement through ordinary spending (don’t just buy things you don’t need in order to meet the opening bonus, obviously) you can just do things like pay your taxes ahead of time with a credit card (and get refunded for an overpayment after you file), or pay utility or other bills ahead of time, or meet minimum spending requirements while helping the poor by getting Kiva loans, which probably gets you your money back in just a few months to around a year, etc. I have invested in a lot of Kiva loans and am thankful to be able to help needy people while meeting spending requirements, and I have had a default rate of under 1% over a long time frame. (Of course, that doesn’t mean that this very low default rate will continue into the future, nor that you will also have a default rate that low, but it is very possible.)
By the way, you can take out the principal that you put into a Roth IRA before age 65 without penalty. You just can’t take out the interest / gain before 65 (with certain exceptions) without a tax penalty.
In my opinion (again, not as a financial professional or a tax professional), this is a fantastic opportunity. You can apply for the cards below if you are interested. They are affiliate links except for the Schwab Platinum, which is not.
Click here to sign up for the Schwab Platinum Card and get points worth $1,250 along with lots of other benefits.
Click here to add another regular Amex Platinum to get another $1,250 worth of Amex MRs and another $200 in Uber / Uber Eats credits, airline credits, etc.
Click here to add an Amex Gold card to get another $750 worth of Amex MRs and 4 MRs/5% cash back on groceries, restauraunts, etc.
Click here to add an Amex Blue for Business card to get another $125 worth of Amex MRs and 2 MRs on all spending up to $50,000 a year.
Note: the offers above are the ones that I have; I have not checked to see if there are better ones for any of these cards, but if there are, by all means take them instead.
If you think I am crazy for getting all these credit cards, that is fine. In my opinion, if you pay cash for everything and just put a lot in a Roth IRA the more conventional way, while riches are uncertain, you will be very likely to be glad that you did. If you think all these cards are a very good opportunity, I agree, although, again, this is just my personal opinion, I am not a financial or tax advisor, and I am against using credit cards if a person pays high interest rates on them instead of paying them off.
Finally, please also consider the post here on tithing or giving more than 10% under grace on what you earn on investments.
–TDR
Someone asked me a question about minimum investment size with Schwab in a Roth IRA. Here is some info about that:
In an IRA with Schwab you can purchase the Eventide Gilead, Healthcare and Life Sciences, Exponential Technologies, etc. funds with low minimums–I think it is only $250–and no fees to buy or sell class N shares as long as you hold them for at least 90 days (there is a small fee to sell if you hold them less than 90 days).
A child can have a Roth, I believe, but it has to be his own income. So, for example, you could pay a child a very generous salary that a union California government worker gets for an easy job like to help move wood for building something or for watching a van to make sure nothing is stolen, or for getting people ice water for the people actually working on the building for real, but something outrageous like $1,000 / hr would not be acceptable, probably. The nice thing about the Amex points is that they are not income from the child, so you can take points and make them into cash far beyond what a child’s actual income is into his IRA, IMO.
The 18%+ lifetime return the Gilead fund has gotten since it started is amazing–so is the 90% it got last year, yes, you read that number correctly–but I wouldn’t count on it continuing to get something that good for decades on end. I think it does illustrate that someone does not need to lose a good rate of return to honor God with investments, though.
There is a pastor I know who jokes about giving a dollar to hold a new baby when a new child is born in the congregation. If someone actually did that it would be the baby’s income, and one could then open a Roth IRA for him and then Amex MRs could put thousands of dollars into it once it was opened with the baby’s actual income of $1. Or a family could dress up on July 4, go downtown, sing patriotic music, and have an open violin case for donations–income to the kids–and then Amex MRs could fund it like crazy. There are other inventive ways that one can open a Roth IRA for a very young child with that child’s own income which can then result in a lot of money put into a Roth IRA with Amex points.
I would be surprised if the IRS allowed this.
A bit of searching the internet and I found this: https://www.drmcfrugal.com/roth-ira-loophole-schwab-amex/ and https://www.uscreditcardguide.com/potential-loophole-of-cashing-out-mr-into-schwab-roth-ira-dont/
Until a ruling comes from the IRS, you are risking a 6% excise tax for anything above the limits.
Dear Jerry,
Thanks for the comment. Someone should definitely read both pro and con and be careful before doing this. I personally, as a non-tax professional, am more open to it than the negative article you mentioned, but I definitely can see someone passing based on what that negative article said. However, Amex MRs are not cash, and you are not depositing cash into the Roth IRA, in my opinion. But I am also more risk tolerant than many people.
Even if someone agreed with the negative article, it would still be a way to max out a Roth IRA contribution if someone was not contributing the maximum.
Thanks for sharing those alternative viewpoints.
I fully agree this is a great way to reach that maximum contribution, but until a Form 5498 is issued we will not know how it is reported and whether this is a loophole to exceed the maximum.
By the way, I think Schwab will not issue a 5498 at all, because it is not considered a contribution. Of course, if I turn out to be wrong about that, I will have to change the post.