Everything About Roth IRA

What is IRA? What is Traditional IRA? What is Roth IRA? What is Backdoor Roth IRA? What is Mega Backdoor Roth IRA?


Individual Retirement Account. 

In 2020, the annual individual contribution is $6,000.

Traditional IRA

Contributions are tax-deductible. Withdrawals are taxable. 

If you don’t have a retirement account at work (e.g. 401(k)), the full contribution is tax-deductible, but if you have a retirement account at work and your income is more than $124,000 (for 2020) for married filing jointly, your contributions are not tax-deductible. 

Roth IRA

Contributions are not tax-deductible. Withdrawals are not taxable. 

You can contribute to a Roth IRA only if your income is less than $206,000 (for 2020) for married filing jointly.  

Backdoor Roth IRA

Backdoor Roth IRA is a legal workaround for a high-income family to contribute to a Roth IRA. The process is to contribute after-tax money to your traditional IRA, and then transfer the fund to your Roth IRA. 

Mega Backdoor Roth IRA

The 401(k) employee contribution limitation is $19,500 for 2020, and total limitation including both employer and employer is $57,000 for 2020. Some 401(k) accounts allow employees to contribute more after-tax money beyond the employee limitation, but subject to the total limitation. Then you can convert this money into a Roth account. This is called Mega Backdoor Roth IRA, or 401(k) in-plan Roth conversion.


3 Things I Learned from Warren Buffett

When the name Warrant Buffet is mentioned, what is the first word or phrase that comes to your mind? For example, you can say “Future me”. I have three phrases, Shareholder, Mr, Market, and Circle of Competence. Today I am going to share how these three things I have learned from Warren Buffett changed my investment strategy.

This is a speech I gave at my Toastmasters Club for the project of Introduction to Toastmaster Mentoring, a Level 2 project in the Pathways program.

My Great Virtual Mentor

When I was a kid, my mom told me, “Jinlu, you need to work hard otherwise you will be stuck in this village.” I listened, and I moved out of the village to a town, then to a local city, and eventually to the capital of China, Beijing. When I was in High School, my teacher said, “Jinlu, you need to focus on the coursework, so that you can get into a good college.” I listened and got into one of the best schools in China. When I was in college, my adviser told me, “Jinlu, you need to do some projects which will be good on your resume when you are finding a job. “ I listened and found my ideal job after I graduated. 

I did everything I was supposed to do, and I got everything I was promised. But I wasn’t happy. I felt insecure. When sitting in my own room by my self, I felt anxious, worried, I felt there was a giant hole in my heart. But I didn’t know why. I needed help. I needed a mentor. 

I didn’t have anyone around me who could guide me. But fortunately, I had something else, the thing I started to play with when I was in High School, the thing I majored in my college. The Computer, The Internet. That’s my mentor, my great virtual mentor. 

Through the Internet, I met M. Scott Peck, the author of the book The Road Less Travelled. I met Tal Ben-Shahar, the Harvard professor who taught Positive Psychology. They became my mentors. They told me emotional insecurity probably came from childhood experience, but you could overcome it. The first step was to accept it, accept your feelings and emotions whatever they were. Then try to analyze the mental model, finding the unconscious reason for your anxiety and worrisome. I followed their advice, and I felt much better.

Another part of my anxiety, insecurity was financial. I came from a poor family, worrying about money was part of my life. Do I have enough money for tomorrow, next year, or even for retirement? I often asked myself. Again, through the Internet, I got to know Warren Buffett and Charlie Munger, two great investment Gurus. I went to see them. Buffett literally gave me a present, but Munger wasn’t proposing to me. They taught me to spend less and save more. They taught me to leverage the low-cost stock Index Fund and ride with the prosperity of the greatest nation on the planet. Then with the help of compounding effect, your financial future is guaranteed secure. 

Thanks to these great virtual mentors, my anxiety and insecurity were relieved. Then I asked myself, “What’s next?” “What do you really want to do with your life?” (long pause) “I want to become one of them.” “I want to be a mentor to the people who need help but have no one around them, just like in the situation I faced. ” Then the next question is How. Don’t worry, I have my mentor now. And he is available 24/7. So I asked my great virtual mentor how to become a great virtual mentor. He told me you need to develop your writing and speaking skills. I listened and started my journey. 

After some practice, I realized writing had many benefits. It makes you think clearer and more thorough. Sometimes you think you have understood something, but when you try to write it down, you start to realize that you actually don’t. Also, when your writing is recognized by others when they say “I learned something from your article.” the excitement, the sense of achievement is incredible.

For speaking, I came here, the toastmaster club. The encouragement and supportive feedback I get from everyone are invaluable. I appreciate the help I got from my mentor, Rebecca. It has only been 7 months, but the sense of belonging is becoming stronger and stronger. I am part of this family now and I hope I will remain as part of this family for another 7 years. 

I am grateful I have this great virtual mentor. He helped me get back the sense of security, both emotionally and financially. He also guided me to pivot, and move onto the next chapter of my life, focusing on writing and speaking. And He will continue to help and guide me whenever I need him.

What about you? Have you used the Internet as your virtual mentor? He is not just my mentor, he’s yours as well. Next time, when you need a mentor in your life but you couldn’t find anyone available around you, try this great virtual mentor. I guarantee you won’t regret it.

Make Friend with Time: Compound Effect

Anyone watching Game of Thrones? Many people love stories about Kings and Queens. I’ve got another story for you today. 

Once upon a time, there was a King. He hosted a chess tournament for farmers. That’s weird, I know.  But he did it anyway. One of the farmers won. The King asked the farmer what he wanted as his prize. The farmer said, “I just want some wheat and I don’t want much. I want one kernel of wheat on the first square of the chess board, 2 kernels on the second square, 4 kernels on the 3rd square, 8 kernels on the 4th square, and so on.” The King said “That’s easy!” and he happily agreed. 

One of the King’s advisors said to the King. “Your grace. We cannot afford that. To fill the last square, the 64th, there will need to be 1.8 times 10 to the 19th power kernels of wheat, which is 740 thousand billion lbs.” The King got mad, and he said: “Burn them all!” Oh, well. He didn’t really say that. I guess I watched too much Game of Thrones.  But the King was very angry, that’s for sure. 

Then another King’s advisor said, “Don’t worry, your grace. All you have to do is to tell the farmer this “I cannot give you all the wheat in one day. But I can fulfill one square for you each day. ” The King said the same to the farmer and the farmer happily agreed. 

Guess what happened? The farmer starved to death on day 8. Because he had only one kernel to eat on the first day, 2 kernels the second day, 4 kernels for the 3rd day, and even on the 8th day, he only got 256 kernels, which was only about 2ounces, far less to support his life. 

What the farmer asked for was actually an exponential curve. The growth rate is always applied to the current value, not to the original value at the beginning. So it is also called compound rate, or compound effect. With the exponential curve, If you could make friend with time, and be patient, you will gain a lot. But the disadvantage of the exponential curve is that it has a very limited result at the very beginning. 

Albert Einstein once said Compound Rate was the eighth wonder of the world. Then how can we take advantage of the exponential curve and the compound effect? 

One important application is in investment. S&P 500 stock index fund is the most recommended investment by Warren Buffett. The compounded return of the S&P 500 Index is 10% for the last 50 years, and 8% for the last 10 years.

If you could invest $1,000 each month, and invest 30 years, then with 8% return rate, how much do you think you can get? Anyone wants to take a shot. 

It’s 1,359,398.53, nearly 1.4 million. I think that’s enough for retirement. 

I am using this formula for my retirement plan and I feel a sense of security financially. 

But someone might ask what if I am not interested in investment. Can I utilize the compound effect in other areas? I say, Anything and Everything. 

In 2008, I graduated and started my career in an American company. Although I had learned English for many years in school, I found my vocabulary was actually limited. So since 2009, I started to improve my vocabulary. I learn and review new words every day. I have been doing so since then. It’s been 10 years. The other day, I took a test on vocabulary and I was told I had 20,000 words in my vocabulary. 

Last year, I decided to try writing and public speaking. I know I have a long way to go, but I am confident because I have made friend with Time so he is on my side. 

Some members mentioned she wanted to be a licensed nurse, some said he wanted to write a book about children’s diet. Some said he wanted to switch from the industry to academia and become a professor. 

What about you? What is it that you want to do with your life? It’s never too late to think about it. 

But whatever it is. As long as you Make friend with Time, be patient, make a little progress each day, then with the compound effect, I am sure your dream will come true.

12 Rules for Personal Finance – Personal Financial Planning Basics

I am very interested in economics, finance, and investment, and have learned these for a couple of years in my spare time. The main purpose of learning them is to improve my personal financial situation. The other day, I took the CFP (Certified Financial Planner) sample quiz and correctly answered 7 out of 10 questions. Not bad. 

I have summarized the basics of personal financial planning, 12 main points in total. As a tribute to Jordan Peterson’s 12 Rules for Life, I call it 12 rules for Personal Finance. 

1. Set your goals. It could be to secure a financial future, to retire early, or even to achieve financial freedom.
2. Budget. Spend less and save more.
3. Increase your income. Invest in yourselves, e.g. get continuing education or professional certificates for career advancement. 
4. Get out of Debt as soon as possible. Especially the high-interest debt, such as credit card debt.
5. Set up an emergency fund which can last 6 months without employment.
6. Boost your credit score. For example, have a credit card but always pay off the balance. The credit score is critical when you take a loan, e.g. mortgage.
7. Use banking wisely. Have a basic checking account to pay bills. Have a saving account or use CD (Certificate of Deposit) to save money. Have a credit card but don’t borrow money from it.
8. Tax consideration. Always consider taxing when making money decisions.

  • Have an HSA (Health Saving Account) if possible. It has triple tax benefit, meaning there is no tax on contribution, spending, and investment.
  • 529 College Saving Plan. Although the contribution is not tax deductible, the investment is, and it will not be taxed if the money is used to pay education.

Have enough insurance.

  • Property and Casualty Insurance to cover the properties you own, like auto insurance, homeowner insurance, renter’s insurance.
  • Liability Insurance to cover the damage you accidentally cause to other people or their belongings. Usually, auto insurance, homeowner insurance, and renter’s insurance already include liability coverages, but Umbrella insurance can provide additional coverage beyond the limits of these insurances.
  • Life insurance to provide support for your family in case of your accidental death.
  • Disability Insurance to provide income in case you become disable and cannot work.
  • Health Insurance to cover medical expenses.
  • Long-term care insurance to cover long-term care expense beyond the coverage of health insurance.

10. Plan for Retirement

  • Social Security. Social security is going broke unless it is dramatically reformed. So don’t depend on it.
  • Pension. Just like social security, pension plans are not very dependable either. So you’d better have your own retirement fund.
  • 401, 403 and IRA. If your employers offer 401(k) or 403(b) plans, use it, otherwise set up an IRA account. These retirement accounts have tax benefits, so try to max them out to take full advantage of them. If your employer has a contribution match, don’t waste it.
  • Annuity. An annuity is an alternative way to plan retirement. You put a lump sum in now and you will get a steady income stream after a certain age.

11. Learn investment to even better enhance your financial situation, and achieve financial freedom.

  • Stock. Buy individual stocks only if you have the time, knowledge, and intelligence to control your emotions.
  • Bond. Just like stocks, bonds could have different risks and different returns.
  • Mutual fund and ETF (Exchange Traded Fund). Buying mutual fund or ETF, you essentially trust your money to be managed by others. There are actively managed funds and passive index funds. Mutual funds could invest in stocks, bonds, and short-term debt.
  • Stock Index Fund. The stock index fund, e.g S&P 500 index fund is the most recommended investment if you have a long-term investment horizon and won’t panic if the market crashes. The compounded yearly return of the S&P 500 index is 10% in the past 50 years, and 8% in the past 10 years.
  • Other Investments. For example,
    • Derivatives, e.g. Options.
    • Commodity and futures contract
    • Real estate.
    • Foreign currency.
    • Cryptocurrency.
    • Private equity.
    • Hedge fund.
  • Collectibles like wine, art, stamps or vintage cars.
  • Use Modern Portfolio Theory to calculate and maintain risk while maximizing return.

12. Set Will and Trust to ease the process of passing your asset to the next generation.

Jinlu’s Cooking Style

Note: This is an article turned from a Toastmaster Club Speech. 

The other day, our club president approached me and asked: “Jinlu, you are a Chinese, so could you tell me the best Chinese restaurant nearby?” I said, “No, I cannot tell you.” I didn’t want to keep the best restaurant for myself. I simply don’t know. I cook at home almost every day. So I know very little about nearby restaurants. 

Cooking for the entire family can be challenging because different people want different things. For me, the most important thing about food is eating healthily. I use this Healthy Eating Plate from Harward Medical School as my guidance. But for my husband, all he cares about is taste. The saltier, the spicier, the greasier, the merrier. 

These are our everyday meals. I try to balance the carb, protein, and vegetable/fruit. I tried to make the ratio between them is 1:1:1. 

I try to eat healthy carbs. For example, whole grains and multiple grains. For rice, I like brown rice, but my husband prefers white rice, so our compromise is something in between, called Haiga rice, or germ rice, or rice with the embryo.

I try to integrate as many different ingredients as possible. Like in this risotto, there are green beans, peas, tomato, corn, carrot, egg, chicken underneath, and of course rice. 

Since both my husband and I work, we don’t have too much time for cooking. So easy-to-cook is my style. Here I cooked a big pan of meat. Then I divided them into 4 portions. Each of them turned into one meal for two of us. I used different vegetable and carbs to complete them. Here are cornmeal bread, noodles, potato, and corn on the cob.

Another example to demonstrate easy-to-cook style. One rotisserie chick from Costco can turn into a shredded spicy chick, Korean dish bibimbap, chicken sandwich, and chicken fried rice. And it is inexpensive too. How much is the chicken from Costco? $4.99. So the cost of one meal is probably less than 5 dollars. 

I can use different ways to cook the same thing. For example, this stuffed buns, aka Bao, can be steamed, pan-fried, or baked. They taste very differently. 

Noodles can come with different forms as well, like noodle soup, egg fried noodle, noodle with vegetable and meat, spicy noodles with hot oil, and it even can be used to substitute the rice from bibimbap. 

Most of the ingredients are interchangeable to me. For example, for this egg cake/omelet, I can use green pepper, red pepper, onion, green onion, chive, I can use diced potato, or I can even use left-over rice. 

When it’s time to cook. The decision-making process is like this. It may start with me asking my husband “what do you want to eat?” Or it starts with “What needs to be eaten?” as in the situation something in the fridge is going bad very soon. Then we decide how to cook it. Then I will complete the diet plate to balance the carb, protein, and vegetable/fruit. 

Starting from this week. I made it even easier to decide. I compiled all the pictures of food I have cooked and made an album. I called it our Family Menu. There are about 300 pictures included. Because of the time limit, I am going to go through them very quickly.

It starts with salads and cold dishes. 

Then dishes with chicken. 


Beef and ground turkey. 

Fish and fish fillets. 

Shrimp and crab.

Tofo, beancurd, bean sprouts, and soybeans.


More egg.



Porridge and potato. 




Other Dim Sums.

Other carb dishes and soup. 


Do you like it? Do you want to try? 

Then come to my house for a Party on XX. Everyone is invited. Mr. Toastmaster.