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1 - How do you financially justify investing more in your house as opposed to investing in the stock market?
2 - Is it time for me to shift to more conservative investments within my 8th grader’s 529 Account?
3 - With a big dental bill coming up, should I use funds from my taxable brokerage or from my Health Savings Account?
4 - Being self employed, how can I ramp up my retirement savings with a sweet one year contract coming up?
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
Welcome to Out of Money. I'm Joel, I'm Matt, and
today we're answering your listener questions.
Speaker 2 (00:24):
That's right, buddy, we have a lot to get to today.
Speaker 3 (00:27):
This is a listener questions episode, and we've got personal
finance answers to give.
Speaker 2 (00:32):
Buddy.
Speaker 3 (00:32):
A listener is asking about supercharging the retirement, specifically as
a contractor. This is something we've got some personal experience with.
Speaker 2 (00:40):
So we'll get everybody's got that W two job map,
I know. Yeah.
Speaker 3 (00:44):
Another listener is asking about actually using his HSA for
medical we'll explain why it is that we don't typically
offer that advice. And another listener is asking about investing,
and I use air quotes there, but investing in real
estate as opposed to the stock mark it some of
the different considerations there. But we'll get to those listener
(01:04):
questions plus more during today's episode. But first, Buddy, I
wanted to share a quick personal financial win that I
was able to recently experience. Love to hear it, so
you'd love to celebrate with you, Oh, thank you. A
couple of weeks ago. You remember, back when we had
like the polar vortex, everybody's pipes.
Speaker 1 (01:20):
Were freezing I think it's still a left some scars
for a lot of folks around the country.
Speaker 3 (01:24):
Okay, well I've got some financial scars as well, but
maybe not quite as bad as I was initially thinking.
So I had a water line break at a rental
and this actually happened before the temperatures got all, you know,
got real cold. Here's the thing, though, this is a
rental house we lived in. We had the inspection done,
of course, and this is like a long time ago.
I knew this was coming. Yeah, I knew this was coming.
(01:46):
I remember on the inspection report. Old galvanized line is
something they stopped using them like the sixties. It's going
to fail at some point near or at end of
life expectancy, please replace.
Speaker 1 (01:55):
And you've owned this home for fifteen years now, yeah,
so yeah, and that it was only amount of time,
and of course it breaks.
Speaker 3 (02:02):
And I remember thinking we maybe even talked about this
on the show. But the solicitations in the mail, that's
like waterline warranty and do you know what I'm talking
about where you'd pay what you're pay eighteen dollars a
month paid insurance and they're going to cover the cost
if you have to replace this and because it is
a really expensive repair and I'm kind of depending on
how hard it is to big up how much of
a section they have to replace, You're right, yeah, yeah,
(02:23):
Well I'm kind of kicking myself. Nos, I'm like, maybe
that should have been the right decision, and it's not
because typically someone out there needs to use this, but
specifically because I knew that this was on the horizon,
Like I knew that this was an eminent repair that
for you, the insurance would matter more than maybe from
it it may have actually paid out whatever, you know,
that's beside the point. This was going to be a
really expensive repair. And I was not excited about paying
(02:44):
seventy five hundred dollars to get this thing dug up
and replace, to get some new wet pecks or there's
another type of you know pipe that they stick in.
Speaker 2 (02:53):
Why seventy five hundred, it's just how much a cost. Man,
it's a long run to the street.
Speaker 3 (02:57):
No, it's not that long, but it's just very labor
intens that they got a bus up the sidewalk.
Speaker 2 (03:01):
I've seen they got to dig it this massive transit.
Speaker 3 (03:03):
H yeah, yeah, well, and specifically this was with a
plumber I have used in the past, and I'm talking
this guy is the best by far, the absolute best experience,
does the best work, just everything, top notch, still gold
plated pipes. It feels like that that's what you should
be getting. But luckily I did my due diligence though,
and got another quote from another plumber that I had
not used before that came highly recommended. Guess what his
(03:25):
quote was. What it was forty five one hundred dollars difference.
It is a big difference, And so I like, I
wasn't necessarily gonna you know, I understand that he's got
the seventy five hundred dollar guy, he's got bills to pay,
he's got a certain type of business that he likes
to maintain. But I told him just like, hey, you know,
I got a better quote. I appreciate you talking to
(03:46):
me whatnot. And he's and he was willing, and we
were texting, and he's like, are you willing to talk
about this? I'm like, absolutely, let's So I gave him
a call like an hour later and we talked about it,
and bottom line, after a quick five minute conversation, he
agreed to the forty five hundred dollars.
Speaker 2 (04:01):
Price he was willing to match it.
Speaker 3 (04:02):
That's amazing, which is amazing, And it just goes to
show And I mean, it would have been nice to
try out new a new plumber, but this is somebody
I've used before. It does top notch work. And the
other guy, while I think good, I'd never used him before.
Speaker 2 (04:15):
Yeah, they were, they.
Speaker 3 (04:15):
Weren't getting back to me as quickly, and given the
oncoming polar vortex, it seemed like that they were ramping
up for that. They just they weren't as responsive. But
it just goes to show the willingness to have a conversation,
even just on the phone, even engaging via text, actually
performing the due diligence, doing your homework, getting a second
opinion right, getting an additional quote gave me the ability
(04:37):
to say, hey, I mean, would you consider coming down
and he, you know, initially he said, well, gosh, I'd
really like to get five for this, but I'd be
willing to do forty five. And I'm like, well, of
course I'm going to go for the forty five. Yeah,
well you're right, and he willingly did it. Did a
fantastic job asking for a.
Speaker 1 (04:53):
Discount, highly underrated something we talk about with regularity, and
this is a perfect example of how to do that,
and and the importance too of getting multiple quotes for
something because as a layperson homeowner, like I don't know
how much it's necessarily supposed to cost. And that's the
only way sometimes you can get the proper information is
having multiple people come out and tell you what they
would charge, especially like a once in a lifetime yeah,
(05:14):
sort of fixed like this, like hopefully this is something
I should never have to repair there again at.
Speaker 2 (05:17):
The house at least fingers cross, let's hope.
Speaker 4 (05:19):
So.
Speaker 2 (05:19):
But yeah, I think that's great.
Speaker 3 (05:20):
Why you're able to celebrate with me here a little bit.
That's what you said you wanted to do, claw three
thousand dollars back in your life. It's a beautiful thing.
Enjoy Enjoy those savings, my friends, and keep it in
your savings account for it, because yeah, that's and this
is a rental property, so it's rental privy.
Speaker 1 (05:37):
Managing rental properties ain't cheap, and you got to be
prepared for stuff like this. This is when we talk
about whether or not rental properties makes sense for you.
These are one of the things you got to be
able to handle that factor and actually we're going to
get to a question on that in just a second.
Speaker 2 (05:48):
But you know what's funny. What's funny?
Speaker 3 (05:50):
Like, so literally I had beers with a friend of
the night before and he was kind of asking him.
He's like, oh, yeah, you're you're into investing in real estate?
Speaker 5 (05:56):
Is it hard?
Speaker 3 (05:57):
Like do you ever get calls in the middle of
the ny that kind of thing. I swear this wasn't
carr By coming back to bite me in the butter
or anything like. I wasn't being arrogant or anything. But
I was just like, you know, initially, like there is
a learning curve because you have to kind of get
your contractors in place, kind of figure out a network
friends who you can call on to provide references, recommendations.
And I was just like, but you know, literally, I've
(06:17):
never gotten a call in the middle of the night.
And this is the closest I ever got to receiving
a call in the middle of the night because it
was just first thing in the morning, like bright and early.
Let's just say they called before I woke up. So
I was like, what do you know? Literally, not twelve
hours ago, I was recounting how this has never happened
to me. Of course, it happens right after that.
Speaker 1 (06:38):
Yeah, well, I'm glad you were able to kind of
do some of the things we talk about here on
the show, because like we try to live those things
out and yeah, and when you can report back about
how much money it saved you, like that should be
inspiring to the rest of us.
Speaker 2 (06:49):
Three K baby, Yeah, it's beautiful. All right.
Speaker 1 (06:51):
Let's mention the beer we're having on this episode, Matt.
This is called reciprocal. It's a IPA by the good
folks at Bissell Brothers Brewing. Oh yeah, one of my
all time favorite brewery experiences was going to Maine hitting
up Bistole Brothers. I don't know that there's Yeah, there's
not many better places I've been to have beer than
that place.
Speaker 3 (07:10):
What's crazy is you and I would have sworn that
we would have had a Bistole Brothers beer on the
show before, because we know that we have enjoyed their beers.
Speaker 2 (07:18):
But that I checked back in the archives.
Speaker 3 (07:20):
And we hadn't even started the podcast back when you
had gone up there with Emily, came back with a
sweet haul and we split some beers.
Speaker 2 (07:26):
That's insane. Is that crazy? That's so crazy. We're old men.
I know I'm not going to get to drink their
beer on the show. Now. They deserve it. We deserve it,
my friend.
Speaker 1 (07:35):
But now it's time to take your listener questions. If
you have a question, just record your question on the
voicemen will app of your phone, send it over to
us via email. Hopefully we can take it on the
next ask htm episode, or if you need more precise
directions to go to how tomoney dot com slash ask Matt.
Let's get to a question about investing and whether or
not real estate needs to be a part of your
(07:57):
burgeoning portfolio.
Speaker 6 (07:59):
Hey guys, it Eric from Evanston again, longtime listener and
second time caller. My wife and I are both forty
and we're firmly in money year six. We have no
debt except for our low interest mortgage. We bought our
Furvor home about three years ago before the interest rates
went crazy. We knew going into this purchase that we
would be needing to build an in law suite or
ADU for my mother in law. For the past two years,
(08:21):
we've fully funded both of our wroths, but all other
what would be investing money has gone towards the ADU.
Between some equity from the sale of our old home
and the money we would have put towards retirement investing.
We spent just over two hundred thousand in cash no
financing on this one bed, one bath, fully separate ADU,
whom my mother in law is no longer living with
(08:44):
us long pauses intentional there, We plan and rented it
out most likely the next ten to fifteen years. So
as much as it feels like a bummer to not
invest past our wroths these past two years, I see
the money we've spent here as an investment once it
becomes an income property, as well as added equity into
our primary residence. I know you've discussed on the show
(09:04):
before y'all are planning to do something similar, So I
guess my actual question is what was your rationale into
investing to your home instead of investing into the markets
for retirement? And am I crazy for still feeling hesitant
that I haven't invested more in retirement in the past
two years? Anyways, Thanks guys, have a great day.
Speaker 3 (09:22):
Joel classic mother in law joke there about her her
not living I was like with us anymore. Eric, that's terrible.
I'm so sorry. And then I was like, oh, okay, dad, joke. Man,
I totally get where you're coming from. And I would
just challenge, like you said that you and it seems
like yet you're having a hard time grappling with the
idea that you haven't invested. It has everything to do
(09:43):
with hindsight bias, right, the fact that you can look
back at the past two years, and so last year
the market was up around like twenty five percent, and
then I think the year before that it was also
around twenty five percent, So you're looking at games of
fifty percent, which is, let's just say, highly unusual to
your cumula of period. We can't change the fact that
you didn't invest in the market, but I'm guessing you
(10:04):
probably feel it would feel a little bit differently had
the market done the opposite, right, Like you would have
been kicking yourself and saying.
Speaker 2 (10:10):
No, we should have done the the.
Speaker 3 (10:12):
Adding the Carr house or the mother in law suite
in order to create this income producing property, this asset
that we can add to our main residence. I think
that's probably what has a lot to do with that
sort of the feeling of regret.
Speaker 1 (10:23):
Yeah, and I think you can kind of look back
retro actively and say, oh, should it on this, should
it on that? And that's really easy to do and
to kick yourself and beat yourself up for. But the
truth is what prior returns are not indicative of future returns, man,
So it's really hard to do that and make predictions
on what you should do next from that. And the
(10:45):
truth is, it's not like Eric was not investing. He
was just using those dollars in a different but also
a productive way, that's true, and so it's not like
he was like, well, I scrapped investing because I assumed
that these bad things were going to happen, or that
these good things were going to happen. He said, I
think this is the right thing for my family at
the time, and that's kind of sometimes the best information
you can go on. Yes, I think it's also important
(11:06):
to mention too that with the cost of building, it's
gone up significantly in recent years, So I can't imagine
that money was poorly spent or maybe that Eric, you
didn't avoid some potential increased costs that have accumulated over
the years.
Speaker 2 (11:18):
When it comes to.
Speaker 1 (11:20):
Improving real estate, you're also choosing to do it to
be able to take care of a family member, which
were totally for by the way, I think it's important
for everyone out there to remember matt Us included to
not ever forget that your money.
Speaker 2 (11:32):
Is there to fuel your life.
Speaker 1 (11:34):
And so if building that ADU was the right long
term decision for your mother in law, for your family,
even if it didn't end up being like a forever solution,
don't beat yourself up for making that decision. And plus,
you now have some square footage that you can make
money from. So yeah, it was there to support your family,
and now it's there as a way to produce additional income.
(11:56):
I don't know, I mean, I think if you're kind
of trying to beat yourself up over this.
Speaker 2 (12:00):
There's no point in it.
Speaker 3 (12:01):
Yeah, and whether and this is regardless of whether you
opt to go the short term rental route or if
you plan to rent it out longer term to a
tenant for you know, months, if not years. But by
doing that, you can turn that two hundred thousand dollars
unit into recurring profit. And not only have you added
value to your property, you've also increased its cash flow potential.
(12:22):
And you said that you plan to own this home
over the long haul, which is great, right, So I
don't know, maybe think less about how much additional money
that you'd have if you invested that two hundred thousand
dollars in the market, and instead just think about the
significant dividends that it's going to throw off for years
to come, potentially tens of thousand dollars.
Speaker 2 (12:40):
Oh yeah, each year.
Speaker 1 (12:41):
And like you said, dividends, because dividends usually think about
that with stock. But yeah, that's kind of sort of
what a rental property does to a certain extent.
Speaker 3 (12:47):
And granted cash flow, it's not purely passive. There's it's
going to involve maintaining that property. If it's a short
term rental, it's going to involve a lot more work. Right,
It's gonna involve you getting in there. Let's say, for instance,
on Airbnb, that kind of thing.
Speaker 1 (12:58):
I have a couple of friends who recently have told
me about maybe their decision to airbnbe either portion of
their property or their whole house while they were away
living elsewhere in the United States for a significant period
of time, and the amount of money they were able
to generate from either a portion of their property or
their entire property was significant legit, and so I just think, like,
(13:18):
don't overlook that reality, Eric, that this could end up
being a better, more profitable situation being in the long run,
not only are you going to experience maybe increased appreciation
of your property because this exists, but increased cash flow.
So there's a lot of benefits to investing in real
estate if you do it wisely. And hey, the fact
that you paid cash for this edition is huge. Totally Okay.
Speaker 3 (13:40):
So I wanted to address because Eric mentioned, like, how
did you sort of reconcile, you know, investing in your
home versus the market, and I think he's referring to
us adding onto our house, which is what we're currently doing.
I'm going to totally admit that an ADU right an
accessory dwelling unit, versus an addition to your primary home.
These are two different things. Will Kate and I see
(14:02):
some return on our investment on our primary home if
and when we sell the home someday, Yeah, I'm sure
we will, but not nearly as much as Eric will
when it comes to what that property is going to
create in revenue. So despite the fact that the money
is better spent on this, then let's say on a
fancy car or something where that's going to completely depreciate
(14:23):
in value. I am under no illusion that this is
an investment like VU right, like a S and P
five hundred ETF. And I am totally okay with that,
because sometimes you spend money instead of investing on purpose,
just make sure that you do it intentionally and that
you know.
Speaker 2 (14:38):
The trade offs.
Speaker 3 (14:40):
I will say, if there is a chance that Eric
is referring to our previous home where we finished out,
we added on, but we also so we gain some
space on the main level, which is where we lived,
but we also finished out below that, and we saw
that as more like an ADU because it's a separate
apartment because in a similar way, literally did short term rentals.
(15:01):
So yeah, yeah, we rented it out on Airbnb before
you and I were able to take it over. So
in that case we're able to kind of like have
our cake and eat it too. But I think he
is talking about adding onto our current home, and I
will say we didn't justify it, like, we did not
look at it through the lens necessarily of is this
the best quote unquote investment. We thought through it through
(15:22):
the lens of is this how we want to live
our life? Like, what are our other goals outside of
our financial goals in life? What are our lifestyle goals?
What kind of activities do do we want to be
able to host in our home? For Kate, she's going
to have the ability to have an art studio in
the house, which is not something that she has ever had.
And you know what, we're at the point in life
(15:42):
to where we don't have to optimize every single dollar
to the utmost from a financial perspective. We're also thinking
of quality of life to a certain extent in this
way as well. So it's not about okay, well I'm
able to justify and look at it through a dollars
and cents, like you want to be smart about it,
and obviously you want to make sure sure that you
can handle an addition or adding an ADU to your
property something like that. But I will say we were
(16:04):
thinking about it less through a return on investment and
more through a lifestyle lends.
Speaker 1 (16:07):
And I think most people who renovate Matt like you're doing,
or make a little addition to their main house and
it costs quite a bit of money, they're oftentimes like
putting some blinders on because they don't want to realize
the fact that it's not actually an investment. They call
it an investment, but typically it's spending money in the
way they want to spend money, and it just is
less harmful than other ways they could spend money. But
the truth is, when you look at the numbers, most
(16:28):
of the home renovations that we do don't pay off
dollar for dollar in return to the home value the
way it's increased. It's possible, right to make certain changes
to your home and to see an increase in value
that's in excess of what you spent, but that is
not the norm. So just make sure everybody out there listening.
If you're like I'm gonna do this home RHNTO project,
don't assume that the ROI is going to be killer
(16:50):
and in fact, you know you might not see much
of one at all.
Speaker 2 (16:52):
Sure, but that doesn't mean you shouldn't do it.
Speaker 3 (16:55):
Yeah, I hesitate to even use the language of investing
in our home by adding on is not like we're
doing this because we want to live in a different way,
right like, and so just don't be don't deceive yourself,
right like I think someone would be a bit self
delusional if they're thinking about it as a quote unquote investment.
Speaker 1 (17:11):
Yes, agreed, and I think too. Going back to Eric's question,
he said, hey, they were still doing some market investing.
They paid for the ADU and cash, Like his cash
flow should be going up because he has this ADU.
How much depends on in what way he rents this
place out. And I think that means he can make
up for lost time from a market investing perspective. He
can say, hey, I kind of slowed it down there
(17:33):
for a couple of years while we were funding this thing,
but now we don't have to fund it, and it's
actually generating income for us. So I guess it's important
to say that. It's you shouldn't dwell on the investments
that could have been. It's like the one that got
away from like the love perspective, right, Like that's a
waste of time, So don't do that from this perspective
and just realize you made the best decision you could
(17:54):
with the facts that you had, and you're in a
strong position to invest more and to increase your net
worth in a big way in the coming year. So
I think, I don't know, we both believe that you've
done a great job here, Eric, and I'm curious to
see kind of where this ADU takes you and and uh, yeah,
how you're able to kind of maximize its value for
your family moving forward totally.
Speaker 3 (18:12):
I think if you've been making the right moves from
a fential standpoint for a number of years, if not decades,
you can start to think through you don't you don't
have to prioritize the financial goals. Like so earlier this morning,
Joel and I were talking about friend of the show
Marshall Allen, who we had on the show like years ago,
investigative journalist, talked a lot about healthcare.
Speaker 2 (18:31):
How he you know, he died last year. I don't know.
Speaker 3 (18:33):
I think we've talked about it on the show before.
But he died and he wasn't that old man.
Speaker 2 (18:37):
He was in good shape.
Speaker 3 (18:38):
Yeah, it seemed like he was in good shape. He
seemed like he was he was a healthy guy. And
he died of a heart attack.
Speaker 2 (18:42):
And so these are the.
Speaker 3 (18:43):
Kind of things that that I think are important to
consider and to kind of hold at the same time
as we're trying we're trying to be smart with our money, right,
but at the same time, it's like, all right, well,
we don't know what tomorrow holds, and it's probably the
most challenging aspect to like growing older and reaching some
of your financial goals and then expanding that. So what
else in life are you looking to accomplish and achieve?
And I don't did Eric. I'm not sure if Eric
(19:05):
shared how old he was. And I don't at all
mean to be a downer, but I think that that
can be a helpful way to think about some of
the dollars that we spend, some of the dollars that
we don't spend, some of the dollars that we choose
to even to give away, right, because it's less about
how do I make this as big as humanly possible?
And what else do I want to do with it,
whether that's donating or spending it on others, or even
just having fun and maybe going on a nice vacation
(19:27):
when that's something in the past that you decided not
to do.
Speaker 1 (19:30):
Yeah, And I think not crying over spilt milk if
it wasn't in retrospect the most optimized decision no regards. Yeah, exactly,
it's hard to predict that ahead of time, and actually
impossible to predict that ahead of time. So you did
the best with what you had and you did a
great job. So be proud, I think, and be thankful.
All right, Matt, Let's get to more money questions, including
(19:51):
one about investing when you're a contractor. We'll talk about
that and more right after this.
Speaker 3 (20:03):
All right, Joel, we are back from the break. Let's
take another listener question. This is a listener who is
asking about aggressively investing or maybe not aggressively investing within
a five twenty nine account.
Speaker 4 (20:16):
Hi, this is Florina and I'm outside Philadelphia, Pennsylvania, and
I have a question about investments and specifically five twenty nins.
My son is currently in eighth grade and we have
a good amount invested in his five twenty nine account.
Considering he has about four and a half years until
he goes to college, would you consider at some point
in the next few years of getting more conservative or
(20:37):
putting part of this slump sum in cash, since some
of it will be used his first year and some
won't be used until the following years. Much appreciated for
any insight and guidance. Love love, love your show, and
thanks for any advice you can offer.
Speaker 1 (20:50):
Oh, man, I like this one because it's got elements
of retirement investing put on like a much truncated timetable.
Speaker 2 (20:58):
Right. Yeah, it's true.
Speaker 1 (20:59):
It's very similar because you're saving up for a specific
need and you have like a particular drawdown period, but
everything is kind of shorter and more compact than we're
talking about five to twenty nine plans. So it influences
the answer. And I'm glad Florina asked this question because
it's an important topic for us to touch on, and
most folks don't pay much attention to how money inside
(21:20):
of a five twenty nine plan is invested. That you know,
that might mean that those funds are in a money
market fund inside of the five twenty nine account or
a savings equivalent fund. So maybe they stick the money in,
they get the tax break that their state offers, if
their state offers one, and then beyond that, the way
they're investing those dollars or not investing those dollars. It
(21:41):
just never gets revisited.
Speaker 2 (21:43):
You might just.
Speaker 1 (21:44):
Luck out, and maybe, you know, by default or accident,
you end up investing the money you luck out. You
ride the market up to the point of needing to
spend those dollars. But the truth is it's important to
know how your money's invested inside of a five twenty
nine plan, whether it is or not. And then also
when you change your investments allocation, because you could see
(22:04):
the balance eroad, especially coming closer to the time you
need to spend it if you're.
Speaker 3 (22:09):
Not careful, that's right, Yeah, and then you don't want
that to happen right when you need those dollars to
fund your child's higher education, right that you've been diligently
satting for, which typically means now opting for a more
conservative approach, so a less aggressive investing philosophy. And so
if you've had the money, let's say in a total
stock market or an SP five hundred, you're getting really
(22:30):
close to the time that you're probably going to want
to dial back that one hundred percent stocks approach. And
I'm glad that you mentioned how similar this is to retirement, Joel,
because say, for instance, let's say you're sixty one years
old and you plan on retiring at sixty five, where
you're going to want to start tapping those funds. Well,
in a similar way, you're going to want to dial
back that stock exposure a little bit to kind of
smooth out any volatility. It's likely that you're not looking
(22:54):
for returns as much as you are guaranteeing that that
income is going to be there for you.
Speaker 1 (23:00):
It's like you're using those binoculars and you're seeing what's
ahead on the horizon and you're kind of making adjustments
now for what's to come because you just you can
say with pretty darn near certainty, with not one hundred
percent certainty on retirement or kids college, but with more
certainty the closer you get to it, Hey, this is
what's likely to happen.
Speaker 2 (23:20):
Here's where we're headed.
Speaker 1 (23:21):
And we usually talk about it in terms of wealth
accumulation versus wealth preservation. What stage are you in? And
it's not always an age thing. For some people who
want to retire early. Well, hey, maybe their wealth accumulation
stage is fifteen years and it's like really intense, and
then wealth preservation starts to kick in because they're not
(23:42):
planning on working until they're sixty five. But yeah, when
it comes to this specific question, it's actually quite easy
to make the changes that you need to make to
ensure that you're not either over indexed to stocks or
have all your money in savings, which you don't want either.
But basically every five point nine plan has a variety
of investment options, and almost all of these plans include
(24:04):
the student version of a target date fund. And we
talked about target date funds as being kind of the
easy way for people to be more well diversified and
especially to not have to change the allocation of their
portfolios over time, because this fund does it for you
as you get older, as you reach get closer to
that retirement age. And similarly, these funds get more conservative
(24:25):
as the student gets closer to going to college. It's
this set it and forget it approach that many people
opt to take because they don't have to think about
it at all, which I think can make a whole
lot of sense, and especially again on the truncated time timetable,
having something that's doing it for you and the back end,
I think it becomes even more valuable. But target date
fund equivalents, especially in those early years, they often inhibit
(24:48):
returns by being too conservative.
Speaker 2 (24:50):
So that's the yeah, that's the downside, and.
Speaker 1 (24:52):
That's the problem when we're talking about to twenty something
investors who have forty plus years of investing ahead of them.
We don't want basically any of the money they have
to invest going into more conservative investments. We want all
their money flowing into stocks because over the long term,
that's going to help them see the best returns. And
(25:12):
so even a ten to twelve percent allocation in a
target day fund is too much for those young investors.
And that's true for parents of really young kids who
are investing in five pointy nine plans too. Whereas if
you're in one of these like enrollment date portfolios like
we have in our in the State five twenty nine
plan Matt that we have access to, it would be
too conservative for me with my youngest son, whereas with
(25:35):
my eleven year old is starting to get closer to
being to thinking about that. And for Florina, with an
eighth grader, I think it makes even more sense to
at least start to consider changing her investments from one
hundred percent stocks to one of these target date fund equivalents.
Speaker 3 (25:49):
Yeah, it depends too just I guess on your like
all this depends on your risk appetite, but I think
the exception to putting all the money that you've invested
into a target date fund would be if you don't
think that you're going to spend down all of that money.
So despite the specific year that your son will go
to college, I think it's important to ask the question
whether or not you are likely to need most of
(26:09):
the balance over those and ensuing most likely four years,
maybe it's five. But this might seem like a silly question,
but you might not actually need all of those dollars.
And because five twenty nine plans have some flexible options,
for instance, like naming another beneficiary or even turning that
five to twenty nine in the dollars or the funds
(26:30):
within that five to twenty nine into a roth ira
for your son, you actually might not want to pivot
in a more conservative direction where you continue to invest
aggressively hoping to get the most out of those dollars,
because you have a little bit more flexibility not only
all what you can do with that five to twenty
nine plan where you to not use those funds, but
also if you have more flexibility and options as to
(26:52):
how it is that you're going to fund those college
expenses as well.
Speaker 1 (26:55):
That's right, Yeah, Yeah, I think that's a good point
because hey, maybe a lot of the money Florina Hasset
aside first on in the five twenty nine account is
not needed, and so it's like, well, then the thought is, well,
how can I maximize those dollars?
Speaker 2 (27:09):
Yeah?
Speaker 3 (27:09):
You don't want to slow down further down the road. Yeah,
you don't want to slow down the volatility and also
slow down the gains that you're gonna realize. You want
to just keep that at you know, full full throttle basically.
Speaker 1 (27:19):
And you're talking about spending this money over the course
of four maybe five years while he's in school. So
it's not like you want to be take risk completely
off the table either, because we're years away from college,
a years out, many years in, yeah, from spending for senior.
Speaker 2 (27:33):
Year for senior year. Yeah, yeah, exactly.
Speaker 1 (27:35):
And so I think I don't know, in our opinion,
maybe going half in one of those a total stock
market fund and then half in the target date fund
equivalent that they that you have access to in the
five tety nine plane in your state, that could be
a good option. Or you could pick like a target
date fund equivalent that's further down the road than his
actual college date. That's another way to kind of level
(27:57):
out the risk versus reward that you're taking here, and
you could maybe at least start by putting new contributions
if you're still funding it to the plan in the
target date fund equivalent instead of moving portions of the
balance over. And if you want to move that portion
of the balance over, maybe do it in six months
or one year increments where you're saying, listen to the
first of every year, I'm going to move over ten
(28:17):
percent of the overall portfolio. Switch it from equities to
a target date fund equivalent, or enrollment your equivalents. That
helps you avoid from changing it overnight or changing it
knee jerk based on what's happening with market conditions. You're
doing it kind of on a set schedule in a
methodical way, and so clery and I'm glad this is
(28:38):
on your radar. I would say, there's no need to
rush this. You still got time before you need to
tap this account at all, and plenty of time before
you need to account tap it for later college years. Sure,
but we love that you're preparing now that you do
have those binoculars out.
Speaker 2 (28:52):
It's good to think about. Yeah, you're thinking ahead is.
Speaker 3 (28:54):
Good to think about. And I'm thinking more too. About
Like I mentioned, how it depends on the flexibility, flexibility
that you have when it comes to funding college. I
think that has a whole lot to do with it.
I think it's worth, as you said, Joe with the binoculars,
look ahead and think through what your expected financial situation
to be. Because let's say it's it's you and the
other parent, you and a partner, and let's say you
(29:17):
both are about to be named partner at your law firms,
and you're like, all right, we're going to be raking
in the dough certainly in you know, four years from now. Well,
if that's the case, like you're gonna be able you
would possibly be able to cash flow college, even a
like a private college without you know, without even thinking
too much about the five twenty nine account, right, Like,
So there's a big difference between a family that's in
that kind of situation versus a family who is seeing
(29:40):
some other really big expenses up ahead or they're thinking
about slowing down their work. Well, in that family situation,
they might be more dependent on those five twenty nine dollars,
and so their biggest concern would be to preserve that
money within that five twenty nine account. To take less
risks so that it is available for educational purposes. Whereas
family that is going to be rolling in the dough, well,
(30:03):
they have the margin, they have the ability to take
some additional risks with their money and possibly invested a
little bit more aggressively. So I think some of it
comes down to what you propose or expect that your
financial situation might look like off in the future. Nobody
knows exactly what the future holds, but I think doing
that to the best of your ability given your personal
situation and some of the other goals that you might
(30:25):
have in.
Speaker 2 (30:25):
The next four to eight years.
Speaker 1 (30:26):
Specifically, and you briefly mentioned this, but don't forget about
the roth Ira ability that the five twenty nine money
can have for your son. If if you do find
yourself with that sort of financial flexibility, you might say, oh,
this is this can be the perfect like kickstarter fund
to help him invest for retirement. And the fact that
you can basically get that started still with a max
(30:47):
IRA contribution limit every single year with thirty five thousand
dollars overall, max you can still get that roth Ira
going for him in a significant way in his early
years because of the dedication you've had to saving for
his college future. But Florina, we hope that helps Matt.
Let's get to our next question. This one is about
HSA dollars. Do you spend them or not?
Speaker 5 (31:07):
Hey, Joel and Matt. My name is Nathan from Knoxville, Tennessee,
and my mom turned me on to you guys several
years ago and I've been listening ever since. But my
question is, my older son is going to need some
dental work and it is going to be a pretty
reasonable amount of money. And my question to you is
(31:28):
am I better off using the money for my HSA
for that or would I be better off pulling money
out of a normal mutual fund and using that to
pay My concern is leaving it in the HSA as
we can grow. But if I pull it from the
mutual fund, I'm probably looking at some pretty substantial capital
gains tax. So love the show. Come on up to Knoxville,
(31:51):
do some mountain biking, stop by some of the breweries,
and thank you very much.
Speaker 2 (31:55):
Mountain biking and breweries. Joel. That sounds pretty good and
it's one of the ways of my heart. Whens. The
last time you went mountain biking it's been too long.
Speaker 1 (32:03):
Yeah, I was like, one of my friends got a
mountain e bike and he was telling me about just
how fun it is on the trails and.
Speaker 2 (32:10):
It's not gonna lie.
Speaker 4 (32:11):
I was.
Speaker 3 (32:12):
I'm very interested the ability to not just to be
able to enjoy the downhill portions, but to beast it
up the more challenging up.
Speaker 2 (32:19):
That does sound like a whole lot of fun.
Speaker 3 (32:21):
It sounds like the whole experience. But bionic, I wonder. So,
I don't know if you've talked about this before. I
spent an entire summer teaching kids how to mountain bike
up in western North Carolina, but I don't know if
we ever made it as far west as Knoxville.
Speaker 2 (32:34):
That's where he said. He was right, But like that entire.
Speaker 3 (32:36):
Western North Carolina, Man, there's a whole lot of good
mountain biking up there.
Speaker 2 (32:39):
Oh, I believe.
Speaker 3 (32:40):
And I haven't done that literally, and I don't know
a long time. Let's just say that, yeah, but I
could totally. I mean, if the kids get into it, man,
that sounds like it's a fun time.
Speaker 2 (32:49):
Yeah. Yeah. Or you and I can get in mountain
biking and then we'll go visit the breweries.
Speaker 1 (32:52):
I will say it's hard to find the time to
dedicate towards a hobby like that, but eventually at some
point of it.
Speaker 2 (32:58):
Right now, we're just trying to squeeze it.
Speaker 3 (33:00):
Hobbies that are going to keep us healthy, fit, happy,
keeping our families happy at the same time. Only so
many all those things all the same time that we
can do without, you know, upsetting the apple. That's right,
that's right, And big thanks to your mom, by the way,
Nathan for turning you onto the podcast. And I'm so
sorry to hear about this dental bill. I'm not sure
if you knew that this was coming down the pike
or not, but nobody wants to spend money this way, Matt.
(33:22):
It makes me think of a dental bill we incurred
where I think you know about this, But my daughter
had a scaping. I don't know if we talked about
on the show or not. We might have because at
the time I think it was so traumatic. Ye like,
well not only for her but also for y'all, just
to make sure that everything was going to tormeunt.
Speaker 1 (33:40):
Okay, So my daughter, not a skateboarder, was not no
feet on the skateboard. She literally had was on her
hands and knees and had her hands on the skateboard
and the skateboard went out from under her face planting
on the ground and teeth movements.
Speaker 2 (33:54):
Yeah, it was terrible.
Speaker 3 (33:55):
Saying that, I know when she just got embraces she
just got which actually saved her teeth because he said
that the brace has not been there to kind of
keep those front ye teeth from going back further. Yep,
sorry to make everybody square, but yeah, it was bad.
Speaker 2 (34:07):
It was bad.
Speaker 1 (34:08):
And that's one of those things where it's also in
for everything and it's an emergency visit and you don't
know how bad it's going to be. This is where
emergency funds come in handy, by the way.
Speaker 3 (34:16):
Yeah, and so I think this is a great question
that Nathan's got here, because we're always talking about how
great hsas are, right, So, health savings accounts, that's what
the HSA is specifically because of the triple tax advantage
that they come with. The nice thing about pulling money
from your HSA is that you're not going to owe
any tax on it for qualified expenses, of course, But
(34:37):
like Nathan said, if you pull money from a fund
within your taxable brokerage account. Well, you're going to owe tax,
and so how much depends on when you bought how
much of it that you sell. If you go in
that position, let's say for less than a year, while
we're talking about short term capital gains tax. If that's
the case, well, tapping the HSA. I think that that
(34:57):
makes the most sense. But if we're talking long term
capital gains of fifteen percent, I don't know. Kind of
depends on a number of factors here, but I think
it's worth considering that.
Speaker 1 (35:07):
You never want to pay tax, and every time you
can avoid paying tax, it's ideal. At least it seems
like that in the moment, because we're talking about paying
tax in the short term versus more extended tax abatement
or tax retreatment. Right, And so I think maybe your
answer might baffle some folks, Matt. They might say, no
tax is better than paying a lower tax rate, And
(35:29):
I get why that would be their response. But you're
going to pay tax on the broker's funds at some
point in the future.
Speaker 2 (35:34):
That's right, and it's inevitable it's going to happen, right, right.
Speaker 1 (35:38):
And even if the capital gains tax rate stays the
same which it's hard to know, depends on what happens
with elections and legislation. Right, it's going to be a
larger tax bill because of the growth of those funds.
Whereas the money in your AHSA, the longer you leave
it put, the longer you let it ride, the more
the money grows. And the truth is you'll never be
(36:00):
tax on the future growth that money in your AHSA experiences.
So the more decades your HSA has to do its thing,
the more it can kind of stay invested in the
market and you can let it ride, the better for you.
So do you want to pay some tax now on
some of those dollars and kind of reduce future tax
liability or do you want to take the tax three
(36:21):
dollars now and kind of limit its growth potential. That's
a tough decision, but I think I err on the
side of, I don't know, pay some tax if today.
Speaker 3 (36:30):
Yeah, if you don't have the money on hand to
be able to handle that bill, yeah, I'm I'm only
in towards the brokerage. But the caveat being you've got
to have the money on hand to pay that tax.
Of course, even though taking money, let's say from the
HSA wouldn't be the most tax efficient choice even that
isn't done to tap specifically for medical medical expenses if
you've been stocking money into that account effectively for many
(36:51):
years down the road. I think if the option was
between paying for this dental bill with your HSA dollars
or let's say cash in the bank, of course we
choose the latter. That's my favorite option. Aren't the two
that Nathan presented, But like, how what's another outside of
the box creative way for you to fund this? Because
the ability to cut back and I don't know, even
challenge yourself to not spend money in a certain category
(37:15):
in order to be able to handle this big expense.
And I don't know, it's been years since I've been
to the dentist, so I don't know how much orthodontia
or Dennis bills can be.
Speaker 2 (37:24):
But fine, I can't. I can't wait to see your
invoice when you do finally go.
Speaker 3 (37:28):
Okay, So it makes me think it. Last week we
talked about listener Sam who made the mistake with the passport,
but then he cawed his money back and you know
all that. He also talked about how he actually just
completed so last year completed a no beer challenge where
he didn't buy beer for a year, specifically for a
financial goal that he wanted to hit. That can potentially
(37:50):
be a ton of money depending on how much you drink,
I guess, or how nice of beers. When you think
how much money we would send that when you do
rarely partake, its really nice.
Speaker 4 (38:00):
One.
Speaker 2 (38:00):
We'd have to find a new craft beer equivalent. It
could still cost you a lot of money.
Speaker 3 (38:03):
Yeah, But I really like the idea because in this case,
you've got a dentist build the ability to say no
to certain things, and like, I feel like our culture
is so down on discipline and say no to yourself.
It's just like, oh no, you shouldn't have to deny yourself.
But I think the ability for us to tie certain
sacrifices that we make in our lives in this case
to something very tangible, to this thing that you know
(38:25):
is gonna cost a lot of money, to to your
kid getting their teeth fixs or orthodontia or whatever the
thing might be. I think it would be more fun
if it was a fun activity, Like if you're saving
up for a vacation, right, Like that's easier to do
because you're saying to yourself, no, the reason we're not
going out to eat is because we want to go
to Barcelona, like we want to spend some time in Spain.
It's a little bit easier to do that, I think
(38:46):
in that case, as opposed to saying I got to
fix the mouth, you know.
Speaker 2 (38:50):
Let's get his teeth straight, whatever it might be.
Speaker 3 (38:52):
But I would really, I think challenge you, Nathan, to
think through, like, what are some areas where you could
potentially just really.
Speaker 2 (38:59):
Scale back, even it's for a short.
Speaker 3 (39:00):
Period of time, cut back to the bone, but knowing
that it's only for a short period of final until
you're able to knock that bill out.
Speaker 1 (39:07):
It's kind of like hard now, easy later or easy now,
hard later, and you got to kind of pick your heart.
And typically choosing the hard on the front end is
better because it makes the easier later much easier. And
that's why talk of depriving yourself, I think it is
rampant in personal finance, and we try to strike that balance.
Speaker 2 (39:27):
But it's not that there's zero.
Speaker 1 (39:28):
Truth to the fact that kind of not allowing yourself
to experience the fullness of your income is bad because
that's partly what we're doing is we're deferring gratification and
we are saving and investing because we know it provides
for us.
Speaker 2 (39:41):
A better future.
Speaker 1 (39:42):
Or we're you know, raining in our spending even on
things that we enjoy occasionally, to be able to have
more flexibility down the road. And so I think that's
a good point, Matt, that you might be able to
find ways to trim the fat in order to accelerate
the cash inflows so you can pay for this thing
in cash and you don't have to make maybe one
of these decisions to have one of.
Speaker 2 (40:02):
These funds totally.
Speaker 1 (40:03):
And then last thing I'll say is, and it's going
to come out of left field, maybe Nathan for you,
but have you thought about getting that dental work done
in a foreign country?
Speaker 2 (40:12):
You might be able to some medical tourism.
Speaker 1 (40:15):
I'm telling you, man, this is like underappreciated and not
many folks attempt it. You might be able to save money.
You might be able to also get a vacation out
of it on top of it. May you were talking
about going to Barcelona, maybe you go to Colombia or Mexico.
Those are a little bit closer destinations, and you might
find that south.
Speaker 2 (40:32):
Of the border, you don't no need to make it
over to Europe. That's just head south, a little.
Speaker 3 (40:36):
Two for one action exactly. It's funny you mentioned Columbia.
The general contractor for a house addition that we've talked about,
he literally left for Columbia this morning.
Speaker 2 (40:45):
Oh okay. His wife is from there, so oh nice, They're
going to go do some traveling.
Speaker 1 (40:48):
I wonder if he's gonna get his teeth picks while
I say, I think he's got pretty good jumpers.
Speaker 2 (40:51):
Okay.
Speaker 1 (40:52):
But the truth is, when you look into it, you
could save a significant amount of money on dental care
if you go to one. There's even a city, and
it's not the real of the city, but it's like
the ascribed name of the city. Molar City in Mexico
is like right across the border. Thousands of Americans go
there every year to get dental services because it's so
much cheaper. And on top of that, the expenses you
incur there actually are eligible for reimbursement from your HSA
(41:16):
as well, so it's not like, oh man, I'm going
outside of the system, and it's not like these dollars
are going to count towards hsaver reimbursements. You can still
reimburse for those expenses in the future, even if you're
spending money on medical necessities overseas. So it's not for everyone.
Not everyone feels comfortable doing that, and I totally get that,
but I think the further you look into it, you'll
(41:36):
realize that there are exceptional medical facilities in some of
these countries too, as long as you pay attention, read
the reviews, and maybe go on personal experiences from people
who have gone down that path. But I do think
it's a way to potentially save a meaningful amount of
money on kind of more expensive dental care.
Speaker 3 (41:55):
Totally, I am personally not even sure if I would
feel comfortable doing that to myself, let alone my kids,
but to each their own. And Nathan, I love that
your knee jerk reaction is to try and not top
those dollars within that HSA, since it is the most
ultimate retirement account.
Speaker 2 (42:10):
But Joel, we've got more to get to.
Speaker 3 (42:11):
Of course, we're gonna have to get to our Facebook
question of the week just after this break.
Speaker 1 (42:23):
All right, Matt, we're back. We've got more money questions
to get to. Now, let's get to our Facebook Question
of the Week.
Speaker 2 (42:28):
This one comes from l.
Speaker 1 (42:30):
She says, I'm about to be offered a job with
a one year contract. It pays very well, but that's
because it doesn't come with any benefits. I want to
open an individual roth Ira that I can contribute to,
but the limit is only seven thousand dollars and I'd
like to put more towards retirement. Is the roth ira
my best option or is there anything additional I can do?
Speaker 2 (42:51):
Yeah?
Speaker 3 (42:51):
Well, first off, I love that you're wanting to do
more than what it is that you can do with
a roth ira, because you know that's not jump change
to be shoving aside for your future, but going beyond
that doing more. I think that's a great goal to have.
Speaker 1 (43:08):
A lot of people Matt, especially early on, they're like,
how am I going to max out the raw? So
the fact that ELL's like, I gotta do more than.
Speaker 2 (43:13):
That, she's got a pretty good gig line. Yeah.
Speaker 3 (43:15):
Obviously, the greater percentage of your income that you can
allocate towards investments to retirement, the quicker that you're going
to achieve financial independence, although it can be difficult if
you don't have a four to one k at your disposal. Specifically,
with a company match, you've got to be a little
more proactive. You've got to take some steps on your
own to ensure that you're setting yourself up off in
(43:36):
the future. But it's not just the match that you're missing.
Is that with a four to one K you have
the ability to sock away much more given the higher
limits we're talking twenty three thousand dollars, the ability to
suck that away easily into attacks advantaged account.
Speaker 2 (43:49):
That's was it.
Speaker 3 (43:51):
It reminds me of a story last year that we
talked about the four to one K millionaires that are
out there, and it is because the fact that it's like, well,
haven't even been investing for that long, but to allocate
those dollars for your future. When you have a larger
limit like that, it's easier to hit that limit as
opposed to trying to arrive at that point with a
humble old IRA.
Speaker 1 (44:11):
I think it's also the slow drip and the kind
of perpetual motion that a four to one K creates.
So when you do set it up, and now we
have more and more companies and kind of more stringent
rules about auto enrollment for people, and I think we're
going to only see more four to one K millionaires obviously,
so because people are being kind of forced into it.
(44:34):
But then also there is something about the fact that
it's just happening and you kind of don't see it
in the background, and then you look up one day
and you're like, holy crap, look how much money I
invested without having to think about it. But here's the
tough thing when you are self employed or an independent
contractor is that you have to do a lot more
thinking and you have to be a lot more proactive,
like you mentioned, but there are still great tools at
(44:56):
your disposal to be able to stack away a lot
of money. You just have to kind of be the
cap and of your own ship in this situation. So
as a self employed individual, you have access to a
type of four one K called a solo four oh
one K. It's like a sister account, but it was
built just for you l and for people like me
and Matts. So a bit more effort s is required
on your part and there's no match. But there are
(45:18):
some additional perks that are not available to W two workers,
namely that you can contribute much more than they're allowed to,
so they are kind of pros and cons right to
being w two versus. I see, you're essentially acting as
both the employer and the employee when you set up
a solo four one K and then you're able to
contribute to your own account wearing both hats. It's kind
(45:41):
of weird, and it's actually I think, I don't know.
Maybe it's easier to read about that it is to
speak out loud. But you can contribute twenty five percent
of your net earnings as quote unquote the employer, and
then you take off the employer hat and you can
contribute up to twenty three five hundred dollars this year
as the quote unquote employee, And this means you have
(46:03):
a total contribution limit of seventy thousand dollars assuming your
income is high enough, which that would be a lot.
I don't know many people who can max our retirement
accounts to this degree. More power to you if you can.
But it just goes to show like there are ways
to make this happen. You just have to be more proactive,
more intentional. But if you are and you're really dedicated
(46:25):
to putting a lot of money aside into retirement accounts,
the solo four one K is a killer, killer way
to make it happen.
Speaker 3 (46:33):
Yeah, that's how you completely supercharge your retirement savings. And
the solo four one k is what you and I
have here at how the money though we have never
maxed out our solo for our self employed or our
solo four one ks. Yeah, we've got our set up
via Fidelity money goals, though we've all down them.
Speaker 2 (46:49):
Maybe maybe we are.
Speaker 3 (46:50):
We've never made that much in order to Yeah, that'd
be that'd be awesome.
Speaker 2 (46:56):
But so Fidelity is great, Schwab. They are also a
solid choice after the Roth Ira.
Speaker 3 (47:01):
This is likely going to be your best bet, since
it sounds like you are pretty keen on investing a
fair amount, and you know, as of recently you can
even contribute to a Wroth solo four one k Fidelity.
They are actually still.
Speaker 2 (47:14):
Working on getting THEIRS launched. I think it might happen,
maybe by the end.
Speaker 3 (47:17):
Of this year, but I believe said yeah Schwab, they've
already rolled THEIRS out. And whether or not you choose
to go with a Wrath with the solo four one
k depends on a few specific personal factors, like your
projected future earnings, what you think future tax rates might be. Personally,
we don't have well, in part because we're with Fidelity,
(47:38):
but we have.
Speaker 2 (47:39):
A traditional Solo four one K.
Speaker 3 (47:41):
But in part, even if we did have the option
to go with the WROTH I'm not sure if we would.
We talked with Sean Mlaney about this back in the day.
But the ability to diversify your tax liability by having
a traditional pre tax four one K, whether that's a
Solo four one K or traditional four one K, and
to be able to diversify that with something like a
Wrath IRA. He thinks, at least for a lot of folks,
(48:02):
that makes sense. It is hard, you know, to make
a perfect decision on that front, but it's hard to
go wrong choosing either one of those and quickly going
back to the IRA. Something else I just saw off two.
She pointed out to the fact that she's got a
one year contract coming up, and so it might seem
like a big pain in the butt to jump through
a bunch of hoops setting up the solo four O
on oka learn, you know, researching it, figuring.
Speaker 2 (48:22):
It all out.
Speaker 3 (48:23):
If let's say she ends up being a stellar worker
and they're like, hey, we actually want to bring you
on under. We want to bring you in house. You
are going to be one of us. Well, all of
a sudden, she's not going to have the ability to
contribute to her solo one four o K solo four
to one K, in which case, I don't know, it
might seem like a whole lot of wasted effort. So
something else I wanted to point out, even though you
can only contribute seven thousand dollars this year to your
(48:46):
IRA for twenty twenty five, you could start saving for
twenty twenty six IRA contributions. I think this is a
perfect opportunity actually to set aside not seven thousand dollars,
but fourteen thousand dollars. Obviously max out your IRA this
year as soon as you can, but then start stockpiling
those funds in your high yield savings account. That way,
at the beginning of twenty twenty six, you have the
(49:07):
ability to immediately deploy those funds into the market. And
the reason we like to point folks in that direction
if you have the ability to, is because more often
than not, the stock market goes up seventy five percent
of the time three out of four years. Going to
see your balance grow more by investing at the beginning
of the year than throughout the year, and this is
an opportunity to kind of get ahead of the.
Speaker 2 (49:28):
Curve a little bit.
Speaker 4 (49:29):
Well.
Speaker 1 (49:29):
And I think it's a good reminder too for people
who feel like they're in the opposite boat and they're like, oh, man,
I haven't finished maxing out my wrath for twenty twenty four.
I feel like I kind of missed out on the boat.
You can still contribute until you file taxes, So, yeah,
max out last year's WROTH before you start putting money
into twenty twenty five WROTH. And that's the case for
l My guess is she's already maxed out last year's WROTH.
(49:50):
Based on the way she asked her question, she sounds
like a go getter. Yeah, but it's a good reminder
to everyone else out there. A lot of people think, oh,
and close the calendar year, I'm done. I can't contribute
to that anymore. But that's not tr You still can
until you file those taxes until April fifteenth comes around.
Speaker 2 (50:04):
That's right.
Speaker 3 (50:04):
So a little bit of looking ahead and a little
bit of looking back as well. But Joe, let's get
back to the beer that you and I enjoyed doing
this episode, which was a reciprocal by Bessel Brothers.
Speaker 2 (50:14):
This is a double dry hopped IPA. What do you think,
Buddy man?
Speaker 1 (50:18):
Gosh it, it is amazing to think that it was
over eight years ago that we went there and did
it take you back? It did, And I just remember
having the absolute best trip with Emily when we went.
We had so much fun and we've got great pictures,
great memories. My favorite memory from on that trip to
Maine was the ten dollars US mail boat tour that
we took out there on the right to watch them
(50:39):
deliver mail to the islands outside of Portland, Maine.
Speaker 3 (50:42):
And it was so fun, a great way to see
the site. I remember you mentioned the cheap trip.
Speaker 1 (50:46):
This beer, in particular, it was more bitter than I
even remembered.
Speaker 2 (50:49):
Yeah, but in a good way.
Speaker 1 (50:51):
Yeah, Like I kind of dig it's It's kind of
like this mix between West Coast and East Coast styles
got the hazy citrus vibes with a little more of
that hot bitterness in there. This beer is as good
and as unique as I remember.
Speaker 3 (51:04):
Yes, double dry hopped, which I think typically at least
with some of the brewers that were fans of like
mixed like burial. For instance, they're double dry hopped IPAs
they typically come with a lot more body right, which
means that they tend to be a little bit thicker,
which sometimes mean that they're also a little bit sweeter,
but that is not the case with this one.
Speaker 2 (51:24):
It's got those double dry hop flavors, but it's just drier.
It's just drier. So yeah, whether.
Speaker 3 (51:31):
It's bitterness or dryness that kind of comes through, you
have that. It's certainly double dry hopped and was hazy
as all get out, but it wasn't super heavy, which
means it was just a wonderful beer to drink during
the recording.
Speaker 2 (51:42):
Of this episode. Yes, glad you were able to pick.
Speaker 3 (51:44):
This one up at our local bottle shop, and listeners
can find show notes up on the website.
Speaker 2 (51:49):
As well as the picture of this beer.
Speaker 3 (51:50):
If you are so interested, up at how too money
dot com, we'll make sure to link to any of
the different resources that we may have mentioned. We appreciate
you joining us for this episode. We'll see you back
here in a couple of days, and that's going to
be it for this episode, buddy, So until next time,
Best Friends Out best friends out
Welcome to Out of Money. I'm Joel, I'm Matt, and
today we're answering your listener questions.
Speaker 2 (00:24):
That's right, buddy, we have a lot to get to today.
Speaker 3 (00:27):
This is a listener questions episode, and we've got personal
finance answers to give.
Speaker 2 (00:32):
Buddy.
Speaker 3 (00:32):
A listener is asking about supercharging the retirement, specifically as
a contractor. This is something we've got some personal experience with.
Speaker 2 (00:40):
So we'll get everybody's got that W two job map,
I know. Yeah.
Speaker 3 (00:44):
Another listener is asking about actually using his HSA for
medical we'll explain why it is that we don't typically
offer that advice. And another listener is asking about investing,
and I use air quotes there, but investing in real
estate as opposed to the stock mark it some of
the different considerations there. But we'll get to those listener
(01:04):
questions plus more during today's episode. But first, Buddy, I
wanted to share a quick personal financial win that I
was able to recently experience. Love to hear it, so
you'd love to celebrate with you, Oh, thank you. A
couple of weeks ago. You remember, back when we had
like the polar vortex, everybody's pipes.
Speaker 1 (01:20):
Were freezing I think it's still a left some scars
for a lot of folks around the country.
Speaker 3 (01:24):
Okay, well I've got some financial scars as well, but
maybe not quite as bad as I was initially thinking.
So I had a water line break at a rental
and this actually happened before the temperatures got all, you know,
got real cold. Here's the thing, though, this is a
rental house we lived in. We had the inspection done,
of course, and this is like a long time ago.
I knew this was coming. Yeah, I knew this was coming.
(01:46):
I remember on the inspection report. Old galvanized line is
something they stopped using them like the sixties. It's going
to fail at some point near or at end of
life expectancy, please replace.
Speaker 1 (01:55):
And you've owned this home for fifteen years now, yeah,
so yeah, and that it was only amount of time,
and of course it breaks.
Speaker 3 (02:02):
And I remember thinking we maybe even talked about this
on the show. But the solicitations in the mail, that's
like waterline warranty and do you know what I'm talking
about where you'd pay what you're pay eighteen dollars a
month paid insurance and they're going to cover the cost
if you have to replace this and because it is
a really expensive repair and I'm kind of depending on
how hard it is to big up how much of
a section they have to replace, You're right, yeah, yeah,
(02:23):
Well I'm kind of kicking myself. Nos, I'm like, maybe
that should have been the right decision, and it's not
because typically someone out there needs to use this, but
specifically because I knew that this was on the horizon,
Like I knew that this was an eminent repair that
for you, the insurance would matter more than maybe from
it it may have actually paid out whatever, you know,
that's beside the point. This was going to be a
really expensive repair. And I was not excited about paying
(02:44):
seventy five hundred dollars to get this thing dug up
and replace, to get some new wet pecks or there's
another type of you know pipe that they stick in.
Speaker 2 (02:53):
Why seventy five hundred, it's just how much a cost. Man,
it's a long run to the street.
Speaker 3 (02:57):
No, it's not that long, but it's just very labor
intens that they got a bus up the sidewalk.
Speaker 2 (03:01):
I've seen they got to dig it this massive transit.
Speaker 3 (03:03):
H yeah, yeah, well, and specifically this was with a
plumber I have used in the past, and I'm talking
this guy is the best by far, the absolute best experience,
does the best work, just everything, top notch, still gold
plated pipes. It feels like that that's what you should
be getting. But luckily I did my due diligence though,
and got another quote from another plumber that I had
not used before that came highly recommended. Guess what his
(03:25):
quote was. What it was forty five one hundred dollars difference.
It is a big difference, And so I like, I
wasn't necessarily gonna you know, I understand that he's got
the seventy five hundred dollar guy, he's got bills to pay,
he's got a certain type of business that he likes
to maintain. But I told him just like, hey, you know,
I got a better quote. I appreciate you talking to
(03:46):
me whatnot. And he's and he was willing, and we
were texting, and he's like, are you willing to talk
about this? I'm like, absolutely, let's So I gave him
a call like an hour later and we talked about it,
and bottom line, after a quick five minute conversation, he
agreed to the forty five hundred dollars.
Speaker 2 (04:01):
Price he was willing to match it.
Speaker 3 (04:02):
That's amazing, which is amazing, And it just goes to
show And I mean, it would have been nice to
try out new a new plumber, but this is somebody
I've used before. It does top notch work. And the
other guy, while I think good, I'd never used him before.
Speaker 2 (04:15):
Yeah, they were, they.
Speaker 3 (04:15):
Weren't getting back to me as quickly, and given the
oncoming polar vortex, it seemed like that they were ramping
up for that. They just they weren't as responsive. But
it just goes to show the willingness to have a conversation,
even just on the phone, even engaging via text, actually
performing the due diligence, doing your homework, getting a second
opinion right, getting an additional quote gave me the ability
(04:37):
to say, hey, I mean, would you consider coming down
and he, you know, initially he said, well, gosh, I'd
really like to get five for this, but I'd be
willing to do forty five. And I'm like, well, of
course I'm going to go for the forty five. Yeah,
well you're right, and he willingly did it. Did a
fantastic job asking for a.
Speaker 1 (04:53):
Discount, highly underrated something we talk about with regularity, and
this is a perfect example of how to do that,
and and the importance too of getting multiple quotes for
something because as a layperson homeowner, like I don't know
how much it's necessarily supposed to cost. And that's the
only way sometimes you can get the proper information is
having multiple people come out and tell you what they
would charge, especially like a once in a lifetime yeah,
(05:14):
sort of fixed like this, like hopefully this is something
I should never have to repair there again at.
Speaker 2 (05:17):
The house at least fingers cross, let's hope.
Speaker 4 (05:19):
So.
Speaker 2 (05:19):
But yeah, I think that's great.
Speaker 3 (05:20):
Why you're able to celebrate with me here a little bit.
That's what you said you wanted to do, claw three
thousand dollars back in your life. It's a beautiful thing.
Enjoy Enjoy those savings, my friends, and keep it in
your savings account for it, because yeah, that's and this
is a rental property, so it's rental privy.
Speaker 1 (05:37):
Managing rental properties ain't cheap, and you got to be
prepared for stuff like this. This is when we talk
about whether or not rental properties makes sense for you.
These are one of the things you got to be
able to handle that factor and actually we're going to
get to a question on that in just a second.
Speaker 2 (05:48):
But you know what's funny. What's funny?
Speaker 3 (05:50):
Like, so literally I had beers with a friend of
the night before and he was kind of asking him.
He's like, oh, yeah, you're you're into investing in real estate?
Speaker 5 (05:56):
Is it hard?
Speaker 3 (05:57):
Like do you ever get calls in the middle of
the ny that kind of thing. I swear this wasn't
carr By coming back to bite me in the butter
or anything like. I wasn't being arrogant or anything. But
I was just like, you know, initially, like there is
a learning curve because you have to kind of get
your contractors in place, kind of figure out a network
friends who you can call on to provide references, recommendations.
And I was just like, but you know, literally, I've
(06:17):
never gotten a call in the middle of the night.
And this is the closest I ever got to receiving
a call in the middle of the night because it
was just first thing in the morning, like bright and early.
Let's just say they called before I woke up. So
I was like, what do you know? Literally, not twelve
hours ago, I was recounting how this has never happened
to me. Of course, it happens right after that.
Speaker 1 (06:38):
Yeah, well, I'm glad you were able to kind of
do some of the things we talk about here on
the show, because like we try to live those things
out and yeah, and when you can report back about
how much money it saved you, like that should be
inspiring to the rest of us.
Speaker 2 (06:49):
Three K baby, Yeah, it's beautiful. All right.
Speaker 1 (06:51):
Let's mention the beer we're having on this episode, Matt.
This is called reciprocal. It's a IPA by the good
folks at Bissell Brothers Brewing. Oh yeah, one of my
all time favorite brewery experiences was going to Maine hitting
up Bistole Brothers. I don't know that there's Yeah, there's
not many better places I've been to have beer than
that place.
Speaker 3 (07:10):
What's crazy is you and I would have sworn that
we would have had a Bistole Brothers beer on the
show before, because we know that we have enjoyed their beers.
Speaker 2 (07:18):
But that I checked back in the archives.
Speaker 3 (07:20):
And we hadn't even started the podcast back when you
had gone up there with Emily, came back with a
sweet haul and we split some beers.
Speaker 2 (07:26):
That's insane. Is that crazy? That's so crazy. We're old men.
I know I'm not going to get to drink their
beer on the show. Now. They deserve it. We deserve it,
my friend.
Speaker 1 (07:35):
But now it's time to take your listener questions. If
you have a question, just record your question on the
voicemen will app of your phone, send it over to
us via email. Hopefully we can take it on the
next ask htm episode, or if you need more precise
directions to go to how tomoney dot com slash ask Matt.
Let's get to a question about investing and whether or
not real estate needs to be a part of your
(07:57):
burgeoning portfolio.
Speaker 6 (07:59):
Hey guys, it Eric from Evanston again, longtime listener and
second time caller. My wife and I are both forty
and we're firmly in money year six. We have no
debt except for our low interest mortgage. We bought our
Furvor home about three years ago before the interest rates
went crazy. We knew going into this purchase that we
would be needing to build an in law suite or
ADU for my mother in law. For the past two years,
(08:21):
we've fully funded both of our wroths, but all other
what would be investing money has gone towards the ADU.
Between some equity from the sale of our old home
and the money we would have put towards retirement investing.
We spent just over two hundred thousand in cash no
financing on this one bed, one bath, fully separate ADU,
whom my mother in law is no longer living with
(08:44):
us long pauses intentional there, We plan and rented it
out most likely the next ten to fifteen years. So
as much as it feels like a bummer to not
invest past our wroths these past two years, I see
the money we've spent here as an investment once it
becomes an income property, as well as added equity into
our primary residence. I know you've discussed on the show
(09:04):
before y'all are planning to do something similar, So I
guess my actual question is what was your rationale into
investing to your home instead of investing into the markets
for retirement? And am I crazy for still feeling hesitant
that I haven't invested more in retirement in the past
two years? Anyways, Thanks guys, have a great day.
Speaker 3 (09:22):
Joel classic mother in law joke there about her her
not living I was like with us anymore. Eric, that's terrible.
I'm so sorry. And then I was like, oh, okay, dad, joke. Man,
I totally get where you're coming from. And I would
just challenge, like you said that you and it seems
like yet you're having a hard time grappling with the
idea that you haven't invested. It has everything to do
(09:43):
with hindsight bias, right, the fact that you can look
back at the past two years, and so last year
the market was up around like twenty five percent, and
then I think the year before that it was also
around twenty five percent, So you're looking at games of
fifty percent, which is, let's just say, highly unusual to
your cumula of period. We can't change the fact that
you didn't invest in the market, but I'm guessing you
(10:04):
probably feel it would feel a little bit differently had
the market done the opposite, right, Like you would have
been kicking yourself and saying.
Speaker 2 (10:10):
No, we should have done the the.
Speaker 3 (10:12):
Adding the Carr house or the mother in law suite
in order to create this income producing property, this asset
that we can add to our main residence. I think
that's probably what has a lot to do with that
sort of the feeling of regret.
Speaker 1 (10:23):
Yeah, and I think you can kind of look back
retro actively and say, oh, should it on this, should
it on that? And that's really easy to do and
to kick yourself and beat yourself up for. But the
truth is what prior returns are not indicative of future returns, man,
So it's really hard to do that and make predictions
on what you should do next from that. And the
(10:45):
truth is, it's not like Eric was not investing. He
was just using those dollars in a different but also
a productive way, that's true, and so it's not like
he was like, well, I scrapped investing because I assumed
that these bad things were going to happen, or that
these good things were going to happen. He said, I
think this is the right thing for my family at
the time, and that's kind of sometimes the best information
you can go on. Yes, I think it's also important
(11:06):
to mention too that with the cost of building, it's
gone up significantly in recent years, So I can't imagine
that money was poorly spent or maybe that Eric, you
didn't avoid some potential increased costs that have accumulated over
the years.
Speaker 2 (11:18):
When it comes to.
Speaker 1 (11:20):
Improving real estate, you're also choosing to do it to
be able to take care of a family member, which
were totally for by the way, I think it's important
for everyone out there to remember matt Us included to
not ever forget that your money.
Speaker 2 (11:32):
Is there to fuel your life.
Speaker 1 (11:34):
And so if building that ADU was the right long
term decision for your mother in law, for your family,
even if it didn't end up being like a forever solution,
don't beat yourself up for making that decision. And plus,
you now have some square footage that you can make
money from. So yeah, it was there to support your family,
and now it's there as a way to produce additional income.
(11:56):
I don't know, I mean, I think if you're kind
of trying to beat yourself up over this.
Speaker 2 (12:00):
There's no point in it.
Speaker 3 (12:01):
Yeah, and whether and this is regardless of whether you
opt to go the short term rental route or if
you plan to rent it out longer term to a
tenant for you know, months, if not years. But by
doing that, you can turn that two hundred thousand dollars
unit into recurring profit. And not only have you added
value to your property, you've also increased its cash flow potential.
(12:22):
And you said that you plan to own this home
over the long haul, which is great, right, So I
don't know, maybe think less about how much additional money
that you'd have if you invested that two hundred thousand
dollars in the market, and instead just think about the
significant dividends that it's going to throw off for years
to come, potentially tens of thousand dollars.
Speaker 2 (12:40):
Oh yeah, each year.
Speaker 1 (12:41):
And like you said, dividends, because dividends usually think about
that with stock. But yeah, that's kind of sort of
what a rental property does to a certain extent.
Speaker 3 (12:47):
And granted cash flow, it's not purely passive. There's it's
going to involve maintaining that property. If it's a short
term rental, it's going to involve a lot more work. Right,
It's gonna involve you getting in there. Let's say, for instance,
on Airbnb, that kind of thing.
Speaker 1 (12:58):
I have a couple of friends who recently have told
me about maybe their decision to airbnbe either portion of
their property or their whole house while they were away
living elsewhere in the United States for a significant period
of time, and the amount of money they were able
to generate from either a portion of their property or
their entire property was significant legit, and so I just think, like,
(13:18):
don't overlook that reality, Eric, that this could end up
being a better, more profitable situation being in the long run,
not only are you going to experience maybe increased appreciation
of your property because this exists, but increased cash flow.
So there's a lot of benefits to investing in real
estate if you do it wisely. And hey, the fact
that you paid cash for this edition is huge. Totally Okay.
Speaker 3 (13:40):
So I wanted to address because Eric mentioned, like, how
did you sort of reconcile, you know, investing in your
home versus the market, and I think he's referring to
us adding onto our house, which is what we're currently doing.
I'm going to totally admit that an ADU right an
accessory dwelling unit, versus an addition to your primary home.
These are two different things. Will Kate and I see
(14:02):
some return on our investment on our primary home if
and when we sell the home someday, Yeah, I'm sure
we will, but not nearly as much as Eric will
when it comes to what that property is going to
create in revenue. So despite the fact that the money
is better spent on this, then let's say on a
fancy car or something where that's going to completely depreciate
(14:23):
in value. I am under no illusion that this is
an investment like VU right, like a S and P
five hundred ETF. And I am totally okay with that,
because sometimes you spend money instead of investing on purpose,
just make sure that you do it intentionally and that
you know.
Speaker 2 (14:38):
The trade offs.
Speaker 3 (14:40):
I will say, if there is a chance that Eric
is referring to our previous home where we finished out,
we added on, but we also so we gain some
space on the main level, which is where we lived,
but we also finished out below that, and we saw
that as more like an ADU because it's a separate
apartment because in a similar way, literally did short term rentals.
(15:01):
So yeah, yeah, we rented it out on Airbnb before
you and I were able to take it over. So
in that case we're able to kind of like have
our cake and eat it too. But I think he
is talking about adding onto our current home, and I
will say we didn't justify it, like, we did not
look at it through the lens necessarily of is this
the best quote unquote investment. We thought through it through
(15:22):
the lens of is this how we want to live
our life? Like, what are our other goals outside of
our financial goals in life? What are our lifestyle goals?
What kind of activities do do we want to be
able to host in our home? For Kate, she's going
to have the ability to have an art studio in
the house, which is not something that she has ever had.
And you know what, we're at the point in life
(15:42):
to where we don't have to optimize every single dollar
to the utmost from a financial perspective. We're also thinking
of quality of life to a certain extent in this
way as well. So it's not about okay, well I'm
able to justify and look at it through a dollars
and cents, like you want to be smart about it,
and obviously you want to make sure sure that you
can handle an addition or adding an ADU to your
property something like that. But I will say we were
(16:04):
thinking about it less through a return on investment and
more through a lifestyle lends.
Speaker 1 (16:07):
And I think most people who renovate Matt like you're doing,
or make a little addition to their main house and
it costs quite a bit of money, they're oftentimes like
putting some blinders on because they don't want to realize
the fact that it's not actually an investment. They call
it an investment, but typically it's spending money in the
way they want to spend money, and it just is
less harmful than other ways they could spend money. But
the truth is, when you look at the numbers, most
(16:28):
of the home renovations that we do don't pay off
dollar for dollar in return to the home value the
way it's increased. It's possible, right to make certain changes
to your home and to see an increase in value
that's in excess of what you spent, but that is
not the norm. So just make sure everybody out there listening.
If you're like I'm gonna do this home RHNTO project,
don't assume that the ROI is going to be killer
(16:50):
and in fact, you know you might not see much
of one at all.
Speaker 2 (16:52):
Sure, but that doesn't mean you shouldn't do it.
Speaker 3 (16:55):
Yeah, I hesitate to even use the language of investing
in our home by adding on is not like we're
doing this because we want to live in a different way,
right like, and so just don't be don't deceive yourself,
right like I think someone would be a bit self
delusional if they're thinking about it as a quote unquote investment.
Speaker 1 (17:11):
Yes, agreed, and I think too. Going back to Eric's question,
he said, hey, they were still doing some market investing.
They paid for the ADU and cash, Like his cash
flow should be going up because he has this ADU.
How much depends on in what way he rents this
place out. And I think that means he can make
up for lost time from a market investing perspective. He
can say, hey, I kind of slowed it down there
(17:33):
for a couple of years while we were funding this thing,
but now we don't have to fund it, and it's
actually generating income for us. So I guess it's important
to say that. It's you shouldn't dwell on the investments
that could have been. It's like the one that got
away from like the love perspective, right, Like that's a
waste of time, So don't do that from this perspective
and just realize you made the best decision you could
(17:54):
with the facts that you had, and you're in a
strong position to invest more and to increase your net
worth in a big way in the coming year. So
I think, I don't know, we both believe that you've
done a great job here, Eric, and I'm curious to
see kind of where this ADU takes you and and uh, yeah,
how you're able to kind of maximize its value for
your family moving forward totally.
Speaker 3 (18:12):
I think if you've been making the right moves from
a fential standpoint for a number of years, if not decades,
you can start to think through you don't you don't
have to prioritize the financial goals. Like so earlier this morning,
Joel and I were talking about friend of the show
Marshall Allen, who we had on the show like years ago,
investigative journalist, talked a lot about healthcare.
Speaker 2 (18:31):
How he you know, he died last year. I don't know.
Speaker 3 (18:33):
I think we've talked about it on the show before.
But he died and he wasn't that old man.
Speaker 2 (18:37):
He was in good shape.
Speaker 3 (18:38):
Yeah, it seemed like he was in good shape. He
seemed like he was he was a healthy guy. And
he died of a heart attack.
Speaker 2 (18:42):
And so these are the.
Speaker 3 (18:43):
Kind of things that that I think are important to
consider and to kind of hold at the same time
as we're trying we're trying to be smart with our money, right,
but at the same time, it's like, all right, well,
we don't know what tomorrow holds, and it's probably the
most challenging aspect to like growing older and reaching some
of your financial goals and then expanding that. So what
else in life are you looking to accomplish and achieve?
And I don't did Eric. I'm not sure if Eric
(19:05):
shared how old he was. And I don't at all
mean to be a downer, but I think that that
can be a helpful way to think about some of
the dollars that we spend, some of the dollars that
we don't spend, some of the dollars that we choose
to even to give away, right, because it's less about
how do I make this as big as humanly possible?
And what else do I want to do with it,
whether that's donating or spending it on others, or even
just having fun and maybe going on a nice vacation
(19:27):
when that's something in the past that you decided not
to do.
Speaker 1 (19:30):
Yeah, And I think not crying over spilt milk if
it wasn't in retrospect the most optimized decision no regards. Yeah, exactly,
it's hard to predict that ahead of time, and actually
impossible to predict that ahead of time. So you did
the best with what you had and you did a
great job. So be proud, I think, and be thankful.
All right, Matt, Let's get to more money questions, including
(19:51):
one about investing when you're a contractor. We'll talk about
that and more right after this.
Speaker 3 (20:03):
All right, Joel, we are back from the break. Let's
take another listener question. This is a listener who is
asking about aggressively investing or maybe not aggressively investing within
a five twenty nine account.
Speaker 4 (20:16):
Hi, this is Florina and I'm outside Philadelphia, Pennsylvania, and
I have a question about investments and specifically five twenty nins.
My son is currently in eighth grade and we have
a good amount invested in his five twenty nine account.
Considering he has about four and a half years until
he goes to college, would you consider at some point
in the next few years of getting more conservative or
(20:37):
putting part of this slump sum in cash, since some
of it will be used his first year and some
won't be used until the following years. Much appreciated for
any insight and guidance. Love love, love your show, and
thanks for any advice you can offer.
Speaker 1 (20:50):
Oh, man, I like this one because it's got elements
of retirement investing put on like a much truncated timetable.
Speaker 2 (20:58):
Right. Yeah, it's true.
Speaker 1 (20:59):
It's very similar because you're saving up for a specific
need and you have like a particular drawdown period, but
everything is kind of shorter and more compact than we're
talking about five to twenty nine plans. So it influences
the answer. And I'm glad Florina asked this question because
it's an important topic for us to touch on, and
most folks don't pay much attention to how money inside
(21:20):
of a five twenty nine plan is invested. That you know,
that might mean that those funds are in a money
market fund inside of the five twenty nine account or
a savings equivalent fund. So maybe they stick the money in,
they get the tax break that their state offers, if
their state offers one, and then beyond that, the way
they're investing those dollars or not investing those dollars. It
(21:41):
just never gets revisited.
Speaker 2 (21:43):
You might just.
Speaker 1 (21:44):
Luck out, and maybe, you know, by default or accident,
you end up investing the money you luck out. You
ride the market up to the point of needing to
spend those dollars. But the truth is it's important to
know how your money's invested inside of a five twenty
nine plan, whether it is or not. And then also
when you change your investments allocation, because you could see
(22:04):
the balance eroad, especially coming closer to the time you
need to spend it if you're.
Speaker 3 (22:09):
Not careful, that's right, Yeah, and then you don't want
that to happen right when you need those dollars to
fund your child's higher education, right that you've been diligently
satting for, which typically means now opting for a more
conservative approach, so a less aggressive investing philosophy. And so
if you've had the money, let's say in a total
stock market or an SP five hundred, you're getting really
(22:30):
close to the time that you're probably going to want
to dial back that one hundred percent stocks approach. And
I'm glad that you mentioned how similar this is to retirement, Joel,
because say, for instance, let's say you're sixty one years
old and you plan on retiring at sixty five, where
you're going to want to start tapping those funds. Well,
in a similar way, you're going to want to dial
back that stock exposure a little bit to kind of
smooth out any volatility. It's likely that you're not looking
(22:54):
for returns as much as you are guaranteeing that that
income is going to be there for you.
Speaker 1 (23:00):
It's like you're using those binoculars and you're seeing what's
ahead on the horizon and you're kind of making adjustments
now for what's to come because you just you can
say with pretty darn near certainty, with not one hundred
percent certainty on retirement or kids college, but with more
certainty the closer you get to it, Hey, this is
what's likely to happen.
Speaker 2 (23:20):
Here's where we're headed.
Speaker 1 (23:21):
And we usually talk about it in terms of wealth
accumulation versus wealth preservation. What stage are you in? And
it's not always an age thing. For some people who
want to retire early. Well, hey, maybe their wealth accumulation
stage is fifteen years and it's like really intense, and
then wealth preservation starts to kick in because they're not
(23:42):
planning on working until they're sixty five. But yeah, when
it comes to this specific question, it's actually quite easy
to make the changes that you need to make to
ensure that you're not either over indexed to stocks or
have all your money in savings, which you don't want either.
But basically every five point nine plan has a variety
of investment options, and almost all of these plans include
(24:04):
the student version of a target date fund. And we
talked about target date funds as being kind of the
easy way for people to be more well diversified and
especially to not have to change the allocation of their
portfolios over time, because this fund does it for you
as you get older, as you reach get closer to
that retirement age. And similarly, these funds get more conservative
(24:25):
as the student gets closer to going to college. It's
this set it and forget it approach that many people
opt to take because they don't have to think about
it at all, which I think can make a whole
lot of sense, and especially again on the truncated time timetable,
having something that's doing it for you and the back end,
I think it becomes even more valuable. But target date
fund equivalents, especially in those early years, they often inhibit
(24:48):
returns by being too conservative.
Speaker 2 (24:50):
So that's the yeah, that's the downside, and.
Speaker 1 (24:52):
That's the problem when we're talking about to twenty something
investors who have forty plus years of investing ahead of them.
We don't want basically any of the money they have
to invest going into more conservative investments. We want all
their money flowing into stocks because over the long term,
that's going to help them see the best returns. And
(25:12):
so even a ten to twelve percent allocation in a
target day fund is too much for those young investors.
And that's true for parents of really young kids who
are investing in five pointy nine plans too. Whereas if
you're in one of these like enrollment date portfolios like
we have in our in the State five twenty nine
plan Matt that we have access to, it would be
too conservative for me with my youngest son, whereas with
(25:35):
my eleven year old is starting to get closer to
being to thinking about that. And for Florina, with an
eighth grader, I think it makes even more sense to
at least start to consider changing her investments from one
hundred percent stocks to one of these target date fund equivalents.
Speaker 3 (25:49):
Yeah, it depends too just I guess on your like
all this depends on your risk appetite, but I think
the exception to putting all the money that you've invested
into a target date fund would be if you don't
think that you're going to spend down all of that money.
So despite the specific year that your son will go
to college, I think it's important to ask the question
whether or not you are likely to need most of
(26:09):
the balance over those and ensuing most likely four years,
maybe it's five. But this might seem like a silly question,
but you might not actually need all of those dollars.
And because five twenty nine plans have some flexible options,
for instance, like naming another beneficiary or even turning that
five to twenty nine in the dollars or the funds
(26:30):
within that five to twenty nine into a roth ira
for your son, you actually might not want to pivot
in a more conservative direction where you continue to invest
aggressively hoping to get the most out of those dollars,
because you have a little bit more flexibility not only
all what you can do with that five to twenty
nine plan where you to not use those funds, but
also if you have more flexibility and options as to
(26:52):
how it is that you're going to fund those college
expenses as well.
Speaker 1 (26:55):
That's right, Yeah, Yeah, I think that's a good point
because hey, maybe a lot of the money Florina Hasset
aside first on in the five twenty nine account is
not needed, and so it's like, well, then the thought is, well,
how can I maximize those dollars?
Speaker 2 (27:09):
Yeah?
Speaker 3 (27:09):
You don't want to slow down further down the road. Yeah,
you don't want to slow down the volatility and also
slow down the gains that you're gonna realize. You want
to just keep that at you know, full full throttle basically.
Speaker 1 (27:19):
And you're talking about spending this money over the course
of four maybe five years while he's in school. So
it's not like you want to be take risk completely
off the table either, because we're years away from college,
a years out, many years in, yeah, from spending for senior.
Speaker 2 (27:33):
Year for senior year. Yeah, yeah, exactly.
Speaker 1 (27:35):
And so I think I don't know, in our opinion,
maybe going half in one of those a total stock
market fund and then half in the target date fund
equivalent that they that you have access to in the
five tety nine plane in your state, that could be
a good option. Or you could pick like a target
date fund equivalent that's further down the road than his
actual college date. That's another way to kind of level
(27:57):
out the risk versus reward that you're taking here, and
you could maybe at least start by putting new contributions
if you're still funding it to the plan in the
target date fund equivalent instead of moving portions of the
balance over. And if you want to move that portion
of the balance over, maybe do it in six months
or one year increments where you're saying, listen to the
first of every year, I'm going to move over ten
(28:17):
percent of the overall portfolio. Switch it from equities to
a target date fund equivalent, or enrollment your equivalents. That
helps you avoid from changing it overnight or changing it
knee jerk based on what's happening with market conditions. You're
doing it kind of on a set schedule in a
methodical way, and so clery and I'm glad this is
(28:38):
on your radar. I would say, there's no need to
rush this. You still got time before you need to
tap this account at all, and plenty of time before
you need to account tap it for later college years. Sure,
but we love that you're preparing now that you do
have those binoculars out.
Speaker 2 (28:52):
It's good to think about. Yeah, you're thinking ahead is.
Speaker 3 (28:54):
Good to think about. And I'm thinking more too. About
Like I mentioned, how it depends on the flexibility, flexibility
that you have when it comes to funding college. I
think that has a whole lot to do with it.
I think it's worth, as you said, Joe with the binoculars,
look ahead and think through what your expected financial situation
to be. Because let's say it's it's you and the
other parent, you and a partner, and let's say you
(29:17):
both are about to be named partner at your law firms,
and you're like, all right, we're going to be raking
in the dough certainly in you know, four years from now. Well,
if that's the case, like you're gonna be able you
would possibly be able to cash flow college, even a
like a private college without you know, without even thinking
too much about the five twenty nine account, right, Like,
So there's a big difference between a family that's in
that kind of situation versus a family who is seeing
(29:40):
some other really big expenses up ahead or they're thinking
about slowing down their work. Well, in that family situation,
they might be more dependent on those five twenty nine dollars,
and so their biggest concern would be to preserve that
money within that five twenty nine account. To take less
risks so that it is available for educational purposes. Whereas
family that is going to be rolling in the dough, well,
(30:03):
they have the margin, they have the ability to take
some additional risks with their money and possibly invested a
little bit more aggressively. So I think some of it
comes down to what you propose or expect that your
financial situation might look like off in the future. Nobody
knows exactly what the future holds, but I think doing
that to the best of your ability given your personal
situation and some of the other goals that you might
(30:25):
have in.
Speaker 2 (30:25):
The next four to eight years.
Speaker 1 (30:26):
Specifically, and you briefly mentioned this, but don't forget about
the roth Ira ability that the five twenty nine money
can have for your son. If if you do find
yourself with that sort of financial flexibility, you might say, oh,
this is this can be the perfect like kickstarter fund
to help him invest for retirement. And the fact that
you can basically get that started still with a max
(30:47):
IRA contribution limit every single year with thirty five thousand
dollars overall, max you can still get that roth Ira
going for him in a significant way in his early
years because of the dedication you've had to saving for
his college future. But Florina, we hope that helps Matt.
Let's get to our next question. This one is about
HSA dollars. Do you spend them or not?
Speaker 5 (31:07):
Hey, Joel and Matt. My name is Nathan from Knoxville, Tennessee,
and my mom turned me on to you guys several
years ago and I've been listening ever since. But my
question is, my older son is going to need some
dental work and it is going to be a pretty
reasonable amount of money. And my question to you is
(31:28):
am I better off using the money for my HSA
for that or would I be better off pulling money
out of a normal mutual fund and using that to
pay My concern is leaving it in the HSA as
we can grow. But if I pull it from the
mutual fund, I'm probably looking at some pretty substantial capital
gains tax. So love the show. Come on up to Knoxville,
(31:51):
do some mountain biking, stop by some of the breweries,
and thank you very much.
Speaker 2 (31:55):
Mountain biking and breweries. Joel. That sounds pretty good and
it's one of the ways of my heart. Whens. The
last time you went mountain biking it's been too long.
Speaker 1 (32:03):
Yeah, I was like, one of my friends got a
mountain e bike and he was telling me about just
how fun it is on the trails and.
Speaker 2 (32:10):
It's not gonna lie.
Speaker 4 (32:11):
I was.
Speaker 3 (32:12):
I'm very interested the ability to not just to be
able to enjoy the downhill portions, but to beast it
up the more challenging up.
Speaker 2 (32:19):
That does sound like a whole lot of fun.
Speaker 3 (32:21):
It sounds like the whole experience. But bionic, I wonder. So,
I don't know if you've talked about this before. I
spent an entire summer teaching kids how to mountain bike
up in western North Carolina, but I don't know if
we ever made it as far west as Knoxville.
Speaker 2 (32:34):
That's where he said. He was right, But like that entire.
Speaker 3 (32:36):
Western North Carolina, Man, there's a whole lot of good
mountain biking up there.
Speaker 2 (32:39):
Oh, I believe.
Speaker 3 (32:40):
And I haven't done that literally, and I don't know
a long time. Let's just say that, yeah, but I
could totally. I mean, if the kids get into it, man,
that sounds like it's a fun time.
Speaker 2 (32:49):
Yeah. Yeah. Or you and I can get in mountain
biking and then we'll go visit the breweries.
Speaker 1 (32:52):
I will say it's hard to find the time to
dedicate towards a hobby like that, but eventually at some
point of it.
Speaker 2 (32:58):
Right now, we're just trying to squeeze it.
Speaker 3 (33:00):
Hobbies that are going to keep us healthy, fit, happy,
keeping our families happy at the same time. Only so
many all those things all the same time that we
can do without, you know, upsetting the apple. That's right,
that's right, And big thanks to your mom, by the way,
Nathan for turning you onto the podcast. And I'm so
sorry to hear about this dental bill. I'm not sure
if you knew that this was coming down the pike
or not, but nobody wants to spend money this way, Matt.
(33:22):
It makes me think of a dental bill we incurred
where I think you know about this, But my daughter
had a scaping. I don't know if we talked about
on the show or not. We might have because at
the time I think it was so traumatic. Ye like,
well not only for her but also for y'all, just
to make sure that everything was going to tormeunt.
Speaker 1 (33:40):
Okay, So my daughter, not a skateboarder, was not no
feet on the skateboard. She literally had was on her
hands and knees and had her hands on the skateboard
and the skateboard went out from under her face planting
on the ground and teeth movements.
Speaker 2 (33:54):
Yeah, it was terrible.
Speaker 3 (33:55):
Saying that, I know when she just got embraces she
just got which actually saved her teeth because he said
that the brace has not been there to kind of
keep those front ye teeth from going back further. Yep,
sorry to make everybody square, but yeah, it was bad.
Speaker 2 (34:07):
It was bad.
Speaker 1 (34:08):
And that's one of those things where it's also in
for everything and it's an emergency visit and you don't
know how bad it's going to be. This is where
emergency funds come in handy, by the way.
Speaker 3 (34:16):
Yeah, and so I think this is a great question
that Nathan's got here, because we're always talking about how
great hsas are, right, So, health savings accounts, that's what
the HSA is specifically because of the triple tax advantage
that they come with. The nice thing about pulling money
from your HSA is that you're not going to owe
any tax on it for qualified expenses, of course, But
(34:37):
like Nathan said, if you pull money from a fund
within your taxable brokerage account. Well, you're going to owe tax,
and so how much depends on when you bought how
much of it that you sell. If you go in
that position, let's say for less than a year, while
we're talking about short term capital gains tax. If that's
the case, well, tapping the HSA. I think that that
(34:57):
makes the most sense. But if we're talking long term
capital gains of fifteen percent, I don't know. Kind of
depends on a number of factors here, but I think
it's worth considering that.
Speaker 1 (35:07):
You never want to pay tax, and every time you
can avoid paying tax, it's ideal. At least it seems
like that in the moment, because we're talking about paying
tax in the short term versus more extended tax abatement
or tax retreatment. Right, And so I think maybe your
answer might baffle some folks, Matt. They might say, no
tax is better than paying a lower tax rate, And
(35:29):
I get why that would be their response. But you're
going to pay tax on the broker's funds at some
point in the future.
Speaker 2 (35:34):
That's right, and it's inevitable it's going to happen, right, right.
Speaker 1 (35:38):
And even if the capital gains tax rate stays the
same which it's hard to know, depends on what happens
with elections and legislation. Right, it's going to be a
larger tax bill because of the growth of those funds.
Whereas the money in your AHSA, the longer you leave
it put, the longer you let it ride, the more
the money grows. And the truth is you'll never be
(36:00):
tax on the future growth that money in your AHSA experiences.
So the more decades your HSA has to do its thing,
the more it can kind of stay invested in the
market and you can let it ride, the better for you.
So do you want to pay some tax now on
some of those dollars and kind of reduce future tax
liability or do you want to take the tax three
(36:21):
dollars now and kind of limit its growth potential. That's
a tough decision, but I think I err on the
side of, I don't know, pay some tax if today.
Speaker 3 (36:30):
Yeah, if you don't have the money on hand to
be able to handle that bill, yeah, I'm I'm only
in towards the brokerage. But the caveat being you've got
to have the money on hand to pay that tax.
Of course, even though taking money, let's say from the
HSA wouldn't be the most tax efficient choice even that
isn't done to tap specifically for medical medical expenses if
you've been stocking money into that account effectively for many
(36:51):
years down the road. I think if the option was
between paying for this dental bill with your HSA dollars
or let's say cash in the bank, of course we
choose the latter. That's my favorite option. Aren't the two
that Nathan presented, But like, how what's another outside of
the box creative way for you to fund this? Because
the ability to cut back and I don't know, even
challenge yourself to not spend money in a certain category
(37:15):
in order to be able to handle this big expense.
And I don't know, it's been years since I've been
to the dentist, so I don't know how much orthodontia
or Dennis bills can be.
Speaker 2 (37:24):
But fine, I can't. I can't wait to see your
invoice when you do finally go.
Speaker 3 (37:28):
Okay, So it makes me think it. Last week we
talked about listener Sam who made the mistake with the passport,
but then he cawed his money back and you know
all that. He also talked about how he actually just
completed so last year completed a no beer challenge where
he didn't buy beer for a year, specifically for a
financial goal that he wanted to hit. That can potentially
(37:50):
be a ton of money depending on how much you drink,
I guess, or how nice of beers. When you think
how much money we would send that when you do
rarely partake, its really nice.
Speaker 4 (38:00):
One.
Speaker 2 (38:00):
We'd have to find a new craft beer equivalent. It
could still cost you a lot of money.
Speaker 3 (38:03):
Yeah, But I really like the idea because in this case,
you've got a dentist build the ability to say no
to certain things, and like, I feel like our culture
is so down on discipline and say no to yourself.
It's just like, oh no, you shouldn't have to deny yourself.
But I think the ability for us to tie certain
sacrifices that we make in our lives in this case
to something very tangible, to this thing that you know
(38:25):
is gonna cost a lot of money, to to your
kid getting their teeth fixs or orthodontia or whatever the
thing might be. I think it would be more fun
if it was a fun activity, Like if you're saving
up for a vacation, right, Like that's easier to do
because you're saying to yourself, no, the reason we're not
going out to eat is because we want to go
to Barcelona, like we want to spend some time in Spain.
It's a little bit easier to do that, I think
(38:46):
in that case, as opposed to saying I got to
fix the mouth, you know.
Speaker 2 (38:50):
Let's get his teeth straight, whatever it might be.
Speaker 3 (38:52):
But I would really, I think challenge you, Nathan, to
think through, like, what are some areas where you could
potentially just really.
Speaker 2 (38:59):
Scale back, even it's for a short.
Speaker 3 (39:00):
Period of time, cut back to the bone, but knowing
that it's only for a short period of final until
you're able to knock that bill out.
Speaker 1 (39:07):
It's kind of like hard now, easy later or easy now,
hard later, and you got to kind of pick your heart.
And typically choosing the hard on the front end is
better because it makes the easier later much easier. And
that's why talk of depriving yourself, I think it is
rampant in personal finance, and we try to strike that balance.
Speaker 2 (39:27):
But it's not that there's zero.
Speaker 1 (39:28):
Truth to the fact that kind of not allowing yourself
to experience the fullness of your income is bad because
that's partly what we're doing is we're deferring gratification and
we are saving and investing because we know it provides
for us.
Speaker 2 (39:41):
A better future.
Speaker 1 (39:42):
Or we're you know, raining in our spending even on
things that we enjoy occasionally, to be able to have
more flexibility down the road. And so I think that's
a good point, Matt, that you might be able to
find ways to trim the fat in order to accelerate
the cash inflows so you can pay for this thing
in cash and you don't have to make maybe one
of these decisions to have one of.
Speaker 2 (40:02):
These funds totally.
Speaker 1 (40:03):
And then last thing I'll say is, and it's going
to come out of left field, maybe Nathan for you,
but have you thought about getting that dental work done
in a foreign country?
Speaker 2 (40:12):
You might be able to some medical tourism.
Speaker 1 (40:15):
I'm telling you, man, this is like underappreciated and not
many folks attempt it. You might be able to save money.
You might be able to also get a vacation out
of it on top of it. May you were talking
about going to Barcelona, maybe you go to Colombia or Mexico.
Those are a little bit closer destinations, and you might
find that south.
Speaker 2 (40:32):
Of the border, you don't no need to make it
over to Europe. That's just head south, a little.
Speaker 3 (40:36):
Two for one action exactly. It's funny you mentioned Columbia.
The general contractor for a house addition that we've talked about,
he literally left for Columbia this morning.
Speaker 2 (40:45):
Oh okay. His wife is from there, so oh nice, They're
going to go do some traveling.
Speaker 1 (40:48):
I wonder if he's gonna get his teeth picks while
I say, I think he's got pretty good jumpers.
Speaker 2 (40:51):
Okay.
Speaker 1 (40:52):
But the truth is, when you look into it, you
could save a significant amount of money on dental care
if you go to one. There's even a city, and
it's not the real of the city, but it's like
the ascribed name of the city. Molar City in Mexico
is like right across the border. Thousands of Americans go
there every year to get dental services because it's so
much cheaper. And on top of that, the expenses you
incur there actually are eligible for reimbursement from your HSA
(41:16):
as well, so it's not like, oh man, I'm going
outside of the system, and it's not like these dollars
are going to count towards hsaver reimbursements. You can still
reimburse for those expenses in the future, even if you're
spending money on medical necessities overseas. So it's not for everyone.
Not everyone feels comfortable doing that, and I totally get that,
but I think the further you look into it, you'll
(41:36):
realize that there are exceptional medical facilities in some of
these countries too, as long as you pay attention, read
the reviews, and maybe go on personal experiences from people
who have gone down that path. But I do think
it's a way to potentially save a meaningful amount of
money on kind of more expensive dental care.
Speaker 3 (41:55):
Totally, I am personally not even sure if I would
feel comfortable doing that to myself, let alone my kids,
but to each their own. And Nathan, I love that
your knee jerk reaction is to try and not top
those dollars within that HSA, since it is the most
ultimate retirement account.
Speaker 2 (42:10):
But Joel, we've got more to get to.
Speaker 3 (42:11):
Of course, we're gonna have to get to our Facebook
question of the week just after this break.
Speaker 1 (42:23):
All right, Matt, we're back. We've got more money questions
to get to. Now, let's get to our Facebook Question
of the Week.
Speaker 2 (42:28):
This one comes from l.
Speaker 1 (42:30):
She says, I'm about to be offered a job with
a one year contract. It pays very well, but that's
because it doesn't come with any benefits. I want to
open an individual roth Ira that I can contribute to,
but the limit is only seven thousand dollars and I'd
like to put more towards retirement. Is the roth ira
my best option or is there anything additional I can do?
Speaker 2 (42:51):
Yeah?
Speaker 3 (42:51):
Well, first off, I love that you're wanting to do
more than what it is that you can do with
a roth ira, because you know that's not jump change
to be shoving aside for your future, but going beyond
that doing more. I think that's a great goal to have.
Speaker 1 (43:08):
A lot of people Matt, especially early on, they're like,
how am I going to max out the raw? So
the fact that ELL's like, I gotta do more than.
Speaker 2 (43:13):
That, she's got a pretty good gig line. Yeah.
Speaker 3 (43:15):
Obviously, the greater percentage of your income that you can
allocate towards investments to retirement, the quicker that you're going
to achieve financial independence, although it can be difficult if
you don't have a four to one k at your disposal. Specifically,
with a company match, you've got to be a little
more proactive. You've got to take some steps on your
own to ensure that you're setting yourself up off in
(43:36):
the future. But it's not just the match that you're missing.
Is that with a four to one K you have
the ability to sock away much more given the higher
limits we're talking twenty three thousand dollars, the ability to
suck that away easily into attacks advantaged account.
Speaker 2 (43:49):
That's was it.
Speaker 3 (43:51):
It reminds me of a story last year that we
talked about the four to one K millionaires that are
out there, and it is because the fact that it's like, well,
haven't even been investing for that long, but to allocate
those dollars for your future. When you have a larger
limit like that, it's easier to hit that limit as
opposed to trying to arrive at that point with a
humble old IRA.
Speaker 1 (44:11):
I think it's also the slow drip and the kind
of perpetual motion that a four to one K creates.
So when you do set it up, and now we
have more and more companies and kind of more stringent
rules about auto enrollment for people, and I think we're
going to only see more four to one K millionaires obviously,
so because people are being kind of forced into it.
(44:34):
But then also there is something about the fact that
it's just happening and you kind of don't see it
in the background, and then you look up one day
and you're like, holy crap, look how much money I
invested without having to think about it. But here's the
tough thing when you are self employed or an independent
contractor is that you have to do a lot more
thinking and you have to be a lot more proactive,
like you mentioned, but there are still great tools at
(44:56):
your disposal to be able to stack away a lot
of money. You just have to kind of be the
cap and of your own ship in this situation. So
as a self employed individual, you have access to a
type of four one K called a solo four oh
one K. It's like a sister account, but it was
built just for you l and for people like me
and Matts. So a bit more effort s is required
on your part and there's no match. But there are
(45:18):
some additional perks that are not available to W two workers,
namely that you can contribute much more than they're allowed to,
so they are kind of pros and cons right to
being w two versus. I see, you're essentially acting as
both the employer and the employee when you set up
a solo four one K and then you're able to
contribute to your own account wearing both hats. It's kind
(45:41):
of weird, and it's actually I think, I don't know.
Maybe it's easier to read about that it is to
speak out loud. But you can contribute twenty five percent
of your net earnings as quote unquote the employer, and
then you take off the employer hat and you can
contribute up to twenty three five hundred dollars this year
as the quote unquote employee, And this means you have
(46:03):
a total contribution limit of seventy thousand dollars assuming your
income is high enough, which that would be a lot.
I don't know many people who can max our retirement
accounts to this degree. More power to you if you can.
But it just goes to show like there are ways
to make this happen. You just have to be more proactive,
more intentional. But if you are and you're really dedicated
(46:25):
to putting a lot of money aside into retirement accounts,
the solo four one K is a killer, killer way
to make it happen.
Speaker 3 (46:33):
Yeah, that's how you completely supercharge your retirement savings. And
the solo four one k is what you and I
have here at how the money though we have never
maxed out our solo for our self employed or our
solo four one ks. Yeah, we've got our set up
via Fidelity money goals, though we've all down them.
Speaker 2 (46:49):
Maybe maybe we are.
Speaker 3 (46:50):
We've never made that much in order to Yeah, that'd
be that'd be awesome.
Speaker 2 (46:56):
But so Fidelity is great, Schwab. They are also a
solid choice after the Roth Ira.
Speaker 3 (47:01):
This is likely going to be your best bet, since
it sounds like you are pretty keen on investing a
fair amount, and you know, as of recently you can
even contribute to a Wroth solo four one k Fidelity.
They are actually still.
Speaker 2 (47:14):
Working on getting THEIRS launched. I think it might happen,
maybe by the end.
Speaker 3 (47:17):
Of this year, but I believe said yeah Schwab, they've
already rolled THEIRS out. And whether or not you choose
to go with a Wrath with the solo four one
k depends on a few specific personal factors, like your
projected future earnings, what you think future tax rates might be. Personally,
we don't have well, in part because we're with Fidelity,
(47:38):
but we have.
Speaker 2 (47:39):
A traditional Solo four one K.
Speaker 3 (47:41):
But in part, even if we did have the option
to go with the WROTH I'm not sure if we would.
We talked with Sean Mlaney about this back in the day.
But the ability to diversify your tax liability by having
a traditional pre tax four one K, whether that's a
Solo four one K or traditional four one K, and
to be able to diversify that with something like a
Wrath IRA. He thinks, at least for a lot of folks,
(48:02):
that makes sense. It is hard, you know, to make
a perfect decision on that front, but it's hard to
go wrong choosing either one of those and quickly going
back to the IRA. Something else I just saw off two.
She pointed out to the fact that she's got a
one year contract coming up, and so it might seem
like a big pain in the butt to jump through
a bunch of hoops setting up the solo four O
on oka learn, you know, researching it, figuring.
Speaker 2 (48:22):
It all out.
Speaker 3 (48:23):
If let's say she ends up being a stellar worker
and they're like, hey, we actually want to bring you
on under. We want to bring you in house. You
are going to be one of us. Well, all of
a sudden, she's not going to have the ability to
contribute to her solo one four o K solo four
to one K, in which case, I don't know, it
might seem like a whole lot of wasted effort. So
something else I wanted to point out, even though you
can only contribute seven thousand dollars this year to your
(48:46):
IRA for twenty twenty five, you could start saving for
twenty twenty six IRA contributions. I think this is a
perfect opportunity actually to set aside not seven thousand dollars,
but fourteen thousand dollars. Obviously max out your IRA this
year as soon as you can, but then start stockpiling
those funds in your high yield savings account. That way,
at the beginning of twenty twenty six, you have the
(49:07):
ability to immediately deploy those funds into the market. And
the reason we like to point folks in that direction
if you have the ability to, is because more often
than not, the stock market goes up seventy five percent
of the time three out of four years. Going to
see your balance grow more by investing at the beginning
of the year than throughout the year, and this is
an opportunity to kind of get ahead of the.
Speaker 2 (49:28):
Curve a little bit.
Speaker 4 (49:29):
Well.
Speaker 1 (49:29):
And I think it's a good reminder too for people
who feel like they're in the opposite boat and they're like, oh, man,
I haven't finished maxing out my wrath for twenty twenty four.
I feel like I kind of missed out on the boat.
You can still contribute until you file taxes, So, yeah,
max out last year's WROTH before you start putting money
into twenty twenty five WROTH. And that's the case for
l My guess is she's already maxed out last year's WROTH.
(49:50):
Based on the way she asked her question, she sounds
like a go getter. Yeah, but it's a good reminder
to everyone else out there. A lot of people think, oh,
and close the calendar year, I'm done. I can't contribute
to that anymore. But that's not tr You still can
until you file those taxes until April fifteenth comes around.
Speaker 2 (50:04):
That's right.
Speaker 3 (50:04):
So a little bit of looking ahead and a little
bit of looking back as well. But Joe, let's get
back to the beer that you and I enjoyed doing
this episode, which was a reciprocal by Bessel Brothers.
Speaker 2 (50:14):
This is a double dry hopped IPA. What do you think,
Buddy man?
Speaker 1 (50:18):
Gosh it, it is amazing to think that it was
over eight years ago that we went there and did
it take you back? It did, And I just remember
having the absolute best trip with Emily when we went.
We had so much fun and we've got great pictures,
great memories. My favorite memory from on that trip to
Maine was the ten dollars US mail boat tour that
we took out there on the right to watch them
(50:39):
deliver mail to the islands outside of Portland, Maine.
Speaker 3 (50:42):
And it was so fun, a great way to see
the site. I remember you mentioned the cheap trip.
Speaker 1 (50:46):
This beer, in particular, it was more bitter than I
even remembered.
Speaker 2 (50:49):
Yeah, but in a good way.
Speaker 1 (50:51):
Yeah, Like I kind of dig it's It's kind of
like this mix between West Coast and East Coast styles
got the hazy citrus vibes with a little more of
that hot bitterness in there. This beer is as good
and as unique as I remember.
Speaker 3 (51:04):
Yes, double dry hopped, which I think typically at least
with some of the brewers that were fans of like
mixed like burial. For instance, they're double dry hopped IPAs
they typically come with a lot more body right, which
means that they tend to be a little bit thicker,
which sometimes mean that they're also a little bit sweeter,
but that is not the case with this one.
Speaker 2 (51:24):
It's got those double dry hop flavors, but it's just drier.
It's just drier. So yeah, whether.
Speaker 3 (51:31):
It's bitterness or dryness that kind of comes through, you
have that. It's certainly double dry hopped and was hazy
as all get out, but it wasn't super heavy, which
means it was just a wonderful beer to drink during
the recording.
Speaker 2 (51:42):
Of this episode. Yes, glad you were able to pick.
Speaker 3 (51:44):
This one up at our local bottle shop, and listeners
can find show notes up on the website.
Speaker 2 (51:49):
As well as the picture of this beer.
Speaker 3 (51:50):
If you are so interested, up at how too money
dot com, we'll make sure to link to any of
the different resources that we may have mentioned. We appreciate
you joining us for this episode. We'll see you back
here in a couple of days, and that's going to
be it for this episode, buddy, So until next time,
Best Friends Out best friends out
Hosts And Creators
Joel Larsgaard
Matthew Altmix
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