June 5, 2025 • 41 mins
This week’s episode is packed with practical investing wisdom and a whole lot of tax-saving strategies. I sat down with Patrick Huey, CFP®, author, small business owner, and host of History Lessons for the Modern Investor, to break down the often-confusing world of tax-efficient investing. We tackled everything from Roth vs. traditional accounts to how to actually use a taxable investing account — and even touched on one of the most underrated tools out there: the HSA. Whether you’re just getting started or you’ve been investing for years, this episode is all about helping you keep more of what you earn.
💰 This Week’s Money Talking Points:
- How can you use a taxable investing account?
- How do you open an IRA?
- What should you invest in within your 401k?
⏱️ Episode Breakdown – Key Topics & Timestamps:
[04:30] Why taxes matter when investing – “It’s not what you make, it’s what you keep”
[05:30] Traditional 401ks and IRAs: benefits, downsides, and the hidden “partner” (the government)
[07:45] Who traditional accounts might still make sense for
[09:30] Why Roth IRAs are considered the “holy grail” of investing
[11:00] Building good investing habits early (yes, even $200/month matters!)
[13:30] Capital gains 101 – what they are and how they’re taxed
[15:00] What is a taxable investing account really, and why should you consider one
[17:45] Use ETFs instead for a more tax-efficient approach
[18:30] Capital gains harvesting – how to take advantage of the 0% tax bracket
[20:30] Using taxable accounts for medium-term goals like buying a home
[21:45] Asset location vs. asset allocation – understanding the difference
[23:00] All about HSAs – the triple-tax-advantaged powerhouse
[27:00] Why tax planning beats tax filing, and how to think ahead with your strategy
🔗 Resources & Mentions:
Patrick Huey’s Website: Victory Independent Planning
Patrick’s Podcast: History Lessons for the Modern Investor
Sign up for my newsletter: https://money-talk.kit.com/64cbd24b05
Schedule a free Money Talk at https://moneytalk.show/chat
Get your free Money Talk resources at https://moneytalk.show/resources
Sign up for a free trial with MyBudgetCoach and select me as your money coach: https://www.mybudgetcoach.com/coaches/skyler-fleming
Find even more Money Talk at moneytalk.show/quick-links
"Upbeat Forever" Kevin MacLeod (incompetech.com) Licensed under Creative Commons: By Attribution 3.0 http://creativecommons.org/licenses/by/3.0/
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker (00:00):
Welcome Money Buddies to this week's episode of Money
(00:02):
Talk.
This week we're talking aboutinvesting and saving on taxes.
I'm your host, Skylar Fleming,and let's get talking.
What is Roth traditional taxablebrokerage?
(00:25):
What are all these differentterms that get thrown around?
This is one of my biggest petpeeves when it comes to personal
finance.
Why in the world is it called aRoth 401k and not something
simple like an after-taxretirement account?
Or something even simpler thanthat, and I know it's named
after the person who created theRoth structure and 401k is the
(00:48):
tax code that it's in.
But why do you need to knowthat?
Why isn't it just namedsomething simple that helps you
understand what it is?
Why does it have to be soconfusing?
Well, I don't really know, and Imay never be able to answer that
or get it changed right away forall of us.
But I do have a fellow moneybuddy today.
Who is here to help us break itdown and help us figure out what
(01:10):
these different options are andwhen they are useful.
Because if you're anything likeme or anyone else, you're
looking at your work's, 401k ormaybe even an IRA and wondering
what option do I choose?
Do I go Roth or traditional?
Because it can all be confusing.
But don't forget about thesneaky good taxable brokerage
account, which we're gonna talkabout today.
(01:30):
But that's another confusingname if you don't know what a
brokerage is.
Anytime I tell somebody, go openup a taxable brokerage account,
they're like, what in the worldis that?
What kind of scam are you tryingto get me into with a word like
brokerage?
It just sounds fancy, confusing,and unnecessary.
Basically, it's just aninvesting checking account.
That's what we could call it, aninvesting savings account,
(01:52):
something like that that allowsyou access to the stock market,
but we're gonna break it alldown today.
I'm really excited for thisinterview.
I think it's gonna be afantastic one that you're all
gonna love.
So let's get to introducingtoday's money, buddy, the Money
Talking points, and get intotoday's conversation.
Today's Money Buddy is PatrickHuey.
Patrick is a small businessowner, author, and host of
History Lessons for the ModernInvestor.
(02:14):
It's a podcast that you shouldprobably go check out after you
listen to this one.
He leads Victory IndependentPlanning, LLC, helping families
and nonprofits with investmentand financial strategies.
Under the motto Live Well and DoGood.
A former Naval Flight OfficerPatrick is a certified financial
planner professional.
With degrees in history andbusiness, and he is active in
(02:34):
philanthropy, sports, and thearts.
The money talking points forthis week are how can you use a
taxable brokerage account, whichI'm excited to tell you some
tips and tricks of my owntrading in that account.
The second money talking pointis how do you open an IRA?
And the third one is, whatshould you invest in within your
401k?
(02:55):
With those many talking pointsin mind, let's get talking and
welcome Patrick to the show.
Patrick Huey (02:59):
thanks.
I appreciate it.
I, I often think that, when westart talking about taxes, I
feel like a dentist, where it'ssomething people really wanna
avoid as much as they can.
They don't want to talk aboutit, they don't want to go to the
dentist, but A little bit of,brushing your teeth every now
and again.
Keeps it from being a miserableexperience.
So, that's the way I like tolook at taxes, a little bit of
(03:21):
planning, a little bit offorethought, and you can,
hopefully avoid some nastysurprises.
Skyler (03:26):
Yeah.
We can, liken it to the normalflossing, whether you floss or
not, if you don't floss, there'sgonna be a little bit of blood
when we start talking aboutthis.
So.
Patrick Huey (03:33):
Exactly.
So let's try to avoid that,shall we?
Skyler (03:36):
we'll avoid the blood.
You can think about this alittle bit ahead of time and
make it a whole lot easier, butlet's just dive right into it
why do people need to bethinking about taxes when it
comes to investing?
Patrick Huey (03:46):
I think that, in general it just makes sense that
it's not what you make, it'swhat you keep.
Right.
So you really need to thinkabout the end game, from an
investment perspective, which iskeeping the most, not just
making the most.
as things get more complex,taxes, play a bigger role in
(04:08):
your overall financial life.
starting early and understandingthat taxes make a difference,
across the board with yourinvestments, whether it's in an
IRA, a Roth, or a non-retirementaccount, it makes a difference.
Skyler (04:22):
Yeah, there's a lot of opportunity there that I think
people often overlook when youstart thinking about it and it
can be overwhelming.
So don't try to consume theentire tax code all at once or
else you're gonna just drainyourself.
Maybe start with Recently in atrailer that I put together for
the show, I mentioned that ifyou're a young adult right now,
your financial situationprobably doesn't seem too
complicated.
You're like, oh, how hard canthis be?
(04:43):
But you give it five, 10 years,you're gonna end up in a
situation where you're like,what do I do with this money
that I'm earning?
People aren't sure what to evendo, but then you start getting
hit by taxes, higher tax ratesthat you're not used to, and
there's just.
A whole lot of opportunity thatI don't think people understand
or they miss out on.
But let's start out with one ofthe pieces of that opportunity,
and that's the traditionalaccount.
What does traditional mean fortaxes?
Patrick Huey (05:05):
So basically a traditional account, at its
simplest level is you'recontributing pre-tax dollars.
So you get the opportunity tocontribute money and not pay tax
on what you put in there today.
but the caveat is you're takingon a partner in that investment
(05:25):
and that partner is thegovernment.
Um, so when you go to withdrawthose funds, you will be taxed
on the withdrawals, as income.
I tell people this, in seminarsthat I give, if you were going
to create a partnership and takeon a partner.
And that partner looked at youand said, I'm gonna take a
piece, but you are not gonnaknow what it is You would tell
(05:48):
them to pound sand.
there's no one who would eversign up for that type of
partnership, and yet we all signup for that partnership when we
put money in a traditional IRAor a traditional 401k.
Skyler (06:01):
Yeah, that's a great way to look at it, that you're
making a partnership with thegovernment where they're saying
at some future tax rate that youhave no way of predicting, we're
not going to give you some sortof a table of 30 year tax rates
on traditional accounts only,which would be super useful that
the math would completely changeif we actually knew that
information, but.
That partnership is so unknownthat you painted a good picture
(06:21):
of maybe why we should avoidtraditional a little bit.
There's some unknown in thatelement, but can it be useful
for people?
Patrick Huey (06:27):
Sure it can.
I mean, obviously it's going toreduce current taxes.
so if you're in a higher taxbracket now and expect to be in
a lower one later, thetraditional makes a lot of
sense.
But what we've found.
Is, after a generation offinancial planning where we
assumed that people would be inlower tax brackets when they
(06:48):
retired, a lot of times it's notplaying out that way.
there are some structuralreasons why, but we also have to
look at the future and say.
Our tax rates gonna remain aslow as they are now into the
future.
I think that all of that iscompletely unknown and
unknowable at this point.
some of this is just.
(07:08):
making sure that you are doingthe things that you can do, that
you're controlling the thingsyou can control now.
Do traditional counts, stillhave a place?
I believe they do.
I have them myself, so, it'sjust one of those things where
you have to realize what you'regetting into before you do it.
Skyler (07:25):
I love what you said there about control, what you
can control, and to that meanscontrol, your contribution rate,
actually making sure you'reputting money in the account.
these accounts don't do you anygood if you're not putting any
money in them.
Like if you have thattraditional 401k, but nothing is
going in there, you're notgetting the employer match or
anything like that.
Who cares about whatever the taxsavings are?
So that's kind of the first stepthat you gotta get started with.
Patrick Huey (07:46):
I've, been kicking around an idea for a book for
years now called, stoicism forthe Modern Investor because that
control what you can control,idea comes from stoic
philosophy.
Skyler (07:57):
Well, it's a great one because when we start trying to
speculate tax rates, we miss themark, frankly, on what we can
actually be doing now.
it is not worth our time tospeculate.
Oh, tax rates will probably goup if this president gets
elected or this one go doesn't,or
Patrick Huey (08:10):
We did a lot of that over the last four to eight
years.
A
Skyler (08:14):
People are doing it right now.
Patrick Huey (08:15):
Yep, absolutely.
and I agree.
it's really tough to know.
we're almost, six months,halfway through the year at this
point, and we still don't knowwhat the tax rates are gonna be
in 2026.
it's kind of crazy, but we.
Shouldn't be surprised.
I know we'll probably get intothis later, but it does funnel
(08:37):
into the idea of convertingmoney from, traditional to what
is called a Roth IRA.
there are some studies out nowthat suggest people who are
doing that.
Are not controlling what theycan control because they're
guessing at future tax rates.
And what the studies are showingis that, for higher income
(08:58):
earners, it may still make senseto do Roth IRA conversions.
but for your average taxpayer,the benefits may be very
minimal.
So something we'll keep an eyeon as tax law changes and these
studies are updated.
Skyler (09:11):
Yeah.
you mentioned a word that acouple new listeners might be
saying, Roth, what does thatmean?
And to the investingprofessionals or some finance
professionals?
Roth is held as like this holygrail.
Of investing, but what does Rothmean?
Patrick Huey (09:24):
So Roth, it's a proper name.
it was someone's name whoproposed these type accounts,
back in the late seventies orearly eighties.
And, the Roth really is the holygrail from tax planning
perspective because
Skyler (09:38):
It eliminates that partner.
Patrick Huey (09:39):
it eliminates the partnership.
You don't have the government,sitting, watching over your
shoulder waiting for you to takea distribution.
Skyler (09:46):
Or forcing you
Patrick Huey (09:47):
They're forcing you to.
Exactly, exactly.
So it's a much more flexibleinstrument.
Obviously there are drawbacks.
You have to pay tax on whateveryou put into it now, so it's not
gonna save you any money today.
but in the future it mostcertainly will.
when it comes time to take thosedistributions because you're
getting tax-free growth andtax-free distributions from a
(10:10):
Roth.
it really is, a win-win.
And I tell my younger clients.
the younger you are, the sooneryou start as an investor, the
more the Roth makes sense.
You might do other things lateron, but when you're just getting
started, a Roth makes a ton ofsense.
Skyler (10:27):
If you don't have a Roth IRA open and you're under 24,
what are you doing?
There's so much opportunitypeople will hear, well, I can't
max it out.
It's like, who cares?
money in there.
Because,
Patrick Huey (10:37):
actually got accounts that the grandparents
started for their grandchildren.
For that reason, they knew thekids didn't have, the money to
get it started, but they wantedthem to get off on the right
foot.
So kind of cool.
Yeah.
Grandma.
Yeah, grandpa.
Skyler (10:50):
Yeah.
Well, the cool thing is thecompounding interest that works
on that.
If you throw money into achild's account when they're
zero or they are fresh, and justget a social security number so
you can open it for'em.
They only need like, I don'tknow the exact number, but it's
like a thousand dollars or$2,000to become a millionaire by the
time they're 65.
the amount of time that has todouble and grow and compound is
(11:12):
mind blowing because no onethinks about an investing
timeline as 65 years.
They think about it and maybeyou got 20, 30, 40 years, but if
you add a couple more doublingsto that, it's just insane.
What can happen and all of thatbeing tax free is a big deal.
Patrick Huey (11:26):
Yeah, it is.
you start to bump up against,investor psychology there,
right?
human beings have a very hardtime.
projecting their lives, whatthey'll be like in 30 or 40
years.
it's something financialplanners deal with every day,
trying to get people to lookinto the future and realize that
your future self is not gonnalook like your current self.
trying to get younger people tounderstand that you are really
(11:50):
passing up on an incrediblebenefit, that could make a
difference in your life whenyou're 65 years old.
It's really difficult to do.
Skyler (11:58):
Yeah, it is.
that's definitely one of thehardest things.
It's hard for our mind to fullycomprehend what compound
interest.
Actually looks like it's easyonce you start seeing it working
and you're like, wow, thatactually did work.
But it's so hard for me to say athousand or$2,000 can become a
million dollars.
that's just mind blowing andhard to wrap our heads around,
Patrick Huey (12:16):
if you can get them to think about current.
Problems versus future problemsI just like to talk about money
anxiety, right?
Like, if you put money in aRoth, you're getting rid of tax
anxiety for the future, right?
so so why not give yourself thebenefit of a good night's sleep
now and in the future, with thattool.
Skyler (12:39):
Yeah.
it's almost like you can takemaybe that people probably just
finished filing their taxes andyou can look at that number and
say, wow, I owed taxes.
But if you think about it in 10,15 years, when you're using that
Roth IRA, that number's gone.
take that anxiety that you'refeeling now and apply it to the
future.
So I like that.
That's a fantastic way to put
Patrick Huey (12:56):
You're also training yourself in good
habits.
I've got, a client, I work withhis son.
I've been working with his sonfor years.
his son went from, putting moneyinto a Roth when he had no
money, to now being, well abovemy average, client size.
and it happened pretty fast.
but he's got those good habitsingrained to where even though
(13:18):
he's now making, a really,really impressive salary, he
still puts money into Rothbecause he knows the value going
forward.
He's created those good habits.
Yeah.
Do we do some additional stufftax wise?
Sure.
But he still wants to be puttingmoney in his Roth 401k because
he knows what it's gonna do forhim in the future.
Skyler (13:37):
Yeah, and it just takes that headache away of the taxes.
Like, why would anybody not dothis?
Is there ever a situation wherewe're pumping up the Roth?
Is this kind of master plan, isthere any reason why someone
maybe shouldn't?
Patrick Huey (13:49):
there are a variety of them.
number one being, trying toreduce current taxes.
high earners certainly want toat least look at that.
the other is there are caps onincome.
you can only make so much moneyand still contribute to a Roth,
particularly an ira.
4 0 1 Ks are, are much moreflexible if, if your company
offers a 401k option, with aRoth.
(14:10):
so those are the two that jumpto mind.
there are.
Time periods where you will notbe able to use a Roth typically
higher earners.
Paying more taxes is usually asign that you're making more
money.
Skyler (14:20):
Yeah, it's not something to be scared of.
if you aren't able to contributeto a Roth, it usually means
you're making good money, whichis an okay problem to
Patrick Huey (14:26):
Yep.
Skyler (14:27):
but it's it's typically something that everyone should
be doing.
We talked about getting thosebehaviors going.
If you're 20 or 22, that gettingconsistent,$200 automatic
payment into your Roth.
Is a way bigger deal in terms ofyour behavior than it is the
actual money going into theaccount because then you have
that as a staple in your mindsetand you never deviate from it
(14:47):
because it's just easy andautomatic at that point.
Patrick Huey (14:49):
It is the exact way I got my start, 200 bucks a
month into, a Roth IRA When Iwas a junior lieutenant in the
Navy, we didn't have theretirement plans back then that
they have now, so you kind ofhad to do it on your own and
that was how I chose to do it.
Skyler (15:03):
Yeah, it sticks with you and you keep it going, but there
is this third option we're gonnatalk about, and that's just a
taxable account.
This means that the money goingin grows and there's taxes on
the gains Taxes, when you sellit on gains and losses stuff
like What is this taxableinvesting account?
Patrick Huey (15:18):
Yeah.
basically I would almost call ita bank account on steroids,
right?
it's got no tax, advantages.
you're just putting money into abrokerage account with an
investment firm, and you'rebuying stocks, bonds, mutual
funds.
and exchange traded funds.
you get some flexibility, butyou just don't get any tax
(15:39):
advantage from it other than,when you take distributions from
it or take money out of it,you're only taxed on the gains,
So yeah, there are definitelysome uses, for taxable accounts.
You can put however much moneyyou want to put in there.
they're great for intermediateand long-term goals, beyond
retirement.
I've had folks, put money intotaxable investment accounts and
(16:04):
save money for a home, becausethey're gonna have access to it.
that's the other thing you canaccess before age 59 and a half,
which retirement accountsyou're, you're kind of stuck in
there until you're almost 60.
it's almost like buying, a lacarte at a restaurant, you don't
get any discounts.
there's no bundling, there'snone of that.
But you get the maximum choiceand control over what you
(16:24):
eventually eat.
Skyler (16:25):
Yeah.
this episode is tax efficientinvesting.
you mentioned the mutual fundright there, and then Why should
we maybe avoid that in a taxableinvesting
Patrick Huey (16:32):
I'm not a fan of them in taxable accounts because
of capital gains.
the story I tell people is, in2008 I remember working with
clients, when the market dove.
Mutual funds had to startselling off their holdings to
meet redemptions.
they had all these gains from2001 to 2008, embedded in the
mutual fund.
(16:53):
investors were getting capitalgain statements on their taxes.
In a mutual fund that wassometimes down 20 or 25%.
Skyler (17:01):
Everything's down and you're paying huge taxes.
Yeah.
Patrick Huey (17:03):
Correct.
That is brutal.
so you can avoid that by usingthings like exchange traded
funds or individual stocks andbonds, which are much more tax
efficient.
Skyler (17:13):
Mm-hmm.
Yeah.
There we go.
That's a awesome quick littlepoint on avoiding mutual funds
in a taxable account.
They can be very useful
Patrick Huey (17:19):
I see it all the time.
the word has not quite gottenout yet.
Skyler (17:25):
Well, yeah, there's a very big name that preaches
mutual funds that at least Ihaven't listened outside of that
in a while.
But you you need to be aware ofhow these things actually work
on a taxable.
Front before you get too into'em.
And that's an awesome placewhere a professional like you or
people who are in this space canspeak to it like, Hey, what kind
of asset type should I choose?
And you can speak to it a littlebit of saying, Hey, these are
(17:46):
just a word of caution thatmutual funds aren't great in a
taxable account, but there is abenefit.
You mentioned long-term capitalgains.
You mentioned these, capitalgains that you're only paying
taxes on.
I honestly think this could beone of the benefits of it.
There is some tax.
I guess optimization you can doon this front.
What are long term or short termcapital gains
Patrick Huey (18:07):
so basically, to boil it down to its simplest
level, it's a holding period.
if you hold something for morethan a year, it's gonna be a
long-term game.
If you're turning things over inthe short term, it's a short
term game.
And, long-term capital gains aremuch preferable, too Short term.
Short term is gonna basically betaxed at your income tax rate.
Whereas long-term gains aregonna be taxed typically at
(18:31):
either 15% or if you're in a lowenough tax bracket.
Zero.
Skyler (18:36):
Mm-hmm.
And that's the magic
Patrick Huey (18:38):
that's the magic number.
Absolutely.
Skyler (18:41):
My wife and I did this recently, and I want to get your
take on it as well, but thislast year, my wife was just
starting her job out of hermaster's program.
our salary is starting toincrease this year.
But last year we noticed a bunchof gains in our taxable account
towards the end of the year.
So we did what I've heard calledcapital gains harvesting, which
is that 0% where we were in acertain tax bracket, I think I
sold everything that was along-term gain and then just
(19:03):
repurchased it as the same valueto bring our cost basis up.
What is that 0% rate and why canit be so, optimistic and
optimized for people?
Patrick Huey (19:12):
Yeah, I mean, zero is good.
from a tax perspective, and wetalk a lot about tax loss
harvesting, especially, in mybusiness, you are selling
something to offset a gain inyour portfolio You're selling
something at a gain.
Because you're not gonna pay anytax on it, and then you can
reset the cost basis.
Basically, you buy it again at ahigher level so you have more of
(19:35):
a chance to not pay tax on it inthe future great strategy, quite
frankly, and, I love those typesof strategies where you're
looking at.
Your levels inside the tax codeand figuring out what you can
get away with, you know,sometimes it's topping off your
tax bracket.
if I've got somebody in the 12%bracket, which I do in
(19:55):
retirement, it happens quitefrequently.
my clients don't liveextravagantly.
if I've got some room still leftin the 12%.
Bracket, you know, I might do aRoth conversion
Skyler (20:06):
mm-hmm.
Patrick Huey (20:07):
because you know, they're gonna pay a very low,
low rate on that and get all thebenefits
Skyler (20:12):
Use the gap.
Patrick Huey (20:13):
going forward.
I love those strategies whereyou're topping off your tax
bracket and figuring out, whatyou, are entitled to within it.
Skyler (20:19):
Yeah, you find that gap and you fill it and if you can
go right up to it, that'd beawesome because then you're
maxing out that 0% if you'reusing that capital gain
strategy.
And who doesn't love tax free?
We call it a taxable investingaccount, but there is that one
potential.
Opportunity.
And even then when you get overthe 0%, I think it goes to 15%
next, which can still be lowerthan your ordinary income rate.
there's still a whole lot ofopportunity in an account that
(20:42):
you call taxable, but there'sstill a little bit of tax
efficiency to it if you hold itfor over a year.
don't completely count it outjust
Patrick Huey (20:49):
I will tell you a story about 2024.
you know, coming out of the, themarket downturn in 22, we had
two really good years, of growthin, in, in accounts and, in.
Early 24, we took some capitalgains distributions because we
had to, take some of that stockmarket risk off the books for
(21:10):
clients we booked some gains andhoped that, over the year we'd
be able to.
work those down.
it never happened.
it's not a perfect game.
you are gonna have years whereyou pay capital gains, and you
can get stuck with some capitalgains payments, but it's still
better than paying income taxrates.
it all goes back to the threetypes of accounts We love to
(21:31):
talk about asset allocation,where you put your money and the
division between stocks andbonds.
What we're talking about todayis asset location, what type of
account is best for your mutualfunds?
we've just said it's not ataxable account.
hold that in your 401k where youdon't really have a choice.
asset location makes a Bigdifference when you get into
(21:52):
retirement and you've got, youknow, some different buckets to
draw on.
'cause you can really manageyour tax bracket that way.
Skyler (21:58):
Yeah.
And when it's all your money,and you can sit there and pick
where to pull it from or doconversions like you mentioned,
or take long-term capital gains.
There's a lot of fun games thatcan be played with taxes when
you set yourself up early withthese different buckets, so
that's fantastic.
talk about one more potentialbucket that is kind of this
living in the background.
I think this is the holy grailof tax efficient investing and
it's the HSA.
(22:19):
What is the HSA?
How's it slightly different?
Patrick Huey (22:21):
So the Health savings account, or HSA, as its
name suggests, is Intended to beused, for health savings.
it's one of those, tax freebuckets that if you use it for
medical care, it's going to,grow and distribute without tax
phenomenal tool.
even if you're just using it forhealthcare.
(22:43):
I recommend to my clients ifthey have the means.
That they contribute as much asthey can into an HSA and don't
use it.
Don't pay your doctor bills outof your HSA if you can afford to
do it from your taxableaccounts.
Why?
because this thing's gonna growtax deferred if you don't mess
(23:05):
with it.
the power of compounding that,that you talked about, I.
if you're just looking from afinancial planning perspective,
average person's gonna spend$120,000 on out of pocket
healthcare costs in retirement.
So having that HSA growing foryou, can be a huge factor.
once you get into retirement,the other hitch is if you don't
(23:26):
spend it by age 65, it basicallyturns into an IRA.
So you have the ability to takemoney out of it.
you pay tax if it's not formedical costs.
But you do get some flexibilitylater on in retirement.
So yeah, it, it's a fantastictool.
I don't think most people reallythink it through.
I think they use it like it's, a
Skyler (23:46):
A health spending account.
Patrick Huey (23:47):
Exactly.
Exactly.
Skyler (23:49):
And there's still some benefit to that, but not the
maximum.
Patrick Huey (23:53):
absolutely.
if you need that benefit now.
use it as you see fit, but ifyou can meet your medical
expenses, and we're just talkingabout copays and, stuff like
that for working people who havehealth insurance, think about
trying to, not touch the HSA,
Skyler (24:11):
Mm-hmm.
Yeah.
My wife and I do that.
I have a spreadsheet where Ikeep track of all of it.
We keep track of, I call it ourunreimbursed expenses.
And'cause like you mentioned,you can reimburse yourself at
any time for these amounts soyour investments can grow and
grow and grow.
And then we had a coupleprocedures a year or two ago
where we had let this accountgrow for a few years and we were
able to, we needed some of thatmoney back.
(24:33):
Our cash flow isn't superperfect to be able to float how
this expense was growing and wewere able to withdraw from that.
HSA solely from the gains.
it's like we never really paidfor it.
The economy or the market, Thegains paid for our medical
expenses, and that's a massivebenefit.
It was all tax free.
The money went in, pre-tax cameout tax free, The tax was
completely avoided.
So if you really wanna removethe business partner, an HSA is
(24:57):
a perfect way to do that.
'cause you can go tax free frombeginning to end for medical
expenses.
Patrick Huey (25:01):
Yep.
I agree.
It's, a very flexible, veryunderused tool.
and you made a good point, whichis, a lot of HSAs offer both a
cash and an investment option.
Make sure that you aremaximizing that investment
option, especially if you'retrying to save this for the long
term, if you're using it forcurrent medical, you know, have
(25:21):
some cash as well.
But, you really want to maximizethis asset for the future.
Skyler (25:27):
Yeah.
And there are so many HSAs outthere that just charge bogus
fees.
I like fidelity.
I know there's a couple otherones that are good.
Low fee.
Like no fee options, but if yourworks, HSAI only contribute to
my works HSA enough to get theemployer match that they do into
the
Patrick Huey (25:42):
Mm-hmm.
Skyler (25:43):
and then I do it the rest in the fidelity and things
like that.
There's a lot of opportunity.
I think people think the healthsavings account is this locked
down crazy account that onlycertain people can access.
Sure.
There are some requirements, butit does have a lot of
flexibility, like you said.
Patrick Huey (25:56):
It does, and you can roll it over just like, with
a work account.
With a work IRA or work 401k,you've got the opportunity to
roll over and consolidate, asyour career changes.
So yeah, incredible, flexible.
Skyler (26:08):
Yeah, let's wrap up here with maybe is there a couple
other things that come to yourmind?
Any other tax opportunities thatwe haven't touched on that
people need to be aware of whileinvesting?
Patrick Huey (26:16):
Ooh.
Um, you know, I would more lookat the big picture.
I'm a big picture guy.
I would.
Tell people to step back and saythere's two kinds of taxation,
right?
There's two kinds of taxplanning.
There's actual tax planningwhere you're looking into the
(26:39):
future and trying to figure itout.
And there's what a lot of peoplecall tax planning, which is
actually tax filing.
Skyler (26:44):
Yeah.
Patrick Huey (26:45):
Um, I'm a big proponent of tax planning.
tax filers kind of make me madsometimes, because they're
really not providing you with awhole lot upfront and you end up
paying for.
Virtually nothing.
Skyler (26:57):
For paperwork, yeah.
Patrick Huey (26:58):
E exactly.
as taxes get more involved,there is certainly work to be
done.
but I highly recommend thatfolks engage in proactive tax
planning.
looking ahead at what theirincome is gonna be, finding
those gaps in the tax bracketswhere they can potentially take
advantage of them.
because it does make a hugedifference once you get to
(27:19):
retirement planning.
Skyler (27:21):
Yeah, that's a fantastic place to look.
Make sure you're thinking abouttaxes before it's April 15th of
next year.
start thinking about it now.
Your salary, if you're workingsalary, it's probably gonna be
pretty consistent through theyear, and you can begin to plan
Say, oh, I know I'm gonna comein a good amount under that 0%
capital gains bracket.
Maybe I can start to use some ofthat now to supplement some
income for a larger expensecoming up.
(27:42):
There's a lot of opportunity ifyou think ahead, so that's a
fantastic place to leave it.
I got two final questions towrap us up here.
First one's gonna be how canpeople connect with you?
And then the second one what'sone thing you wish you would've
known sooner when it comes totaxes and investing?
But first, how can people findyou online?
Patrick Huey (27:56):
Sure online, uh, my company is victory
independent planning.com.
they can go to the website.
I'm on LinkedIn.
I do a lot of, posting onLinkedIn as well.
you can find me there.
It's Patrick Huey,H-U-E-Y-C-F-P.
they can also find, the podcast,History Lessons for the Modern
Investor.
That's, available everywhere youget podcasts, as well as the,
(28:19):
video feed on
Skyler (28:20):
Awesome.
What's one thing you wish youwould've known sooner about
taxes with investing?
Patrick Huey (28:24):
this is kind of a no-brainer.
but, I used to think, and Ithink a lot of people, are
similar that, investing was justabout picking the hottest stock
or mutual fund The silentfactor, the silent killer, the
silent partner that sits withyou.
that's what separates an amateurfrom a pro.
So learning to optimize, youknow, taxes for clients.
(28:45):
That's the difference between,you know, climbing a mountain or
running on a treadmill.
are you staying in one place or,actually making progress?
it's not what you make, it'swhat you keep.
And that, to me is all thedifference in the world.
Skyler (28:59):
Fantastic.
There's the quote of the episodeto leave it on.
It's not what you make, it'swhat you keep.
Patrick, thank you so much forjoining me.
Patrick Huey (29:04):
Thank you.
It's a pleasure.
Skyler (29:15):
Thank you so much to Patrick for coming on the show.
I know that was a fantasticinterview.
I sure enjoyed it and I hope allof you did as well.
But let's get into the moneytalking points today.
How can you start a taxableinvesting account?
And I didn't want to call it ataxable brokerage account,
though you may hear those termsused interchangeably.
I'm just gonna call it a taxableinvesting account, and basically
(29:37):
it is an investing account thatyou are taxed along the way, or
like we talked about in theinterview, a traditional or a
Roth.
Depends on whether you're taxedat the beginning or after you
pull the money out.
It all depends when you'retaxed, but this taxable
investing account means you'retaxed throughout the entire
thing.
Your tax, whenever you sell andthere's a gain or a loss, your
tax, whenever there's dividends,anything like that you are taxed
(29:59):
on.
Well, it's really simple to getstarted with it.
You just simply start addingmoney.
Of course, you have to go openone at somebody like Fidelity,
but it's simple to start usingit.
Just start adding money.
Like Patrick said, it's achecking account or a savings
account on steroids.
And I would recommend stickingto a broad based ETF index fund
approach.
I have had an episode beforecalled Simple Investing.
(30:21):
Go back and listen to this one.
If you wanna know a little bitmore detail about simply
investing and keeping it simpleso that you can get started
today with actually investingsome money into the market.
Like we talked about in theepisode, avoid mutual funds in
your taxable account.
Those will just end up creatinga tax headache or tax migraine,
or the worst kind of headacheyou can imagine down the road,
(30:42):
just stick to ETFs, which standfor exchange traded funds, but
you can even start simpler andstart with an s and p 500.
ETF keep it very simple.
With something like VOO, that'sthe ticker symbol that you can
type in.
Think of it like a barcode orthat fancy serial number or
whatever they're called, thatthe store associate can type
into the register if thebarcode's not working.
(31:04):
VOO is that sort of barcode.
It's called a ticker symbol, andit's what you can look up to
look how the stock's doing orthe index fund is doing, but
simply put it into an s and p500 ETF.
And let it grow over time.
Give it a long time.
And then here comes the funpart.
Once it begins to grow, you'regonna have some gains in the
account.
Now you can take the next stepto learn about harvesting those
(31:26):
gains, or if it loses money, youcan learn how to optimize those
losses.
There are some fun things youcan do, but that is not what is
key to getting started.
You get started by simply addingmoney to an index-based ETF and
let it grow over time.
Here's the key thing.
Learn one step at a time.
You don't have to learn all ofthis before you even add money
(31:48):
to a taxable investing account.
I have not done any selling inmy taxable investing account
until about six months ago whenwe had a ton of gains that we
needed to harvest, and you heardus talk about it in the
interview where if there's abuffer between your current
income and that 0% capital gainsrate bracket.
You can take out some of thatgains at a 0% tax bracket and
(32:10):
not pay any taxes on it.
How phenomenal is that?
But that is so overwhelming.
If you are just adding money tothe account right now and it
goes up a dollar and you'relike, oh no.
Now I have to learn everythingabout this account.
Don't worry about that.
You do not have to learn thisall at once.
It's overwhelming to startthinking about that.
I started this podcast nearlyfour years ago, and I have
(32:32):
learned so much in that time.
It is insane.
So don't try to take my fouryears of knowledge and condense
it down into four hours or fourweeks, or even four months.
Make sure you're taking time tolearn all of this if you want
to.
If you don't, there'sprofessionals out there that'll
help you.
There's other people you can askquestions to.
There's a lot of people outthere willing to help you.
(32:52):
It would've been impossible forme to learn all that I know now
in a short time in order tomaximize my financial picture
right away.
So if you want to get startedwith investing, keep it simple
with a regular taxable brokerageaccount, and it doesn't have to
be so complicated, but let's getinto the second money talking
point here.
How do you open an IRA?
Well, an IRA stands for anindividual retirement account.
(33:15):
This means it's a retirementaccount that is just for an
individual.
There's no joints, there's nosort of anything like that.
It's just in your name.
But this is just as easy asopening a taxable account head
over to any of the majorinvesting companies like
Fidelity or Vanguard.
And I would recommend stickingto one of those two.
And I personally really likeFidelity.
Their website and everything isgreat.
(33:36):
Their customer service hasalways been good.
All my stuff is with Fidelity,and I've never had an issue.
So take that with what you will,and I would recommend them.
If you want to go start an IRAthere, I think it's a great
place to get started.
Now, there are contributionlimits for IRAs that you need to
be aware of, and there's acouple other things that you'll
need to know if you're a highearner when it comes to
traditional or Roth IRAs, butthose are not the things you
(33:58):
need to know to open theaccount.
You do not need to know the RothIRA income limit to be able to
contribute.
To open the account, I'mstressing that here because I
just want you to get an accountopen.
That is the hardest first step,and then the next step is to get
money into it.
But if you're wonderingtraditional or Roth, which one
do I start in?
(34:19):
When in doubt, choose Roth.
If you're a high earner, like Isaid, take some extra care to
learn that contribution incomelimit situation there, but it's
unlikely if you're in your firstjob.
Or if you're not making a ton ofmoney, it's unlikely that you're
gonna have enough to worry aboutthat, but it's still worth
checking because you need toknow your whole situation
because I do not.
So I don't wanna put you in asituation where you're not
(34:41):
supposed to be contributing,because that's gonna cost some
big headaches.
So that's why I'm putting apretty lengthy disclaimer here,
is make sure to do some of yourown research around this stuff.
But when in doubt, choose Roth.
The Roth account is gonna getrid of the evil, scary tax man,
and it's gonna make your lifeeasier and easier further down
the road, not having to worryabout taxes.
What a dream.
(35:02):
Sign me up.
And that's why I have Roth IRAsis because I don't wanna worry
about taxes.
Imagine having your entire networth in a Roth account.
You've already paid taxes on it,and the IRS is not owed a single
dime of what is in that account.
So when in doubt, choose Roth.
The Roth is held up in somepretty high regards, and it's
(35:25):
for good reason.
Make sure to remember, chooseRoth if you have an option.
It's a great option to go with.
But I wanna talk a little bithere as we round out the money
talking points with the thirdone, what should you invest in
within your 401k?
So here's something you may notknow.
Once money is in your 401k, youhave to actually invest it.
It may be sitting there in cash,which is terrifying to think of.
(35:48):
If your 401k is sitting there incash, or you don't know if it's
invested, you need to go checkit yesterday.
Like right now, you need to gocheck what your 401k is actually
invested in.
Hopefully if you didn't chooseanything, you at least got put
into a target date fund.
One of my previous employers,their 401k just went into cash,
and I am sure there are peoplein that account with quite a bit
(36:10):
of money in their 401khopefully, but it isn't invested
in anything but cash, which doesthem no good other than to lock
up taxes and to lock up thatmoney in that account until
retirement age.
How much does that suck?
Like not only are you committedto this tax burden way down the
road if you're in a traditional401k, but also your money's not
even growing for you and it'slocked up till you hit a certain
(36:33):
age threshold.
So make sure it is actuallyinvested.
But let's get back into whatshould you invest in within your
401k.
Well, you're gonna wanna makesure you're in broad based
mutual funds and you can use amutual fund here because you
don't have to worry about taxesat the time of those capital
gain distributions.
You only have to worry abouttaxes when the funds are
actually withdrawn, and it makesit so much easier.
(36:54):
Like I said in the beginning,make sure your 401k is actually
invested.
And that can be a big deal.
So make sure you're invested ina broad based mutual fund,
whether it's an s and p 500 or aTotal World, or a thousand
biggest companies.
There's a lot of differentoptions in there.
A target date fund can be a goodapproach if you don't want to
bother with it, but you can do awhole lot better than a target
(37:15):
date fund.
But that's if you wanna learnmore about it.
But if you don't stick with thetarget date fund.
But just a reminder here, thesimple path to wealth of a total
market index fund would do greatin your 401k.
Notice how all of these totalmarket or broad-based index
funds do great across all thedifferent account types.
That's because you should avoidinvesting in individual stocks
(37:39):
unless you really know whatyou're doing and you like
potentially gambling like that.
And gambling is not a word Ithrow around lightly when it
comes to investing because Idon't believe investing is
gambling.
I don't now single stock pickingand options trading and stuff
like that can wade into gamblingterritory.
(37:59):
It can wade into the hope.
That a stock goes up or the hopethat your Bitcoin goes up.
That sort of stuff can belikened to gambling.
But these broad based index fundtotal market type funds are not
gambling.
They're investing in the economyand investing in the companies
of the world or the UnitedStates and knowing that they
(38:20):
together collectively, are gonnawant to see the economy and the
financial situation of thosecompanies.
Go up, but I really hope thosethree money talking points will
help you figure out how to startinvesting in a taxable investing
account in IRA and A 401k.
But that does it for the moneytalking points today.
So we're heading towards the endof this episode.
Let's wrap it up and as we wrapup here today, my main question
(38:43):
for you is what are you going todo now?
Are you going to open a taxablebrokerage account, an IRA or a
401k?
Let me know by texting me usingthe link in the top of the show
notes.
And I think this episode wasfantastic.
And thanks again to Patrick forcoming on the show.
I.
Here are a few key ideas thatreally stood out to me, and they
go beyond just taxes.
First.
Yes, tax efficiency matters.
(39:05):
It is not about obsessing overfuture tax rates or memorizing
the tax code.
Please don't try to memorize thetax code.
That sounds miserable.
It's probably a form of torture,but it's about being
intentional, thinking ahead andusing tools like Roth accounts,
HSAs, and even taxable investingaccounts in smart ways.
So that you can keep more ofwhat you earn, what's the bigger
message?
Control what you can control.
(39:27):
Control what you can now,including your habits, your
contributions, and your mindset.
Building wealth isn't aboutchasing the hottest investment.
It's about creating consistentbehaviors that compound over
time, whether it's putting$200into a Roth every single month,
keeping track of your medicalreceipts for an HSA.
Or automating good decisions.
It all adds up and maybe themost important takeaway today.
(39:51):
Is that it is not all aboutperfection, it's about progress.
So start now and start small andbuild your foundation and build
your knowledge because it's notwhat you make, it's what you
keep and it's what you build.
And it's that plan that youcreate and you learn as you go
along.
That creates financial freedomfor you down the road.
You're not gonna learn it all atonce.
(40:12):
So make sure you take smalllittle steps like today.
Take one small little step to goopen a taxable investing account
and put a hundred dollars inthere.
Invest it in a simple s and p500 fund, like VOO or any one of
those sort of funds, and justget started and then learn the
next step.
Learn how to set up an automatictransfer after that, and then
(40:32):
set a reminder for a year tolook into capital gain
harvesting or tax lossharvesting to see if that's
applicable for you.
But just take it one small stepat a time.
Thank you for listening totoday's episode.
The best way to stay up to dateand connected with All Things
Money Talk is to subscribe tothe podcast and sign up for my
email list.
Head over to the website Moneytalk.show and submit your name
(40:54):
and email right there on thehomepage.
You can also use the contactpage on my website to send me
any questions if you're lookingto get started budgeting.
I have partnered with my Budgetcoach, a platform that connects
your budget.
Directly with your financialcoach, and I'd love to work with
you over there and help you withyour budgeting.
The link is in the show notes.
Remember, the best way to learnfrom today's episode is to go
and have a money talk abouttoday's topic with a fellow
(41:16):
money buddy.
Thank you for listening to thisweek's episode of Money Talk.
I'm your host, Skylar Fleming.
Have a great week.
Welcome Money Buddies to this week's episode of Money
(00:02):
Talk.
This week we're talking aboutinvesting and saving on taxes.
I'm your host, Skylar Fleming,and let's get talking.
What is Roth traditional taxablebrokerage?
(00:25):
What are all these differentterms that get thrown around?
This is one of my biggest petpeeves when it comes to personal
finance.
Why in the world is it called aRoth 401k and not something
simple like an after-taxretirement account?
Or something even simpler thanthat, and I know it's named
after the person who created theRoth structure and 401k is the
(00:48):
tax code that it's in.
But why do you need to knowthat?
Why isn't it just namedsomething simple that helps you
understand what it is?
Why does it have to be soconfusing?
Well, I don't really know, and Imay never be able to answer that
or get it changed right away forall of us.
But I do have a fellow moneybuddy today.
Who is here to help us break itdown and help us figure out what
(01:10):
these different options are andwhen they are useful.
Because if you're anything likeme or anyone else, you're
looking at your work's, 401k ormaybe even an IRA and wondering
what option do I choose?
Do I go Roth or traditional?
Because it can all be confusing.
But don't forget about thesneaky good taxable brokerage
account, which we're gonna talkabout today.
(01:30):
But that's another confusingname if you don't know what a
brokerage is.
Anytime I tell somebody, go openup a taxable brokerage account,
they're like, what in the worldis that?
What kind of scam are you tryingto get me into with a word like
brokerage?
It just sounds fancy, confusing,and unnecessary.
Basically, it's just aninvesting checking account.
That's what we could call it, aninvesting savings account,
(01:52):
something like that that allowsyou access to the stock market,
but we're gonna break it alldown today.
I'm really excited for thisinterview.
I think it's gonna be afantastic one that you're all
gonna love.
So let's get to introducingtoday's money, buddy, the Money
Talking points, and get intotoday's conversation.
Today's Money Buddy is PatrickHuey.
Patrick is a small businessowner, author, and host of
History Lessons for the ModernInvestor.
(02:14):
It's a podcast that you shouldprobably go check out after you
listen to this one.
He leads Victory IndependentPlanning, LLC, helping families
and nonprofits with investmentand financial strategies.
Under the motto Live Well and DoGood.
A former Naval Flight OfficerPatrick is a certified financial
planner professional.
With degrees in history andbusiness, and he is active in
(02:34):
philanthropy, sports, and thearts.
The money talking points forthis week are how can you use a
taxable brokerage account, whichI'm excited to tell you some
tips and tricks of my owntrading in that account.
The second money talking pointis how do you open an IRA?
And the third one is, whatshould you invest in within your
401k?
(02:55):
With those many talking pointsin mind, let's get talking and
welcome Patrick to the show.
Patrick Huey (02:59):
thanks.
I appreciate it.
I, I often think that, when westart talking about taxes, I
feel like a dentist, where it'ssomething people really wanna
avoid as much as they can.
They don't want to talk aboutit, they don't want to go to the
dentist, but A little bit of,brushing your teeth every now
and again.
Keeps it from being a miserableexperience.
So, that's the way I like tolook at taxes, a little bit of
(03:21):
planning, a little bit offorethought, and you can,
hopefully avoid some nastysurprises.
Skyler (03:26):
Yeah.
We can, liken it to the normalflossing, whether you floss or
not, if you don't floss, there'sgonna be a little bit of blood
when we start talking aboutthis.
So.
Patrick Huey (03:33):
Exactly.
So let's try to avoid that,shall we?
Skyler (03:36):
we'll avoid the blood.
You can think about this alittle bit ahead of time and
make it a whole lot easier, butlet's just dive right into it
why do people need to bethinking about taxes when it
comes to investing?
Patrick Huey (03:46):
I think that, in general it just makes sense that
it's not what you make, it'swhat you keep.
Right.
So you really need to thinkabout the end game, from an
investment perspective, which iskeeping the most, not just
making the most.
as things get more complex,taxes, play a bigger role in
(04:08):
your overall financial life.
starting early and understandingthat taxes make a difference,
across the board with yourinvestments, whether it's in an
IRA, a Roth, or a non-retirementaccount, it makes a difference.
Skyler (04:22):
Yeah, there's a lot of opportunity there that I think
people often overlook when youstart thinking about it and it
can be overwhelming.
So don't try to consume theentire tax code all at once or
else you're gonna just drainyourself.
Maybe start with Recently in atrailer that I put together for
the show, I mentioned that ifyou're a young adult right now,
your financial situationprobably doesn't seem too
complicated.
You're like, oh, how hard canthis be?
(04:43):
But you give it five, 10 years,you're gonna end up in a
situation where you're like,what do I do with this money
that I'm earning?
People aren't sure what to evendo, but then you start getting
hit by taxes, higher tax ratesthat you're not used to, and
there's just.
A whole lot of opportunity thatI don't think people understand
or they miss out on.
But let's start out with one ofthe pieces of that opportunity,
and that's the traditionalaccount.
What does traditional mean fortaxes?
Patrick Huey (05:05):
So basically a traditional account, at its
simplest level is you'recontributing pre-tax dollars.
So you get the opportunity tocontribute money and not pay tax
on what you put in there today.
but the caveat is you're takingon a partner in that investment
(05:25):
and that partner is thegovernment.
Um, so when you go to withdrawthose funds, you will be taxed
on the withdrawals, as income.
I tell people this, in seminarsthat I give, if you were going
to create a partnership and takeon a partner.
And that partner looked at youand said, I'm gonna take a
piece, but you are not gonnaknow what it is You would tell
(05:48):
them to pound sand.
there's no one who would eversign up for that type of
partnership, and yet we all signup for that partnership when we
put money in a traditional IRAor a traditional 401k.
Skyler (06:01):
Yeah, that's a great way to look at it, that you're
making a partnership with thegovernment where they're saying
at some future tax rate that youhave no way of predicting, we're
not going to give you some sortof a table of 30 year tax rates
on traditional accounts only,which would be super useful that
the math would completely changeif we actually knew that
information, but.
That partnership is so unknownthat you painted a good picture
(06:21):
of maybe why we should avoidtraditional a little bit.
There's some unknown in thatelement, but can it be useful
for people?
Patrick Huey (06:27):
Sure it can.
I mean, obviously it's going toreduce current taxes.
so if you're in a higher taxbracket now and expect to be in
a lower one later, thetraditional makes a lot of
sense.
But what we've found.
Is, after a generation offinancial planning where we
assumed that people would be inlower tax brackets when they
(06:48):
retired, a lot of times it's notplaying out that way.
there are some structuralreasons why, but we also have to
look at the future and say.
Our tax rates gonna remain aslow as they are now into the
future.
I think that all of that iscompletely unknown and
unknowable at this point.
some of this is just.
(07:08):
making sure that you are doingthe things that you can do, that
you're controlling the thingsyou can control now.
Do traditional counts, stillhave a place?
I believe they do.
I have them myself, so, it'sjust one of those things where
you have to realize what you'regetting into before you do it.
Skyler (07:25):
I love what you said there about control, what you
can control, and to that meanscontrol, your contribution rate,
actually making sure you'reputting money in the account.
these accounts don't do you anygood if you're not putting any
money in them.
Like if you have thattraditional 401k, but nothing is
going in there, you're notgetting the employer match or
anything like that.
Who cares about whatever the taxsavings are?
So that's kind of the first stepthat you gotta get started with.
Patrick Huey (07:46):
I've, been kicking around an idea for a book for
years now called, stoicism forthe Modern Investor because that
control what you can control,idea comes from stoic
philosophy.
Skyler (07:57):
Well, it's a great one because when we start trying to
speculate tax rates, we miss themark, frankly, on what we can
actually be doing now.
it is not worth our time tospeculate.
Oh, tax rates will probably goup if this president gets
elected or this one go doesn't,or
Patrick Huey (08:10):
We did a lot of that over the last four to eight
years.
A
Skyler (08:14):
People are doing it right now.
Patrick Huey (08:15):
Yep, absolutely.
and I agree.
it's really tough to know.
we're almost, six months,halfway through the year at this
point, and we still don't knowwhat the tax rates are gonna be
in 2026.
it's kind of crazy, but we.
Shouldn't be surprised.
I know we'll probably get intothis later, but it does funnel
(08:37):
into the idea of convertingmoney from, traditional to what
is called a Roth IRA.
there are some studies out nowthat suggest people who are
doing that.
Are not controlling what theycan control because they're
guessing at future tax rates.
And what the studies are showingis that, for higher income
(08:58):
earners, it may still make senseto do Roth IRA conversions.
but for your average taxpayer,the benefits may be very
minimal.
So something we'll keep an eyeon as tax law changes and these
studies are updated.
Skyler (09:11):
Yeah.
you mentioned a word that acouple new listeners might be
saying, Roth, what does thatmean?
And to the investingprofessionals or some finance
professionals?
Roth is held as like this holygrail.
Of investing, but what does Rothmean?
Patrick Huey (09:24):
So Roth, it's a proper name.
it was someone's name whoproposed these type accounts,
back in the late seventies orearly eighties.
And, the Roth really is the holygrail from tax planning
perspective because
Skyler (09:38):
It eliminates that partner.
Patrick Huey (09:39):
it eliminates the partnership.
You don't have the government,sitting, watching over your
shoulder waiting for you to takea distribution.
Skyler (09:46):
Or forcing you
Patrick Huey (09:47):
They're forcing you to.
Exactly, exactly.
So it's a much more flexibleinstrument.
Obviously there are drawbacks.
You have to pay tax on whateveryou put into it now, so it's not
gonna save you any money today.
but in the future it mostcertainly will.
when it comes time to take thosedistributions because you're
getting tax-free growth andtax-free distributions from a
(10:10):
Roth.
it really is, a win-win.
And I tell my younger clients.
the younger you are, the sooneryou start as an investor, the
more the Roth makes sense.
You might do other things lateron, but when you're just getting
started, a Roth makes a ton ofsense.
Skyler (10:27):
If you don't have a Roth IRA open and you're under 24,
what are you doing?
There's so much opportunitypeople will hear, well, I can't
max it out.
It's like, who cares?
money in there.
Because,
Patrick Huey (10:37):
actually got accounts that the grandparents
started for their grandchildren.
For that reason, they knew thekids didn't have, the money to
get it started, but they wantedthem to get off on the right
foot.
So kind of cool.
Yeah.
Grandma.
Yeah, grandpa.
Skyler (10:50):
Yeah.
Well, the cool thing is thecompounding interest that works
on that.
If you throw money into achild's account when they're
zero or they are fresh, and justget a social security number so
you can open it for'em.
They only need like, I don'tknow the exact number, but it's
like a thousand dollars or$2,000to become a millionaire by the
time they're 65.
the amount of time that has todouble and grow and compound is
(11:12):
mind blowing because no onethinks about an investing
timeline as 65 years.
They think about it and maybeyou got 20, 30, 40 years, but if
you add a couple more doublingsto that, it's just insane.
What can happen and all of thatbeing tax free is a big deal.
Patrick Huey (11:26):
Yeah, it is.
you start to bump up against,investor psychology there,
right?
human beings have a very hardtime.
projecting their lives, whatthey'll be like in 30 or 40
years.
it's something financialplanners deal with every day,
trying to get people to lookinto the future and realize that
your future self is not gonnalook like your current self.
trying to get younger people tounderstand that you are really
(11:50):
passing up on an incrediblebenefit, that could make a
difference in your life whenyou're 65 years old.
It's really difficult to do.
Skyler (11:58):
Yeah, it is.
that's definitely one of thehardest things.
It's hard for our mind to fullycomprehend what compound
interest.
Actually looks like it's easyonce you start seeing it working
and you're like, wow, thatactually did work.
But it's so hard for me to say athousand or$2,000 can become a
million dollars.
that's just mind blowing andhard to wrap our heads around,
Patrick Huey (12:16):
if you can get them to think about current.
Problems versus future problemsI just like to talk about money
anxiety, right?
Like, if you put money in aRoth, you're getting rid of tax
anxiety for the future, right?
so so why not give yourself thebenefit of a good night's sleep
now and in the future, with thattool.
Skyler (12:39):
Yeah.
it's almost like you can takemaybe that people probably just
finished filing their taxes andyou can look at that number and
say, wow, I owed taxes.
But if you think about it in 10,15 years, when you're using that
Roth IRA, that number's gone.
take that anxiety that you'refeeling now and apply it to the
future.
So I like that.
That's a fantastic way to put
Patrick Huey (12:56):
You're also training yourself in good
habits.
I've got, a client, I work withhis son.
I've been working with his sonfor years.
his son went from, putting moneyinto a Roth when he had no
money, to now being, well abovemy average, client size.
and it happened pretty fast.
but he's got those good habitsingrained to where even though
(13:18):
he's now making, a really,really impressive salary, he
still puts money into Rothbecause he knows the value going
forward.
He's created those good habits.
Yeah.
Do we do some additional stufftax wise?
Sure.
But he still wants to be puttingmoney in his Roth 401k because
he knows what it's gonna do forhim in the future.
Skyler (13:37):
Yeah, and it just takes that headache away of the taxes.
Like, why would anybody not dothis?
Is there ever a situation wherewe're pumping up the Roth?
Is this kind of master plan, isthere any reason why someone
maybe shouldn't?
Patrick Huey (13:49):
there are a variety of them.
number one being, trying toreduce current taxes.
high earners certainly want toat least look at that.
the other is there are caps onincome.
you can only make so much moneyand still contribute to a Roth,
particularly an ira.
4 0 1 Ks are, are much moreflexible if, if your company
offers a 401k option, with aRoth.
(14:10):
so those are the two that jumpto mind.
there are.
Time periods where you will notbe able to use a Roth typically
higher earners.
Paying more taxes is usually asign that you're making more
money.
Skyler (14:20):
Yeah, it's not something to be scared of.
if you aren't able to contributeto a Roth, it usually means
you're making good money, whichis an okay problem to
Patrick Huey (14:26):
Yep.
Skyler (14:27):
but it's it's typically something that everyone should
be doing.
We talked about getting thosebehaviors going.
If you're 20 or 22, that gettingconsistent,$200 automatic
payment into your Roth.
Is a way bigger deal in terms ofyour behavior than it is the
actual money going into theaccount because then you have
that as a staple in your mindsetand you never deviate from it
(14:47):
because it's just easy andautomatic at that point.
Patrick Huey (14:49):
It is the exact way I got my start, 200 bucks a
month into, a Roth IRA When Iwas a junior lieutenant in the
Navy, we didn't have theretirement plans back then that
they have now, so you kind ofhad to do it on your own and
that was how I chose to do it.
Skyler (15:03):
Yeah, it sticks with you and you keep it going, but there
is this third option we're gonnatalk about, and that's just a
taxable account.
This means that the money goingin grows and there's taxes on
the gains Taxes, when you sellit on gains and losses stuff
like What is this taxableinvesting account?
Patrick Huey (15:18):
Yeah.
basically I would almost call ita bank account on steroids,
right?
it's got no tax, advantages.
you're just putting money into abrokerage account with an
investment firm, and you'rebuying stocks, bonds, mutual
funds.
and exchange traded funds.
you get some flexibility, butyou just don't get any tax
(15:39):
advantage from it other than,when you take distributions from
it or take money out of it,you're only taxed on the gains,
So yeah, there are definitelysome uses, for taxable accounts.
You can put however much moneyyou want to put in there.
they're great for intermediateand long-term goals, beyond
retirement.
I've had folks, put money intotaxable investment accounts and
(16:04):
save money for a home, becausethey're gonna have access to it.
that's the other thing you canaccess before age 59 and a half,
which retirement accountsyou're, you're kind of stuck in
there until you're almost 60.
it's almost like buying, a lacarte at a restaurant, you don't
get any discounts.
there's no bundling, there'snone of that.
But you get the maximum choiceand control over what you
(16:24):
eventually eat.
Skyler (16:25):
Yeah.
this episode is tax efficientinvesting.
you mentioned the mutual fundright there, and then Why should
we maybe avoid that in a taxableinvesting
Patrick Huey (16:32):
I'm not a fan of them in taxable accounts because
of capital gains.
the story I tell people is, in2008 I remember working with
clients, when the market dove.
Mutual funds had to startselling off their holdings to
meet redemptions.
they had all these gains from2001 to 2008, embedded in the
mutual fund.
(16:53):
investors were getting capitalgain statements on their taxes.
In a mutual fund that wassometimes down 20 or 25%.
Skyler (17:01):
Everything's down and you're paying huge taxes.
Yeah.
Patrick Huey (17:03):
Correct.
That is brutal.
so you can avoid that by usingthings like exchange traded
funds or individual stocks andbonds, which are much more tax
efficient.
Skyler (17:13):
Mm-hmm.
Yeah.
There we go.
That's a awesome quick littlepoint on avoiding mutual funds
in a taxable account.
They can be very useful
Patrick Huey (17:19):
I see it all the time.
the word has not quite gottenout yet.
Skyler (17:25):
Well, yeah, there's a very big name that preaches
mutual funds that at least Ihaven't listened outside of that
in a while.
But you you need to be aware ofhow these things actually work
on a taxable.
Front before you get too into'em.
And that's an awesome placewhere a professional like you or
people who are in this space canspeak to it like, Hey, what kind
of asset type should I choose?
And you can speak to it a littlebit of saying, Hey, these are
(17:46):
just a word of caution thatmutual funds aren't great in a
taxable account, but there is abenefit.
You mentioned long-term capitalgains.
You mentioned these, capitalgains that you're only paying
taxes on.
I honestly think this could beone of the benefits of it.
There is some tax.
I guess optimization you can doon this front.
What are long term or short termcapital gains
Patrick Huey (18:07):
so basically, to boil it down to its simplest
level, it's a holding period.
if you hold something for morethan a year, it's gonna be a
long-term game.
If you're turning things over inthe short term, it's a short
term game.
And, long-term capital gains aremuch preferable, too Short term.
Short term is gonna basically betaxed at your income tax rate.
Whereas long-term gains aregonna be taxed typically at
(18:31):
either 15% or if you're in a lowenough tax bracket.
Zero.
Skyler (18:36):
Mm-hmm.
And that's the magic
Patrick Huey (18:38):
that's the magic number.
Absolutely.
Skyler (18:41):
My wife and I did this recently, and I want to get your
take on it as well, but thislast year, my wife was just
starting her job out of hermaster's program.
our salary is starting toincrease this year.
But last year we noticed a bunchof gains in our taxable account
towards the end of the year.
So we did what I've heard calledcapital gains harvesting, which
is that 0% where we were in acertain tax bracket, I think I
sold everything that was along-term gain and then just
(19:03):
repurchased it as the same valueto bring our cost basis up.
What is that 0% rate and why canit be so, optimistic and
optimized for people?
Patrick Huey (19:12):
Yeah, I mean, zero is good.
from a tax perspective, and wetalk a lot about tax loss
harvesting, especially, in mybusiness, you are selling
something to offset a gain inyour portfolio You're selling
something at a gain.
Because you're not gonna pay anytax on it, and then you can
reset the cost basis.
Basically, you buy it again at ahigher level so you have more of
(19:35):
a chance to not pay tax on it inthe future great strategy, quite
frankly, and, I love those typesof strategies where you're
looking at.
Your levels inside the tax codeand figuring out what you can
get away with, you know,sometimes it's topping off your
tax bracket.
if I've got somebody in the 12%bracket, which I do in
(19:55):
retirement, it happens quitefrequently.
my clients don't liveextravagantly.
if I've got some room still leftin the 12%.
Bracket, you know, I might do aRoth conversion
Skyler (20:06):
mm-hmm.
Patrick Huey (20:07):
because you know, they're gonna pay a very low,
low rate on that and get all thebenefits
Skyler (20:12):
Use the gap.
Patrick Huey (20:13):
going forward.
I love those strategies whereyou're topping off your tax
bracket and figuring out, whatyou, are entitled to within it.
Skyler (20:19):
Yeah, you find that gap and you fill it and if you can
go right up to it, that'd beawesome because then you're
maxing out that 0% if you'reusing that capital gain
strategy.
And who doesn't love tax free?
We call it a taxable investingaccount, but there is that one
potential.
Opportunity.
And even then when you get overthe 0%, I think it goes to 15%
next, which can still be lowerthan your ordinary income rate.
there's still a whole lot ofopportunity in an account that
(20:42):
you call taxable, but there'sstill a little bit of tax
efficiency to it if you hold itfor over a year.
don't completely count it outjust
Patrick Huey (20:49):
I will tell you a story about 2024.
you know, coming out of the, themarket downturn in 22, we had
two really good years, of growthin, in, in accounts and, in.
Early 24, we took some capitalgains distributions because we
had to, take some of that stockmarket risk off the books for
(21:10):
clients we booked some gains andhoped that, over the year we'd
be able to.
work those down.
it never happened.
it's not a perfect game.
you are gonna have years whereyou pay capital gains, and you
can get stuck with some capitalgains payments, but it's still
better than paying income taxrates.
it all goes back to the threetypes of accounts We love to
(21:31):
talk about asset allocation,where you put your money and the
division between stocks andbonds.
What we're talking about todayis asset location, what type of
account is best for your mutualfunds?
we've just said it's not ataxable account.
hold that in your 401k where youdon't really have a choice.
asset location makes a Bigdifference when you get into
(21:52):
retirement and you've got, youknow, some different buckets to
draw on.
'cause you can really manageyour tax bracket that way.
Skyler (21:58):
Yeah.
And when it's all your money,and you can sit there and pick
where to pull it from or doconversions like you mentioned,
or take long-term capital gains.
There's a lot of fun games thatcan be played with taxes when
you set yourself up early withthese different buckets, so
that's fantastic.
talk about one more potentialbucket that is kind of this
living in the background.
I think this is the holy grailof tax efficient investing and
it's the HSA.
(22:19):
What is the HSA?
How's it slightly different?
Patrick Huey (22:21):
So the Health savings account, or HSA, as its
name suggests, is Intended to beused, for health savings.
it's one of those, tax freebuckets that if you use it for
medical care, it's going to,grow and distribute without tax
phenomenal tool.
even if you're just using it forhealthcare.
(22:43):
I recommend to my clients ifthey have the means.
That they contribute as much asthey can into an HSA and don't
use it.
Don't pay your doctor bills outof your HSA if you can afford to
do it from your taxableaccounts.
Why?
because this thing's gonna growtax deferred if you don't mess
(23:05):
with it.
the power of compounding that,that you talked about, I.
if you're just looking from afinancial planning perspective,
average person's gonna spend$120,000 on out of pocket
healthcare costs in retirement.
So having that HSA growing foryou, can be a huge factor.
once you get into retirement,the other hitch is if you don't
(23:26):
spend it by age 65, it basicallyturns into an IRA.
So you have the ability to takemoney out of it.
you pay tax if it's not formedical costs.
But you do get some flexibilitylater on in retirement.
So yeah, it, it's a fantastictool.
I don't think most people reallythink it through.
I think they use it like it's, a
Skyler (23:46):
A health spending account.
Patrick Huey (23:47):
Exactly.
Exactly.
Skyler (23:49):
And there's still some benefit to that, but not the
maximum.
Patrick Huey (23:53):
absolutely.
if you need that benefit now.
use it as you see fit, but ifyou can meet your medical
expenses, and we're just talkingabout copays and, stuff like
that for working people who havehealth insurance, think about
trying to, not touch the HSA,
Skyler (24:11):
Mm-hmm.
Yeah.
My wife and I do that.
I have a spreadsheet where Ikeep track of all of it.
We keep track of, I call it ourunreimbursed expenses.
And'cause like you mentioned,you can reimburse yourself at
any time for these amounts soyour investments can grow and
grow and grow.
And then we had a coupleprocedures a year or two ago
where we had let this accountgrow for a few years and we were
able to, we needed some of thatmoney back.
(24:33):
Our cash flow isn't superperfect to be able to float how
this expense was growing and wewere able to withdraw from that.
HSA solely from the gains.
it's like we never really paidfor it.
The economy or the market, Thegains paid for our medical
expenses, and that's a massivebenefit.
It was all tax free.
The money went in, pre-tax cameout tax free, The tax was
completely avoided.
So if you really wanna removethe business partner, an HSA is
(24:57):
a perfect way to do that.
'cause you can go tax free frombeginning to end for medical
expenses.
Patrick Huey (25:01):
Yep.
I agree.
It's, a very flexible, veryunderused tool.
and you made a good point, whichis, a lot of HSAs offer both a
cash and an investment option.
Make sure that you aremaximizing that investment
option, especially if you'retrying to save this for the long
term, if you're using it forcurrent medical, you know, have
(25:21):
some cash as well.
But, you really want to maximizethis asset for the future.
Skyler (25:27):
Yeah.
And there are so many HSAs outthere that just charge bogus
fees.
I like fidelity.
I know there's a couple otherones that are good.
Low fee.
Like no fee options, but if yourworks, HSAI only contribute to
my works HSA enough to get theemployer match that they do into
the
Patrick Huey (25:42):
Mm-hmm.
Skyler (25:43):
and then I do it the rest in the fidelity and things
like that.
There's a lot of opportunity.
I think people think the healthsavings account is this locked
down crazy account that onlycertain people can access.
Sure.
There are some requirements, butit does have a lot of
flexibility, like you said.
Patrick Huey (25:56):
It does, and you can roll it over just like, with
a work account.
With a work IRA or work 401k,you've got the opportunity to
roll over and consolidate, asyour career changes.
So yeah, incredible, flexible.
Skyler (26:08):
Yeah, let's wrap up here with maybe is there a couple
other things that come to yourmind?
Any other tax opportunities thatwe haven't touched on that
people need to be aware of whileinvesting?
Patrick Huey (26:16):
Ooh.
Um, you know, I would more lookat the big picture.
I'm a big picture guy.
I would.
Tell people to step back and saythere's two kinds of taxation,
right?
There's two kinds of taxplanning.
There's actual tax planningwhere you're looking into the
(26:39):
future and trying to figure itout.
And there's what a lot of peoplecall tax planning, which is
actually tax filing.
Skyler (26:44):
Yeah.
Patrick Huey (26:45):
Um, I'm a big proponent of tax planning.
tax filers kind of make me madsometimes, because they're
really not providing you with awhole lot upfront and you end up
paying for.
Virtually nothing.
Skyler (26:57):
For paperwork, yeah.
Patrick Huey (26:58):
E exactly.
as taxes get more involved,there is certainly work to be
done.
but I highly recommend thatfolks engage in proactive tax
planning.
looking ahead at what theirincome is gonna be, finding
those gaps in the tax bracketswhere they can potentially take
advantage of them.
because it does make a hugedifference once you get to
(27:19):
retirement planning.
Skyler (27:21):
Yeah, that's a fantastic place to look.
Make sure you're thinking abouttaxes before it's April 15th of
next year.
start thinking about it now.
Your salary, if you're workingsalary, it's probably gonna be
pretty consistent through theyear, and you can begin to plan
Say, oh, I know I'm gonna comein a good amount under that 0%
capital gains bracket.
Maybe I can start to use some ofthat now to supplement some
income for a larger expensecoming up.
(27:42):
There's a lot of opportunity ifyou think ahead, so that's a
fantastic place to leave it.
I got two final questions towrap us up here.
First one's gonna be how canpeople connect with you?
And then the second one what'sone thing you wish you would've
known sooner when it comes totaxes and investing?
But first, how can people findyou online?
Patrick Huey (27:56):
Sure online, uh, my company is victory
independent planning.com.
they can go to the website.
I'm on LinkedIn.
I do a lot of, posting onLinkedIn as well.
you can find me there.
It's Patrick Huey,H-U-E-Y-C-F-P.
they can also find, the podcast,History Lessons for the Modern
Investor.
That's, available everywhere youget podcasts, as well as the,
(28:19):
video feed on
Skyler (28:20):
Awesome.
What's one thing you wish youwould've known sooner about
taxes with investing?
Patrick Huey (28:24):
this is kind of a no-brainer.
but, I used to think, and Ithink a lot of people, are
similar that, investing was justabout picking the hottest stock
or mutual fund The silentfactor, the silent killer, the
silent partner that sits withyou.
that's what separates an amateurfrom a pro.
So learning to optimize, youknow, taxes for clients.
(28:45):
That's the difference between,you know, climbing a mountain or
running on a treadmill.
are you staying in one place or,actually making progress?
it's not what you make, it'swhat you keep.
And that, to me is all thedifference in the world.
Skyler (28:59):
Fantastic.
There's the quote of the episodeto leave it on.
It's not what you make, it'swhat you keep.
Patrick, thank you so much forjoining me.
Patrick Huey (29:04):
Thank you.
It's a pleasure.
Skyler (29:15):
Thank you so much to Patrick for coming on the show.
I know that was a fantasticinterview.
I sure enjoyed it and I hope allof you did as well.
But let's get into the moneytalking points today.
How can you start a taxableinvesting account?
And I didn't want to call it ataxable brokerage account,
though you may hear those termsused interchangeably.
I'm just gonna call it a taxableinvesting account, and basically
(29:37):
it is an investing account thatyou are taxed along the way, or
like we talked about in theinterview, a traditional or a
Roth.
Depends on whether you're taxedat the beginning or after you
pull the money out.
It all depends when you'retaxed, but this taxable
investing account means you'retaxed throughout the entire
thing.
Your tax, whenever you sell andthere's a gain or a loss, your
tax, whenever there's dividends,anything like that you are taxed
(29:59):
on.
Well, it's really simple to getstarted with it.
You just simply start addingmoney.
Of course, you have to go openone at somebody like Fidelity,
but it's simple to start usingit.
Just start adding money.
Like Patrick said, it's achecking account or a savings
account on steroids.
And I would recommend stickingto a broad based ETF index fund
approach.
I have had an episode beforecalled Simple Investing.
(30:21):
Go back and listen to this one.
If you wanna know a little bitmore detail about simply
investing and keeping it simpleso that you can get started
today with actually investingsome money into the market.
Like we talked about in theepisode, avoid mutual funds in
your taxable account.
Those will just end up creatinga tax headache or tax migraine,
or the worst kind of headacheyou can imagine down the road,
(30:42):
just stick to ETFs, which standfor exchange traded funds, but
you can even start simpler andstart with an s and p 500.
ETF keep it very simple.
With something like VOO, that'sthe ticker symbol that you can
type in.
Think of it like a barcode orthat fancy serial number or
whatever they're called, thatthe store associate can type
into the register if thebarcode's not working.
(31:04):
VOO is that sort of barcode.
It's called a ticker symbol, andit's what you can look up to
look how the stock's doing orthe index fund is doing, but
simply put it into an s and p500 ETF.
And let it grow over time.
Give it a long time.
And then here comes the funpart.
Once it begins to grow, you'regonna have some gains in the
account.
Now you can take the next stepto learn about harvesting those
(31:26):
gains, or if it loses money, youcan learn how to optimize those
losses.
There are some fun things youcan do, but that is not what is
key to getting started.
You get started by simply addingmoney to an index-based ETF and
let it grow over time.
Here's the key thing.
Learn one step at a time.
You don't have to learn all ofthis before you even add money
(31:48):
to a taxable investing account.
I have not done any selling inmy taxable investing account
until about six months ago whenwe had a ton of gains that we
needed to harvest, and you heardus talk about it in the
interview where if there's abuffer between your current
income and that 0% capital gainsrate bracket.
You can take out some of thatgains at a 0% tax bracket and
(32:10):
not pay any taxes on it.
How phenomenal is that?
But that is so overwhelming.
If you are just adding money tothe account right now and it
goes up a dollar and you'relike, oh no.
Now I have to learn everythingabout this account.
Don't worry about that.
You do not have to learn thisall at once.
It's overwhelming to startthinking about that.
I started this podcast nearlyfour years ago, and I have
(32:32):
learned so much in that time.
It is insane.
So don't try to take my fouryears of knowledge and condense
it down into four hours or fourweeks, or even four months.
Make sure you're taking time tolearn all of this if you want
to.
If you don't, there'sprofessionals out there that'll
help you.
There's other people you can askquestions to.
There's a lot of people outthere willing to help you.
(32:52):
It would've been impossible forme to learn all that I know now
in a short time in order tomaximize my financial picture
right away.
So if you want to get startedwith investing, keep it simple
with a regular taxable brokerageaccount, and it doesn't have to
be so complicated, but let's getinto the second money talking
point here.
How do you open an IRA?
Well, an IRA stands for anindividual retirement account.
(33:15):
This means it's a retirementaccount that is just for an
individual.
There's no joints, there's nosort of anything like that.
It's just in your name.
But this is just as easy asopening a taxable account head
over to any of the majorinvesting companies like
Fidelity or Vanguard.
And I would recommend stickingto one of those two.
And I personally really likeFidelity.
Their website and everything isgreat.
(33:36):
Their customer service hasalways been good.
All my stuff is with Fidelity,and I've never had an issue.
So take that with what you will,and I would recommend them.
If you want to go start an IRAthere, I think it's a great
place to get started.
Now, there are contributionlimits for IRAs that you need to
be aware of, and there's acouple other things that you'll
need to know if you're a highearner when it comes to
traditional or Roth IRAs, butthose are not the things you
(33:58):
need to know to open theaccount.
You do not need to know the RothIRA income limit to be able to
contribute.
To open the account, I'mstressing that here because I
just want you to get an accountopen.
That is the hardest first step,and then the next step is to get
money into it.
But if you're wonderingtraditional or Roth, which one
do I start in?
(34:19):
When in doubt, choose Roth.
If you're a high earner, like Isaid, take some extra care to
learn that contribution incomelimit situation there, but it's
unlikely if you're in your firstjob.
Or if you're not making a ton ofmoney, it's unlikely that you're
gonna have enough to worry aboutthat, but it's still worth
checking because you need toknow your whole situation
because I do not.
So I don't wanna put you in asituation where you're not
(34:41):
supposed to be contributing,because that's gonna cost some
big headaches.
So that's why I'm putting apretty lengthy disclaimer here,
is make sure to do some of yourown research around this stuff.
But when in doubt, choose Roth.
The Roth account is gonna getrid of the evil, scary tax man,
and it's gonna make your lifeeasier and easier further down
the road, not having to worryabout taxes.
What a dream.
(35:02):
Sign me up.
And that's why I have Roth IRAsis because I don't wanna worry
about taxes.
Imagine having your entire networth in a Roth account.
You've already paid taxes on it,and the IRS is not owed a single
dime of what is in that account.
So when in doubt, choose Roth.
The Roth is held up in somepretty high regards, and it's
(35:25):
for good reason.
Make sure to remember, chooseRoth if you have an option.
It's a great option to go with.
But I wanna talk a little bithere as we round out the money
talking points with the thirdone, what should you invest in
within your 401k?
So here's something you may notknow.
Once money is in your 401k, youhave to actually invest it.
It may be sitting there in cash,which is terrifying to think of.
(35:48):
If your 401k is sitting there incash, or you don't know if it's
invested, you need to go checkit yesterday.
Like right now, you need to gocheck what your 401k is actually
invested in.
Hopefully if you didn't chooseanything, you at least got put
into a target date fund.
One of my previous employers,their 401k just went into cash,
and I am sure there are peoplein that account with quite a bit
(36:10):
of money in their 401khopefully, but it isn't invested
in anything but cash, which doesthem no good other than to lock
up taxes and to lock up thatmoney in that account until
retirement age.
How much does that suck?
Like not only are you committedto this tax burden way down the
road if you're in a traditional401k, but also your money's not
even growing for you and it'slocked up till you hit a certain
(36:33):
age threshold.
So make sure it is actuallyinvested.
But let's get back into whatshould you invest in within your
401k.
Well, you're gonna wanna makesure you're in broad based
mutual funds and you can use amutual fund here because you
don't have to worry about taxesat the time of those capital
gain distributions.
You only have to worry abouttaxes when the funds are
actually withdrawn, and it makesit so much easier.
(36:54):
Like I said in the beginning,make sure your 401k is actually
invested.
And that can be a big deal.
So make sure you're invested ina broad based mutual fund,
whether it's an s and p 500 or aTotal World, or a thousand
biggest companies.
There's a lot of differentoptions in there.
A target date fund can be a goodapproach if you don't want to
bother with it, but you can do awhole lot better than a target
(37:15):
date fund.
But that's if you wanna learnmore about it.
But if you don't stick with thetarget date fund.
But just a reminder here, thesimple path to wealth of a total
market index fund would do greatin your 401k.
Notice how all of these totalmarket or broad-based index
funds do great across all thedifferent account types.
That's because you should avoidinvesting in individual stocks
(37:39):
unless you really know whatyou're doing and you like
potentially gambling like that.
And gambling is not a word Ithrow around lightly when it
comes to investing because Idon't believe investing is
gambling.
I don't now single stock pickingand options trading and stuff
like that can wade into gamblingterritory.
(37:59):
It can wade into the hope.
That a stock goes up or the hopethat your Bitcoin goes up.
That sort of stuff can belikened to gambling.
But these broad based index fundtotal market type funds are not
gambling.
They're investing in the economyand investing in the companies
of the world or the UnitedStates and knowing that they
(38:20):
together collectively, are gonnawant to see the economy and the
financial situation of thosecompanies.
Go up, but I really hope thosethree money talking points will
help you figure out how to startinvesting in a taxable investing
account in IRA and A 401k.
But that does it for the moneytalking points today.
So we're heading towards the endof this episode.
Let's wrap it up and as we wrapup here today, my main question
(38:43):
for you is what are you going todo now?
Are you going to open a taxablebrokerage account, an IRA or a
401k?
Let me know by texting me usingthe link in the top of the show
notes.
And I think this episode wasfantastic.
And thanks again to Patrick forcoming on the show.
I.
Here are a few key ideas thatreally stood out to me, and they
go beyond just taxes.
First.
Yes, tax efficiency matters.
(39:05):
It is not about obsessing overfuture tax rates or memorizing
the tax code.
Please don't try to memorize thetax code.
That sounds miserable.
It's probably a form of torture,but it's about being
intentional, thinking ahead andusing tools like Roth accounts,
HSAs, and even taxable investingaccounts in smart ways.
So that you can keep more ofwhat you earn, what's the bigger
message?
Control what you can control.
(39:27):
Control what you can now,including your habits, your
contributions, and your mindset.
Building wealth isn't aboutchasing the hottest investment.
It's about creating consistentbehaviors that compound over
time, whether it's putting$200into a Roth every single month,
keeping track of your medicalreceipts for an HSA.
Or automating good decisions.
It all adds up and maybe themost important takeaway today.
(39:51):
Is that it is not all aboutperfection, it's about progress.
So start now and start small andbuild your foundation and build
your knowledge because it's notwhat you make, it's what you
keep and it's what you build.
And it's that plan that youcreate and you learn as you go
along.
That creates financial freedomfor you down the road.
You're not gonna learn it all atonce.
(40:12):
So make sure you take smalllittle steps like today.
Take one small little step to goopen a taxable investing account
and put a hundred dollars inthere.
Invest it in a simple s and p500 fund, like VOO or any one of
those sort of funds, and justget started and then learn the
next step.
Learn how to set up an automatictransfer after that, and then
(40:32):
set a reminder for a year tolook into capital gain
harvesting or tax lossharvesting to see if that's
applicable for you.
But just take it one small stepat a time.
Thank you for listening totoday's episode.
The best way to stay up to dateand connected with All Things
Money Talk is to subscribe tothe podcast and sign up for my
email list.
Head over to the website Moneytalk.show and submit your name
(40:54):
and email right there on thehomepage.
You can also use the contactpage on my website to send me
any questions if you're lookingto get started budgeting.
I have partnered with my Budgetcoach, a platform that connects
your budget.
Directly with your financialcoach, and I'd love to work with
you over there and help you withyour budgeting.
The link is in the show notes.
Remember, the best way to learnfrom today's episode is to go
and have a money talk abouttoday's topic with a fellow
(41:16):
money buddy.
Thank you for listening to thisweek's episode of Money Talk.
I'm your host, Skylar Fleming.
Have a great week.
Popular Podcasts
On Purpose with Jay Shetty
I’m Jay Shetty host of On Purpose the worlds #1 Mental Health podcast and I’m so grateful you found us. I started this podcast 5 years ago to invite you into conversations and workshops that are designed to help make you happier, healthier and more healed. I believe that when you (yes you) feel seen, heard and understood you’re able to deal with relationship struggles, work challenges and life’s ups and downs with more ease and grace. I interview experts, celebrities, thought leaders and athletes so that we can grow our mindset, build better habits and uncover a side of them we’ve never seen before. New episodes every Monday and Friday. Your support means the world to me and I don’t take it for granted — click the follow button and leave a review to help us spread the love with On Purpose. I can’t wait for you to listen to your first or 500th episode!
Crime Junkie
Does hearing about a true crime case always leave you scouring the internet for the truth behind the story? Dive into your next mystery with Crime Junkie. Every Monday, join your host Ashley Flowers as she unravels all the details of infamous and underreported true crime cases with her best friend Brit Prawat. From cold cases to missing persons and heroes in our community who seek justice, Crime Junkie is your destination for theories and stories you won’t hear anywhere else. Whether you're a seasoned true crime enthusiast or new to the genre, you'll find yourself on the edge of your seat awaiting a new episode every Monday. If you can never get enough true crime... Congratulations, you’ve found your people. Follow to join a community of Crime Junkies! Crime Junkie is presented by audiochuck Media Company.
Ridiculous History
History is beautiful, brutal and, often, ridiculous. Join Ben Bowlin and Noel Brown as they dive into some of the weirdest stories from across the span of human civilization in Ridiculous History, a podcast by iHeartRadio.