0:00

Hello and welcome to ChooseFI. Today on the

0:02

show, we have another fun mailbag episode and

0:04

I'm joined by my friend Rachel Camp. So

0:06

this is her third visit to

0:08

ChooseFI to do a mailbag episode. And

0:11

I just have a lot of fun

0:13

recording with her. She's absolutely brilliant. She's

0:15

always prepared and she picks great questions

0:17

from the mailbag list, which I absolutely

0:19

love. So this is going to be

0:21

a fun one. We have a question

0:23

about Roth versus traditional. We

0:26

have some interesting ones about the new rules

0:28

on the 529 to Roth that just

0:32

went into effect earlier in January, 2024,

0:34

plus setting up your children for the

0:36

future and for people who just got

0:38

married, how to organize your finances. I

0:40

think this has a little bit of

0:43

everything. So with that, welcome to ChooseFI.

0:52

Rachel, always good to have you here. So good to see

0:54

you. Thanks for joining me. Of course. Thank you, Brad.

0:56

Love being here. So happy to be back at their

0:58

time. Yeah, this should be fun. So I

1:01

forgot to say, of course that you are a

1:03

CFP and I really appreciate

1:05

all the detail you put into this. It

1:07

really, really makes for great episodes. So thanks

1:09

again. And let's just kind of bomb right

1:12

into this. So we're going to start off

1:14

with a fun one. So this is actually

1:16

in direct reference to our last episode, which

1:18

was episode 485, where

1:20

we talked about the book Die Was

1:22

Zero and Spending Down to Zero. And

1:25

actually why that's kind of impractical, not

1:27

really plausible, but we touched a little

1:29

bit on a lot of things in

1:32

that and Jay wrote in basically saying

1:34

in the last ChooseFI podcast with Rachel,

1:36

we spent, we being you guys, spent

1:38

over 30 minutes discussing the

1:40

niche topic of dying with zero slash

1:43

how to spend more, not irrelevant to

1:45

the fight community, but it was at

1:47

the expense of the next and very

1:49

relevant topic of Roth versus traditional. That

1:52

discussion was rushed with basically quote, it depends.

1:54

Yes, it does. But I'd like to see you

1:56

spend the 30 minutes or more needed to tease

1:58

that out. So Jay obviously, wonderful

2:00

question, dripping with sarcasm. It's great.

2:03

And he meant well. So,

2:05

I'm sorry, Jay. We

2:08

let Jay down. So I did challenge

2:10

him and say, let's be frank here,

2:13

safe withdrawal rates and trying

2:15

to get that right and understanding sequence

2:17

of return risk and how we think

2:19

about a holistic life and your money.

2:21

To call that niche would be a

2:24

stretch in the very, very

2:26

least. So I did kind of have

2:28

fun with challenging Jay on that a little bit.

2:30

But anyway, beside the point. So Jay

2:32

Riley said, we did very much rush by Rothfors

2:35

traditional. I think this is something that a lot

2:37

of people have questions about, Rachel. So I know

2:39

you prepared extensively for this. So I'm just going

2:41

to tee you up to let you run with

2:43

it. And as always, we'll kind of play off

2:45

each other a little bit here. Yeah. So

2:48

I mean, I am fully prepared today

2:50

to take the 30 plus minutes that

2:52

it's required to go through this topic

2:54

because the thing that makes it so

2:56

difficult to answer in a

2:58

quick 30 second to one minute little

3:00

bit is that there's so many variables,

3:02

which means there's so many scenarios

3:04

that we can run for traditional

3:06

versus Roth. So just to

3:09

set the context for this discussion,

3:11

what we're trying to accomplish here

3:13

is essentially tax arbitrage. What that

3:15

means is we're trying to profit

3:17

from a difference in tax rates.

3:20

So I'm sure Senator Roth was not

3:22

aware of the debate that would ensue

3:24

when he introduced the Roth account back

3:26

in the 1990s. But

3:29

as a result of having this other option, it

3:31

has been a really fierce debate on

3:33

which is the premium amount. So

3:35

the idea is simply, if we have

3:37

an idea of what your future tax rate will be, then we

3:40

can figure out what you should do.

3:42

So traditional, we'd want to contribute to

3:44

a traditional account, which is pre-tax money

3:47

going in. This is where you're

3:49

avoiding the tax today. You're paying the tax later.

3:51

So you'd want to do traditional if

3:53

your tax later was going to be

3:55

lower. So we're avoiding today when taxes

3:58

higher. We want to pay later. or

4:00

when taxes lower, that's the idea. And

4:02

then Roth, of course, would be the

4:04

opposite. If taxes lower today, we want to

4:06

pay that today. We want to avoid it when

4:08

it's later. And the

4:10

thing that I think confuses a lot of people

4:12

is that if tax rates actually stay the same,

4:14

meaning you're in the 25% bracket today, you're in

4:17

the 25% bracket later, it doesn't

4:20

matter which one you choose. So that

4:22

always confuses people because they bring up

4:24

the, would you rather pay the tax

4:26

on the seed or the harvest? Yeah.

4:29

Assuming that that has the impact. But

4:31

it's very important to start this conversation

4:33

with understanding that if tax rates stay

4:35

the same, then the result, whether you

4:37

do Roth or traditional, is the exact

4:39

same. Yes. Yes. Yes. Yes. So you could

4:42

see me, you almost got there for a minute because

4:44

I was jumping out of my seat. This

4:46

is the single most important thing that

4:49

everyone understands. Like you said, like on

4:51

the seed, right? So a lot of

4:53

people think, oh, I'll just do the

4:55

Roth and I'll pay my little

4:57

bit of tax now, right? It might be 12%

5:01

or whatever X percent on a

5:04

$6,000 contribution or something. That's miniscule. That's

5:06

only $700.

5:08

That sounds like a tiny amount versus, all

5:11

right, I'm going to take the tax deduction

5:13

now in a traditional, but

5:15

then when this is worth millions of dollars

5:17

five decades from now, I'm going to have

5:20

to pay so much in tax. And the

5:22

wild thing is when you run this side

5:24

by side, as Rachel so assumedly said, it's

5:26

literally the same number if

5:28

the tax rates stay the same, if,

5:30

if, if, right? So this is clearly

5:33

as a starting point, as Rachel said,

5:35

a tax arbitrage play. So this is,

5:37

will it be higher or lower than

5:39

it is now? And obviously there are

5:41

a lot of considerations. There are more

5:43

considerations for people in the fight community,

5:45

but at its heart, if the

5:47

tax rate is the same, it's the same

5:49

answer. Don't delude yourself into thinking otherwise, basically.

5:51

Yeah. So now that we have

5:53

that understanding of how the math actually works,

5:55

we can bring up, you know, the variables

5:57

that people always bring up, which is the

5:59

number on I hear is what if tax

6:01

rates change and most of the

6:03

time I'm hearing what if they

6:06

increase because yes when it comes to

6:08

marginal tax brackets we are in historically

6:10

low tax rates currently. So we

6:13

can look at that and say well

6:15

I believe tax rates may increase in

6:17

the future so I'd rather pay it

6:20

on the Roth today. That's fine

6:22

but we also have to consider tax

6:24

law changes. So the tax that you

6:26

actually end up paying is not just

6:28

dependent on your marginal tax rates what

6:30

we're really looking at is effective

6:32

tax rates. So that's what you actually

6:34

end up paying you know on your

6:36

taxable income and yes that's impacted by

6:39

your marginal tax rate but it's also

6:41

impacted by tax law. So what I

6:43

mean by that is things like deductions.

6:45

So what a lot of people don't

6:47

realize is that as tax rates change

6:50

and as they've been higher in the

6:52

past there was also differences in tax

6:54

law. So there's also an increase in

6:56

deductions when tax rates were higher. So

6:58

we actually look at historical effective tax

7:01

rate which is what you're actually paying.

7:03

It actually has stayed

7:05

relatively stable historically. So meaning

7:08

during the times that tax rates increased

7:10

there was also an increase in the

7:13

deductions that you can take. So we

7:15

have to consider both when we're thinking

7:17

about the future. Sure marginal

7:19

tax rates may at some point increase

7:21

and actually we're seeing that in 2025

7:24

a lot of these are

7:26

set to sunset. So we will see an

7:28

increase but there could also always be an

7:30

impact to tax law changes and

7:32

most importantly the deductions that you can

7:35

take. Yeah that makes sense and

7:37

right they're set to sunset right in

7:39

2025. Obviously we don't know what may

7:41

or may not happen in terms of

7:43

extending them but yeah so clearly that's

7:45

said to happen and yeah just critically

7:47

because I think a lot of people

7:49

don't have a great understanding of how

7:51

our taxation system works right. So marginal

7:53

rate is the federal tax rate

7:55

on that next dollar. So that's what marginal means

7:58

in this regard. It's the next dollar. of

8:00

income. It's basically how we think of tax

8:02

brackets. So it's not like when you get

8:05

zipped into the next tax bracket up that

8:07

all the prior dollars get taxed at that

8:09

rate. It does not work that way. It's

8:11

just that marginal dollar whereas effective tax rate

8:13

is basically saying, okay, at the end of

8:16

the day, I'm paying, let's say $5,000 in

8:18

federal tax. I have

8:20

$50,000 in gross income. You just divide,

8:22

right? So it's 5,000 divided by 50.

8:26

My effective tax rate is 10% in that

8:28

case, even though your marginal bracket is going

8:30

to be higher than that in all likelihood. So I'm

8:32

just making these numbers up, of course. So

8:34

it's very, very important to understand those

8:37

general concepts, especially as Rachel goes through

8:39

that. Yeah. And I'm just pointing

8:41

out a few variables here that impact the

8:44

decision. So tax rates, tax laws. I want

8:46

to mention a few of the other ones

8:48

too. So RMDs are a big variable. When

8:50

I look at a lot of studies for

8:53

scenarios that people run, one

8:55

big thing they leave out is RMDs.

8:57

And RMDs are required minimum distribution. So

8:59

when you have money in a traditional

9:01

account at a certain age, right now

9:04

it's age 75, you are forced to

9:06

start taking withdrawals out of that account

9:08

that is calculated by the IRS.

9:10

It's not your decision. They tell you how much

9:12

you have to take out of your IRA. And

9:15

of course we know everything taken

9:17

out of your traditional IRA is taxable.

9:19

So at some point we're going to

9:21

have that forced tax bill. So

9:24

that's a consideration you have to

9:26

make when you're thinking about traditional

9:28

versus Roth, is that at a

9:30

certain point you might be pushed

9:32

into a higher bracket because of

9:34

these RMDs. And your social

9:36

security might be taxed higher as well. So

9:38

social security can be taxed up to 85%.

9:41

What that means is not an 85% tax rate. It means 85%

9:43

of your social

9:46

security becomes taxable. So for simplicity, let's

9:48

say your social security is 10,000, that

9:51

means you'd be paid tax of 8,500 of

9:54

it. So that's just to mention

9:56

a few of the other variables that you

9:58

have to consider. There's Roth conversions. which are

10:00

often left out, that's something that you

10:02

can do when you retire early is

10:05

transfer from traditional to Roth accounts. There's

10:07

inheritance, there's the age that you retire,

10:09

the state that you retire, there's your

10:11

tax filing status. So if your spouse

10:14

dies at some point, that will have

10:16

a big impact on the numbers or

10:18

if you get married that has a

10:20

big impact on the numbers. So I

10:23

just wanna set the stage for how

10:25

difficult this is to run in a

10:28

narrow scope and in a clean experiment,

10:30

because one variable and all the numbers

10:33

are thrown off. And one of the

10:35

biggest ones is if you get into

10:37

retirement and you have the unfortunate scenario

10:39

where your spouse dies, that completely throws

10:42

off the numbers and nobody plans or

10:44

wants to think about that, but it

10:47

just shows how sensitive this

10:49

experiment is. I do have a framework for

10:51

it, but I just wanna set the stage

10:53

for it first. Okay, I'm excited

10:55

for this framework. Can you give a little

10:57

more detail on why everything would get screwed

10:59

up if the spouse, aside from obviously the

11:01

life issue, but how would that impact this

11:04

decision? Yeah, so your tax filing

11:06

status, you're single or you're married filing

11:08

jointly. So what happens is if you're

11:10

living off a $200,000 income and

11:14

you're married, your tax bracket is going to be

11:16

lower than if you're living off $200,000 income and

11:20

you're now filing single, your tax bracket

11:22

is really going to increase. Okay,

11:24

that is exactly what I wanted

11:26

to know. Not only would

11:28

the standard deduction be dramatically smaller

11:31

because it's single as opposed to married filing joint,

11:33

but the marginal tax brackets are

11:36

totally different for people who are single

11:38

versus married filing joint. Okay, awesome. All

11:40

right, so there's our framework. Let's dive in

11:42

then. Yeah, so I do like to start

11:45

with the rule of thumb. Now, they

11:47

have their place and I think it's a good starting point.

11:50

So the rule of thumb is here, we're gonna

11:52

go by federal tax bracket, we're gonna say 10

11:54

to 12%, you would

11:56

go Roth. 22, 24% is the top. up.

12:00

You could go either way. And then

12:02

32% and up, you would go traditional.

12:05

Now we're going to customize that rule

12:07

of thumb to you because everything is

12:09

relative and what it is a high

12:12

22% bracket to one person would be low

12:14

to somebody else. So we have to understand

12:16

that. One place where I think the rule

12:19

of thumb survives, and I'm curious if you agree with this,

12:21

Brad, but I think it survives with the 10 to 12%

12:24

in raw because the way

12:26

I think about it is paying 10 to 12%

12:28

in tax and locking that in, it's just never

12:30

a bad deal. That's just so low. Braden Bary

12:32

Yeah, yeah, it would be very, very hard

12:35

to pass up at 10 to

12:37

12%. So right, like what we're saying,

12:39

in essence, is the only value of

12:42

a traditional IRA. So it's actually, it's like the opposite

12:44

way of looking at it, right? So the only value

12:46

of the traditional IRA would be since you're only in

12:48

a marginal bracket of 10 or 12%, the

12:51

traditional IRA would only be worth 10 cents

12:53

on the dollar or 12 cents on the

12:55

dollar. So it's minuscule. So that might suggest,

12:57

okay, again, this is a tax arbitrage play,

13:00

right? So if I can lock in the

13:02

Roth and just pay 10 cents on the

13:04

dollar or 12 cents on the dollar, maybe

13:06

I want to do that now, most likely I

13:08

want to do that now, and then get a

13:10

tax free for all attorney in essence. So yeah,

13:12

I mean, Rachel, it would be very hard to

13:14

argue with that. I think, you know,

13:16

part of me, and we'll talk about

13:18

this later after you go through your framework, but

13:20

part of me says some of

13:23

the real fun with the financial

13:25

independence community is like, okay, if

13:27

you do this right, and you

13:29

pay off your mortgage, you

13:31

don't have car payments, your life just

13:33

doesn't cost that much. And you've dumped

13:35

everything into a traditional IRA, there was

13:38

a real chance that you could do

13:40

Roth IRA conversion ladder, and

13:42

essentially lock in a 0%

13:44

bracket on all of that money

13:46

forever. So that's like the holy grail, in essence

13:49

of Phi. So I'm like holding on to that

13:51

in the back of my mind is like, Oh,

13:53

man, that would be hard to pass up. But

13:55

with that said, I mean, nobody could argue with

13:58

you making Roth, Kajir. contributions

14:00

out of 10 or 12% marginal back.

14:02

Yeah, well, let's talk about the benefits

14:04

that Roth has here with that. And

14:06

Roth has a certainty that traditional does

14:08

not. So a lot of the papers,

14:10

I like how they phrase it, but

14:13

they say the government is a silent

14:15

partner in your traditional account. And it

14:17

is. Your traditional account is

14:19

not entirely yours yet. Now we'd hope there'd

14:21

be a way that we can get it

14:23

out at 0% tax rate. But

14:26

especially when RMD start, that would be really,

14:28

really hard to do. So with Roth, the

14:31

change in tax rates in the future has

14:33

no impact to the Roth account. It's already

14:35

locked in. You've already paid the taxes. With

14:38

traditional, a change in tax rates

14:40

could have a huge impact on

14:43

your traditional account. So there's almost

14:45

a risk tolerance perspective here, where

14:47

some people like the certainty of

14:49

the Roth, especially at that 10 to 12%. Their

14:52

fine was saying, you know what, maybe there's a strategy where

14:54

I could get it over at 0%

14:56

with Roth conversions. But I'm worried that for some

14:59

reason that won't work in the future, that there

15:01

will be variables I'm not thinking of. And

15:03

I'm comfortable locking this in. And then

15:05

just knowing with certainty that that Roth

15:07

account is entirely mine. Yeah,

15:09

that is super convincing and a

15:12

brilliant point. So yeah, absolutely. And

15:14

I love that silent partner. Yeah,

15:16

I've never heard that. Just

15:19

pretend you did. It's awesome. And yeah,

15:22

I mean, it's true. And it's funny because

15:24

when you think about, hey, what is my

15:26

net worth? And when you actually

15:28

have a lot of it in traditional

15:30

accounts versus Roth, I mean, at the

15:32

end of the day, your true net worth is

15:34

very different, which is kind of funny in that

15:37

we don't think about that in the fight community

15:39

all that much. So just a total sidebar. So

15:41

Jay, we're really diving in here, I promise. But

15:43

yeah, yeah. I appreciate it, Jay. Yeah, right. Okay.

15:48

So important sidebar, but yeah, keep on

15:50

rock and roll. Yeah. So

15:52

let's customize the rule of thumb to you. I

15:54

think one thing that's always

15:56

left out of these rules of thumb

15:58

is we're not... paying attention to

16:00

where you are in your life cycle, where you

16:02

are in your career. That's really important. And

16:05

nobody who is on a podcast or

16:07

is talking on a blog, they have

16:10

no idea about your situation. You are

16:12

actually the best person to understand your

16:14

income and where it's going. So that

16:17

is really important to consider here. Feel

16:20

free to take the reins and give

16:22

yourself an idea of where it's going.

16:24

So I gave the example earlier that

16:26

22% might be one

16:28

person's low bracket, might be another person's

16:30

high bracket. So it's important to

16:32

consider where you are in your career.

16:34

If you're in that 25 to

16:37

34, you're still kind of in the beginning stages.

16:40

We saw that the biggest jump in income happened

16:42

when you went from 25 to 34 to 35

16:44

to 44. And

16:49

that was about a 20% jump in income

16:51

for Gen X and Millennials that they saw.

16:53

So pretty big jump in income. So it's

16:55

important to remember, am I just starting out

16:58

and maybe I'm at a lower income and

17:00

I can see the trajectory to a higher

17:02

income? Or am I in my

17:04

peak earning years and I don't really see that

17:06

I'm going to be jumping up into another bracket?

17:09

So to give an example, if you are 25 and you're

17:11

already in the 22% bracket and you can see your

17:17

peers who are older than you and maybe

17:19

have an idea of the income they're earning and the

17:21

income that you could get to, 22% might

17:24

still be low for you. So that 22,

17:27

24% is very situational and you might see

17:29

that as low and want to lock in

17:31

the Roth. If on the other

17:33

hand, you're at the 35 to 44 age

17:35

or in peak earning years, or

17:37

even older than that, and you know that you're in

17:39

your peak earning years, 22% might be your peak and

17:44

that might be a time for traditional. That's

17:46

why it's very situational and why you're the

17:49

best person to decide this is,

17:51

do I think I'm in my peak earning years?

17:53

Do I think I'm just starting out? What's the

17:56

high bracket for me? What's a low bracket? You

17:58

can really look at. The

18:00

recordings and start to understand that

18:02

for yourself. Yeah. Like that to

18:04

look at his sword, learning what you said for

18:06

your industry for your company for appears excedrin and

18:09

try to get a sense. But I guess I'm

18:11

a little the truth about this we are you

18:13

are in this like life cycle in essence of

18:15

your job so. Let's. Say that

18:18

first Example: He said. Twenty.

18:20

Five, They're already in the twenty two

18:22

percent margin bracket. And. A were

18:24

kind of presupposing they're going to make significantly

18:26

more, but say, when they're thirty five, forty

18:28

five, etc. But. Against the

18:31

tax arbitrage play here is ultimately

18:33

for when you suppose the money

18:35

out right. So. You. Know, I

18:37

think Richard this is where my

18:39

Thigh Breen might be messing up

18:42

my analysis and this because I'm

18:44

thinking that it's just in terms

18:46

of okay, what's my marginal read.

18:48

When. The money's going in vs what's

18:50

my marginal rate when the money's coming

18:53

out. And like I don't ultimately care

18:55

what happens if I'm in or thirty

18:57

seven percent bracket when and thirty five

18:59

or forty. What matters to me as

19:01

I am polygamous are pulling it out

19:03

at sixty five and I think for

19:05

people in the Fi community, what ultimately

19:07

matters is okay, what am I expenses?

19:09

how much do after cover at that

19:11

point? So. I think that's right

19:13

for a spy analysis but like what am

19:16

I missing for like the normal person's analysis

19:18

basically say. That this is the second

19:20

part of the customization and that's what

19:22

are you spending Sell: For somebody who

19:24

is twenty two percent bracket say they're

19:26

saving ten percent, they're spending everything else.

19:29

You know that it's safe to say

19:31

that there's not going to be a

19:33

huge tax ever tries to their spending

19:35

most of their and com. Now if

19:37

you are accept clients were and thirty

19:39

seven percent bracket spending maybe thirty percent

19:42

of their income. To me that's clear

19:44

tax arbitrage were once they retire they

19:46

had that goal of retirement. They are.

19:48

Going to really hot just. as

19:50

good as we have to get think about it's

19:53

what am i spending a what percentage of that

19:55

is my and com because then you can clearly

19:57

see what you are going to spend in retirement

19:59

is your spending a lot of your

20:01

income or most of it, then it

20:03

becomes a little bit easier just to

20:06

look at the tax bracket. So spending

20:08

is one of the most important variables

20:10

here. Okay, that is awesome. And

20:12

that makes perfect, intuitive sense once we say

20:15

it out loud, right? So yeah, for the

20:17

person and regardless of whether they're a five

20:19

person or a quote unquote regular person I

20:21

use that. Yeah, yeah, that's the nicest

20:23

way to put it. And

20:25

let's just say it's somebody who's quote unquote fat fi and

20:27

their version of fat fi is, hey, I'm going to spend

20:30

$250,000 a year. Well

20:32

that money has to come from somewhere, especially when

20:34

there's no income coming in. Right? So

20:37

that means pulling out of a retirement account in

20:39

all likelihood, you know, if you have exhausted your

20:41

brokerage accounts at that point. So right then that's

20:44

where Rachel's analysis of a kind of

20:46

that peak earning because it's really peak

20:48

spending, right? It's really what is

20:50

your spending that matters more because that's what

20:52

you have to pull out basically. And if

20:54

you're pulling out of a traditional account, all

20:57

of that is going as ordinary income on your tax.

21:00

Right. Right. And

21:02

this is kind of the way that you can decide

21:04

it based off of a normal regular year for you.

21:07

But the most important part of this framework,

21:09

and this is a study done by Michael

21:11

Kitchess, I referenced him a lot. I'll send

21:13

over the link so Brad can put this

21:15

in the show notes, but he essentially found

21:17

that the biggest impact to your wealth when

21:19

you look at traditional versus raw is

21:21

not doing this, you know, 22% is raw and 37% is traditional. But

21:27

it is jumping on the extreme

21:29

years. So what this

21:31

means is essentially timing your Roth or

21:33

timing your traditional. We talk about how

21:35

you cannot time the market. It's very

21:37

true, but you can time your income.

21:40

You can go year by year and understand is this

21:42

a high income year for me? Is this a low

21:44

income year? And that is

21:46

actually what made the biggest impact

21:48

to your wealth when it came

21:51

to traditional versus Roth is identifying

21:53

those years and jumping on them.

21:55

So to preface this, a lot of people get

21:58

confused about traditional versus Roth and think... if

22:00

they just split it, that that's a

22:02

form of diversification. It's actually not because

22:04

the outcome is correlated to each other.

22:06

So diversification happens when we have uncorrelated

22:08

variables, right? So investments, you have Apple,

22:11

you have Coca-Cola. If Apple does well,

22:13

that doesn't mean Coca-Cola does poorly. They're

22:15

uncorrelated. But traditional in Roth, the outcome

22:17

is correlated. If traditional wins and does

22:19

better, that actually means Roth loses. So

22:21

it doesn't mean that you can't split

22:23

them. And we can get into that

22:26

in a second. But it does mean

22:28

that you can look for timing

22:30

opportunities. That would be

22:32

times where your income either shoots really

22:34

high up or drops dramatically. So I

22:36

actually have an example of this in

22:39

my life. Now I was doing traditional

22:41

in the beginning of my career, that was probably a mistake.

22:43

I wish I would have gone back to

22:45

done Roth. So ignore that mistake. But when

22:48

I left my nine to five, and

22:50

I went to become self-employed, my

22:52

income plummeted. That was a year with

22:54

really low income. So I actually not

22:56

only did Roth, but I did Roth

22:59

conversions, because I was capturing at a

23:01

really low tax rate. And then you

23:03

would simply do the opposite when you

23:05

have a big swing the other way.

23:07

And I can go into more detail

23:10

there, but I'll pause to see if

23:12

that makes sense. Yeah, no, so

23:14

that makes perfect sense. So right, what

23:16

you did there is,

23:18

like you said, you're captured. So what that

23:20

meant was, and let's assume it was the

23:23

same tax rates when this happened. So you

23:25

still had some space left in the 12%,

23:28

maybe the 10%, but most likely the

23:30

12% tax bracket at that point. So

23:32

you could basically take traditional money, traditional

23:35

retirement accounts, and convert it, which, like

23:37

I said before, when you do that,

23:39

that's ordinary income. So that goes on

23:41

your tax return. But if you still

23:43

have some space left, let's say you

23:46

had $7,000 worth of space in the 12% bracket.

23:49

All right, well, that's only 7,000 times 0.12, right?

23:52

That's a pittance. And like you said earlier,

23:54

you'll take that any day of the

23:57

week to do the Roth in essence

23:59

on... 10 or 12% bracket.

24:01

So yeah, that's really, really cool and makes

24:03

a ton of sense. Yeah, and

24:05

you can kind of figure out the points

24:07

in your life where this happens. Maybe there's

24:09

certainly going to be people out there who

24:11

have a pretty steady income and it just

24:14

steadily increases. But with a lot of my

24:16

clients, I've noticed that there's more opportunity than

24:18

maybe you would think. So just had some

24:20

clients who one spouse is leaving their job

24:22

and she is going into self-employment. That's a

24:24

big drop in income. They've been doing traditional,

24:26

they're going to switch to Roth for that

24:29

year and then just pay attention to the

24:31

income. Any time where you can identify a

24:33

10% swing

24:35

in the tax bracket, that's a pretty

24:37

good return to jump on for a

24:39

tax rate change. And so when we

24:41

look at tax brackets, most of the

24:43

time we're just increasing by 2% to

24:45

3% between brackets,

24:48

except for the 12 that jumps to 22%. So

24:50

if that's you, you're

24:53

normally 12% and it

24:55

all the sudden jumps to 22%, so you

24:57

have a big bonus. That might be a time

24:59

to do traditional and get yourself back in the

25:01

12% if that's usually your

25:03

bracket. And then two, we go from

25:06

24 to 32%. That's the other big

25:08

jump. So that's something to pay attention

25:10

to. If you're normally 24%, you jump

25:12

up to 32, you can do traditional.

25:15

Or if you're normally 32% fall

25:18

back down to 24%, that's

25:20

also a big swing. So paying

25:22

attention to those big swings is

25:24

actually what does have the biggest

25:27

impact to your wealth. And

25:29

the other one people don't think a lot

25:31

about, but it's state income tax. So if

25:33

you're going from a state that charges 10%

25:36

plus percent, and all of a sudden moving

25:38

to a 0% state income tax, that's a

25:40

10% swing, or vice versa. Any time you

25:45

see that big swing, that might be

25:47

an opportunity to jump on that. Yeah,

25:50

that is fascinating. And I assume, and

25:53

there's no way, just like we can't

25:55

give personal advice to the 100,000

25:58

plus people listening to this podcast. There's

26:00

no way that we can talk to the

26:02

rules of all 50 states. So we'll leave

26:05

that to you to do your own research.

26:07

But conceptually, it's important to think about. So

26:09

I imagine Rachel, and I'm taking my CPAs

26:11

hat off because I'm not in practice at

26:13

all, but I imagine there are different rules

26:15

depending on the state and how they tax

26:18

certain things. So again, we'll leave that up

26:20

to the listeners to look into, but very,

26:22

very important. So okay, this is wonderful. I'm

26:24

following along. So where are we going from

26:26

here? Yeah. So what I

26:29

would say is the biggest thing is you

26:31

first have to understand where's your tax bracket

26:33

normally, where's the big swing in the tax

26:35

bracket? What am I spending? What percentage of

26:37

my income? And then jumping

26:40

on those big changes and going

26:42

all Roth or all traditional in

26:44

those years. Now, I think it's fair to say

26:46

10 to 12% Roth, 22 to 24%. When

26:50

there's no clear direction, you don't have a

26:52

big swing, then you can actually split the

26:54

contributions. I don't think that's a bad idea.

26:57

And then 32% plus, I

26:59

think it's fair to say traditional most

27:01

of the time, unless you're one of

27:04

those people who is 37% anticipates

27:06

always being in a really high tax bracket

27:08

and you actually see 32% tax

27:11

as an opportunity to go

27:13

Roth. That's the way

27:15

that I think about it. But I

27:17

also want to make sure that, you

27:19

know, just because I say Roth and

27:22

traditional is not diversification. It doesn't mean

27:24

that I don't advocate for contributing to

27:26

both accounts because the end result here

27:28

is that when we do fully

27:30

retire or move to

27:32

part time to take a step back,

27:35

we want full control over that marginal

27:37

tax rate in retirement. And

27:39

if we're 100% traditional, you know, we

27:42

have no control. If we're 100% Roth,

27:44

we might be missing out on opportunities

27:46

to fill up that lower tax bracket.

27:48

So it still comes back to this

27:50

mix of traditional and Roth and taxable.

27:52

It's just a matter of when do

27:55

we jump on that opportunity? And the

27:57

big one I haven't mentioned yet is

27:59

that we you retire and your income

28:01

drops, that's a great time for Roth

28:03

conversions and to get money over in

28:05

a low tax bracket. Yeah, and that

28:07

is huge. And for

28:09

anybody interested in more info on that,

28:11

you can just Google Roth IRA conversion

28:14

ladder, choose Fi. And we have a

28:16

couple of case studies from a handful

28:18

of years ago, but they're very, very

28:20

relevant. The conceptual framework is the same.

28:22

So that'll be outside the scope of

28:25

us going into the precise mechanisms of

28:27

the conversion ladder. I mean,

28:29

Rachel, that's what I talked about before, which is, oh,

28:32

wow. There is, especially if

28:34

your income is zero and you have then

28:36

this standard deduction, let's say you're married, filing joint,

28:38

and who knows what the standard deduction will be

28:40

then at $40,000 or something,

28:42

assuming you had $0 of income. And

28:45

again, assuming it's a $40,000 standard, you could pull $40,000 out of convert $40,000

28:52

from a traditional IRA to a Roth IRA

28:55

and basically say, okay, government, please tax me.

28:57

But then you get this standard deduction and it wipes

29:00

it down to zero. So it is a

29:03

$0 taxable event, which is, I mean,

29:05

that's again, the holy grail of five,

29:07

basically. Yeah. I'm really curious,

29:09

Brad, your approach to this. So that's kind

29:11

of the framework and it's designed for you

29:13

to sit down and customize it to yourself.

29:15

And I hope that's enough clear direction to

29:17

do so. But I

29:20

think really the overwhelming point is,

29:22

is outside of these extremes, you

29:24

know, the 12% Roth, 30 plus

29:26

percent traditional, it's such a

29:28

close toss up that the more impactful

29:30

thing that you can do is to

29:32

jump on the years where there's a

29:34

big change in income. Yeah. I

29:37

think that is wonderful, wonderful analysis. And I

29:39

will answer your question and give you a

29:41

little sense of where I'm thinking. But for

29:43

people out there who are asking the question,

29:45

okay, this is generally Roth

29:47

versus traditional. So this

29:50

counts for both 401k and IRAs, right?

29:52

Yeah. We didn't clarify that in

29:54

the beginning, but we have Roth and traditional 401ks, Roth

29:56

and traditional IRAs. And actually, this

29:58

is a good point. where most of

30:01

us are forced into some combination anyway.

30:03

So even if you decide I want

30:05

to do traditional 401k and

30:08

you do that up to the maximum, the limit,

30:11

then we have our IRAs available

30:13

to us, but most of us

30:15

cannot make a deductible traditional IRA

30:17

contribution anyway. There's income limits for

30:19

a deductible IRA contribution, and most

30:21

of us are above that. So

30:23

as a result, then we have

30:25

the Roth IRA, and again, that

30:27

has income limits, but we can

30:29

do the backdoor Roth. So a

30:31

strategy I really like is a

30:33

traditional 401k, combine it

30:35

with the backdoor Roth. Or if you

30:38

like the Roth 401k, again,

30:40

this is another forced split

30:42

scenario here, a lot of

30:44

the times they just changed this, but

30:46

it's still the case for most people,

30:49

your employer match is going to be

30:51

traditional. So you're already having that combination

30:53

there as well. So even

30:55

when we look at maxing out retirement

30:58

savings and optimizing everything, we're usually forced

31:00

into some type of traditional and

31:02

Roth combination anyway. That

31:04

is really cool. And yeah, I think both

31:07

of us would very obviously say, please get

31:09

your employer match, right? Like in this case,

31:11

I don't think the people who

31:14

are looking at this question and answering,

31:16

okay, is it Roth versus traditional are

31:18

curious, oh, I might not contribute. So

31:20

obviously they're contributing, please get your match,

31:22

that's so important. So yeah, I mean,

31:24

I guess for me, the way

31:26

that I've always looked at this is, some

31:29

of these phrases that we use at Choose a

31:31

Value, which is control what you can control. And

31:33

I think that suggests, okay,

31:35

I can control my tax deduction

31:38

today, which has always kind of

31:40

led me to say, all

31:42

right, traditional IRAs and 401ks

31:44

make more sense. I'm

31:46

absolutely controlling. Something you said before is,

31:50

and this is not you saying this

31:52

about yourself, but what people think is,

31:54

I believe tax rates will increase. And

31:56

I wrote this down in capital letters,

31:59

believe. Because it really becomes

32:01

like this, you know, people start

32:03

getting into politics and like, oh,

32:05

this and that with the dead and there's no

32:07

way taxes, you know, you can imagine all these

32:10

conversations, but at the heart of it, it's beliefs.

32:13

Nobody can prognosticate the future. And

32:15

you can look and say, all right, we

32:17

have historically low marginal tax rates,

32:20

yada, yada, yada, that makes sense. But

32:22

like you so wonderfully went

32:24

into like, okay, there's usually there's some give

32:26

and take here in terms of all right,

32:28

when the marginal rates are much higher, well,

32:30

then maybe there are larger deductions and things

32:33

like that. So it's not like a fait

32:35

accompli that that is like a guaranteed tax

32:37

rates are going to go up. It

32:40

is belief. And they may go up, they may go

32:42

down, they may say the same, I have no idea.

32:44

So that's why like, I've always leaned towards

32:46

control what you can control. But

32:48

you know, Rachel, you have it's

32:51

a very compelling case to say, all right, look, that's

32:53

all well and good. But if you can lock in

32:55

10 or 12%, go for the Roth. I

32:58

mean, that's pretty hard to argue against.

33:01

And so yeah, I mean, if I were in a situation like that,

33:03

it would be pretty hard not to do the

33:05

Roth. I still I still I'm

33:07

holding on to that that holy grail

33:09

of like, man, if I put everything

33:12

in traditional, and I can do

33:14

Roth or a conversion and pay zero, like, I

33:16

would just feel like the coolest person alive, you

33:18

know, like the coolest five person alive. And I

33:20

think that is very plausible for a lot of

33:22

people. So I don't want to make it sound

33:24

like this is some like ridiculous, like, it's like

33:26

an inside straight in poker or something. No, this

33:28

is very plausible. And people are doing this. So

33:31

you know, as you can tell, Rachel, I'm going

33:33

back and forth, because there's no right answer. And

33:35

I think that is ultimately what your

33:37

analysis here for the last 35 minutes

33:40

went into is like, look, there's a lot

33:42

of things to consider. You're ultimately guessing its

33:44

tax rate arbitrage. It's a guess that

33:46

said, can you do things that make

33:48

a higher likelihood of success? And I

33:50

think that's where your analysis of I

33:52

look 10 to 12%. Yeah,

33:54

most likely Roth 22 to 24. Yeah,

33:57

you can kind of pick either. And then 32

33:59

and up. Lucky you sit through traditional

34:01

in all likelihood, so. I think those

34:03

are really good Rosatom I think that's

34:05

just a great analysis and again, we're

34:07

not giving financial base anybody. But hey,

34:10

look, you can run with what reaches

34:12

a spent last thirty postman as talking

34:14

about. I think that is really really

34:16

gonna be effective. For. Yeah yeah it's

34:18

a bad and some people are

34:20

comfortable betting bag. Some people want

34:22

to hedge their bets so I

34:24

don't fault anybody for you know,

34:26

being careful in and using a

34:28

max. And maybe giving up some

34:30

optimization is just so they feel more

34:32

comfortable ever some people. Honestly, that's locking

34:34

in Iraq now. I would be very

34:36

careful if you're walking and or off

34:38

balance thirty two to thirty seven percent

34:40

bracket and just make sure that that

34:42

makes sense for you die seats in

34:44

areas where for some people that that

34:46

did make sense actually. So I can't

34:48

say there's any scenario that I haven't

34:50

seen. it does. It really is just

34:53

so customize for the person. I actually

34:55

have a quiet really high tax bracket,

34:57

but he wants to pass the assets

34:59

on. Was never going to spend on he

35:01

wants to pass them on in a tax efficient

35:03

manner. That's wrong. That's going to be traditional I

35:05

rights and we've considered you know, the tax bracket

35:07

of his children as well and brought that into

35:10

the analysis. So it's it. Just goes to show.

35:12

That. There are so many different scenarios

35:14

and you have to run this for

35:16

yourself with only the variables that you

35:19

know if you're to follow rule down

35:21

at that client was to follow rule

35:23

of thumb and put everything into traditional

35:25

to be passing on his children. You

35:27

know it had quite a big tax

35:29

head which he was not the point

35:31

of his money. So to be customized

35:33

you and are so many things this

35:35

impacts again like health insurance premiums. If

35:37

you're going to retire early you have

35:39

a higher tax will and com. That

35:41

means you no longer get. Subsidies for

35:43

health insurance that could be a

35:45

ten thousand dollar annual expense or

35:47

my Medicare surcharges. So many other

35:50

things that this could impact or

35:52

Texel and com which is why

35:54

I advocate for having a max

35:56

because then we have some control.

35:58

Over the marginal tax rate. Yeah, this

36:00

is great. Jay, you're welcome. That's

36:02

35 plus minutes. But

36:05

jokes aside, I think that is going to

36:07

be really useful for the Fai community. I

36:09

think this is really, really important. And yeah,

36:11

like you said, that last consideration is that

36:14

silent partner, right? And like, can you lock

36:16

in certainty? Like, all right, look, that gives

36:18

a little more credibility to Rolf then. So

36:20

there's a lot of things to

36:22

think about, but you have now been armed with a

36:25

whole lot of detail. Thanks

36:28

for listening to Choose a Fai and for

36:30

all your support of our mission here. The

36:32

absolute best way to support Choose a Fai

36:34

is when you sign up for your next

36:37

rewards credit card to use our cards page

36:39

at chooseify.com/cards. I keep this page constantly updated.

36:41

So it should always be the top resource

36:43

for you. Thanks for being part of our

36:45

community and for your support. All right,

36:49

Rachel, let's move on. We got,

36:51

I guess, two very, very similar

36:53

questions about this new law that

36:55

you told me went into effect

36:57

January 1st of 2024, where

37:01

basically 529s can

37:03

be converted to Roth, I raise up to

37:05

$35,000. Now both Jacob and Chloe sent

37:10

this almost identical questions in. So this

37:12

is something that I don't know a

37:14

ton about. So I don't know if

37:16

the 35 K is a lifetime thing.

37:18

I can't imagine it's annual, but talk

37:20

us through how somebody should think about

37:22

this. Like what's even the high level?

37:24

Let's just start there. What the heck

37:27

happened? Yeah, so there's a

37:29

very valid concern of overfunding a

37:31

529. So basically, this

37:34

was Congress solution to leftover 529 funds.

37:36

So you built up a 529, your

37:38

child did not use all of

37:43

the money. Now we're stuck with, Oh,

37:45

no, are we going to be taxed and

37:48

penalized on the gains coming out of this.

37:50

So this is a solution. Now, there's

37:52

a lot of rules, and there's a lot of

37:54

gray areas with this still. So some people aren't

37:57

acting on it yet, which I think makes sense

37:59

because Congress has not clarified

38:01

everything. So let's start there and

38:03

just understand that while we have

38:05

some guidelines, not every question has been

38:07

answered. So let's explain

38:10

how it works. So essentially, you get to transfer $35,000

38:12

over from a 529 to a Roth account. The

38:18

beneficiary of the 529 has to be

38:21

their Roth account. So if you're, let's just

38:23

say your child's name is Sam, Sam is

38:25

the beneficiary of a 529 that you set

38:27

up. It

38:29

has to be Sam's Roth IRA that the

38:31

money goes over into. Now

38:33

the other thing is, and I'll bring

38:35

this up to say, there's almost a

38:37

way people wanted to see if they

38:39

could get around this and make themselves

38:42

the beneficiary and then convert it over

38:44

into their own name. There

38:46

is a 15 year requirement that

38:48

the account has to be open for.

38:51

They're not letting you do a hack on this. There's

38:54

no shenanigans of last minute. Yes,

38:57

they've made it really tight here. The account

38:59

has to be open for 15 years and

39:01

then you can start

39:03

converting it over into the beneficiary's

39:06

Roth IRA. Now there's a

39:08

limit for how much you can convert every

39:10

year and that is the annual Roth contribution

39:12

limit. So if you were to start this

39:14

year for 2024, that's $7,000. So

39:19

you could convert $7,000 over into your beneficiary's

39:21

Roth IRA. The

39:24

beneficiary does have to have earned

39:26

income and it's not a

39:29

double dip. You can't contribute $7,000 as

39:31

a regular Roth contribution and do

39:34

this conversion. It's they add up together to

39:36

the $7,000. Interesting.

39:39

Okay, now do they have

39:41

to be able to qualify

39:43

for Roth IRA as it is or based

39:46

on income and such or is this outside

39:48

the scope of that? No, this is a weird

39:50

thing. They have to have earned income so your

39:52

child has to make at least $7,000 if you

39:54

want to do the full conversion, but income limits

39:57

don't apply. So normally there is

39:59

a phase. out for Roth IRA where if

40:01

you make a certain amount of money, you cannot contribute

40:03

to the Roth. As it states

40:05

today, those income limits do not apply to

40:07

this conversion. Hypothetically, your child can make a

40:09

million dollars and you could do this for

40:12

them. Interesting.

40:14

So, okay, that's good to know. That's really, really

40:16

important. So I guess my first question is the

40:19

35K limit. So we're

40:21

using this hypothetical of SAM, right? Is

40:23

that 35,000 for SAM as a human being? Or

40:28

is it 35,000 for, okay, let's say

40:30

I'm SAM's dad, right? I can do

40:32

35K and then my wife could do 35K. It's

40:37

a great question. They haven't clarified. Really? Oh,

40:40

good. That's the most important thing. We

40:42

don't know if, say you do the full 35,000. So

40:45

for the next five years, for simplicity, it

40:48

takes you five years to roll over 7,000 a

40:50

year. If there's another $35,000 in

40:52

the account, can we have a different beneficiary and

40:54

do it for them? We don't know yet.

40:57

And the other question is, if

41:00

you change the beneficiary, does that

41:02

reset the 15-year clock? I just

41:04

can ask you the same question. We

41:06

don't know. We don't know yet.

41:08

Okay. So, you know, the listeners who

41:11

wrote this question, one of the reasons some

41:13

people maybe aren't talking about it yet is

41:15

because there's so many gray areas still. One

41:18

of the most important gray areas there

41:20

is is how the states

41:22

are going to treat this. So federal,

41:24

we're saying from a federal tax perspective,

41:26

there is no federal tax. That doesn't

41:28

mean the states have to follow that.

41:31

So actually, my home state Indiana has

41:33

already come out and said, if this

41:36

goes, or when it did go

41:38

through, but we will probably recapture

41:40

some of those tax credits. Indiana

41:42

has one of the best deals for 529 contribution. They

41:45

do a tax credit, 20% tax

41:47

credit, not tax deduction. Yes. Indiana,

41:50

they've given this big benefit. They're

41:53

saying, we're not fully on board yet.

41:55

We might recapture those tax credits if

41:57

you do this. Yikes. In

42:00

essence, they are incentivizing college savings.

42:02

So that's why they set this

42:04

up as a, ultimately, states

42:07

could do tax deduction or tax credit, but that's

42:09

why Indiana is really saying like, oh man, we

42:11

really care about this. We're going to give you

42:13

a tax credit. So for the listeners, the difference

42:15

here, tax deduction just kind of comes out of

42:17

your income. So let's say, like we were talking

42:19

about before, let's say you're at a 10% marginal

42:22

bracket, a $5,000 tax deduction is only worth $500

42:27

to you if your marginal

42:29

rate is 10%. Whereas a tax

42:31

credit is a $4 reduction in your

42:33

tax liability.

42:36

So let's say you owe $2,000

42:38

of tax liability to the federal

42:40

government and you got a $1,000

42:43

tax credit, in

42:45

this case, half of your federal tax liability is

42:47

gone. $1,000 is gone, there's $1,000

42:49

left. So you can see a

42:51

tax credit is worth vastly more

42:53

than a tax deduction. Yeah, and

42:55

Indiana is essentially saying here, we gave

42:57

you that tax credit in past years,

42:59

but if you're going to do this,

43:02

we might take it back. Now it

43:04

hasn't gone through yet. So you have

43:06

to look at how your state is

43:08

going to treat this. But that's a

43:10

big unknown is if the states will

43:12

follow suit and consider this a tax

43:14

free conversion or rollover, or if they

43:16

are going to, you know,

43:18

enact some tax on this. Now,

43:20

the other caveat here is another

43:23

little rule for this is that

43:25

you cannot convert over earnings from

43:28

money put into the account in

43:30

the last five years. So

43:33

we have to separate out those gains on

43:35

contributions from the last five years. Who's tracking

43:37

that? I have no idea. I don't think

43:40

anyone will come out with a good way

43:42

to track it. So they're trying very careful

43:44

and it makes sense for, you know, people

43:46

not to try to use this as a

43:48

way to get more money into Roth accounts,

43:51

you know, when their attention was never to

43:53

save for education, they're trying to make it

43:55

because there is a risk of unused 529

43:57

funds. They're trying to to

44:00

that, but they have to make it so

44:02

airtight so nobody is using it for other

44:04

scenarios. That's why we have all these little

44:07

rules with it. That certainly makes

44:09

sense. So I mean, let's actually look

44:11

at prior to this. So

44:13

before this 35K thing came into existence,

44:15

I guess let's clarify when someone pulls

44:18

money out of 529, what's the tax

44:20

on that? So

44:23

like for both federal and state, like what are the

44:25

ramifications of, okay, look, I put in $5,000 a year

44:27

for my child's first 10 years. So

44:31

I made $50,000 of contributions. Let's

44:34

say hypothetically it doubled. It's worth 100K now. And

44:38

I have $100,000 of 529 and I have to pay 25 grand for year one of freshman year

44:40

of college.

44:47

Like what happens in terms of like mechanically

44:49

from there? If you're taking money out

44:51

for education expenses, tax free, you're good

44:53

to go. If you're

44:55

taking money out for anything that

44:58

is not an education expense, you

45:00

are taxed and penalized at the

45:02

10% penalty on the gain.

45:04

So your contributions, you can always take back

45:06

out. They're not going to be double taxed,

45:08

but it's just the earnings of that money

45:10

where there is that penalty and that tax

45:12

that you will pay. Gotcha.

45:14

Okay. And right when the

45:16

money went in each year, so that $5,000 in my hypothetical, you

45:18

would have

45:22

paid tax on that for federal,

45:24

right? And then depending on the

45:26

state and what the maximum state

45:28

tax deduction is, you might have

45:31

paid zero or minimal state income

45:33

tax, right? Correct. So

45:35

each state has their own rules. We already mentioned

45:37

Indiana, which has a state tax credit. Most

45:39

of them I see as a state tax deduction and

45:42

we're usually looking at limits of 10 to

45:44

15,000 for a married couple that you

45:46

are allowed to deduct for state income

45:48

tax. Most states don't have any

45:51

deductions, don't have any benefits for using a 529.

45:53

So you just have to look at it on a state by

45:56

state basis. Okay. This all

45:58

makes sense. And like you said. There's

46:00

still a lot. A lot we're waiting on.

46:02

So I think your analysis of that was

46:04

right that like a lot of content hasn't

46:07

been created around this online because it's just

46:09

tough. It's tough when we don't have the

46:11

answers. So we're excited that this exists. But

46:13

like you said, it's not some like hack.

46:15

There's no unless you're playing some crazy long

46:18

term game of like, okay, look, 15 years

46:20

from now, I'm going to be able to

46:22

do this at a fairly small amount at

46:24

the end of the day. 35. Like if

46:26

you're planning 15 years in advance for like

46:29

a kid who's maybe going to get scholarships

46:31

and not need this and so I can

46:33

do this for 35,000 probably

46:35

not worth the return on household there. But

46:37

that said, I don't think most people are

46:40

doing this. So for people who are concerned

46:42

about over saving, this can really make the

46:44

difference, especially if it's going to be maybe

46:46

35,000 per account, per beneficiary. Like

46:51

I'm thinking about myself, right? We will say yeah, nobody

46:53

knows. But like, I have an account for each of

46:55

my daughters. My wife has an account for each of

46:57

our daughters. So are we going to get 135,000 per

46:59

both of them or they're going to be for 35,000

47:02

in essence, we will think. Yes,

47:07

it's the first year that this went

47:09

into effect. So they should be issuing

47:11

guidance soon. We should be able to

47:13

have a little bit more clarity, especially

47:16

if they want people to use this.

47:19

But we don't have those those answers yet.

47:21

I think if you're in a scenario where

47:23

you've had an account funded for 15 years,

47:25

it's been at the same custodian. You

47:28

just want to same beneficiary and you want

47:30

to transfer it over and it seems like

47:32

your state is okay with it. That might

47:34

be the scenario where you can feel comfortable

47:36

doing it now. Anything outside of that where

47:38

you know you have you change the beneficiary

47:40

or you don't want to do it. If

47:43

you can only do it for one beneficiary that we have

47:45

to wait for guidance on. Okay, that

47:48

makes sense. And like you said a

47:50

few minutes ago, this is subject to

47:52

the annual Roth contribution limits per year

47:55

and the beneficiary has to have earned income

47:57

over the amount that is. Yeah,

48:01

whatever you're converting. So if you want to convert four, they

48:03

have to have 4,000. If you want to do the

48:05

full seven, they have to have at least 7,000 and earned

48:07

income. Right. So this is

48:09

not something... Yeah, there's no gaming this. I like

48:11

that. Which is great, right? Like I

48:13

said, this was a... I mean, obviously there's

48:16

some gray area here, but hopefully they'll

48:18

figure it out and we will

48:20

be back on a future Mailbag to update

48:23

it. So I think that was great. Let's

48:25

move on to the next question. I guess

48:27

while we're talking about 529s and I guess

48:29

potentially college and children and such, Kelly wrote

48:31

in, my wife and I have three girls,

48:33

seven, four, and one, and I've got 529

48:36

set up already for all three. My

48:39

grandparents are at the stage of their lives where

48:41

they're trying to gift as much of their wealth

48:43

to family as possible. So for the past few

48:45

years, I've been depositing that money into each kid's

48:47

529 account. The oldest

48:49

two girls have approximately $100,000 so far

48:51

in their account, which I feel is

48:53

plenty at their age. So I'm

48:55

wondering what to do with the money this year. Each kid has

48:57

a check for $36,000. Would

49:00

you keep pumping it into the 529? Should

49:02

we set up their own bank account? Can

49:04

we deposit into my wife and I's account

49:06

and we can put it into a brokerage

49:08

account? Something better. So in essence, Rachel, question,

49:10

question, question, like what do we do? So

49:12

this is clearly an enviable position, but Kelly

49:14

is trying to figure out like where do

49:16

they go from here? And

49:19

also there's that interesting thing of the 36,000, which

49:22

maybe we can touch on that because there's

49:24

a gift tax rules, right? So I suspect

49:26

that's why arbitrarily

49:28

seeming number of 36,000 is

49:30

actually a very precise one.

49:33

Yeah. So I guess we can address gift tax

49:35

first. And this is where a

49:37

lot of people get confused, but you

49:39

can gift a certain amount every single

49:41

year and the limit is 18,000 for 2024

49:44

single and then 36,000 for a married couple. Now

49:49

this is the confusion. That's

49:51

not the limit. That's just the limit before

49:53

you have to file a gift tax return.

49:55

So a lot of people think, okay, that's

49:57

what I can gift tax free. It's actually

49:59

not. true. It just means that if you

50:01

gift over that amount, you gift $40,000 to a

50:03

grandchild, you

50:06

now have to file a gift

50:08

tax return because everybody has a

50:10

lifetime gift tax limit. And so

50:13

it's just going to subtract

50:15

from that. So the $36,000 essentially

50:17

is not subtracting from your lifetime

50:20

gift tax limit, but anything

50:22

above that would be subtracting. Yeah.

50:25

And this is really, really important

50:27

for people to understand. So there's

50:30

the annual exclusion, and then there's

50:32

the lifetime basically gift and estate

50:34

tax. It's the same pot, basically,

50:37

for the gift and estate. So

50:40

like Rachel just said, every year,

50:42

there's this gift tax exclusion, which

50:45

currently for 2024, it's

50:47

$18,000 basically per person, per human,

50:49

and then per person you're gifting

50:51

it to. So let's just say

50:53

my, this is not the case,

50:56

but let's say my mom and

50:58

dad wanted to give myself and

51:00

my wife, Laura, the maximum.

51:02

So my mom could give $18,000 to me. My mom could give $18,000

51:07

to Laura. My dad could give $18,000 to me and $18,000 to Laura. So that's how it works.

51:12

Each individual can give to each

51:15

individual basically. And like Rachel said,

51:17

it's basically I think

51:19

people actually probably go too far

51:22

in terms of trying desperately to stay under

51:24

that number, because realistically

51:26

then all that happens if you

51:28

go over is it just

51:31

kind of gets subtracted out of your lifetime

51:33

estate tax exclusion, which currently it looks like

51:35

just from a quick research in 2024 per

51:37

individual, it's $13.61 million, or for a married

51:39

couple, it's

51:44

$27.22 million. So unless you're worried about

51:46

having more than $27 million to give

51:48

away, the gift

51:50

tax and estate tax that you'll ever pay

51:52

is $0. So it's actually just a record

51:55

keeping issue. So I mean, listen, if you

51:57

have a hundred thousand dollars to give away

51:59

and you've feel like doing it, nobody's

52:01

paying any tax on this at the end of the

52:03

day, unless you have more than $27 million. Yeah,

52:06

a state tax is definitely one of those things

52:08

where there's some weird

52:10

fear around it when it applies to such

52:13

a small percentage of the population.

52:15

Now, granted, this is always on

52:17

the chopping block. There's

52:19

a lot of people who want to see that number

52:21

brought down. There's always talks of it being

52:24

halved. And then we'd be looking at, you know, 13 to

52:26

14 million. So

52:28

really not a concern for most

52:30

people. Now, it's convenient. If

52:32

you want to look at it from a convenience perspective, you

52:34

don't have to file a gift tax return if you just

52:37

stay under that limit. So you could certainly do that. But

52:39

as far as just transferring wealth on,

52:41

and again, I don't know

52:43

them. So I don't know their total

52:45

estate. If it was really high, if

52:47

it was 30, 40 million, they might

52:49

be trying to gift during this time

52:52

to avoid that. Or they might just

52:54

be gifting because they prefer to see

52:56

this used by their children, their grandchildren

52:58

now. So as far as where should

53:00

this money go and how should we

53:02

direct it? They mentioned the 529s and

53:05

how they're really built up already. And this

53:07

is a perfect segue from what we just

53:09

talked about with the risk of overfunding

53:11

of 529. So it

53:13

sounds like the listener might be

53:16

concerned about overfunding, the 529, which

53:18

is a valid concern because if

53:20

we blow up this 529 to

53:22

a huge amount and we can't

53:24

take everything out for education

53:27

expenses, then again, those earnings, they get

53:29

taxed and penalized. And we only have

53:31

about 35,000 here to play with to

53:33

transfer over to the Roth. We don't

53:35

know if that's per child yet. Right,

53:37

right, right. But that's the concern. So

53:40

then we start to think about, okay, what's

53:42

the next step? So they bring up a

53:44

brokerage account. I'm always a fan of a

53:46

brokerage account for many reasons, just because of

53:48

the flexibility. I don't know if this is

53:50

important that the money stays in the children's

53:53

name, but it sounds like they may have

53:55

the option to put it in a brokerage

53:57

account in the parents' name. The

53:59

difference here... that would be

54:01

important is one control I

54:22

actually just want to jump in real Could

54:30

the parents create a brokerage account in their

54:32

name with that money? So this is

54:34

where we have to classify this a gift

54:37

to the children or a gift to the

54:39

parents if it's attended to Go to the

54:41

children then it should stay in the children's

54:43

name again when we're thinking about that gift

54:45

tax exclusion I don't know if they're

54:47

gifting to the parents as well. That would

54:49

be a valid concern Now

54:52

the asthma always gets brought up

54:54

to that's a custodian account that

54:56

is owned by the child But

54:59

the custodian retains control of it until

55:01

the age of majority and that's

55:03

again 18 or 21 depending on the state So

55:05

a lot of people always wonder if they

55:08

should fund an upma for their child again

55:10

We have that concern of are you okay

55:12

once your child reaches age of majority to

55:14

have control over the account? Is

55:17

there any way that you want to

55:19

to be careful when your child access

55:21

the funds the other? Consideration

55:23

here. That's really important is FAFSA

55:26

and how this is calculated So

55:29

anything that is in the child's

55:31

name any assets are going

55:33

to be given a heavier

55:35

weight in the expected family

55:37

contribution calculator But

55:41

when they're looking at this calculation if the

55:43

child has assets They expect that child to

55:45

be using a larger percentage of

55:48

those assets to fund their education So

55:51

assets in the child's name are given

55:53

a heavier weight than assets in the

55:55

parents name So that's where we

55:57

have to be careful is where the assets owned by the

55:59

child What are the assets owned by

56:01

the parents? Now, a really popular solution

56:03

that a lot of people do for

56:05

children's education is have a

56:08

529 or an account owned by

56:10

the grandparents, because that's not given

56:12

any weight in the expected family

56:14

contribution. So if they have

56:16

that option, if you have that option

56:18

where either you can be the custodian

56:20

of the parents or the grandparent can

56:22

be the custodian of a 529 and

56:24

we believe we have a chance here

56:26

with FAFSA and giving aid to the

56:28

child, then we would actually

56:30

want to hold the assets in the name

56:32

of the grandparents but the child is beneficiary.

56:34

Okay, yeah, that makes a ton

56:37

of sense. So yeah, the FAFSA,

56:39

this is something that's so important.

56:41

And yeah, it's a real bummer,

56:43

but I think the last that

56:45

I heard, and I believe this is accurate as

56:48

of now, that assets in the child's

56:50

name, so not in 529s, but

56:52

just assets in the child's name gets

56:54

essentially taxed and it's not actual tax,

56:56

but it's how I think about it.

56:58

It's taxed at 50% for that effective

57:00

family contribution. So if they have $40,000

57:02

in, like you said, a

57:06

brokerage account, which might be that that

57:08

UTM account, well,

57:11

20,000 of that is essentially the college is gonna say,

57:13

all right, you got a fork over 20,000. So

57:16

I think of that as like a 50% college tax, which

57:19

is just really, really unpalatable.

57:21

And it's funny Rachel,

57:23

because we have set up these

57:25

UTM accounts for my kids.

57:28

And I'm like, over my dead body is

57:30

50% of this getting taxed

57:32

by a college that first year. Like my

57:35

thought is, they don't have a

57:37

ton of money in there, but that money

57:39

can be used for anything since it's not

57:41

a college account. So like my older daughter

57:43

is getting ready to drive and

57:46

we're thinking about getting her car. Now,

57:48

I guess theoretically, we could just take

57:51

the money out of there and have

57:53

her purchase a car that way. And

57:55

then 50% of it doesn't get taxed

57:57

by college in two years. That's A

57:59

violation. The ball strategy right? Yeah, When we

58:02

put money into not my it is

58:04

an irrevocable guest to the child. So

58:06

when we do that if we take

58:08

money back out. To be

58:10

for the child so is an interesting her and

58:12

and of we don't want to get into over

58:15

the holidays with a thing but my monkey sitting

58:17

like okay well does that mean that the car

58:19

has to be titled in my daughter's name like

58:21

to see up your honor I wonder I wonder

58:24

so we can answer that. I'm as I I

58:26

assume both. Needless to say this is a brainstorm

58:28

that I had about forty five seconds ago and

58:30

that's what's fun about. This is like okay you

58:33

can think about this kind of stuff and of

58:35

obviously have to look into that. Be somewhat beta

58:37

decides on not like jumping into doing this. But

58:40

right in that case it would ya. It's very

58:42

clearly would be her car. And for her, you're

58:44

so. I mean I think that passes that the

58:46

snow that's but I would need to look into

58:48

that a lot of. Further, Yeah and

58:50

I bring up Fossil his clients and they

58:52

kind of wave at and they say hey,

58:54

we're we're way above it with it's not

58:56

even going to be a consideration as far

58:58

as aid. We are just assuming that we

59:01

are completely going to have to take care

59:03

of that so it might be a consideration

59:05

for you. If you're closer it might not

59:07

be. That would be something where you have

59:09

to look at your income, your assets and

59:11

see what you are expected. See on the

59:13

contribution is it might just be an irrelevant

59:16

planes but the offspring up you know a

59:18

bank accounts and say. I think it's interesting

59:20

that to think about the points of the

59:22

money and how it's going to be used.

59:24

Still when we talk about five three nights

59:26

for obviously assuming it's going to be used

59:28

for education but they asked about party and

59:30

a bank account and if the point is

59:32

to build wealth for the child for them

59:34

to start there was buildings are named than

59:36

of course we do want to look at

59:38

investing the assets rather than having them certain

59:40

tasks. There's that concern with a child who

59:42

is very young and will have a very

59:44

long time until they need the money that

59:46

that money is going to lose to inflation.

59:48

So unless. I think accounts with going to

59:50

be used to spend the money immediately. I

59:52

don't think it makes a lot of sense,

59:54

but again, that's the question of what's the

59:56

purpose of the money and and how do

59:58

we see or child. using the money.

1:00:01

Yeah. And in this case, Kelly's

1:00:03

children are seven, four, and one.

1:00:05

So like you said, I mean,

1:00:07

if you start investing this and

1:00:09

it compounds over the next nine

1:00:11

decades, or there are paths like

1:00:13

that's some real, real money. So

1:00:15

another possibility is once they start

1:00:17

having earned income, you can

1:00:19

start putting money into Roth. So that can

1:00:21

come, it doesn't have to be the literal

1:00:23

dollar that you earned. Like it doesn't have

1:00:26

to be that exact dollar bill. It can

1:00:28

be any amount, but the limit is the

1:00:30

amount that you have as earned income. So

1:00:32

that's a possibility to do for this

1:00:34

extra money. And yeah, I

1:00:36

mean, I think just kind of going back

1:00:39

to the general question is, yeah, I mean,

1:00:41

look, you know, you've got a hundred thousand

1:00:43

dollars in accounts for a seven-year-old and a

1:00:45

four-year-old. And just with compounding, by

1:00:47

the time that seven-year-old is 18, if that

1:00:50

money hasn't doubled, right, if it's not

1:00:52

200 grand, something probably went terribly wrong

1:00:54

with the investment strategy and similar or

1:00:56

really more so for the four-year-old then.

1:00:58

So I mean, for me, and again,

1:01:00

you can never give advice. We don't

1:01:02

know the situation. The student might

1:01:04

be going to a four-year college at a

1:01:06

hundred thousand dollars a year, and then maybe

1:01:08

they are under saved. But

1:01:11

for me, having a hundred K in

1:01:13

an account for a seven-year-old and a

1:01:15

four-year-old for college, considering any uncertainty and

1:01:17

are they going to get scholarships, yada,

1:01:20

yada, yada, like, and I

1:01:22

think there are some mitigating factors for that. So

1:01:24

as I say it out loud, like, you know,

1:01:26

I think there's potential ways that if you do

1:01:28

get scholarships, there are some ways to access the

1:01:31

money. But nevertheless, is a hundred thousand dollars enough

1:01:33

for a seven-year-old and a four-year-old and a 529?

1:01:35

I mean, for me, yes. I think a hard

1:01:37

stop end of story. I would then start looking

1:01:40

elsewhere. And like Rachel said, you

1:01:42

can set up a brokerage account. I

1:01:44

know we have Utmas, I believe, through

1:01:46

Vanguard for my girls and just started

1:01:48

investing in VTI or something similar is

1:01:51

what we did and just kind of

1:01:53

let it ride. And that'll be their

1:01:55

account and it'll revert to them entirely

1:01:57

when at that age of majority. And.

1:02:00

I mean, just think of it as what would you do for

1:02:02

yourself? That's how I would approach that Rachel.

1:02:04

Yeah, I think that's a great idea.

1:02:07

I mean, again with the 529, it's

1:02:09

like the Roth versus traditional where we're

1:02:11

almost betting here. And if

1:02:13

we want to make a huge bet and

1:02:16

say, well, I think my seven year old

1:02:18

is going to go to med school and

1:02:20

going to spend several six figures in college

1:02:22

and you bet big on the 529, they

1:02:24

do that, you win because that's all tax

1:02:27

free money that's coming out. But the other

1:02:29

scenario where that doesn't happen, where maybe they

1:02:31

don't go to college at all, maybe they

1:02:33

start a business, do something else, then

1:02:36

we lose big. So I think for most

1:02:38

people, we want to hedge our bets here.

1:02:40

And most of us don't have that type

1:02:43

of risk tolerance where we're willing to bet

1:02:45

that big. Totally agreed. And

1:02:48

that's, yeah, that's basically how we did it

1:02:50

for our own girls is at first, we started saving a

1:02:52

lot. And then we're like, Oh, I don't really want to

1:02:54

have all this money in the 529. So

1:02:57

we have obviously a significant net worth. So

1:02:59

it's not like we went out and blew

1:03:01

the money on dinners out or travel. Like

1:03:03

we were saving the money. It was just

1:03:05

in a different spot. So it was just

1:03:07

more like we didn't want to get locked

1:03:09

into something. So yeah, lots of considerations. But

1:03:11

I think we thoroughly answered Kelly's question there,

1:03:13

which is great. So I think we have

1:03:16

one more. So this

1:03:18

last question came in from Gopal. And the

1:03:20

question is, I just got married and we both

1:03:22

have our separate nine to five jobs in our

1:03:24

own individual bank accounts, checking and savings. Now that

1:03:27

we are married, I want to know whether we

1:03:29

need to create another bank account, like a joint

1:03:31

checking or joint savings account. Should we get rid

1:03:33

of some of our individual accounts? If

1:03:35

we get a joint account for some of the common household expenses

1:03:38

for which we can pull money in our salaries, then

1:03:40

since it is only for the monthly household

1:03:42

expenses, should we simply opt for some brick

1:03:44

and mortar like Bank of America or Wells

1:03:46

Fargo, or to make better sense to go

1:03:48

with these online banks, which have a high

1:03:50

interest rate. So there's a lot of questions

1:03:53

here about like, all right, Rachel,

1:03:55

they just got married, which is wonderful. Huge

1:03:57

congrats. And it sounds like, you

1:04:00

know, look, But they had obviously separate financial lives

1:04:02

and they're coming together. And

1:04:04

I guess the key word, and I focus on this,

1:04:06

this was not capitalized, but I focused on the word

1:04:09

need. So do we need to

1:04:11

do this? That to me is the word that jumps

1:04:13

out out of a couple hundred there. So how

1:04:15

do you think about this? How do you

1:04:17

advise people? I know this is kind of

1:04:20

like the third rail of personal finance. Some

1:04:22

people retreat into their ideological corners of, you

1:04:24

should never combine, you should always combine. Like,

1:04:26

we don't play that game here at Choose

1:04:28

a Vibe. We play the, all right, look,

1:04:30

we're going to try to educate and you make the

1:04:32

decision. But Rachel, how do you

1:04:34

think about need to combine, want to combine,

1:04:36

is it good to combine? I

1:04:39

think the strong opinions on this are always so

1:04:41

interesting because to me it's such a personal and

1:04:44

a matter of convenience, really. What

1:04:47

is most convenient for you

1:04:49

and your lifestyle? If you

1:04:51

decide that you like to have

1:04:53

some separation where you like your own spending

1:04:56

account, that doesn't mean you're

1:04:58

not taking a stance in any

1:05:00

way. Now, if you have a spouse

1:05:02

where one of you is working and

1:05:04

one of you is maybe a homemaker

1:05:07

for taking care of your children,

1:05:09

then I think that's a scenario where

1:05:11

combining finances is often a good solution.

1:05:13

But again, for me, it comes back

1:05:16

over and over again to just

1:05:18

what is convenient. And having these jointly

1:05:20

owned accounts is very convenient because either

1:05:22

of you can go to the bank or call

1:05:24

the bank or take money out. It's

1:05:28

just a matter of can you set

1:05:30

up your financial lives in a way

1:05:32

where it is convenient and organized for

1:05:34

you. So a kind of a solution,

1:05:36

a thing a lot of people do

1:05:38

is just to combine everything. Let's throw

1:05:40

everything into joint accounts. All the bills

1:05:42

will come out of there. We'll spend

1:05:45

from there, put everything into a joint

1:05:47

savings account, and then have credit cards

1:05:49

attached to these banks too, and just

1:05:51

have everything pushed together. To be honest,

1:05:53

this is how the IRS is looking at

1:05:55

you. They look at a married couple as

1:05:57

basically one person when it comes to taxes.

1:06:00

And then from an estate planning perspective,

1:06:02

I always like to bring this up

1:06:04

with my clients, but it is really

1:06:07

convenient to have a jointly titled asset.

1:06:09

And again, these are scenarios nobody wants

1:06:12

to think through, but if something were

1:06:14

to happen to a spouse and

1:06:16

the other spouse needed access to the funds,

1:06:19

if it's jointly titled, they'd have access that

1:06:21

day. So you do wanna think

1:06:23

about that as far as if

1:06:25

something were to happen to me or something

1:06:28

were to happen to my spouse, how difficult

1:06:30

would it be to get this money? Because

1:06:32

if things don't have a beneficiary on it,

1:06:34

or if it's not jointly owned, we have

1:06:36

to go through probate, it's expensive, it's inconvenient,

1:06:38

and that's a really hard thing to go

1:06:40

through when you're already going through a difficult

1:06:42

thing. Now, a solution might be a

1:06:44

jointly titled account and then individual account.

1:06:47

Say you like to have some money

1:06:49

just deposited into your individual account for

1:06:51

spending on hobbies you have and you

1:06:53

just like it to be separate. That's

1:06:55

fine, that's a way that you can

1:06:57

organize it. Just again, make sure your

1:07:00

beneficiary is your spouse for convenience. Yeah,

1:07:02

that is so important. And we had

1:07:05

an episode, maybe one of the

1:07:07

absolute best and most important episodes of the

1:07:09

entire 650 plus episode run

1:07:12

here of Choose a Vai. It was

1:07:14

episode 476 and it was entitled love,

1:07:17

loss, and money, the shocking financial aftermath

1:07:19

of a five spouse's death. And

1:07:21

Amy came on and told her story

1:07:24

and it was really, really

1:07:26

just so sad and poignant and really

1:07:29

speaks to what you said, Rachel, about

1:07:31

like, look, even if you're married and

1:07:34

you think everything's just going to go to the

1:07:36

other spouse, just simple as can be, like, man,

1:07:38

these states in the United States have some

1:07:40

wacky rules depending on where you live. And

1:07:43

just make sure you dot i's and cross t's.

1:07:46

Make sure your beneficiaries are named

1:07:48

explicitly and don't just assume. Just

1:07:51

make sure you do that. It's really, really

1:07:53

important. And something you said in there was

1:07:55

absolutely critical of, like, look, if

1:07:57

these are your everyday. Accounts

1:08:00

that you're using don't just

1:08:02

take the path of least resistance and say

1:08:04

like, oh look our Rent

1:08:06

or our mortgage. It's always come out of this

1:08:08

account. Like that's your house. We moved into it

1:08:10

together like oh, let's just leave it It's easier

1:08:12

that way. No, no No, like as sad as

1:08:15

this is and as morbid as it can be

1:08:17

like you have to think about what

1:08:19

happens in the worst-case scenario Right. So

1:08:21

like if that one person passes away

1:08:23

their stuff is frozen You don't have access

1:08:26

to this like at a moment's notice and

1:08:28

then what happens? But could you imagine the

1:08:30

stress upon like a shock death and then

1:08:32

you're worried about like is the mortgage getting

1:08:34

paid? Is there money in there? Can I

1:08:36

transfer money and like I can't do anything

1:08:38

with this thing like and that the clock

1:08:40

is ticking on this mortgage Needing to be

1:08:42

paid like I mean goodness like I would

1:08:44

say and this is not again. It's

1:08:46

not like an ideological thing It's just common sense. Like

1:08:48

let's just be smart about this. I Wholeheartedly

1:08:51

understand and agree with people having their

1:08:53

own finances to some of like do

1:08:55

your thing have your separate account funded

1:08:57

with $50,000 I don't

1:08:59

care like do your thing. But I mean

1:09:02

you're married there are some

1:09:04

practical ramifications of like

1:09:06

look if things go south here in

1:09:08

terms of someone getting severely

1:09:10

injured or passing like you don't want

1:09:12

to add financial Stress to something just

1:09:15

because you took the path of least

1:09:17

resistance. So yeah, I mean Rachel. That's how I think

1:09:19

about it Yeah, I mean, I think marriage

1:09:21

is a much bigger commitment than adding somebody

1:09:23

to your Yeah, yeah,

1:09:25

yeah, that's the concern we might

1:09:27

want to rethink Honestly,

1:09:31

I just always fall back to convenience

1:09:34

and simplicity I think that's the best

1:09:36

financial plan and when it comes to

1:09:38

a married couple time to time again

1:09:40

I see the most convenient and simple

1:09:42

solution to be joining accounts and again

1:09:44

to solve for that worst-case scenario I've

1:09:47

just I've seen it before where the spouse

1:09:49

has died and the other spouse has had

1:09:51

difficulty Getting access to the

1:09:54

funds, you know The spouse who passed away

1:09:56

doesn't want that and most of us I

1:09:58

think would never want to put our spouse

1:10:00

in that situation. So we do have to

1:10:02

run through these really sad scenarios, but just

1:10:04

to make sure that our spouse is covered.

1:10:06

And remember, even without that

1:10:09

scenario, it is just so much more

1:10:11

convenient to jointly own this asset and

1:10:13

both have access and control over it.

1:10:15

Yeah, wholeheartedly agree. And yeah, some

1:10:17

of the more detailed questions

1:10:19

here were like, do we need a brick

1:10:21

and mortar? Do we need a large bank?

1:10:24

I mean, I got to be honest, I

1:10:26

don't know that it really matters. Like, I

1:10:28

mean, if we're talking like, to pay bills,

1:10:30

I mean, yeah, you're in all likelihood not

1:10:32

going to be able to do that out

1:10:34

of a high yield savings account that's online.

1:10:36

So you're probably gonna want like a regular

1:10:38

checking account. I'm agnostic to whether it's Wells

1:10:40

Fargo Bank of America or your local credit

1:10:42

union or a local bank like, you

1:10:45

do you figure that out. I don't think there's any

1:10:47

like specified like it has to be x, y, and

1:10:49

z. No, I mean, I think this

1:10:51

person will understand that checking you don't really

1:10:53

earn much money on savings you do. So

1:10:55

put the amount in checking that you need

1:10:58

to cover your expenses and not much more

1:11:00

than that. And then put the extra cash

1:11:02

into savings in a high yield savings account

1:11:04

where it can earn the interest. And then

1:11:06

you're good. There's really not much to think

1:11:08

about it beyond that other than FDIC insurance

1:11:10

and make sure that your your cash is

1:11:12

insured too. Yes, very, very important. So

1:11:15

all right, we just went through a

1:11:17

whole whole assortment of interesting questions. I

1:11:19

think that was a very thorough look

1:11:21

through. So Rachel, as always, I really

1:11:23

appreciate you being here. And I know

1:11:26

you have a lot of irons in

1:11:28

the fire. So we're among

1:11:30

the many, many places where can people find

1:11:32

you? Yeah, so my business is Camp Wealth.

1:11:34

So I'm Camp Wealth and most places just

1:11:36

started a YouTube channel Camp Wealth if you

1:11:38

want to check that out. And then I

1:11:40

have a podcast too with my co host

1:11:42

Matt Gerasic that is called the coming work

1:11:44

optional can find it anywhere where you listen

1:11:46

to podcasts. Very nice. And thank you for

1:11:49

having me Brad. This is such a great time. Yeah,

1:11:51

of course. I love having you on and we're

1:11:53

going to try to do these mailbags much

1:11:55

more frequently. So no promises, obviously, to the

1:11:58

audience if it's going to be 12 a year. or

1:12:00

six year or whatever, but as you can tell, I

1:12:02

love having Rachel on. And yeah, we're going to just

1:12:04

keep rocking along with this. So until next time, thanks

1:12:06

for listening to Choose a Vai. Thank

1:12:09

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