Falling Behind? The RIGHT Way to Catch Up This Year

"Been watching Money Guy for a bit now. I'm having a hard time deciding where to start and I need to because I’m way behind. Eight percent going to 401a with an 8% match. I'm not sure where to put more - 457? Roth IRA?" We'll walk you through that question and more in today's Q&A episode! Jump start your journey with our FREE financial resources Reach your goals faster with our products Take the relationship to the next level: become a client Subscribe on YouTube for early access and go beyond the podcast Connect with us on social media for more content Bring confidence to your wealth building with simplified strategies from The Money Guy. Learn how to apply financial tactics that go beyond common sense and help you reach your money goals faster. Make your assets do the heavy lifting so you can quit worrying and start living a more fulfilled life. Learn more about your ad choices. Visit megaphone.fm/adchoices

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:06Brian Preston?

  Feel like you're following behind? Here's the right way to catch up.

• 0:10Speaker 01

  Brian, I am so excited to talk about this because a lot of people find themselves in this situation. Say, "Man, I feel like I'm behind. I haven't done what I needed to do, the way that I needed to do it, when I needed to do it." But what's wonderful about getting your financial house in order is the absolute best time to do it was yesterday, which means the second best time to get your house in order is today. And that's what we want to help you guys do. As a matter of fact, we love that one of the ways we get to do that is by answering your question. So if you have a question right now, we want you to get it into the live chat. We have the team out in the wings collecting them because we want to load you up.

• 0:52Speaker 01

  So with that, I forgot what it was. It's, I'm close.

• 0:59Speaker 02

  Senior content developer.

• 1:00Speaker 01

  Senior content developer Megan, I'm going to throw it over to you.

• 1:03Brian Preston?

  You should have just made up a title.

• 1:04Speaker 01

  I'm a little rusty.

• 1:05Speaker 02

  I mean, you could.

• 1:06Brian Preston?

  Welcome to 2025.

• 1:08Speaker 02

  Yeah, happy new year. Brian, you should know that the chat is blowing up about your jacket.

• 1:14Brian Preston?

  Here it is. Yes. Well, if y'all didn't know, Nashville's got some cold weather going on. So all the schools either got canceled or delayed starts. So I left a sleeping household and I was like, you know what? I'm going to pull that red jacket out. And I put it on, nobody noticed. They'll be just as surprised as you guys were.

• 1:35Speaker 01

  I think the world is thankful for it. Don't you agree?

• 1:38Speaker 02

  I think so. Our chat definitely is.

• 1:39Speaker 01

  Look at this.

• 1:41Speaker 02

  All right. Well, we are starting off with a question that's perfect for the new year. It's from Amy B. She says, "I've been watching The Money Guy for a bit now, but I'm having a hard time deciding where to start and I need to because I'm way behind. I have 8% going into a 401A with an 8% match, but I'm not sure where to put more. A 457, a Roth IRA?" What do y'all think?

• 2:04Brian Preston?

  You know, I wish Amy didn't feel so far behind because I just see right off the get go, 8% with an 8% match. She's got 16, you know, if you think about that, that's 16% that's working.

• 2:16Speaker 01

  Huge.

• 2:16Brian Preston?

  I wish we had Amy's age, you know, so we could really give her even more kudos. But that's, that's not something to just say, hey, that's, I'm way behind and I, you know, what do I do next?

• 2:27Speaker 01

  Yeah, what's really interesting, and I think just the fact that you are saving now, puts you way ahead of a lot of your peers. A lot of people haven't figured out, man, I really ought to begin saving for the future. I ought to begin deferring a little bit of today for a great, big, beautiful tomorrow. And just the fact that you've figured that out, no matter what age you are, is wonderful. And what I love is that it's not only that you've figured it out now, you want to figure out, how do I do it better? Okay, I've got 8%, it's going into my 401A. What else do I need to do? Or where else should I be saving? And Brian, that makes me think, I just wish there were

• 3:06Brian Preston?

  I know.

• 3:07Speaker 01

  a system, a method, a user manual to help you figure out what you should do with your very next dollar.

• 3:14Brian Preston?

  And by the way, Amy, I resemble a lot of what you wrote is because I can remember 22 years of age, had this accounting degree. On paper, everybody's like, man, this guy's got it figured out because I had a good job. But I got my first dollars that I now needed to invest and I had no clue what to do with it. And I remember I got sold some bad products and I just, I've always taken and internalized that vulnerability I had when I was 22 and starting my journey. And I was like, I wish somebody would just tell me what to do with my money so that I could do it in the right way, not waste time, not waste the money. And guys, that's exactly what we've created with the Financial Order of Operations. And I know all of our new people, by the way, 40% of you are brand new.

• 3:59Brian Preston?

  I'm always shocked at how many people are constantly coming through the turnstiles and joining the show. And it's important for you to realize, this is what this is, is this is going to let you triage your personal financial situation, figure out exactly where you are. I'm already proud. Hopefully you covered the deductible. Your highest deductible covered is step number one. You've already talked about you've maximized step number two with getting that 8% match. Now you're asking yourself, what's next? Well, of course. We've got to make sure if you have any credit card debt or any high interest debt that's going to be working against your wealth building journey, let's get that extinguished as fast as possible. Then let's make sure that you are covered for the uncertain stuff of your life with your emergency reserves, three to six months typically. And then we get back to the exciting stuff.

• 4:44Brian Preston?

  And you kind of, you already had some clues for yourself. You're like, do I do 457? Do I do Roth IRA? Well, the first thing we're going to see in step number five is look at those health savings accounts. Look at that Roth IRA. You're on the right track and you will, if you continue going through the financial order of operations, you're going to be able to build that great, big, beautiful tomorrow.

• 5:04Speaker 01

  And then I think one of the things that you can do that would be super helpful is if you go out to moneyguy.com/resources and check out our wealth multiplier, you can even play with a wealth multiplier tool. You can see that, okay, based on my age, if I do increase my savings from 8% up to 10% or to 15% or all the way up to the 25% that the guys recommend, this is what every one of those dollars can turn into by the time that I get to retirement, by the time I get to my desired financial independence age. And let that be your motivation to keep plowing forward because maybe you're not as behind as you think. And with a few small tweaks, a few small adjustments, you can get the shit moving in the right direction towards your great, big, beautiful tomorrow.

• 5:49Brian Preston?

  That was very good.

• 5:50Speaker 02

  Wonderful. Well, Amy, I hope that helps. Were you going to say something?

• 5:54Brian Preston?

  No, I had something. After you thanked Amy, I had a question. But is today a Tumblr day?

• 5:58Speaker 01

  Yep.

• 5:59Speaker 02

  I say so.

• 6:00Speaker 01

  Yeah, Tumblr day.

• 6:02Brian Preston?

  I mean, I don't, we didn't, we usually talk about it in the content meeting, but we're so, it's a new year, new fresh. So I didn't know if we, if we, if it was a Tumblr day or not.

• 6:10Speaker 02

  I asked admin and they gave us the okay. So I'd say it's a Tumblr day.

• 6:13Brian Preston?

  By the way, if y'all ever want to know where the break is, it's usually with the administrators. They're like, quit giving away the tumblers because they're the ones that have to, to make it all happen behind the scenes. Um, I, I thought it was so cool coming into today. We, you guys, I, I want to thank our audience is because over the break, you know, we, we took two weeks off for the holidays. I'm still re Reading, I can't help myself. It's like a bad, I'm reading Amazon reviews on Millionaire Mission, and then I'm reading our comment section on YouTube. And I want to thank you guys, because we do have a lot of new people that come in and see the show. And sometimes they come in with not the best mindset towards us. And I want to thank our audience for kind of filling in the gaps.

• 6:57Brian Preston?

  Because we had somebody, I read a comment last week where somebody said, "Look at these guys." I can't remember if they called us nerds, or jerks, or there was something that wasn't nice. And they said, you know, preaching at us and not taking our questions. And then I love their audience, immediately stepped in and goes, "They do question and answer shows like every week." And then I was able to jump in, and I was one of the few that I did write a response on. And I said, "You obviously are new, welcome, but we do indeed do a Q and A show every Tuesday, 10 a.m. Central." But I just want to thank you guys, because sometimes we're not always there to fill in the gaps and help the public. Because I get it, some people have, you know, public persona, they're looking for the catch, they're figuring out why we're even doing this.

• 7:41Brian Preston?

  And so if you guys can help fill that gap, it really does help us. The other thing that Bo was, and we were even talking about it in the content meeting, who would have thought your mustache? I mean, this thing almost has its own Twitter handle at this point.

• 7:55Speaker 01

  Honestly, we're thinking about it.

• 7:56Brian Preston?

  Because it's just ridiculous that Bo's facial aptitude, facial hair aptitude is just so, so popular.

• 8:04Speaker 02

  Are you telling him to bring it back?

• 8:06Speaker 01

  I do.

• 8:06Brian Preston?

  No, I don't want it back. I don't want it back. You know I don't want it back.

• 8:10Speaker 01

  I think that's what I just heard.

• 8:11Brian Preston?

  No, he did not hear that. And I think what I plan on doing, I probably shouldn't say this out loud, but she doesn't watch it, just like my wife doesn't watch it. I plan on working a whisper campaign behind the scenes with Bo's wife.

• 8:22Speaker 01

  To tell her, "Don't let this ever happen again."

• 8:24Brian Preston?

  No, I'm just going to, you know, make her realize, come to realize how uncool the stash is, or how sleazy the stash is, so that I can work behind the scenes. Because we all know that's where the real motivation is. And that's my master plan.

• 8:36Speaker 02

  Those are fighting words.

• 8:38Speaker 01

  Love it.

• 8:40Speaker 02

  All right, I don't think I actually said it. So Amy, if you would like a Tumblr.

• 8:46Speaker 02

  You can email Winner, W I N N E R at moneyguy.com. All good. All right.

• 8:53Brian Preston?

  Got a snot laugh out of me.

• 8:55Speaker 02

  Next question is-

• 8:56Speaker 01

  Did he just call it a snot laugh?

• 8:57Brian Preston?

  Well, you know, you snort. I mean, nobody wants to laugh like that. That's just, you know, what happens sometimes.

• 9:03Speaker 02

  Especially this time of year.

• 9:04Speaker 01

  Hashtag snot laugh. Got it.

• 9:06Brian Preston?

  Well, I don't have snot like a lot of people. By the way, everybody in Williamson County is sick. Except for me. But, uh, because I went to CVS just to pick up my normal prescriptions to keep me healthy. And there was way too many people in the drive-through. Went inside, because I was like, they just, all these, all these posh people in Williamson County just don't want to get cold, because it's cold here, for the two weeks that it's cold here. And so I went inside, and there was eight people in line there. I was like, I guess everybody's sick.

• 9:28Speaker 01

  Everybody's sick. All right. Got it.

• 9:31Brian Preston?

  That was actually- But I haven't done it in a few weeks. I got a lot to say. Sorry, Megan.

• 9:37Speaker 02

  It has been a minute. No, all good. Uh, all right. This next one is from Josh M. He says, "This is the first year that I will encounter Roth IRA income limits."

• 9:48Speaker 01

  Congratulations.

• 9:48Speaker 02

  Yeah, that's a great milestone. Uh, "How should I structure my contributions in light of this while trying to balance dollar cost averaging?" I feel like this is a question that a lot of mutants are gonna have this year.

• 9:59Speaker 01

  Well, I think a lot of folks get so excited. They love the idea of dollar cost averaging. And one of the first places that we start doing that is inside of a Roth IRA. Once we finally were able to max it out, say, okay, every month I want, uh, what is it, $583? Is that the right, I'm thinking, I think that's enough. $583 a month to go into max out the full $7,000. But then, you get to where Josh is, and you recognize, man, my income is right at that spot to where, man, I might not actually be eligible to put the full max into my Roth, or if it goes so high, I might not be able to do Roth at all. So what do I do? Do I just lose the Roth opportunity?

• 10:39Speaker 01

  Well, not necessarily, because there is a bit of a loophole that might be available to you called a backdoor Roth contribution, where you- You can, instead of putting money directly into a Roth IRA, you can fund a traditional IRA with a non-deductible contribution. Meaning you put the $7,000 in, you don't take a deduction, and then you can convert those dollars to Roth. Now, if you don't have any other IRA assets, no IRA rollovers, no SEP IRA, no SIMPLE IRA, none of that stuff going on, when you go to convert that $7,000 traditional IRA contribution that was after tax, it is a completely tax-free conversion. So it's a way to do a backdoor Roth contribution.

• 11:23Speaker 01

  But the question Josh is asking isn't so much about backdoor. He's saying, "Well, what about dollar cost average? Do I just stop saving? How would you recommend Josh approach that?"

• 11:34Brian Preston?

  I wanted to compliment Josh, though, for figuring this out in January, though, because it is a big oopsie. If you just go with autopilot, you fund your Roth, and then you realize you made too much money, because it's somewhat of a bugaboo to unwind it. So, good on you, Josh, that you're at the beginning of the year. You realize, "Hey, there's a good chance this year I'm going to cross the income threshold, but I really like my good behaviors." Because why we like dollar-cost averaging is because it makes the good habits as easy as possible. And it also protects you from making bad habits that much harder, because the money's already found a place, a positive place, to work in your financial life. But here's what I think Bo and Josh are alluding to, is I don't think you have to shut down dollar-cost averaging.

• 12:18Brian Preston?

  I like the idea of allocating the money, but maybe your monthly investment is now going into your cash reserves and your savings accounts. And then you choose, after you definitively figure out, are you going just direct contribution to my Roth? Or do I need to go through the backdoor process, assuming I have no other IRA assets? And then you go fund that all at once. It doesn't make sense to do conversions 12 times a year. It's just, it's logistically... Yeah, it's just too much hassle factor to make it work. So more than likely, you're going to convert once a year. So that's why the dollar-cost averaging into cash, build up your $7,000 contribution, figure out where... Where you are on the income threshold, whether you're doing direct or you're going to do backdoor contributions,

• 13:03Brian Preston?

  and then make it happen all at once. And you do, here's the great thing about Roth IRA contributions, or any IRA contributions, you have until April of the following year. So even though we are now in 2025, you actually have until April of this year to fund those 2024 contributions. So it's a pretty exciting thing.

• 13:23Speaker 01

  Let me ask you a question. I don't know how you're going to answer this, but let's say that someone has a fully funded emergency fund, right? And so let's say that your monthly expenses are $5,000. I'm making up a number. And so you have six months of that going on. So you got a $30,000 emergency fund. What would you tell someone, or would you be okay if someone said, you know what? Instead of just putting, you know, saving up that $7,000 every month in cash, if I wanted to be working, what if I opened up an after-tax brokerage account? And every month I was just dollar-cost averaging into my after-tax brokerage account. And then, when I get into the new year, I could either, I have the choice, maybe I had a bonus, maybe I had some extra cash that I could use, or I could use some of my emergency fund and then just rebuild it up, or I could then sell the brokerage asset.

• 14:06Speaker 01

  So that way, instead of having the money sit in cash, it's still working for you. Is that viable solution, or are you not like that?

• 14:12Brian Preston?

  I mean, it's a balance. I mean, maybe you and I, because I'm a little older, so I'm more on that stay wealthy versus get wealthy phase, you know, make versus maintain, as we often talk about. So I don't, I would rather your cash reserves be a little frothier.

• 14:28Speaker 01

  Okay.

• 14:28Brian Preston?

  And then, because I just don't want to break the moat of your cash reserves. Because I need that to be something that is separated out for emergencies and for when things go bad, you're not particular. Because I just don't want, it's a slippery slope, you know. I'll take seven grand out of my emergency reserves, fund the Roth, I'll make it back up. Well, what if you don't start the makeup? It's the behavioral stuff. But I do think. But you are hitting on something I think is a very positive behavior is once you realize that your cash reserves start getting frothy and building up beyond. Now, for me, because I know a lot of the haters out there, brand new year, gonna be like, who has extra money? For me, it didn't start feeling like I had extra money until I was in my early 40s.

• 15:11Brian Preston?

  So if you're in your 20s, 30s, messy middle, relax, it's going to be okay. Keep being deliberate, keep being disciplined. It will get better and easier. But for those that it does start to feel like your cash reserves is getting frothy and building up, I do like the thought of setting up an after-tax, you know, because that's really kind of a step seven of the hyper accumulation phase of the financial order of operations. But then you're also incorporating doing the Roth conversions into that process as well.

• 15:37Speaker 01

  Love it.

• 15:38Speaker 02

  Great. Um, sorry, I was looking at the Bo mustache poll and I got distracted.

• 15:45Brian Preston?

  Oh, did Josh M. ask that question? So Josh M. qualifies for a Tumblr.

• 15:49Speaker 02

  Thank you, Brian. Josh M., if you would like a Tumblr, you can email [email protected]. Sorry to say it does not land in your favor, Bo.

• 15:59Speaker 01

  Oh, what was the, what were the, what were the results?

• 16:02Speaker 02

  It was pretty bad, 61% to 38%.

• 16:05Speaker 01

  That sounds like rounding error to me. That's what that sounds like. I demand a recount.

• 16:10Brian Preston?

  By the way, I, I do think it's interesting. Josh M. is one of the, that is like the actual, my, one of my childhood best friends, you know, have five, like, they're the ones that you call when things got really rough. One of them is a Josh M. I don't want to say his last name, but I was, and I know a few of them every now and then pop in, but I was like, is this my childhood friend?

• 16:31Speaker 01

  What if that was Josh?

• 16:32Brian Preston?

  I know, that'd be kind of cool.

• 16:33Speaker 02

  Alrighty, uh, thank you again, Josh. This next question is from Future Polyglot. Says, I'm 26 and on step five of the FOO. My HSA is maxed out, maxed due to medical reasons and I'm planning on law school. So I put everything towards law school savings or still contribute a little bit to my Roth IRA, say $50 to Roth?

• 16:58Speaker 02

  Any thoughts?

• 17:00Speaker 01

  Well, here's what I love here. Alright, so we're 26 years old. Step 5 of the financial... Brian, will you hold up the thing for me? For those of you that aren't familiar, step 5 is the 5th step in our Financial Order of Operations. You can get your free copy at moneyguy.com/resources. He's already doing that part. He's already doing the HSA because of medical reasons, funding it. Now, it sounds like if he's funding the HSA for medical reasons, he's probably funding it current year and then using those dollars. So, while that is a step 5, when we think about step 5, it's more about letting those dollars grow and continue to grow. So, I would be curious if you are actually, in fact, in step 5. You may be earlier on.

• 17:44Speaker 01

  And so, if you have other things coming up, like you have law school, like you have some known expense coming up, I like the idea of saving for those near-term expenses in cash. I want to see you be able to do that. Now, what you've got to figure out is, is your ability to save for law school going to allow you to pay for law school in total? Or are you still going to have to take out some sort of debt otherwise? I think you have to have a more robust view of what the total picture is. Like, is that $50 I'm saving towards law school going to make a meaningful impact on that? Or is it something I could deploy into Roth IRA? Because I love the thought of even people very early on, starting out,

• 18:30Speaker 01

  with some nominal amount of money going into Roth. Because we know that when it comes to building wealth, 80% of building wealth are the habits that you create. 80% is actually creating the muscle memory of doing the work necessary to build wealth before you even get to the mathematics. So, I kind of like the idea of doing the Roth, of saving a little bit in the Roth. And I think that he's probably in that step. But I need to know more. I need to know more about what school is going to cost, where its current emergency fund is, how much cash he's sitting on, how long he's going to have to save for this goal. I don't know if we have enough information on that one.

• 19:06Brian Preston?

  Well, I think, but I... I want to give more, because that's what we do here at the Money Guy Show. And I think you've got to think about broad stroke, and then we're thinking about just the shading. And I think that the $50 a month is more in the shading and the fun stuff. We've got to figure out the preparation on the broad strokes, and that's really law school. That doesn't sound cheap. So I would, I would

• 19:27Speaker 01

  Not in my experience.

• 19:28Brian Preston?

  I would look at it in the viewpoint of the financial order of operations. And you figure out, is this something you're cash flowing? Or maybe you have, you know, some savings from the past, or you have an employer that's paying for it. How is that? Figure it out, the broad strokes of how you're paying for education, because maybe it is a student loan that you have to get. Well, now, if it's a student loan, is that low interest rate? Is that a high interest? Because high interest is going to be a step three item. Low interest is going to be a step nine item. So you've got to kind of balance that part out before we start getting into, you know, Roth IRA contributions. But once you go through the broad strokes of what the, you know, essentially the umbrella

• 20:13Brian Preston?

  of what the financial order of operations is, yeah, I'm not going to get mad at you if you just throw $50 a month towards the Roth. Because I do the same thing with, y'all know. By the way, I did my net worth statement.

• 20:23Speaker 01

  Yeah, buddy.

• 20:24Brian Preston?

  Do you want to know how low my mortgage is now on my house here in Tennessee?

• 20:29Speaker 01

  It's not paid off?

• 20:30Brian Preston?

  I know, I know. It's 2.5% interest. But because, you know, my payment due is this amount, and I round it up every month, and it's exactly like the $50, I'm doing the shading. It's down to $64,000. I have thought about, I have thought about just paying it off, writing a check, but it's, I don't know. 2.5%. There is some arbitrage weirdness that in the, I keep waiting for the Federal Reserve to change interest rates enough to where it will take the decision away from me. But right now, my cash is still making more.

• 21:01Speaker 01

  I am curious. He said, this is what he says, hey, when the rent interest rates drop, I'm just, I have a theory that, now, don't write, write this in pencil if you're taking notes. I think that the mortgage will end up being paid off just on its natural timeline. Before rates drop down to 2.5%. So I think you have this best intention.

• 21:20Brian Preston?

  We're truthfully, we're probably within a year and a half of that just happening naturally.

• 21:24Speaker 01

  Yep, that's what I think is gonna happen. That's my bold prediction on is Brian, on the saga of is Brian ever gonna pay off his mortgage?

• 21:31Brian Preston?

  But I wanna make sure, and by the way, this question, I got so distracted by his name.

• 21:34Speaker 01

  Okay.

• 21:35Brian Preston?

  Future.

• 21:36Speaker 01

  It was Future Polyglot.

• 21:38Brian Preston?

  What is that?

• 21:39Speaker 01

  I don't know. I didn't wanna add, I don't know what that means.

• 21:41Speaker 02

  Isn't that just speaking multiple languages?

• 21:43Brian Preston?

  Oh, is that what that means? Okay, look, poly has all kinda meanings these days. And I was like, what in the world is that title? That title threw me and I couldn't even focus on the question. That's how, that's how my brain is like squirrel. And I'm like, I don't even know what that word means. So obviously, Future.

• 22:00Speaker 01

  Multiple language speaker.

• 22:01Brian Preston?

  Um, very, very smart, cuz he's speaking words, SAT words that I don't even know exist. The reason, I'm really good at math. Did we answer that question or did I focus all of his title?

• 22:12Speaker 01

  No, no, I think you did. I think you did.

• 22:13Speaker 02

  Yeah, we answered it.

• 22:14Speaker 01

  I think there was something in there.

• 22:15Speaker 02

  We answered it.

• 22:16Speaker 01

  You may have chopped that up.

• 22:19Speaker 02

  Also, I like it how you looked surprised, Bo, like that Brian hadn't paid off his house when you're the one that trying to convince him not to do it.

• 22:25Speaker 01

  Oh, look, I know he's not going.

• 22:27Brian Preston?

  He's like, you know, the old Looney Tune, you know, where you got the angel on this, you know? Maybe the angel's on this side probably, and then the devil's on this side. And Bo's definitely on the devil's side.

• 22:38Speaker 01

  Brian left with his own device, he'd have paid off that mortgage a couple of years ago. But then, you know, he just got this buddy who's really good at math and is like, ah.

• 22:44Brian Preston?

  Megan knows, cuz we worked on the keynote speech together. I had, when we were doing the keynote speech, writing the speech, I was like, I'm gonna have this paid off before we do the book tour.

• 22:52Speaker 01

  Oh, I heard that.

• 22:53Brian Preston?

  Book tour, way in the rearview mirror, and then here I am carrying 64,000. But you know what it was previous year? This is what's so cool. I think it was like 115? So I mean, a lot of it, you know, through that rounding up and paying, it's disappearing. So maybe it is gone by the end of the year, just because every now and then I round it up even a little bit more.

• 23:12Speaker 02

  Yeah, and financial goals change. It's good to be flexible.

• 23:15Speaker 01

  Yep.

• 23:16Speaker 02

  All right, Future Polyglot, thank you for your question. If you would like a Money Guy Tumblr, you can email [email protected]. All right, next up is a question from Ashley K. She says, "Hi Money Guy team, is there any downside to harvesting capital gains in my kids' UTMA, assuming that I can keep them below the kiddie tax?"

• 23:38Brian Preston?

  Oh, look at that, taking advantage of the 0%.

• 23:40Speaker 01

  I love it. Okay, so for those of you, oftentimes, you hear us talk on the show about harvesting losses. It's this idea of if you have a position, a mutual fund, an ETF, a stock, that has lost value, you can sell that position, capitalize on the loss that you've incurred of the position, you can go buy something that is not identical. You can't buy the same stock, you can't buy the same index. You can buy something similar to replace it. So that way, you maintain the same investment exposure, but you capitalize on that loss. And when that asset class or that type of stock rebounds, you'll still be in the same investment posture. And then, you can use those losses to offset current year capital gains, or future year capital gains, or you can even use it to offset up to $3,000 of ordinary income in

• 24:25Speaker 01

  the current year. So it's an amazing strategy to use harvesting losses. One thing that does not get as much press is harvesting gains. And there are a few different areas and scenarios where harvesting gains makes sense. One of the ones we talk about all the time is when someone retires, and their income drops, and they've built up their three buckets to where they can manipulate their income to keep it below a certain dollar amount, below a certain dollar threshold, you're actually in the 0% capital gains rate. So it might make sense to sell some of your gain positions up to the point where you would trigger the 15% capital gain, but no higher, because it is a cliff, and you pay 0% on those capital gains. Well, it sounds like Ashley has figured out, man, okay, well, that's something that works

• 25:10Speaker 01

  on my tax return, but ah, there might be a little bit of an opportunity for my kids where I could harvest gains inside of their UTM account. And an UTM account is just a custodial account where the child is the beneficiary on the account, but an adult of age serves as the custodian of the account. But the taxability is generally based on the child's taxability and the child's tax Tax rates where I can sell these positions and I can harvest these gains. And again, below certain thresholds, the kid pays 0% capital gains.

• 25:42Brian Preston?

  Yeah, what I was frantically trying to figure out is, you know, I have these little cheat sheets. This is my 2025 quick tax reference.

• 25:49Speaker 01

  Brand new.

• 25:49Brian Preston?

  So I'm a brand new. And it's worth repeating where the 0% capital gains rates are. For single filers, it's under $48,000 of taxable income. For married filing jointly, it's $96,700. And head of household, it's $64,750. Trust and estates, it's $3,250. What I was frantically trying to figure out was where the

• 26:21Speaker 01

  Kitty tax.

• 26:21Brian Preston?

  Kitty tax threshold is, and we have broke my tax reference guide because it has no reference on there to that. But fortunately, you're connected to the wonderful World Wide Web and can give us some feedback on that.

• 26:35Speaker 01

  So in 2024, any amount above $2,600 of income generated in a custodial account on a kid's behalf is taxed at the parent's rate. So my question, or the question that I would have for Ash, the question I have for you on Ash's behalf is, does it make sense? Like, should you be harvesting gains and trying to turn the account to reset basis? Or for most custodial accounts, unless they get really large, are they actually going to be generating that much income? I mean, in your experience, when you first opened up custodial accounts for your daughters and as you were building those account ups, did you find that they were often having to pay tax on those accounts?

• 27:11Brian Preston?

  Well, this is now, I like index funds. So index funds are more tax efficient than mutual funds in a lot of ways is because what I was finding is my basis was automatically going up over time just because of year end distributions. But index funds, I do think that this is probably a very good strategy because a lot of times index funds, they just don't have a lot of turnover. And even the target retirement index funds, they just don't have so much turnover that it creates these big distributions. So you can have some pretty large capital gains start to build up in them. I don't hate this strategy as long as. You're just, it's the hassle factor, or the

• 27:50Speaker 01

  Sure.

• 27:50Brian Preston?

  It's back to that squeeze of the fruit has to be worth the trouble you're going to. But I think that this one potentially over the long term could be helpful. So, so do your research. And, but that 0% capital gains has always been a very effective thing. And this, by the way, will flip the script. This is for a young person. I think it's very important when you leave the workforce and you, you know, if you're pre-social security, think about Roth conversions, think about 0% capital gains. When you're post-social security, you have to still think about those two things, but you also now take into account the taxability of social security.

• 28:28Brian Preston?

  These are all the cool things of be very aware of what's going on with how taxes impact your investment as well as your lifestyle, because it is definitely an important thing. There's a reason so much time is spent on doing tax planning for our clients.

• 28:45Speaker 01

  Love it.

• 28:46Speaker 02

  Wonderful. A great question, Ashley. Thank you so much for asking it and for being here in the live stream. If you would like a Money Guy Tumblr, you can email [email protected].

• 28:56Speaker 01

  The Money Guy Show is hosted by Brian Preston and Bo Hanson. Brian and Bo are partners with Abound Wealth Management. Abound Wealth Management is a registered investment advisory firm regulated by the Securities and Exchange Commission in accordance and compliance with the securities laws and regulations. Abound Wealth Management does not render or offer to render personalized investment or tax advice through The Money Guy Show. The information provided is for informational purposes only, may not be suitable for all investors, and does not constitute financial, tax, investment, or legal advice. All investments involve a degree of risk, including the risk of loss.