Should You Stop Using a Roth 401(k) After a Certain Income? (Money Q&A)

In this episode of The Personal Finance Podcast, Andrew answers eight questions on tax strategies and retirement planning, covering when investment moves trigger taxes (depends on account type), tax loss harvesting for high earners, why the 75-80% retirement income rule uses pre-tax numbers but you should plan more conservatively, strategic Roth 401k timing in lower tax brackets, a TransUnion data breach affecting 4.4 million Americans, income thresholds where traditional 401ks beat Roth options (24-30% marginal rates), saving for kids' expenses using the five-year investment rule, emergency fund storage as rates drop, and comprehensive pension planning beyond just relying on guaranteed payments. Today we are going to answer these questions: Do you get taxed when moving money from one investment to another inside the same account? How does tax-loss harvesting work? Most retirement rules I’ve seen state that you want 75 to 80% of your pre-retirement income. Is that before or after taxes? Should you max out a Roth 401(k) in the first quarter of the year because of the lower marginal tax rate? At what annual income should someone avoid a Roth 401(k) and do traditional for tax purposes? Putting money away for kids’ wedding, cars, etc.—for when they get older. HYSA or brokerage? What are the best high-yield ways to store an emergency fund? How to plan for retirement with a pension? How Andrew Can Help You: Listen to The Business Show here. Don't let another year pass by without making significant strides toward your dreams. "Master Your Money Goals" is your pathway to a future where your aspirations are not just wishes but realities. Enroll now and make this year count! Join The Master Money Newsletter where you will become smarter with your money in 5 minutes or less per week Here! Learn to invest by joining Index Fund Pro! This is Andrew’s course teaching you how to invest! Watch The Master Money Youtube Channel! , Ask Andrew a question on Instagram or TikTok Learn how to get out of Debt by joining our Free Course Leave Feedback or Episode Requests here. Car buying Calculator here Thanks to Our Amazing Sponsors for supporting The Personal Finance Podcast Shopify: Shopify makes it so easy to sell. Sign up for a one-dollar-per-month trial period at shopify.com/pfp Thanks to Policy Genius for Sponsoring the show! Go to policygenius.com to get your free life insurance quote. Indeed: Start hiring NOW with a SEVENTY-FIVE DOLLAR SPONSORED JOB CREDIT to upgrade your job post at Indeed.com/personalfinance Go to https://joindeleteme.com/PFP20/ for 20% off! Shop outdoor furniture, grills, lawn games, and WAY more for WAY less. Head to wayfair.com Get 50% Off Monarch Money, the all-in-one financial tool at www.monarchmoney.com/PFP Chime: Start your credit journey with Chime. Sign-up takes only two minutes and doesn’t affect your credit score. Get started at chime.com/ Acorns: Start investing automatically with Acorns and get a $5 bonus at Acorns.com/PFP Go to https://joindeleteme.com/PFP20/ and Use Promo Code PFP for 20% off! Links Mentioned in This Episode:  tax loss harvesting, Connect With Andrew on Social Media: Instagram TikTok Twitter Master Money Website Master Money Youtube Channel Free Guides: The Stairway to Wealth: The Order of Operations for your Money How to Negotiate Your Salary The 75 Day Money Challenge Get out Of Debt Fast Take the Money Personality Quiz 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.

• 0:00Andrew Giancola?

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• 0:44Andrew Giancola?

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• 1:27Andrew Giancola?

  I told it what kind of website I wanted, and I built the first version in minutes. No coding, no designer or developer needed. And Hostinger doesn't stop at launch. Their AI can help with SEO, website copy, email marketing, and more. Plus, your domain, website, email, and marketing can all live in one account, with plans starting at just $3 every single month. Hostinger builds your vision step by step. Create your website today. Go to hostinger.com/pfp and use code PFP for 10% off now. On this episode of the Personal Finance Podcast, should you stop using a 401K after a certain income? We're going to answer your questions on this Money Q and A.

• 2:26Andrew Giancola?

  What's up everybody and welcome to the Personal Finance Podcast. I'm your host, Andrew, founder of MasterMoney.co. And today on the Personal Finance Podcast, we're going to be diving into your questions. Now, today we have eight different questions that we're going to be getting into. And the first one is, do you get taxed when moving money from one investment to another inside the same account? The second one is, how does tax loss harvesting work? The third one is, most retirement rules I've seen state that you want to have 75 to 80% of your pre-retirement income. Is that before or after taxes? Number four is, should you max out your Roth 401k in the first quarter of the year because

• 3:07Andrew Giancola?

  of the lower marginal tax rate? Plus, at what annual income should someone avoid a Roth 401k and do a traditional for tax purposes? Number six is, I'm putting away money for kids, wedding cars, etc. For when they get older, should I use a high-yield savings account or a brokerage account? And how do you juggle the two? Number seven is, what is the best high-yield ways to store an emergency fund? And number eight is, how to plan for retirement with a pension? So this is an action-packed episode. Lots of stuff to cover in this episode. So without further ado, let's get into it. All right. So question one is, do you get taxed when moving money from one investment to another inside the same account? Now, this is going to depend

• 3:49Andrew Giancola?

  entirely on the type of account that you're using. Because if you're investing inside a tax-advantage account, like a Roth IRA, or a traditional IRA, or a 401k, this is going to mean that the rules are going to be very different, because you can move money between investments inside of those accounts without triggering any taxes. So you can sell one mutual fund, or you can sell an ETF and buy another to rebalance your portfolio, or you can shift strategies without paying any capital gains taxes whatsoever, because they are inside these retirement accounts. So this is a huge benefit to retirement accounts, is the tax advantages. This is why we talk about those tax advantages so much. And we'll talk about how it applies to each account type. So with the Roth IRA, you're going to contribute after tax dollars.

• 4:32Andrew Giancola?

  And all the growth is completely tax-free. This is what we love about the Roth IRA is that tax-free growth. Because typically, if you have a long time horizon, that tax-free growth is going to be the majority. And buying and selling inside of the Roth has no tax impact. And qualified withdrawals are also completely tax-free. And so that is inside the Roth. Number two is inside a traditional IRA or a 401k or these pre-tax accounts. Contributions will be made by pre-tax and you'll pay ordinary income tax when you withdraw the money later. But buying and selling within the accounts won't trigger taxes now. And so no taxes will be triggered when you are buying and selling inside of that traditional. And the HSA contributions are pre-tax.

• 5:14Andrew Giancola?

  Growth is tax-free and you can pull the money out tax-free as long as you have a qualified medical expense. And so when you're buying and selling inside of an HSA, you also will not have taxes triggered. However, there is an account where taxes will be triggered. And this is just a regular old brokerage account, a taxable brokerage account. Now, the rules are very different inside of this taxable brokerage account. Where if you start making money moves in a taxable brokerage account, you need to assume that all of these events will be taxable. So anytime you sell an investment for more than you paid, the profit inside of that account is called a capital gain. So you'll hear people talk about capital gains tax all the time. Well, a capital gain is when you sell a stock inside of this account for a profit.

• 5:57Andrew Giancola?

  Now, this can trigger taxes even if you immediately reinvest the money into a different stock or a different fund. Now, the good thing about capital gains is they are still taxed at a lower rate than your income tax typically is. And it's going to depend on where your income level lands to decide how much you are going to be paying. Now, it also is going to depend on how long you have been holding that investment. And so the big thing is long-term capital gains are not taxed at your ordinary income rate, but short-term capital gains are. And this is where the disadvantage is for a lot of day traders or people who get in and out of stocks a lot, is that you're going to be taxed a lot more than someone who actually holds on to their investments for longer than a year. So at the short-term capital gains rate,

• 6:41Andrew Giancola?

  if you held the investment less than a year, you're taxed at your ordinary income tax rate. So this is significantly higher and it's truly not an advantage for most people. This is why I don't like day trading. This is why I don't like short-term investing. This is one of the reasons why I don't like people getting in and out of stocks all the time. Instead, you need to be a long-term investor because long-term capital gains is significantly lower. So if you held for more than one year, you'll pay 0%, 15%, or 20%, depending on your income. And so depending on what your income is, that's what it'll trigger. So typically, most people will be paying that 15% range because your income needs to be below like $43,000 to pay 0%

• 7:22Andrew Giancola?

  and it needs to be above over $400,000 to be paying that 20%. And so because of this, most people out there will be paying that 15% capital gains tax rate. So if your taxable rate right now on your income is significantly higher than 15%, then this is a better situation for a lot of folks out there. Now, let me give you an example of this. Let's say, for example, you buy $10,000 of VTI in a taxable account and it grows to $12,000. And then you sell it to buy SCHD, which is going to trigger a $2,000 capital gain. Then you're going to owe taxes on that gain. So what's going to happen here? If you did this, you would owe no taxes when moving money inside of a retirement account or tax-advantaged account. But if you are in a taxable account,

• 8:05Andrew Giancola?

  you would pay taxes on that $2,000 capital gain, depending on a bunch of other factors, obviously. But that's where you'd be paying money on. It's not the original $10,000 you put in, but it's the amount of money that your money made, the profit. And so typically, when you move money around, that is what is going to happen. Now, now, is there reasons you should do this? We're going to talk about those reasons in the next question. Okay, so the second question is, how does tax loss harvesting work? Now, we have had an entire episode talking through tax loss harvesting, and it is a strategy, I think, if you are a high earner or if you have a lot of money inside of a brokerage account, this is something you can definitely consider. But you have to have a decent amount of money inside of these investment accounts for it to make a big impact on your tax situation. But tax loss harvesting...

• 8:48Andrew Giancola?

  Is basically a strategy where you sell an investment that has lost its value to offset taxes on gains you made elsewhere in your portfolio, or even reduce your regular taxable income. So here's how it works step by step. I'm going to take you through the steps of tax loss harvesting, so you can understand how this works. If you sell a losing investment in your taxable brokerage account, let's say you bought a stock or an ETF for $5,000 and it's now worth about $3,000. You sell it and you lock in a $2,000 capital loss because it was 5,000. You sold it for three, you lost two grand within that transaction. So you can use that loss to reduce your taxes. So first, the $2,000 loss can offset capital gains from other investments that you sold at a profit during that specific year.

• 9:32Andrew Giancola?

  So let's say, for example, that you sold a stock that also made $2,000. You bought Apple for 5,000 and then you sold it at $7,000. You had a $2,000 gain. Well, you can utilize this loss to offset that capital gain. Also, if your losses are more than your gains, you can deduct up to $3,000 of net losses from your ordinary income each and every single year. And any losses beyond that carry forward to future years. So this is going to be something where if you have a higher amount in your brokerage account, this is going to make some sense for folks who are trying to reduce their taxable income if you have some stocks that are already down over that timeframe. Now, the third part of this is then what you do is you reinvest the money in something similar, but not identical.

• 10:15Andrew Giancola?

  So this keeps your portfolio balanced and avoids missing out on market gains. But you must avoid buying the same exact investment within 30 days before or after the sale, or you'll trigger what is called the wash sale rule, which disallows loss for tax purposes. So let me give you an example of this. Let's say, for example, you sell VTI for a $2,000 loss. So VTI is the total stock market ETF. Now, to avoid that wash sale, you go buy something similar like SCHB, which is a dividend ETF. And you maintain exposure to the market, but you now have a $2,000 loss that you can reduce your taxes. If you went and sold VTI and then went and bought VTSAX, which is basically the same fund, one's just an index fund and one's an ETF, that would trigger the wash sale rule.

• 10:58Andrew Giancola?

  It would be a problem, but you got to make sure that you are buying something that is similar, but not the same. And so that is really, really important when you are doing tax loss harvesting. Now, tax loss harvesting can save you real money in taxes, but especially in your really, really high income years. But again, you have to have really high income for this to really make sense. And you have to have a decent amount that you're making in your portfolio. Otherwise, it is a waste of time. If you have a $10,000 portfolio and you don't have a high income this year, it is not worth your time to try to figure out how to tax loss harvest. Instead, you need to utilize other strategies to grow your income and then go and get more money in that portfolio. Then you can utilize strategies like this. But for some folks, it is a waste of time. And then for others, it can make a lot of sense. It just depends on your specific situation. Now, if you want to talk through tax loss harvesting with someone, your CPA

• 11:43Andrew Giancola?

  or a certified financial planner can both help you through those processes to figure out exactly where you need to land for your personal situation. And that's the way I would approach this if you are interested in utilizing tax loss harvesting. And again, this is one of those things like rebalancing, tax loss harvesting, both of those two things are going to matter a lot more as your portfolio grows. But early on in the early stages, it's not going to matter as much for most folks. Great question. And let me know if you have any other questions on that. And check out the entire episode if you haven't, where we talk through tax loss harvesting. Question three, most retirement rules I've seen state that you want to have 75 to 80% of your pre-retirement income. Is that before or after taxes? So that 75 to 80% retirement income

• 12:26Andrew Giancola?

  refers to your gross pre-tax income before retirement. But the goal is to replace your after-tax spending needs in retirement. So let's break this down. Now, if you make $100,000 before taxes while working, the rule says you might need $75,000 to $80,000 before taxes in retirement. But the key is in retirement, your taxes will often be lower because number one, you are no longer paying payroll taxes, things like social security and Medicare on wages. Number two is you might be in a lower income tax bracket, depending on your certain situation. Number three is you may have tax advantage withdrawals from something like a Roth IRA, and your housing and family expenses may go lower too, depending on who is in your house. If you have kids, they go off to live on their own, those types of things.

• 13:12Andrew Giancola?

  So a number of different factors could come into play that would cause your taxes to be lower. And so that's one thing. Now, I am not the person to say 75 to 80% of your pre-tax income. I am more of the type of person that would really want you to get closer to how much you're spending right now. So you have extra money on hand in order to be able to utilize that for your interests. Because what a lot of people don't factor in in retirement is their interests. They don't factor in inflation and they don't factor in the third thing, which is healthcare inflation. And that is a very important thing to make sure that you are monitoring. So really, for most people, I would rather you overplan than underplan when it comes to the number that you need. Now, why does this 75 to 80% rule typically exist? Because for most people, you don't always need to replace 100% of your income.

• 13:56Andrew Giancola?

  But you can plan on this as we get closer. And this is why, because A, the argument is you're not saving for retirement anymore. So you're not putting more money into these retirement accounts. Instead, you are going to be living on that money. And so you can reduce that by 20% if that's the case. You're likely done paying your mortgage, but some people still have a mortgage in retirement, which is partially my argument here. And you don't have work-related expenses like commuting and meals and those types of things. But you're going to have other interests that are going to pop up and your kids may be out of the house. So those four reasons are why people argue the 75 to 80% rule. I am more so trying to be conservative when it comes to this, where I think you really need to consider making sure that you get closer to the number that you're at.

• 14:38Andrew Giancola?

  I don't love reducing your spending number just because you're in retirement. Now, some people will argue with me about this. I am just more conservative when that final number comes up because I want your plan to be bulletproof. I want your retirement plan to be bulletproof. And I don't want you to have to, you know, figure out ways to earn extra money in retirement because you did not plan accordingly. So 75% I think is way too aggressive. 80% is maybe a little bit closer. And really, I would rather you get there at another number as well. But yes, this is based on pre-tax income and it is designed to reflect your actual lifestyle needs post-retirement. So in Master Money Academy, for example, we have a spreadsheet that we have been going through that is going to show you, and it basically will take all of our Members in there, we have our beta members in there right now.

• 15:21Andrew Giancola?

  It is taking them through, hey, here is exactly how much money you're going to need in retirement. And then here is you can adjust this inflation rate, you can adjust healthcare inflation. You can look at social security. If you're going to have rental income, you can factor those numbers in as well. And so inside Master Money Academy, we have this spreadsheet that kind of takes you through all this entire process. And this is super, super helpful when planning on retirement because you need to really update this every single year in order to make sure that you are still on track for that number because you're going to make adjustments to this. You're going to make adjustments to that retirement number. And so over time, this is going to shift and change. And so that's why you need to keep continuously updating it year over year. That's part of our, our plans over in Master Money Academy too, is we kind of take you through

• 16:04Andrew Giancola?

  all the steps you need to be taking, and that is one of the big ones is making sure that you are readjusting that retirement number. It's very important to make sure you get it right and get as close to possible as you can. It's very hard when you're in your twenties, when you're in your thirties to know how much you're actually going to be spending. And so reviewing it yearly and tweaking it yearly is really what is going to be the big, big difference maker. So really, really good question. Again, if you have any other questions, please let me know. And if anybody is interested in Master Money Academy, it is coming down the line. We're going to be launching it to everybody else outside of our beta members in October. So get ready for that. We'll announce it on the podcast. We'll announce it on social media as well. But it is coming down the line and we are really, really excited for that.

• 16:43Andrew Giancola?

  Question four is, should you max out your Roth 401k in the first quarter of the year because of the lower marginal tax rate? Now, the short answer and upfront here is yes, it can be a smart move to do that if your cash flow allows it and you're in a lower tax bracket at the start of the year. So at the beginning of the year, you've likely received maybe a bonus or raises or commissions, or you've been saving over the course of the previous year. Maybe you maxed it out early and now you've been saving it throughout the year to be able to max it out again the next year. And so if that is the case, then your marginal tax rate is temporarily lower, which means you're paying less taxes now than you might later on in the year. Now, I am always for getting dollars invested sooner rather than later. So if you're

• 17:28Andrew Giancola?

  Sitting on cash and you're saying to yourself, well, I saved up this cash from the previous year. I just need to figure out what to do with this. I would get the ball rolling on that cash. Cause overall, it's just going to be better to get it moving in the market earlier. We've talked about lump sum investing versus dollar cost averaging. Most of you out there need to be dollar cost averaging, just taking a portion of your paycheck every single month. But if you have a lump sum of cash on hand, it is much better to take that lump sum, invest those dollars and watch those dollars grow than to just keep them sitting in cash. It's better to get them moving. So if you can do it at the beginning of the year, it is much better. It's not going to make a huge massive difference, but it is a more optimal way to, to look at your dollars. Cause the sooner you get them moving, the better off you'll be. And it can also help you in a tax situation. Now, a Roth 401k is funded with after-tax dollars.

• 18:11Andrew Giancola?

  So if you're in a lower tax bracket at the time of contribution, you're locking in a lower tax cost now and enjoying tax-free growth and withdrawals later. So let's say you're in a 12% bracket in Q1, but in Q4, you're earning more. And now you're in a 22% bracket. If you contribute early, you're effectively paying 10% less tax on the same money going into your Roth, which is a big long-term win, especially since the Roth grows tax-free. So I think that's something for a lot of people to consider. And so when does this strategy work well for some folks? If they want to think through this and do some of these advanced strategies. If you expect to earn more later in the year, so if you get a bonus at the end of the year, or you get commissions or a raise, and if you're not paycheck to paycheck and can front-load those contributions, it's really important to make sure you're not hurting your cash flow within your budget every single month,

• 18:56Andrew Giancola?

  or getting yourself into debt or any other trouble. Instead, you want to make sure you're not hurting your cash flow. And then lastly, you're trying to maximize tax efficiency and take advantage of compound sooner. So all these things are little tweaks that you can make to maximize your tax situation. It is not going to be a life-changing thing, but it is something that you can definitely do if you are willing to do a little bit of extra work. And if you already have the cash on hand, why not? You know, there's no reason not to do it upfront. Now, there are a couple of things to watch out for is the no employer match after you hit the annual limit. So many companies match contributions per paycheck, not annually. So if you front-load your Roth 401k and hit that $23,500 limit, you might miss out on your free match money later on in the year. So some employers

• 19:38Andrew Giancola?

  Offer a true up match, but many do not. So you need to check on that specific plan before you make a move like this. And then there's also cash flow risks like we just talked about. So maxing out early means big deductions from your paycheck upfront. So make sure you have enough margin to cover your expenses. And that is a big one. So if your employer offers a true up match and you're in a lower tax bracket within this specific year, maxing out your Roth 401k in Q1 can be an excellent move. But if not, you might want to spread out contributions evenly to maximize employer matching while still contributing to your Roth early and often. So that's kind of the way that I would look at it is the match is a big factor in this equation. And just making sure that you look at your plan and understand how your plan works is a huge, huge differentiator. So really like that you're thinking about this, though.

• 20:21Andrew Giancola?

  Really like the detail that you have when it comes to making sure that you look at this. And we'll continue to talk about this stuff if there are any other changes. All right. So there has been a another data breach and we want to report on these typically every time they happen. And this is one that I think a lot of people need to go make sure that they are freezing their credit and doing a couple of other things if they are someone who has used TransUnion in the past. But TransUnion had a another data breach that occurred in late July, and there is approximately 4.4 to 4.5 million US consumers impacted. And what was exposed was their names, their dates of birth, unredacted social security numbers, which is the big one. The social security numbers is the one that I think a lot of people

• 21:06Andrew Giancola?

  need to make sure to look and see if they've ever used TransUnion, contact details and reason for customer transactions, plus their customer support ticket messages. And hackers claim they stole over 13 million records total with roughly 4.4 million tied to US consumers. And the breach is believed to be tied to a wave of Salesforce related attacks impacting multiple major firms. And so Salesforce has had a number of issues, including the Google one that we reported on recently. But this is something I think a lot of people need to take into consideration. If you have ever used TransUnion in the past, they could have your names, your dates, and your social security numbers. And this is obviously extremely sensitive. And so there's a couple of things that you need to do. One is obviously freeze your credit. We talk about this all the time is to make sure you go to The major credit bureaus and freeze your credit.

• 21:50Andrew Giancola?

  Also, make sure you enroll in free credit monitoring. And you could do this with TransUnion. They have identity protection services that is offered by them as well. Making sure you watch your financial accounts is the third one. And just monitoring them on a daily basis for the next couple of months. And then beware of any phishing attempts that could come after you. Because if they have your information, they could be doing phishing attempts. And then removing your personal information from the internet. And this is a big one for a lot of folks who don't do this. But because they have this data and this information, they can either go to a data broker now and get the rest of your information. So let's say, for example, they got your social security number and your name. Well, they can go to a data broker and buy your address and all the other information that is available with that data broker.

• 22:33Andrew Giancola?

  And they can take that information and go open up credit cards in your name or student loans in your name, those types of things. And so that is where I would go to a service like DeleteMe to get your personal information removed. Now DeleteMe by far is my favorite service that I have used to do this. They will remove all your personal information from data brokers out there. So that data brokers can't go and sell your information to criminals like this who steal your information from other websites that you've used. And so it's really, really important to make sure you get your personal information removed from the internet. Because that is one of the most impactful things that you can do. So someone can't get a hold of the rest of your information who has bad intentions. So if you go to joindelete.me/pfp20, you can get 20% off DeleteMe.

• 23:16Andrew Giancola?

  And I absolutely love DeleteMe because it saves me so much time. So go to joindelete.me/pfp20 and make sure that you sign up for DeleteMe to get your personal information removed. It is very, very important for most people out there. And again, freezing your credit is huge. Making sure you have that credit monitoring through TransUnion, where they're offering it for free right now. So those are just some of the things that you need to be doing in order to make sure that you are safe and you are staying away from some of these data breaches. Again, DeleteMe is going to save you from a ton of different data breaches that just keep happening month after month. It's like we have new ones constantly. And so this is something where I will keep telling you when they happen. And we will keep talking about this because it is so incredibly important. A herd of people getting their accounts wiped out.

• 24:00Andrew Giancola?

  I just saw another story of somebody getting their account wiped out, $100,000 in their savings account that they will never get back because someone got their information and just wiped it out. And it is something that is so incredibly frustrating. And it is one of those things that can be prevented if you take the right measures. So I hope each and every single one of you are taking the right measures towards this.

• 24:21Andrew Giancola?

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• 25:06Andrew Giancola?

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• 25:51Andrew Giancola?

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• 26:31Andrew Giancola?

  That's L-E-E-S-A.com promo code PFP for 30% off mattresses plus an extra $50 off. Let them know we sent you in the survey after checkout. Lesa.com promo code PFP. It's kind of amazing how much can change in just a single year. Every summer, the kids are a little bigger, a little more independent, and life looks a little different than it did the year before. And it reminds me that while we can't predict the future, we can prepare for it. That's one of the reasons I like PolicyGenius. See, PolicyGenius isn't an insurance company. They're an online marketplace that lets you compare life insurance quotes from some of America's top insurers, side by side, for free.

• 27:15Andrew Giancola?

  And their licensed team helps you compare coverage, prices and terms, answers your questions and even handles the paperwork so you can get the right policy without the hassle. For me, having life insurance isn't about expecting something to happen. It's about knowing my family is protected so I can actually enjoy these moments together instead of worrying about what comes next. And with PolicyGenius, you can find 20-year life insurance policies, starting at just $276 a year for $1 million of coverage. Head to policygenius.com to compare life insurance quotes from top companies and see how much you can save. That's policygenius.com. If you've been listening to this show for a while, you know it's not just me anymore.

• 27:57Andrew Giancola?

  It takes a great team behind the scenes to make everything happen. And if I had to hire someone tomorrow, I'd want someone who could jump right in and make an impact. That's why I'd use Indeed Sponsored Jobs. When workplace chaos hits, Indeed Sponsored Jobs helps you reach qualified candidates faster. Your job gets boosted in search results, so you're spending less time Searching and more time interviewing the right people. Plus, you only pay for results, which I absolutely love. Sponsored jobs posted directly on Indeed are 95% more likely to report a hire than non-sponsored posts. That's a huge advantage when you're trying to grow your business. Spend less time searching and more time actually interviewing candidates who check all of your boxes.

• 28:41Andrew Giancola?

  Less stress, less time, more results. When you need the right person to cut through the chaos, this is the job for Indeed sponsored jobs. And listeners of this show will get a $75 sponsored job credit to help get your job the premium status it deserves at indeed.com/podcast. Just go to indeed.com/podcast right now and support our show by saying you heard about Indeed on this podcast. Indeed.com/podcast. Terms and conditions apply. Need to hire? This is a job for Indeed sponsored jobs. All right. The next question is at what annual income should someone avoid a Roth 401k and do a traditional for tax purposes? So this is a really, really good question.

• 29:23Andrew Giancola?

  And there are some income levels where you need to start considering looking at a traditional 401k. As your income rises and your marginal tax rate increases, the traditional 401k contributions are way more appealing because you're going to defer those taxes at a higher rate today. And so one of the key things I think for most people to understand out there is as you start to think about this and as you think through, well, my marginal tax rate is rising, what range should I be having these conversations? One, you should be having these conversations with a CPA. And if your income is high enough, you need to have a CPA in your corner. I cannot stress this enough because they're going to save you so much on taxes. They're going to save you so much, especially one that is a tax strategist. That is the big key that you need to make sure that you have.

• 30:07Andrew Giancola?

  Now, as your income starts to rise, if you get to the 24% marginal tax bracket, that's where I would start to think about this and start to have these conversations. And maybe you're not shifting over yet, but as you start to approach that 30% marginal tax bracket, you definitely want to have a consideration to reduce your tax liability this year and shift over to a traditional if you can. Now, these are the Changes that I would think about between 24 and 30% is where you really want to have the conversation. Anything above 30% is likely a situation where you're going to want to look into the traditional and make sure you're having those conversations with your CPA or CFP. And it is going to be something that is going to make a lot of sense. Now, why does this matter? Why do we want to have this conversation? Well, Roth contributions are taxed now. And so for a lot of people, if you're in a high tax bracket,

• 30:52Andrew Giancola?

  you're paying top dollar in taxes today and contributing your money to a Roth. Whereas traditional contributions reduce your taxable income now, meaning you're paying less taxes this year, which is more valuable when tax rates are really, really high. So if you're in your highest earning income years and you're making $600,000 per year, then you likely want to have a consideration to try to reduce your taxable income now because it's going to make the most sense. Now, for those out there that if you looked at your traditional Roth IRA, for example, and you're not in the phase out area yet, or you're not in a situation where your income is getting phased out, it shouldn't likely be a consideration for you. But for those of you out there, as your income continues to rise and you expect to be in this high tax bracket for a while, the traditional is going to make a lot of sense.

• 31:34Andrew Giancola?

  Now, some additional considerations are if you expect to be in a lower tax bracket in retirement, you can also go traditional. Or if you think taxes will go up in the future, personally or nationally, a Roth may still make sense. But don't try to predict what taxes are going to be because we have no idea what they're going to be. Some politician can come into play and just change taxes dramatically in the opposite direction that you thought was going to happen. You can't control that. You need to focus on the things that you can control. If you're young and early in your career, typically the Roth always wins because that tax-free growth, that tax-free growth is going to be the majority. And when you do the math, it is amazing. If you have a million dollar Roth, typically about 850,000 of that is going to be tax-free growth. The majority is huge. Now, if you're older and you're peaking in your early years, traditional likely will win in that situation.

• 32:17Andrew Giancola?

  But that is something that you definitely want to continue to have that conversation. Now, a real world rule of thumb is if your marginal tax rate is 24 to 30%, you need to start having that conversation and you should seriously consider traditional 401k over Roth 401k and seeing what the difference is going to be. Unless you have a low retirement income expected or you're maxing out all accounts. And want tax diversification and you're planning on early retirement and Roth laddering later. So if you're maxing out all accounts, it doesn't matter. I mean, you should be getting as much money as you can in those accounts. And so that is another consideration to have as you think through this. So lots of things to talk through here about, but I think for most people, as you start to see your income rise,

• 32:57Andrew Giancola?

  it is worth running the numbers every single year and having your CPA or CFP running those numbers every year for you as well. Question six, I am putting money away for kids, wedding, cars, et cetera, for when they get older. Should I put this in a high yield savings account or a brokerage? So this is a really good question, and this is typically, the way I'm going to approach this is for money that you're going to spend, not for growing your kids' money so that they can have money handed to them in retirement or something like that. You are trying to put money away for a wedding, cars and things that you're going to spend money, you know, in their teenage years and when they get into their twenties or thirties for their wedding. Great question. And typically, the way I look at this is twofold. One is if it is less than five years away.

• 33:40Andrew Giancola?

  So let's say, for example, you have a 12 year old and they're going to be needing a car at the age of 16, or you want to buy them a car at the age of 16. And so this is less than five years away. Well, that needs to go into high yield savings account because the market could go in any which direction. And so the principal is safe, it is FDIC insured, and you can afford market downturns if the event is coming up soon because the market goes up and the market goes down. And so typically in those short run things, it is very important to make sure that if it's less than five years, it always, always, always goes in a high yield savings account. And that goes for anybody saving for anything. If you need it within the next five years, you need to make sure that it is in a high yield savings account. Now, if the timeline is longer than seven years, meaning if you have a longer time horizon out there

• 34:24Andrew Giancola?

  and you are thinking through, okay, well, I'm saving for a wedding and my daughter or son is five years old. Well, you got a pretty long time horizon there before that is actually going to happen. That is a situation where you can invest those dollars because you want that money to grow even faster. And so this is the same kind of thinking when we go to a 529 plan. We invest our money in a 529 plan so that we can grow our money for our kids' college. This is the same line of thinking when it comes to weddings. Or cars. If you have a five-year-old and they're not going to be driving for 11 years, there's nothing wrong with investing those dollars until you get closer to the age that you need to pull the money out and start to put it in a high-yield savings account or somewhere safer. So this is the way that you can definitely think about this is if it's above seven years. Now, if it's between that five to seven-year range, that's the gray area.

• 35:07Andrew Giancola?

  You can do a 50/50 split, and if you want to be safe, you can just keep it in the high-yield savings account to keep it safe. You will definitely miss out on some growth, but at the same time, you also don't want to get to the year where you're going to go buy the car, and then there's a recession or something like that, and then your account gets wiped 50%, and you can't use the money for what your intended purpose was. So that is the other way to think about that as you go through this. Now, if you're like, "I got six years left, I still want to do a split strategy," more power to you. There's nothing wrong with that, but at the same time, just know what the actual risks are. Now, some extra tips is if you use a high-yield savings account, I would use one with buckets, so making sure you automate that money into those buckets every single month, like Ally or Capital One. Some of those out

• 35:48Andrew Giancola?

  there have ways where you can basically budget inside of the account, but for weddings and cars, make sure you're not using a 529 or anything like that. And then just setting up those monthly transfers automatically allows you to save that money without having to think about it anymore. So it's really important to make sure that it is automated. So here's the rule of thumb. If you need the money soon, protect it. If you don't for a while, grow it. You can put it in a brokerage account and grow it over that timeframe. I hope this helps. Let me know if you have any other questions, and congrats on saving up for your kids.

• 36:17Andrew Giancola?

  All right, the next one is what is the best high-yield ways to store an emergency fund? So we have an entire episodes on this. We've talked about this a number of different times, but some high-yield places to store your emergency fund where it's safe and earns as much interest as possible is, one, a high-yield savings account. This is where mine is, and it is a place where they're currently paying, you know, anywhere from 3.5% to 4.5%. Now, the Fed, over the course of the last couple of months, has talked about reducing interest rates. So everybody out there, just know, when the Fed reduces interest rates, it's better for your mortgage situation. It is better if you're trying to buy a house, but it is worse for your savings. It is worse for your high-yield savings account. And so when they start to reduce those rates, you may want to put cash somewhere else. So This is something that you want to think through. So the high yield savings account is number

• 37:01Andrew Giancola?

  one, and it's the reason why it works. But if you want to lock in those rates, number two is no penalty CDs. So this is for money that you probably won't touch soon. It usually is going to have slightly higher yields in a high yield savings account, and you can withdraw any time without fees. And an example of this out there would be maybe you earn, you know, four and a half percent on an 11 month CD, something like that. You can go look up CD rates that are out there, and they're also FDIC insured. But this is best for people who think it's likely they're not going to use their emergency fund in the next couple of months. That is a good place to to consider, especially if you also want to lock in rates. So when the Fed lowers rates, which they're talking about doing again, this is the place that you can lock in the rate if you want to do that. The third place is T-bills. So T-bills are really, really good if you want

• 37:43Andrew Giancola?

  ultra safety and slightly higher yield, but they are backed by the US government, and they have short-term T-bills, which are three to six months. And you can buy them through Treasury Directs or a brokerage. They are not FDIC insured, but considered risk-free. So these things are something that, you know, they're a lot less liquid than a high yield savings account. So if you need the money, you may have to wait until maturity to access it. So I would not put the entire emergency fund in there, only, you know, let's say, for example, you put three months in a high yield savings account and three months in a T-bill, but you should only put it in a shorter term T-bill if that is the case, because you got to wait till maturity before you can actually pull that money out. And then money market funds are also an option for you. If you're a really high earner, money market funds are actually more tax optimized than

• 38:26Andrew Giancola?

  would be a high yield savings account. So for high earners, I do recommend you looking at money market funds, because you're not getting taxed as much on those yields, depending on your tax situation. But this is invested for short-term, another great place for your emergency fund. They're technically not accounts, actually, but they are a place to keep your cash and can be withdrawn quickly in most cases. Now, where to not use your emergency fund, because it's important to make sure you, the do's and the don'ts. The don'ts are the stock market or ETFs. That is just too risky. If the stock market gets cut in half, when you need your emergency fund most, it is cut in half. So it's not really worth it. Crypto, definitely not, is number two. Real estate is not liquid, so no. And then regular checking accounts also are not a good place for that, because they

• 39:08Andrew Giancola?

  Have no interest. So high yield savings account is my number one for sure for most people. The other ones are two, three, four, and five. And then if you're a higher earner, looking at a money market account is going to be more tax efficient for you. So those are the considerations for most people, and I hope that helps kind of clarify it. Again, for most people, the trigger is a high yield savings account. Just think about it that way.

• 39:30Andrew Giancola?

  All right. The last question is, how do you plan for retirement with a pension? So we're probably going to do an entire episode on this, but planning with a pension changes the entire game that you're working with here. I have talked to a lot of people in Master Money Academy who have some sort of access to a pension or their spouse is going to get a pension. And this is something I think is really, really powerful for most people as we start to kind of have these conversations. So before anything else, you need to get the answers to these. When are you eligible? Meaning how old or how many years of service? Number two is how much will you get monthly? So estimate with your HR department or a pension calculator. Number three, is it inflation adjusted? That is a huge deal if it is inflation adjusted, or they call it COLA. And so you want to ask that question.

• 40:14Andrew Giancola?

  What survivor options are available? Meaning would this go to your spouse if he passed away? And then is it safe and fully funded is the other question. So if it's not fully funded, if it's not guaranteed, then I probably wouldn't even factor it into my entire retirement plan. Because what if it's taken away? So that's the other thing that you want to think through. Also, if it's with a private company, how are the financials with that private company? We're seeing a lot of the old time companies, for example, that are not doing so hot as of late. So if you worked for maybe, you know, like a cereal company or a company that is, you know, falling prey to all the health trends that are going on right now. A lot of those old companies that used to make a lot of money are not doing as well as they used to. So you just got to make sure that that pension is safe, the company is safe, those types of things. So just thinking through that is important.

• 40:59Andrew Giancola?

  Now, first though, is asking those questions. Number two is then calculate the gap. So your pension is a piece of the puzzle and we add actually pension income in Master Money Academy. We have this calculator in there that has pension income in there. That can be really helpful for a lot of people, but you want to add up your pension income, your social security income, and subtract your expected retirement expenses. And that's going to give you the gap to fill with your savings and investment. Then you want to save independently. So even with a pension, you're still going to need to save up for retirement. A lot of people make this mistake that they're only going to rely on that pension. That is a big mistake. You need to also make sure that you're maxing out things like your Roth IRA or your traditional IRA or contributing to your 401k or a 403B if available. Or you can use a brokerage account to contribute money as well.

• 41:42Andrew Giancola?

  Because pensions can be generous, but diversifying your tax situation is the key. It is really important to make sure you're diversifying that tax situation because things can change. Pensions can get cut, inflation, early retirement, legacy goals, all those different things are going to happen. And you want to make sure that you have enough money for it. Then next, step four is I want you to time your retirement right. So retiring after a few years early can shrink your pension significantly if you retire too early. So you want to make sure that you're fully vested with that pension if you can tolerate the job. And know if early retirement reduces monthly payout. So you want to ask that question if you have not already. And then factor in healthcare costs if you leave before Medicare. So age 65 is when Medicare starts. If you leave before then, you want to factor in your healthcare costs as well. Then you want to have a backup plan. So what if the pension goes away or gets reduced? What's going to happen?

• 42:27Andrew Giancola?

  What if I outlive the pension? That's a big one. And how long is it around? And what if inflation erodes away at my purchasing power because it's not inflation adjusted? That is something you definitely want to make sure that you know. Because your own investments plus your emergency savings is going to help you with this. Those are the things that you can control. Those are the things that you can focus on. And so I would really, really make sure that you are also investing in other places. Number six is you want to plan for taxes. So pensions are usually fully taxable at your ordinary income rate. And a Roth IRA, for example, has tax-free withdrawals. And a traditional IRA has taxable withdrawals. So it's smart to mix in your tax flexibility in retirement. But again, pensions are fully taxable at your ordinary income rate. That's going to change your social security and everything else. Now, step seven is to get the most from your social security.

• 43:11Andrew Giancola?

  So coordinate social security timing with your pension. So in some cases, your pension might reduce your social security. And if that is the case, you could either push your social security off further down the line. And/or you are just willing to kind of take the tax hit if you need to. Now let me give you an example of this. If your pension pays $3,000 A month and you expect social security to pay you 1500 a month, but your retirement lifestyle requires 6000 a month, you're going to need an additional 1500 from your own savings. So that's the part where you're going to need to make sure that you can save up enough money to at least make up for that 1500 per month. Now pension is an incredible base layer. It is incredible foundation and starting point for your retirement, but you just want to make sure that you don't stop there. You also need to stack on savings. You need to protect against inflation. You need to make sure that you are building up options for yourself

• 43:56Andrew Giancola?

  so that you're not stuck in retirement and really having to worry about this stuff. So those are the six steps that I would take. Let me know if you have any additional questions on that. And if you want us to do a full episode on it, please let me know. Listen, thank you so much for being here and investing your time and energy here by listening to this podcast. You are investing in yourself by doing that. And so I thank every single one of you for being here. Get ready, Master Money Academy is coming for all of you and I'm excited to have you in there. And again, we're going to be talking through. If you have any questions, please join the Master Money newsletter and you can send us questions there. Thank you again so much for being here and we will see you on the next episode.

• 44:45Speaker 01

  At Edward Jones, we believe rich is more than caring about the latest and greatest. It's also taking care of what gives your life meaning. That's why your dedicated financial advisor meets you where you are with personalized financial strategies that help protect what matters so you can preserve your progress while creating a path forward. The key to being rich is knowing what counts. Let's find your rich together. Edward Jones. Member SIPC.