How Elon Musk Made Them Rich... But Risked Their Retirement

Check out Mindy on the Bigger Pockets Money podcast This episode brought to you by Abound Wealth. Take the relationship to the next level and become a client: https://moneyguy.com/become-a-client/ Building wealth is only half the battle—keeping it, enjoying it, and avoiding costly financial blind spots is where the real challenge begins. In this special Making a Millionaire collaboration, Brian and Bo sit down with Mindy from BiggerPockets Money and her husband Karl to analyze a nearly $10 million portfolio, uncovering hidden risks like concentration risk, margin loans, Roth conversion opportunities, tax planning, required minimum distributions (RMDs), retirement withdrawal strategies, liquidity planning, and the Achiever's Trap. Whether you're pursuing financial independence, FIRE, retirement planning, or simply want to build lasting wealth through investing and smart tax strategies, this conversation offers practical insights for high-income earners, retirees, and anyone serious about optimizing their financial future without sacrificing the life they've worked so hard to build. ⁠⁠⁠⁠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.

• 0:02Speaker 00

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• 1:00Speaker 02

  You can see right now, you guys are creeping right up on deck of millionaire status. And I thought it'd be helpful for us to kind of understand perhaps where some of these assets came from. Cash on hand that you have. I see $70,000 and I just heard that we're building a million dollar house. Something does not seem aligned right here.

• 1:17Brian Preston?

  Things can happen. When it rains, it pours.

• 1:19Speaker 04

  We're big believers in index funds, but I didn't know.

• 1:22Speaker 02

  Are you though?

• 1:22Brian Preston?

  I think y'all say on paper, you have a die with zero mentality, but when I look at how you're structured, it's more of hey.

• 1:29Speaker 02

  I'm gonna die with as much as possible.

• 1:31Brian Preston?

  Those two don't coexist when you're in the consumption side of your life.

• 1:40Brian Preston?

  Mutants, today we have something extremely special for you.

• 1:44Speaker 02

  Yeah, we recently had Mindy from BiggerPocketsMoney and her husband Carl into the studio to do some real life financial planning for them.

• 1:51Brian Preston?

  It ended up being one of the deepest dives we've ever taken on camera. And some of the things about their high risk portfolio, their unique money philosophy, and even their journey to wealth were absolutely eye opening.

• 2:02Speaker 02

  In all honesty, we thought it was so powerful and fascinating that we actually wanted to share it with you guys right here on our channel.

• 2:09Brian Preston?

  So we hope you enjoy this special episode of Making a Millionaire.

• 2:15Speaker 02

  There's a lot of people out there when we kind of go through the numbers, but holy cow, I would trade places with you guys. But there are some things that with some strategic thinking and some strategic planning, I think you're going to be able to solve for. So it's not as perhaps dire as maybe it sounds, but there are some things that you're going to be able to do. And I don't think there are a lot of folks that are dissimilar to this. They find themselves at the stage of life you are saying, oh, wow, we have this ticking time bomb. What are we going to do about it?

• 2:42Speaker 05

  Well, and I think people aren't thinking 20 years ahead. If I do nothing and the stock market returns, you know, the rule of 72 and

• 2:50Speaker 02

  Oh, yeah.

• 2:51Speaker 05

  I could be facing incredibly large RMDs, required minimum distributions, where I am now paying a lot of taxes to the government. And frankly, I'm a better steward of my money than the government is, so I don't want to do that. I think that there are ways to pull money out of the 401k so that I can reduce my RMDs down the road. Plus, we have two children and I don't want to leave them a pile of traditional money when I could leave them potentially a pile of Roth money.

• 3:23Speaker 02

  It's way better to do it that way.

• 3:24Brian Preston?

  I want to hear more of y'all's story, but I do think just because people go jump in and go, what's this trap that y'all are talking about? And I consider it, you said the middle class, but I think it's more of an achiever's trap is because you guys in a lot of ways, every year, and we see this with prospects all the time, every year, y'all maximize to minimize taxes, but to help build and grow assets by owning stuff. That is great, but it has created this potential tax issue for the future. And then y'all are also getting squeezed probably on your liquidity to some degree too. But I want to hear before we get into, I just wanted to tease up some of the big

• 4:06Brian Preston?

  overarching. That's why I love that your self-awareness already, you kind of know you're, because you're living this, you know what y'all are struggling through, even though it's a, it's kind of a blessing or a good problem to have. But we want to know more about y'all's story so that people, when they watch this can also figure out how they can apply this to their own life as well.

• 4:25Speaker 02

  Because if I understand, Carl, you're retired. Is that right?

• 4:28Speaker 04

  That is true.

• 4:29Brian Preston?

  Not a bad place to be.

• 4:30Speaker 02

  Not a bad place to be. What were you doing in your previous life?

• 4:32Speaker 04

  I was a software developer.

• 4:34Speaker 02

  Software developer. How long have you been retired now?

• 4:36Speaker 04

  Oh, it was April of 2017. So coming up on 10 years.

• 4:40Speaker 02

  Wow. Okay. Retired for a decade. For those out there that are thinking about retirement, how's it been? Do you recommend it?

• 4:46Speaker 04

  Oh, it's been great. You have to work at retirement, just like you have to work at your job. A great life just won't come to you. You have to build it for yourself, but it's fantastic. I would not trade it for anything. There's no amount of money that would make me go back to conventional work. So I tell people I work harder than ever, but I do work on my own terms and it's things I really want to do. Like right now I'm building a house and I just installed a hydraulic floor system and a water heater. So.

• 5:08Speaker 02

  I love it.

• 5:09Brian Preston?

  Cool. Did you do it yourself?

• 5:11Speaker 04

  I did.

• 5:11Brian Preston?

  While the house is being built? That's great.

• 5:12Speaker 04

  Yeah, yeah, I did. I'm putting up solar panels now because I'm cheap and don't want to pay a big electric bill. All those data centers are coming online, so I'm just going to nip that one in the bud. I do work. I probably work harder than ever, right?

• 5:22Speaker 05

  Oh, yeah. I don't know how I ever had a time for a job.

• 5:25Speaker 04

  I don't like people telling me to work. Just you, I guess.

• 5:28Speaker 05

  You don't like that either?

• 5:29Brian Preston?

  I am curious though, because I noticed some of the big retirement accounts in your name. So those, were those big earning years back before you retired?

• 5:37Speaker 04

  Yeah, I was a software developer and then at the very end of my career, I was a contractor. So I went from W2 employment to a contractor. They're like, hey, um, we want, we want you to change the nature of your employment. So you need to become a contractor. I was doing consulting and they're like, but we'll, we'll double your, your pay. So I was making like 85,000 a year and they're like, we'll give you $85 an hour. I'm like, okay, great. So at that time, I'm like, let's really maximize these retirement accounts. Let's go for the self-directed 401k, which we did and we, we totally maxed that out. And I was subject to the, I think at the very end, I was subject to the highly compensated employee. But when you have your own thing, you can go up to, what is it like 55,000?

• 6:19Speaker 04

  You can do the 25% employer match. So we took advantage of all that and because I was the breadwinner and we were fortunate that Mindy was able to stay home and raise the kids, we just piled as much as we could in there. And I'll back up and say one thing. I think the reason we're here is because I never planned on this early retirement thing. We just thought we would work until we're 65 and then this whole thing wouldn't be an issue. And then I discovered this all their life. I'm like, I don't need to work till I'm 65 because we have the money, but then all of a sudden the money's locked up till we're 59 and a half.

• 6:49Brian Preston?

  But was it your choice? I mean, did you choose? Because I have a lot of clients in technology and unfortunately that industry is known for kind of.

• 6:57Speaker 02

  Recommending retirement early.

• 6:59Brian Preston?

  Yeah, recommending the exits sooner. It's a great, you know, lucrative while you're in it, but then it does seem as you get grayer, they kind of show you the exits earlier than you anticipate. Did you get to choose when you left?

• 7:09Speaker 04

  I did. I chose, I dodged a couple bullets. My first job was with Sears and we all know how that worked out. I was there for the downfall of that.

• 7:17Brian Preston?

  Those catalogs come out. Oh my gosh.

• 7:20Speaker 02

  You just go through, start circling.

• 7:21Brian Preston?

  That's my whole childhood Christmas time with circling Sears catalogs.

• 7:24Speaker 04

  I loved it. You could go in there, buy underwear and a lawn mower all over the same road.

• 7:28Speaker 02

  Yep, same car.

• 7:29Speaker 04

  It was a great place, but unfortunately they didn't evolve with modern times. Shopping malls went down the tubes. But yeah, I never, I was always, I've got a lot of financial insecurity, which explains some of our net worth too. So I'm like, we need to save, save, save. And all it turns out, all that worrying and financial insecurity was for nothing because I never lost a job I left on my own.

• 7:51Speaker 02

  You've been retired for a decade. How old are you right now?

• 7:53Speaker 04

  I am 52.

• 7:54Speaker 02

  Mindy, how old are you?

• 7:55Speaker 05

  I'm 53.

• 7:56Speaker 02

  53. And what does your retirement timeline look like? How long before you enter into this phase?

• 8:01Speaker 05

  I really love my jobs.

• 8:05Speaker 05

  I host the BiggerPocketsMoney podcast. I get to talk about money and real estate all day long. That's not a bad gig. And it's, I say all day long, I have pretty low hour commitments. Um, I probably work five or six hours a day, three days a week.

• 8:20Speaker 02

  That's great.

• 8:21Speaker 05

  So, and I, it's doing something that I love. So I don't anticipate leaving that in the next 10 years.

• 8:27Speaker 02

  Okay.

• 8:28Speaker 05

  Um, I am a real estate agent. I also really love helping people buy a house. I think there's no shortage of real estate agents who aren't as good as me because they're just kind of pushing people into a house. Oh, just buy it, just buy it. I really want to help somebody find the house that works for them. I point out issues and like, hey, this is going to be hard to sell when you go to sell it. So maybe let's not buy it in the first place, kind of thing. I usually only work with one client at a time. I probably sell 12 houses a year.

• 8:53Speaker 02

  Okay.

• 8:53Speaker 05

  I make a lot of money doing it and I can just say, no, thank you. When somebody comes up and wants to work with me and I'm busy.

• 8:59Speaker 02

  From a lifestyle standpoint, you're still working, you're planning on working for the next 10 years. Does your income cover the lifestyle needs that you guys have or are y'all living off the portfolio? Like, how are you paying for the bills right now?

• 9:11Speaker 05

  Well, so outside of building a house, our, my, my income, he makes, he makes some money too. How much do you make, sweetie?

• 9:20Speaker 04

  Oh, like $500 a month.

• 9:22Speaker 05

  Yeah. So that's, that's groceries.

• 9:25Speaker 05

  Some groceries. No, our income covers way more than what we're spending outside of building the house. Building the house, you want to talk about where that money's coming from?

• 9:37Speaker 04

  Yeah. So as Mindy alluded to, our core expenses are pretty cheap. This beautiful hair, I cut it myself and Mindy cuts it myself.

• 9:47Brian Preston?

  Is that like a flow beaker? Do you cut it yourself?

• 9:49Speaker 04

  These good looks don't come from a fancy hair fry. So our daily life is pretty frugal and like, we don't go out to eat a lot. We cook. So our day, our taxes are cheap. We own our cars. So our daily life is pretty cheap, but we do have a kid in school now. So, and we decided to build a house, which is something I never thought we'd do, but here we are. That's almost done and that costs about a million dollars. So.

• 10:14Brian Preston?

  General contractor, you're for yourself? Since you're doing all this work or did y'all work with somebody?

• 10:18Speaker 04

  Kind of sort of. I'm like a co-general contractor. I'm doing some of the big money items on there because I'm still pretty cheap and I don't want to pay someone $120,000 to install floor heat when I can do it for 20,000. So most of our life is pretty cheap except for when we do these big projects or when our kids decide to go to school.

• 10:36Speaker 02

  Got it.

• 10:37Speaker 05

  Yeah. Cause we didn't put any money in a 529.

• 10:40Speaker 04

  And so to answer your question, her income is not covering, and my income too, my $500 a month is not covering tuition and the cost to build this house.

• 10:49Speaker 02

  So income is covering living expenses and seems likely it'll do that for the next 10 years, but for any big stuff, homes, travel, education, that's probably going to be portfolio or some other source is where that's got to come from.

• 11:00Speaker 04

  Yes.

• 11:01Brian Preston?

  You mentioned one daughter, two daughters? Well, I mean, what do y'all, two daughters? And where are the ages and what are they, what stage of life are they in?

• 11:09Speaker 05

  One is a sophomore, going to be a junior in her high, in high school, and one is entering sophomore year of college.

• 11:15Speaker 02

  Oh, so you're in the front end of college. You got, you got a college to pay for and then another college to pay for.

• 11:21Speaker 05

  Yes, we have seven more years of college.

• 11:24Brian Preston?

  Cause I got caught up. Junior in high school, soph, just finished sophomore year of college?

• 11:29Speaker 05

  No, starting sophomore year of college.

• 11:31Brian Preston?

  Okay. So we got three years of college still too. Okay. Rising sophomore.

• 11:35Speaker 02

  Seven years of school.

• 11:36Brian Preston?

  Yeah, seven years.

• 11:38Speaker 05

  At least seven years, depending on what they do.

• 11:40Speaker 02

  Well, you guys are in a fantastic financial spot. You were kind enough to share a net worth statement. So we thought we'd kind of look at where you guys are present. And you can see right now, you guys are creeping right up on decamillionaire status. Total net worth right now of $9.8 million. And I thought it'd be helpful for us to just kind of understand perhaps where some of these assets came from. Cause the very first thing that I noticed right off the bat is when I look at cash on hand that you have, I see $70,000 and I just heard that we're building a million dollar house and we have all these other obligations.

• 12:13Brian Preston?

  Kids in college.

• 12:14Speaker 02

  One of these does not, something does not seem aligned right here. Walk us through what's going on here.

• 12:19Speaker 04

  I would say we've always had a very, very aggressive risk profile. A friend told me that I should be in bonds. I'm like, can you tell me about that? He's like, well, you must know about them. I'm like, um, no, actually not. So we've always been very aggressive. That's why there's hardly anything in cash and almost everything is in stocks and a lot of scary ones. I'll back up a second and say we're big believers in index funds, but I didn't know.

• 12:43Speaker 02

  Are you though?

• 12:47Brian Preston?

  Second, we're going to talk about concentration risk.

• 12:49Speaker 02

  Our plan is I want to, I want to look at a high level of your accounts, but you were kind enough to even share what's inside of these accounts. And that was for us, eye opening. But, but before we get into like risk profile of the investments, so you've never had a lot of cash. You've always been pretty lean on cash. So how are you, like you're building this million dollar house. How are you funding that? Or you have tuition payments coming up? How are you guys stroking the check for that? Are you selling assets and creating liquidity? What, what's going on there?

• 13:20Speaker 04

  Ooh, you're going to love this. So to build the house, we borrowed $400,000 from a friend, the friend who said I should be at bonds. He's like, oh, I get like four or five percent through bonds. So I could get the same amount from you if you want a loan. So we'll pay him off when we sell our current house. And the rest, this is where it gets really interesting, is a margin loan from Robinhood against our post-tax portfolio.

• 13:41Brian Preston?

  Oh. And that's 400,000 on the margin loan? How much is on the margin?

• 13:45Speaker 04

  Uh, it's around 500 at this point.

• 13:49Brian Preston?

  500,000 on the margin loan?

• 13:50Speaker 04

  Yeah. All right. So.

• 13:52Brian Preston?

  And what's interest rate is built into that one?

• 13:54Speaker 04

  I think it's 4.25%. It's very competitive, but it is variable. So if we see rates go up, that will go up. The other thing I think we're going to do real quick is we're going to get a mortgage against this house. I think it's 5.4%.

• 14:07Speaker 05

  Yeah, something like that.

• 14:07Speaker 02

  Like, once it's finished, you're gonna?

• 14:09Speaker 04

  Yes.

• 14:09Speaker 02

  Get traditional financing to clear off some of the debt.

• 14:11Brian Preston?

  In a month for the outstanding portion, I'm assuming, just swapping essentially that 500,000 on the margin and just swap that for a primary.

• 14:18Speaker 04

  Exactly. I don't want to be, like, margin could be scary. We did that once before and we almost got called out on it, even though I thought we were being very conservative. We weren't conservative enough. And with rates going up, I'd rather be locked into 5.4%.

• 14:31Speaker 05

  Yeah, that was 2022 when the market had a really bad year. We had so much space in our margin. So we borrowed and then we watched our margin go down and it gets to here. And I'm like, hmm, we should probably get a HELOC on our house just in case we, because we had borrowed to buy the, the house that was there. And then we tore that down and rebuilt it. But we're getting real close. So we get HELOC and we take some money out of the HELOC and throw it at the margin to bring it back up. Otherwise it would have gone negative and they would have called us out.

• 15:06Speaker 02

  Yeah. And for those that don't know, if you do, if you don't have enough collateral inside the investment account to substantiate the loan, they will do what's called a margin call where they're going to say, hey, you got to put some money in here. Well, if you don't have any liquidity anywhere, you either have to sell assets to cover.

• 15:19Brian Preston?

  While they're down.

• 15:20Speaker 02

  2022 is not the best time to sell assets or you got to come up with capital somewhere. So it's a, it is a useful tool, most often for like short-term borrowing, but very risky. So I don't love hearing that it's there, but I love hearing that you have a, a plan for it to go away. So it is kind of a short-term bridge right now.

• 15:37Brian Preston?

  And I don't mind sharing, when I, when I, when I wrote Millionaire Mission, the home equity loans, they are great on paper too, but sometimes stock markets get beat up at the same time that banks are getting squeezed. My, I gotta, cause I thought, I didn't keep any cash and I had access to cash was my brilliant scheme with the home equity line. Cause I had six figures plus in a home equity line. And then of course, you know, in 2011, I think it was, I think it was, I remember it was, I think it was 2011, May 4th, May of 2011, I got a note from the bank saying, hey, that home equity line that you value so much, because your house has been crushed, we're going to freeze it.

• 16:16Speaker 02

  Like no more access.

• 16:17Brian Preston?

  No more access. That checkbook, that debit card completely gone. And I'm sitting there going, no, I mean, this is, this is my cash. You know, this is all my emergency funds. And I thought I was so smart because both things that you're leaning on are, are what we consider access to cash, not cash. And I don't mind you being, y'all are great. Cause I think it's because you're so disciplined. When worse comes to worse, you can, you know, circle the wagons and y'all can make your, your, your spending so small that you feel like you're really not taking that much risk. But the problem is, is that you have to be careful to where you least have real cash on hand because things can happen. When it rains, it pours typically. So your stock market can get crushed. The banks can write

• 17:02Brian Preston?

  you a, a Dear John letter on your home equity line. Y'all are at the stage of life and success. I want you to maximize, but let's also keep some liquidity just to, to, to keep you safe too.

• 17:13Speaker 02

  Well, it's not about how much you can make at this point anymore. You've kind of already won the game. You, you've rounded third, heading towards home. Now you got to make sure you don't trip. You want to make sure you don't start showboating and gloating and end up getting yourself in trouble. It's more about how much you get to keep in your back pocket, not how much you get to add to your front pocket at this point.

• 17:30Speaker 04

  I really appreciate these comments because Mindy will tell you about this honestly, but one of the things I struggle with is optimization in all parts of my life, especially money. And that's why we see there's no cash. My cash earns 3%. I think I can probably do a lot better than that with other things. But again, as you just said, we won the game. There's no need to play these games anymore, although I still enjoy them.

• 17:54Speaker 02

  Well, one of the things, people often think about optimization in terms of growth and accumulation. There is also risk optimization. And I would argue that you have not optimized for risk where you are in your current circumstance.

• 18:06Brian Preston?

  Well, I mean, just look at your net worth. Your cash holdings as a percentage of your net worth.

• 18:11Speaker 02

  Rounding error negligible.

• 18:13Brian Preston?

  I mean, you see that that's a problem. I mean, we're not even, was that one, it's less than 1%?

• 18:18Speaker 04

  Yeah.

• 18:18Brian Preston?

  I mean, we, we probably ought to have at least a few percent of cash. I mean, just so you know, because.

• 18:24Speaker 02

  Well, remember he has all those bonds that are keeping him protected too, right?

• 18:28Brian Preston?

  But we've, we've turned our cash into a rounding error and that's, that's not really that big of a safety net.

• 18:34Speaker 05

  So I am a member of a group online called Long Angle. I don't know if you've heard of them. It's a closed forum for people who have a net worth, a minimum net worth of $3 million or more. I went in there and I asked them, you know, how much cash do you keep? Cause I was looking at these numbers too. I'm like, you know, $70,000 seems like a lot of cash. We probably spend between 65 and a hundred thousand a year depend when, you know, not including kids, school and not including building a house. 70,000 is a whole year's worth of expenses. That's a lot of money to keep in cash. And like he said, it's only making 3% when we can do so much better in the stock market. And I asked in, in the Long Angle group, how much cash are you guys keeping? Because it seems silly to, you know, have a percentage of your net worth when that's your net worth.

• 19:20Speaker 05

  And they were saying around 5% is what people, and they did a, an annual poll of their members. And they said around 5% is what people are keeping in cash on average. And I thought, that's a lot of money.

• 19:35Brian Preston?

  But you're thinking in terms, you're not thinking in terms of your net worth. You're thinking in terms of, of your spending. And I, I keep hearing you bring it back to the grounding of, hey, that's, that's a full years of our spending. But whereas you have a blind spot to, no, it's not just the spending. It's the $35,000 for your daughter's next year college for the next three years. There's 70, I mean, if you think about 35,000 times three, we already have exceeded $100,000 just on her education. And by the way, you got another one coming right down the pipe. Probably 35 to $40,000 a year. Cause you, you know, so, so you, just right there, we've told you that within the next three years, you

• 20:15Brian Preston?

  have well into a hundred plus thousand dollars of need that you'll have to. We got a house that's being built, that we have a $500,000 of, of debt that we have to, and you need to have margin to cover the underwriting period. We, you know, when you're, when you're turning this into a loan.

• 20:33Speaker 02

  Well, and let me speak to the optimizers in you. We're going to talk about some tax planning in a moment. One of the things that you're going to need in order to actually be able to implement that planning is having liquidity, which you don't have right now. So you have to figure out how do we find liquidity to satisfy? The necessary mechanism to do some of that tax planning, but we're going to get there.

• 20:51Brian Preston?

  I do want to say one more statement on cash, though, because some of my biggest opportunities that have changed my financial life, you should actually boost up cash, not because it's it's bad, but because it creates huge opportunities when others are struggling. And I don't want you to be a miser and have all cash, but y'all are big enough now that that 5%, maybe even a little beyond 5%, that the next time things go ugly, you're going to be like pig in slop, so happy. I mean, you really are, because you're just like, oh, my gosh, I can't believe I can get what for that? You know, and that's, that's the most amazing thing in the world.

• 21:28Speaker 02

  Think about how much different 2022 would have felt if you weren't thinking, oh, gosh, we got to go take money out of our home equity line to go pay on this margin call. What if you're thinking, man, we have cash and capital we could deploy at these unbelievably attractive prices while everything's getting beaten up?

• 21:40Brian Preston?

  The clarity of chaos, too, is because now when you were, when you're liquid in chaos, everybody else is scrambling and you're like, it's a superpower. It really is. And that's something, now, I don't want people out there hoarding cash because they're waiting for the, no, that's timing the market. But there is something, too, when you're in step eight of the Financial Order of Operations is to be frothier after you've already taken care of a lot of your other financial foundations. Think about Warren Buffett. Why is everybody watching the airport, you know, the FBOs whenever the market goes down? It's because they want to know what airports, you know, who's flying into Omaha to come to the feet to talk to Uncle Warren for money because they know he's sitting on the cash. I mean,

• 22:23Brian Preston?

  there is something to that when you're talking about the power of cash as a, as a kind of a contra wealth builder in a lot of ways.

• 22:31Speaker 04

  Yeah, we actually encountered that back in 2011. We saw, we don't want a 12,000 square foot house, but we saw one that had just been built and they're like, the first person to show up with $400,000 gets this thing. And I'm like, we could buy this, hold on to it until all this, all these dark clouds pass and sell for $2 million, but we didn't have $400,000.

• 22:50Speaker 02

  We didn't have the cash.

• 22:52Brian Preston?

  Nobody else does either. That's why it's a superpower.

• 22:55Speaker 05

  Yeah.

• 22:55Speaker 04

  And then the townhouse in Breckenridge, $250,000, that thing would be $2 million now, but no one would give us cash.

• 23:01Speaker 02

  Cash gives you, it gives you opportunity money. It gives you the ability to capitalize on opportunities other people can't capitalize on.

• 23:06Brian Preston?

  And nobody does it. I mean, nobody has cash when, when, when we hit these, these horrible periods in the economy.

• 23:12Speaker 05

  So you said that 5% or maybe even a little bit more sounds good for us. And then you said you don't want people to hoard.

• 23:21Brian Preston?

  I didn't say for you, you guys. You guys have, I don't, don't, because I was trying to create a teachable concept there, but you guys have some unique things. All of your stuff is highly appreciated. Y'all have done, y'all have not only done a good job of minimizing taxes, but then even in your after-tax assets, it's all highly appreciated assets. So anything and everything you touch is going to create taxes now. So we, it's time to pay Uncle. We have to figure out how we do this in a strategic way. So I don't want to, I don't want to say, yeah, go to have 5, 6, 7% cash and then like, well, how you go do that without generating a big tax bill? That creates a friction cost that we, we got to get a little cute and creative with.

• 23:56Speaker 02

  I want to make sure I understand, because right now, so we're showing the net worth here, but realistically, we've got a $400,000 personal loan to a friend. We've got another $500,000 margin loan. So we've got about $900,000. Any other debt that we're not aware of, or is that it? Just that $900,000?

• 24:11Speaker 04

  Our house now is worth about, a primary house, $800,000, and we owe like $280,000 on it.

• 24:17Speaker 02

  Okay.

• 24:17Speaker 05

  On a, at a like 2.3% loan.

• 24:20Speaker 04

  It's going to break my heart to sell that house.

• 24:22Speaker 02

  You're selling that house, right?

• 24:24Speaker 05

  We will sell that house.

• 24:24Speaker 02

  And then I imagine that the equity from that house is going to pay off the personal loan and you'll get traditional financing for the margin loan. Is that the idea?

• 24:31Speaker 05

  We should be almost clear of debt once the one house sells and we move into the new house.

• 24:37Speaker 02

  Perfect.

• 24:38Speaker 04

  Yes, and once we refi that house.

• 24:41Speaker 02

  So when we look at your account structure, I do notice what seems to be a little bit of redundancy in terms of accounts. Like Carl, you've got this 401k, but you also have this large rollover IRA. Any, any reason why those two are not consolidated since you retired?

• 24:55Speaker 04

  The 401k is a self-directed solo 401k.

• 24:58Speaker 02

  Oh, so you're still participating and adding to that one?

• 25:01Speaker 04

  Yes, yeah. And it holds some, we do want to close it eventually, but we have one more private company in there, so we'll have to wait till at least that company goes public or sells to dispose of that account.

• 25:12Speaker 02

  So the idea is once that's done, potentially you do have, or once you stop working, stop earning, there's some consolidation that could happen between those two accounts potentially?

• 25:19Speaker 04

  Yes.

• 25:20Speaker 02

  Are you guys able to fund Roth IRAs every year based on income level?

• 25:24Speaker 04

  Yeah, we could. We haven't been, just because we've been using all our money for this house project. So the past, this year and last year, we did not, but we have done a lot with Roths in the past. One of those Roths is also a self-directed Roth, hence why there are multiple of them on there.

• 25:40Speaker 02

  Yeah, walk us through, what was the, so you have, so most all Roth IRAs are quote unquote self-directed. You get to choose where you put it, you get to choose the custodian is. But I think you did some unique stuff inside of your Roths, right?

• 25:50Brian Preston?

  Yeah, what did you do in your Roths?

• 25:53Speaker 05

  Well, the regular Roth IRA, the $109,000 Roth IRA is, I don't even know what's in there.

• 25:59Brian Preston?

  Well, that's, there's one, there's a, there's a one that says 285 and one that says 16,000.

• 26:05Speaker 02

  And hers is 109.

• 26:06Brian Preston?

  Oh, okay.

• 26:07Speaker 05

  The 109 is just like regular stocks. The self-directed Roth IRA is a SpaceX holding.

• 26:13Speaker 02

  Okay.

• 26:14Speaker 05

  And we were able to get into SpaceX in that account into 2024.

• 26:20Speaker 02

  Oh, wow.

• 26:21Speaker 05

  And so when it recently went public.

• 26:22Speaker 02

  It's been an exciting, exciting couple of weeks for you guys, right?

• 26:25Speaker 05

  It's been an exciting couple of weeks. When it went public, that's when it kind of exploded. Carl was able to get into SpaceX in 2022 through his 401k. That's a traditional 401k. And when the opportunity came up again, I said, is there any way we could put it into a Roth? Because you put your risk in your Roth, right?

• 26:43Brian Preston?

  Right.

• 26:43Speaker 05

  I wanted that money to grow tax-free. So we were able to do some financial monkey business to get that into the Roth IRA.

• 26:51Speaker 02

  So when we look at your 401, 401k for Carl, a big chunk of that SpaceX and it's in a Roth?

• 27:00Speaker 05

  No, that's a traditional 401k.

• 27:02Speaker 02

  That's all pre-.

• 27:03Speaker 05

  My self-directed Roth IRA is, is that all SpaceX?

• 27:07Speaker 04

  Uh, yes, that one is completely SpaceX.

• 27:10Speaker 02

  Got it. So there's some reasons why there are multiple accounts that haven't been consolidated, because there were some unique things going on there. Now, with the way that you were able to enter into your SpaceX exposure, are there limitations on your ability to move and consolidate now that it's publicly traded?

• 27:23Speaker 04

  There are lockup periods. The first one comes up in August, so we will start receiving our shares there. The last one comes up in December. So between August and December, we will receive all of our shares. But, but as of right now, we cannot do a thing. They are locked up.

• 27:36Brian Preston?

  They recently, because I know we, we had some clients who had, who had also bought SpaceX through these, essentially they were buying them from, you know, employees as they left, these private investors who realized they could put together these groups, help buy out the employees. But we, there was some grayness on how long, because I saw some disclosures that had come out post-IPO. Now, they might have clarified this. This has been a week or two since, since I got, but the first thing that came out from the private company that we were dealing with for, for, for a few of our clients was, we think we're going to be able to get you access at these points, but there is a chance, as we're getting clarification, that we might be locked down in for a full 366, the first 366 days. Did they, have y'all gotten a bunch of communication from these companies

• 28:21Brian Preston?

  on, on what your windows? Because it was gray initially, but maybe they've clarified that.

• 28:25Speaker 04

  Yeah, we have. And I think I might know what you're referring to. Certain employees and certain very early investors have more restrictive shares where they have to wait that full 366 days. In our case, we will have access in August, December.

• 28:37Brian Preston?

  Okay, so you'll have access earlier. Okay.

• 28:39Speaker 02

  And once you begin to have access to these shares, what are your thoughts? Because again, you were kind of, not only just sharing that word statement, you shared a sort of a breakdown of what you have in your accounts. And when we look at, when we look at your liquid portfolio right now, it's a touch under $7 million. And when we look at the things that you actually own in there, we have nearly $4 million of SpaceX stocks and another $850,000 of Tesla, almost half a million dollars of Facebook, Google in there, Amazon, there is this Impulse Space. I'm curious to know what's, what's Impulse Space?

• 29:13Speaker 05

  That's a privately held company right now.

• 29:16Speaker 04

  Oh, no, this is a really good story. I'm a nerd. Feel free to cut this out. Thomas Mueller was SpaceX number one, probably the most brilliant rocket scientist of our time. He developed the original engines for SpaceX. Unfortunately, he becoming, he became an employee and not a co-owner because he was worried that the company wouldn't succeed. So he's only worth like, I don't know, 50 billion instead of whatever he would have been worth.

• 29:38Speaker 04

  But anyway.

• 29:39Speaker 02

  He's gonna be okay.

• 29:41Speaker 05

  Thomas, if you need help with your money, come talk to the money guy.

• 29:43Speaker 02

  That's right. We'd love to talk to you.

• 29:45Speaker 04

  He started, he left SpaceX, he started a new company and I'll get real nerdy for just a second. They bring stuff. It's very easy to get stuff to low earth orbit, very difficult to get stuff to higher earth orbit. You need like a triple core rocket. I told you in nerd time. So this guy is deploying space tugboats. SpaceX will launch something, get into low earth orbit and then his things in space, bring it to a higher orbit in a matter of hours instead of the year long it would take. And yeah, we got in on the same round as Peter Thiel, which is pretty cool.

• 30:14Brian Preston?

  Awesome.

• 30:15Speaker 04

  And this was, yeah, this whole thing was a bet on Thomas Mueller as most of her investments.

• 30:20Brian Preston?

  And you know something about making a bet on people because, let me give you some. Now, this is, I did some real back of the napkin math on some of this, but your top five holdings are about 86% of, meaning individual holdings are 86% of your total liquid assets. So when you said you were an index investor, we were like, y'all are pretty concentrated. And then let me, let me blow your mind. If you think 86% with your first five holdings, how about the fact that 70% of your total is all Elon? I mean, between, if you look at SpaceX and Tesla, I mean, you, you guys are like, you're ride or die with Elon in a lot of cases, which, you know, it's been a kind of a bumpy ride here in the last few years.

• 31:04Speaker 05

  It has been a bumpy ride.

• 31:05Brian Preston?

  So incredible wealth building is happening. Y'all have been actually the beneficiary of a lot of this, but it is one of those things of, I wanted to get y'alls temperature on is this, because obviously you have a somewhat of an emotional attachment to these investments too, because you just, I could hear you telling the stories. I mean, this is, you're probably setting a table at Thanksgiving for impulse space at this point, because you just told that story. You're pretty excited about it. What do you want to do with these holdings? Cause you've got huge appreciation. We've heard some of these are in Roth accounts, some of them are in after tax accounts, some of them are in 401K. So you've got, you know, it's dealer's choice on account structure. What are your ultimate goals for these individual holdings?

• 31:47Speaker 04

  Who I feel, we feel stronger about some of them than others, but I would like to slowly get rid of them. I am a big believer in index funds. And where I was going with that was, we bought Tesla in 2012.

• 31:58Speaker 05

  For other people.

• 31:59Speaker 04

  SpaceX was, our Facebook was 2012. Google, I was a computer nerd, so we bought that company in IPO in August 2004.

• 32:07Brian Preston?

  Wow.

• 32:08Speaker 04

  Yeah. 85 bucks to 15,000 if you don't account for splits.

• 32:11Speaker 02

  Yeah.

• 32:12Speaker 04

  But yeah, just luck. I didn't run numbers or anything like that. But anyway.

• 32:16Speaker 05

  But oh, hold on, hold on. Cause I say this all the time. If you are going to invest in individual stocks, you need to be doing a ton of research on that individual stock because the, you're, you're gonna lose. Like most people are gonna choose something. I mean, he had a loser stock once.

• 32:33Brian Preston?

  Once.

• 32:34Speaker 04

  Carl's got a pretty good track record.

• 32:36Speaker 05

  I'm about to say it. Carl's got a pretty good track record. I would like to say that I suggested Berkshire and Costco.

• 32:44Speaker 02

  Okay.

• 32:45Speaker 05

  Thank you very much. They're, you know, at the bottom, but they're still.

• 32:47Brian Preston?

  They're not worth seven figures like Carl's picks are.

• 32:49Speaker 05

  You know, if you want to keep track with actual numbers, Carl is a little more successful at picking stocks than I am. But he also, I think he's downplaying, he reads tech news all day long. He reads, I mean, ask him anything about Tesla or SpaceX. He's done a ton of research and our Tesla stock was from 2012.

• 33:11Speaker 02

  Right.

• 33:12Speaker 05

  When some random dude with a funny name was gonna make electric cars. And back then, electric cars weren't cool. They weren't sexy. They were just like a pain in the butt because there was nowhere to charge it and they got like 40 miles of range and that was it. And this guy was, came out with, I don't know if you know this, but sometimes he makes grand declarations. I'm gonna change the world.

• 33:33Speaker 02

  Does he really?

• 33:35Speaker 05

  But he said he was gonna put full electric cars on the road. Did he say he was gonna make them self-driving back then?

• 33:41Speaker 04

  It wasn't back then. It was a little bit later on.

• 33:43Speaker 05

  Yeah. So, and Carl wants the earth to continue to rotate and, you know, let's get off fossil fuels and all of that. Sure, I'll throw some money at that. How much money do we have in Tesla? How much did it cost us to get that Tesla stock?

• 33:57Brian Preston?

  Can I have a guess?

• 33:58Speaker 05

  Yes.

• 33:59Brian Preston?

  I bet you put less than $10,000 into it.

• 34:02Speaker 04

  Yeah, I think it was about 2,000. It was $2 a share.

• 34:05Speaker 02

  It's wild.

• 34:06Speaker 04

  But, and where I was going with this is I discovered index funds in 2014 and that was after we had invested in most of these. So now, when we do get money, almost all that goes to index funds.

• 34:17Speaker 02

  And that's a question we were gonna ask is, essentially what's happened is you guys have some winning lottery tickets here, right? You, you took a big bet, you took a risk. Those risks have obviously paid off up until this point. The question is, what do you do moving forward? Especially as you're thinking about, I'm not gonna say de-risking because you're gonna perceive that as being suboptimal, optimizing for risk-adjusted nature, right?

• 34:40Brian Preston?

  There you go.

• 34:41Speaker 02

  So when we optimize for risk, I do think probably one of the things, because you, you guys do have index funds. You were kind enough, you have another $1.7 million across various index funds. And all of these index funds happen to own a lot of the same companies that we just went through, but this is at least more broadly diversified than your, than your other holdings. And so what we'd love to see is as you guys age and as you move into retirement, now that you've kind of got this very healthy portfolio, how do you build a portfolio that doesn't just focus on capital accumulation, but also has some sort of idea around long-term capital preservation? I just think, why take more risk than absolutely necessary?

• 35:22Speaker 04

  Yeah. I think the one thing we have the luxury of doing is, because so much is in the 401K accounts, we could get rid of those holdings, move to bonds or VTI and not have any tax consequence. But I would like to get at some of the money so we could actually use it sooner than later too, or start being tax efficient. I don't want a $2 million RMD in 22 years.

• 35:43Brian Preston?

  Well, what I was nervous y'all were gonna say was that you love having these holdings so much that you didn't want to sell. Cause look, I get it. I mean, especially when you, you make a $2,000 or $3,000 investment. And I bet you've done, I mean, we could do that with the Google investment or even the Meta, you know, with Facebook, because you, you guys hit them right as they came up and then you just held them. I mean, you, you permanent portfolio of these things until they've created huge success for you. But what I was worried is you say, I want to really keep these holdings because I really believe in these brands. But, and we were, we, we had kind of talked about this beforehand and is that there's nothing that says that you couldn't, if you had said that, liquidated in the taxable form so we could actually have access. And then you can go move things around in any

• 36:26Brian Preston?

  of the retirement accounts and not pay taxes. But, but I actually like hearing, it's the preferred answer is that yes, these have created tremendous success, but I'm okay if we start diversifying our, our capital structure so that we can, you know, have access to this money and kind of optimize from a risk standpoint, what we've got going on as well. So you, you did even better than what I was worried that, that you were going to be locked in on. Cause we see it all the time.

• 36:53Speaker 04

  Yeah. Thank you for saying that. These companies are near and dear to my heart. You can tell I'm obsessed with some of this tech. But I think going on a nice trip, like we're taking our kids on a trip to Japan and going on a trip to Japan with our children, sounds like more fun than owning Tesla or SpaceX.

• 37:09Speaker 02

  I love that. That's what, it's the reason why we build the wealth is so we can actually use it to do the things we want to do and have the experiences we care about with the people we care about. And you guys have obviously done that. Now you're at that stage where you get to enjoy some of that stuff. But that doesn't mean you have to walk away from optimization altogether. Brian, this is literally it. What we're doing right now is literally one of my favorite things that we get to do, sitting across from other real people talking about their finance.

• 37:34Brian Preston?

  Yeah. You guys get to see this on Making a Millionaire, but we also do this for our clients every day at Abound Wealth.

• 37:40Speaker 02

  We get to dig in where they're at, figure out where the gaps are and find where we can optimize and build a plan that works specifically for them and for their financial goals.

• 37:50Brian Preston?

  If you've been watching this and thinking to yourself, hey, I want that. I want a professional with decades of experience in my corner, looking at my specific situation, we're here to help.

• 38:00Speaker 02

  Yeah. Here at Abound Wealth, we are fee only fiduciary advisors. That means that we are legally required to work in your best interest. And we love helping our clients optimize our army of dollar bills so that they can live their best lives.

• 38:13Brian Preston?

  If you've reached a point where you're ready for some help, go check us out at aboundwealth.com or click on the link right below. We'd love to connect and see if we're a good fit for you.

• 38:22Speaker 02

  That's right. Head to aboundwealth.com and let's see if we can do this for you too.

• 38:30Speaker 00

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• 38:57Speaker 01

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• 39:07Speaker 00

  I remember telling my boss, "It'll be good for the brand," when leads were slow. Yeah, it wasn't.

• 39:14Speaker 01

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• 39:27Speaker 02

  As you've already said, hey, we've got this problem, right? And fortunately, we have software able to kind of model out this problem for you. So what we looked at is, based on where you guys are now, your retirement is no longer pass/fail. It's no longer, are we going to have enough to be able to retire? Are we going to be able to be financially independent? I think we've already answered that question in spades. Now it becomes, how do we optimize and make sure that we're making the right decisions early enough that it can have a meaningful impact over the long term? So what you see on the screen, every year, this is just a projection of, based on the living expenses you share with us, portfolios you shared with us, what we anticipate basically your tax return looking like every year.

• 40:11Speaker 02

  Each one of these blue bars is like an active tax, your active tax base that you'd be paying tax on. Now, we didn't know about what your working life was going to look like over the next couple of years. We just made some assumptions. Like, okay, if we're earning a decent amount, we said for five years, and that goes away. Really, all of your income turns into capital income from the portfolio. For a lot of folks, depending on how your portfolio is structured, a lot of people pay 0% capital gains taxes right in the early years they retire. So your tax bill kind of goes next to nil if your portfolio is structured correctly. And that would work wonderfully. And you guys could retire and you could live off of your brokerage assets. You could begin, you know, selling at 0% cap gains,

• 40:56Speaker 02

  generating some capital so that you can pay for the things you want to pay for. But eventually, that becomes exhausted and you would have to start pulling off of your retirement assets at some point.

• 41:07Speaker 02

  But what really gets you guys is right there in your mid-70s. Right there in your mid-70s, because your qualified accounts are so large, you're going to have these huge RMDs that are going to take place. And we actually went and looked at the number in nominal dollars, your RMD, based, and we did like a very conservative, I think, 6.5% rate of return, like very, very conservative. It's going to be like $850,000. Year one of your first RMD, I think, was 2049. $840,000 of income, you'd have to recognize that you may or may not want to recognize. And what that's going to do is it's going to now jump you into the highest tax bracket. You're going to go through the 24% bracket, 32% bracket, and ultimately, you're going to even into the 37% bracket under current tax code.

• 41:53Speaker 02

  So we said, okay, there's no point in all this tax-deferred savings you guys have done your entire life to try not to pay taxes, to only spend the last 20, 30 years of your life paying way more taxes than you want, right? So one of the ways that we think about helping clients figure out how they pay less taxes over their lifetime is what strategies are available to begin minimizing that lifetime tax bill. And for most of our early retirees who retire before a pension kicks in and before Social Security starts, before you have to do RMDs, Roth conversions are a great solution that might be available to you. And we just said, if all we did for you categorically was, let's just think about maxing out the 22% tax bracket.

• 42:38Speaker 02

  Now, there's an argument to be made, we could go up to 24 and max that out. We just said, just max out the 22% bracket. What does that look like conceptually? And if we started doing that this year and we did it all the way until you got to age 75 or got to RMD age, what does that change about the plan? Well, now you can see, you never actually cross into those 30-plus% tax brackets. You never actually have that tax bond take off because you're converting so much of your pre-tax assets to Roth. Well, if you run this through the scenario and you look at what does this mean tactically for you guys? If you were able to implement this, you're able to convert all of those pre-tax assets or a lot of those pre-tax assets,

• 43:23Speaker 02

  your required minimum distribution at, in the first full year you had them, goes from like an $850,000 distribution to like a $300,000 distribution. It's like a $500,000 annual income offset because now you've shifted them to Roth. And what you can see is by doing this, at the end of your plan, when you guys leave this earth, and we just used age 95 as our mortality assumption, it actually adds almost $3 million in present value dollars to what your kids would inherit one day. Because now you've paid taxes at lower rates, they've grown tax-free, and your cumulative tax bill drops by over $1.1 million in present value dollars by doing this Roth conversion strategy.

• 44:07Speaker 02

  So when we look at this, it seems like a slam dunk, right? Right?

• 44:11Brian Preston?

  Well, the legacy factor is huge because your kids, because you know with the new updated beneficiary rules, 10 years is what you get to continue to let the assets grow after your passing. So they inherit Roth assets and then they can grow for 10 years if they so choose to optimize. I imagine y'all have probably instilled a lot of these behaviors in them as well. But it is, it's just a huge legacy win too. Because when they inherit a 401K, now they have these inherited IRAs that they would have to take distributions off of life expectancies as well. Whereas this lets them say, hey, how do we use these assets, but also optimize these assets from a tax planning standpoint? It's a pretty cool win.

• 44:56Speaker 04

  And from a selfish standpoint, if we convert to a Roth, and for your audience too, we can use the money after five years, right? The money we move over, so.

• 45:04Brian Preston?

  Yes, technically you can, but I'm telling you, everybody who, once you get big Roth assets, you hold them like Gollum. And you know, it's just so hard to use Roth assets because you just know how powerful that growth is. That's where your tax nerdiness, maybe it's, I just know when we plan it, that's why I'm always amazed when we do deal with like Coast Fire and others, everybody's like, "Well, I'll just use my Roth first to bridge me." I'm like, you think you will, but you're probably not going to want to burn through all those because that's just from a legacy standpoint. Now, look, I know y'all also have the die with zero type mentality. And we'll talk about that too because I think there's some better assets that you can gift, especially with the 0% capital gains.

• 45:48Brian Preston?

  While you're, you know, assuming your girls have lower taxes, there's some ways you can make gifts maximize their lack of income to give some of these highly appreciated assets. It's so much better than just giving, you know, burning through your Roth assets.

• 46:04Speaker 05

  Yeah, I would like to leave them as much Roth money as possible and to get it out of the 401K as soon as possible so that it can be in the Roth. The only issue is, we, you alluded to this earlier, we have a liquidity problem. And we don't have the money to pay the taxes. I mean, we have the money to pay the taxes, but we have to find it somewhere. So doing a Roth conversion at our age, we have to pay those taxes next year.

• 46:34Brian Preston?

  Right.

• 46:34Speaker 05

  If we Roth convert. How do we do that?

• 46:36Speaker 02

  Yeah, so one of the things that we think is important, whenever we do a Roth conversion analysis, we always set out like best laid plans. Like, hey, our strategy, our goal is going to be to convert at this bracket, whether it's 22% or 24%. But what happens in reality, even though we lay out this like playbook of what we want to have happen, in practice, the way it actually manifests is that every single year, it's a year-by-year decision based on the unique things that go in this year. Maybe in one year, you sell 10 houses instead of 12 houses. Maybe it's a 2022, we were able to harvest a lot of capital losses, so there's no capital income. What we do for our clients, and this is like what we get to do like for our day jobs, is every year, towards the end of the year, on October, November, we'll actually do an analysis of where your income is for that year.

• 47:19Speaker 02

  And you begin doing tax projections to figure out how much could you convert in reality? And what would the associated tax bill pay for? And then how do you pay for it? For you guys, we wanted to put together an illustration, just kind of give you an idea of what that tax bill could look like under this scenario. But the numbers would change. And so we just picked a random five-year period. I say random, we assume that you worked for five more years and then you retired, right? So from 2031 to 2035, if you did nothing, you had no other income coming in and all of your income was strictly capital income and it was structured in a way that you weren't generating tons of capital gains or tons of dividend income, you're going to have a relatively muted tax bill. It's just not going to be a super large tax burden for you guys. And so if our goal was to then convert at the 22% bracket,

• 48:04Speaker 02

  for you guys, that would mean about a $211,000 conversion every single year, roughly. Obviously, it changes every year based on your income. But the associated tax bill due on that would increase by about $60,000, right? So your effective tax rate on that income, because a lot of your income is going to be capital gains income at 0%, you run through that and then you have 15, you're still not even hitting an effective tax rate of greater than 20%. So it makes tons of sense. What you have to figure out with is, figure out is, when you get to 2031, how do you begin paying that tax bill? How do you begin doing that $60,000? I'm going to argue that right now, while you're still earning, if you're a higher income earner and you look at your taxes and there's not a ton of room to convert, I don't know that converting in these years

• 48:48Speaker 02

  are the years that make the most sense. What likely is going to make the most sense is when your earnings drop or in specific down years where you do have low income years. And you begin doing that from now out until age 75 or 73, whenever your, whatever age your RMDs have to start. Does that make sense?

• 49:05Speaker 05

  Makes sense.

• 49:06Speaker 02

  I don't think that doing it, again, high income, and we get, people love Roth. They love Roth. They love Roth. We always remind them, you're likely going to have better opportunities in the future to convert to Roth than these current years if you're a higher tax earner. Now, if you have the thought process that I'm always going to be a high earner, or tax rates are going to meaningfully go up within the next one, two, three administrations, then there's an argument even made for that. Maybe you could look at, okay, we're going to earn income at this level and we'll convert up to 24, and we're going to be comfortable with that. But if you begin doing that, you have one of two options to satisfy the tax bill. You either have to start saving up cash from your earnings every year to be able to pay

• 49:46Speaker 02

  the tax bill, or you have to start slowly divesting out of your taxable brokerage assets and begin using those to pay whatever the associated tax bill would be. Also going to be kind of hard to do in a year that you're paying for a bunch of college and in the year that you're building a million dollar house.

• 50:03Brian Preston?

  But to bring it to a simpler form, just to understand, is that I think you have to, you guys need to go ahead and start playing the mind game with yourself is, I have to get comfortable that we're going to just have to pay capital gains on some of these after-tax assets, because it's going to, I mean, it's the easiest, lowest cost access to capital, because it's 15%, you know, on a married couple with y'all's income. That's, that's a pretty low bar, if you think from a tax standpoint. Y'all have won a lot of this. You just have to kind of know that's the toll you have to pay to get access to this liquidity. And I think that that's okay, because I know y'all had asked, you know, when we were trading

• 50:45Brian Preston?

  emails, you'd asked about 72T and some other things like that. And those concepts are powerful.

• 50:51Speaker 02

  Did you have a thought process, or what was your, what were you guys thinking when you brought up 72T?

• 50:55Speaker 05

  Just access to the 401K. It's a taxable access, but it's not a penalized access.

• 50:59Brian Preston?

  Right.

• 51:00Speaker 05

  Because I don't like to pay taxes. I super don't like to pay penalties.

• 51:03Speaker 02

  Sure.

• 51:04Speaker 05

  So I don't want to just pull money out of the 401K. But it's a way to generate a little bit of income, because we do have that liquidity problem this year. A way to generate income and take money out of the 401K that isn't a Roth conversion. Because the Roth conversion, we can't access for five years, and we have to pay taxes on that. That's the opposite of helping us with our liquidity problem.

• 51:26Brian Preston?

  But your ordinary income tax rates, plus your, while you're still working, because that's more likely, if you did something like this on Carl's assets, because he's retired, you're still working, it's such a higher barrier, you know, the higher tax rate, whereas these-

• 51:40Speaker 02

  Ordinary income rates are going to be higher than capital gains.

• 51:43Brian Preston?

  Because you're already, you're earning money as well, so it's going to run you through the tables, or at least the capital gains. I mean, it's, you don't get into the 20% tax bracket until y'all's combined income is around $600,000. So it would be 15. Now, look, there's the Medicare surcharge and other things.

• 51:58Speaker 02

  Maybe it's-

• 51:59Brian Preston?

  I'm oversimplifying this to a degree, but it is still lowest cost of access to capital. And that's, that's kind of where you, you have to go through the, the triage of thought matrix of how am I going to get access to money? That's the, that's the easiest area to probably do it.

• 52:16Speaker 02

  Yeah, we talk about, you know, we use the Financial Order of Operations as a mechanism to help you think about how you accumulate. Well, when you begin decumulating, you kind of pull money out in the reverse order that you put money in, most often. So for most folks, the first money they ever save is the Roth money, because they open up a Roth IRA when they're young, or whatever. That's probably the last money you want to pull out in the accumulation. The second money that people start putting in is their 401K. I started maxing out my 401K, getting my employer match. That's probably going to be the second money that you want to pull out in retirement. And the last money that most people often put in are the taxable brokerage assets, once they're a savings mechanism or have an opportunity to do that. That's going to be the first bucket you want to pull from. And I think that's going to be true for you guys, even though capital gains are present.

• 53:00Speaker 02

  Because capital gains tax rates are going to be lower than whatever your 72T tax rates are going to be. While it does give you access to that, I'm going to argue, rather than pulling those assets out early and paying the tax and, and uncaptivating from this tax incentivized structure, you'd rather use taxable assets, preserve those tax-deferred assets, that you can then convert to Roth when your income does go lower, because you're going to love having those Roth assets later on.

• 53:24Speaker 04

  Yeah, that's a, a good point, and a lot of the stuff I would like to get rid of is in our brokerage account, too, so that just makes a lot of sense.

• 53:32Speaker 02

  And it's also not, not an all or nothing, because you guys do not seem like you have anxiety around selling these things. But a lot of folks do, they're like, oh, I can't sell SpaceX now, it's going to do this, or I can't sell Tesla now, it's going to do this. Whenever there's emotion in, in a decision, we try to remove emotion as much as we can by adding a system. And for us, the system, even when there's like highly concentrated, highly appreciated positions, is something like a dollar cost divesting strategy. Same way that we would put cash to work, hey, we're going to sell $10,000 a quarter, every quarter of this stock, and we're going to do it on an automated basis. So that way, whether the stock is going up or down, we're not having to time it to figure out, okay, is now the right time to sell or not the right time to sell? You kind of cover all your bases.

• 54:16Speaker 05

  That's interesting that you say it like that. I've never heard dollar cost averaging for the withdrawal as well, but, I mean, I talk about the dollar cost averaging into it, like automate it, and then you don't have to, like you've made the decision once.

• 54:28Brian Preston?

  That's the exact same thing, instead of, because people sometimes need to take the emotion out of buying, because they, they're worried that they're buying at the worst time, or so forth. This is the exact same thing, just in reverse order. We're taking the emotion out of you guys feeling like, when's the best time to sell? Let's, let's do it in a systematic way, so now it's, it's not a human, it's more of an automated process.

• 54:50Speaker 05

  Yeah, and we've made the decision to sell one time, and you set it up and it just happens.

• 54:55Speaker 02

  Mm-hmm, that's right.

• 54:56Speaker 05

  Can you do that?

• 54:57Speaker 04

  Yeah, I think Brian hit on something important a while ago, and to back up a second, I had healthy income as a software developer, but we were super cheap and super frugal, so we, we just minimized our taxes so much, we hardly paid anything, because we would max out our self-directed 401K. So my struggle, perhaps my biggest one, and perhaps I need a therapist instead of a CFP, is just to get over the paying taxes thing. Exactly, like, I've got a friend who works for Sandisk, and he told me he's got, like, he's going to have a $500,000 tax bill, he's got to write a check to Uncle Sand- and that made it a little bit easier, because ours won't be anywhere near that, but it's still a struggle. Like, we spent so many years absolutely minimizing that, and now we're going to have to pay up, and it's going to be okay.

• 55:40Speaker 02

  Well, I, I still think you're going to minimize it, right? You're still, like, obviously in your highest earning years, if you were trying to do some of this stuff, you might, your capital gains rates might have been 23.8%, right? It would have been there. But you are, you are still paying taxes, but you want to pay as little tax as possible in the sense that makes the most sense, right? And you're still going to be able to do that.

• 55:59Brian Preston?

  I'm going to challenge y'all from a mindset standpoint, is because all the things that have rewarded you in the past, to some degree, you have to rewire or reprogram, because y'all were, you were rewarded for being as minimalistic as possible. But, and y'all, and I love that y'all gave me the notes that y'all, y'all have read the book, Die With Zero. And, and look, I pick on that, because a lot of people, I, I love the concept, but a lot of people, it, it makes some assumptions. You have to be high income, and you can go grab capital very, or make capital very easily. And for most Americans, that's just not the case. You know, the, the, the ability to turn on and off how much money you make. You guys can. You've already won the game.

• 56:43Brian Preston?

  So I do agree with the Die With Zero for you guys, to challenge you, is that because you got to think about the fact that you have your time, which is diminishing for you guys. I'm, I'm the same age as y'all, so I understand that.

• 56:55Speaker 02

  I was like, sick burn, bro.

• 56:57Brian Preston?

  It's not me, because I, I, I deal with this. Success at this age is unique, because you still feel so healthy and so good, but you also know where you are from a chronological. So time is, you know, is, is a limited resource. Your energy, how well you can go and do activities and things like that, is also, as you found out, as soon as you retired, you're like, holy cow, I don't have time to do work, because I'm so busy. And then you've got your wealth. The one that's probably of the three that's the most valuable to you guys is the two that I just mentioned, is, is it's your time, and then the energy to go live your best life. So don't think in terms of maximizing or minimizing the, the taxes. Maximize life, because you've won the game.

• 57:42Brian Preston?

  We still can do it in a strategic way that, that does it well, but I want you to live your best life. Because, because I think y'all say on paper, you have a die with zero mentality, but when I look at how you're structured, it's more of, hey-

• 57:56Speaker 02

  Die with as much as possible.

• 57:58Brian Preston?

  How do I keep from paying Uncle taxes? And those two don't coexist when you're in the consumption side of your life. My favorite clients is because I see it, and I am a therapist in some ways. I'm not licensed, and I'm not trained, it's more of on-the-street training. But it's, um, most people who are really successful, you've been rewarded for being so good with how you allocate capital, that when it comes time to actually start, you've been rewarded to build that capital. When it comes time to consume the capital, you, you lose your mind a little bit, because you're just not used to it. You don't know how, you feel guilty, you feel weird, and that's what I have to, part of our job is to, to basically hammer you on why, no, focus on the energy, focus on

• 58:40Brian Preston?

  the time and the diminishing capability you have with that, so that you can live your best life.

• 58:46Speaker 02

  We get to tell people, it's okay to do things that doesn't naturally feel, hey, it's okay to spend money. Hey, it's okay to have a bunch of money in cash. Hey, it's okay to pay taxes when it makes sense to pay taxes, even though it grinds against builder's natural inclination.

• 59:02Brian Preston?

  Well, I mean, y'all, y'all know, because when I was watching, I, I love personal finance content, too. And before, we were all doing the podcasting YouTube and stuff, there was Suzy Orman out there, you know, on her nightly show, and every, they would have that segment where people would say, can I do this? And, and we all loved hearing it go, no! You know, because that's what, that's the whole segment, was just her killing dreams, you know? And that's, what's funny is that once you do this for a living, you realize, my job is actually just the opposite. I think people think a financial planner is going to tell you, no, we're actually like, please go do this, because I'm going to show you statistically why you're actually, your, your, your chance of success is still like pegged at 95-plus percent. Let's go do more. Y'all, y'all just have to free your mind to, to feel okay with that.

• 59:45Speaker 05

  That's the problem that we're having.

• 59:47Brian Preston?

  Uh-huh. It's, it's, it's, that's the achiever's trap, is just you, you can't, you've been rewarded for building to consume hurts. And that's why I do like, that's why I do like the die with zero mentality for successful people, is you have to figure out how you create the balance on that.

• 1:00:05Speaker 05

  Yeah, with, die with zero, it's more like we want to- Do experiences and with our kids and you know, maybe buy them a house when they're 30.

• 1:00:14Speaker 04

  Sure.

• 1:00:14Speaker 05

  As opposed to leaving them a giant pile of cash when they're 65.

• 1:00:17Brian Preston?

  I like 50 year olds reading that book. I don't like 20 and 30 year olds reading that. Because that's the problem is that when you're 20 and 30, you probably more than most Americans anyway. Now there's look, I was somewhat miserly in my twenties and thirties, but now I'm looking at my life. I'm like, thank goodness I was kind of miserly because that's where I'm getting the dividends of my money. Working harder than I do in a lot of aspects, but to tell that to a 20, 30 year old is probably the wrong message at that stage of life.

• 1:00:43Speaker 02

  Yeah. And it's even, you know, Di was here. One of the things they say is, hey, we want to be able to use the money now. We want to be able to see the money get used now. Want to be able to help our kids. You guys are in a great situation. You have young kids. If you wanted to start doing some sort of like annual gifting strategy, you can gift up to the annual gift tax limit to each of your daughters. And one of the really efficient things you could do, Brian already alluded to this, is you could gift them appreciated securities. Cause whenever you do a gift of an appreciated security, the basis that you have in it carries over. So you have something that has a very low basis, but a very high price. You gift that, if they were to sell it, they're not going to sell that at their tax rate, not at your tax rate. So if they're not earning a ton of income, if they don't have high, you know, not in a high tax bracket,

• 1:01:26Speaker 02

  there's a good chance they're going to be able to sell up to that $20,000 gift that you give them and not pay any tax on that to be able to liquidate it.

• 1:01:34Speaker 04

  Ooh, that's a great tip.

• 1:01:35Brian Preston?

  Well, especially your college age daughter who probably can stand on her own.

• 1:01:39Speaker 04

  Yeah.

• 1:01:39Brian Preston?

  More, you know, cause there is some things with kitty taxes and other things, but for a, you know, adult children who are more independent and following their own taxes and stuff, there's some big planning opportunities there.

• 1:01:53Speaker 04

  I was just talking to someone this week who has a wealthy relative and he said, I think this person has multiple kids and three kids. And he said, oh, the kids, I've heard them talk like they, they're looking forward to this guy's death. Cause then they'll get a lot of money. I don't want anyone to look forward to my dad.

• 1:02:09Speaker 02

  You know what your kids pulling for it. You want your kids to, man, I hope mom and dad stay around for a while. They sure are nice.

• 1:02:14Speaker 04

  Yeah.

• 1:02:15Brian Preston?

  I will tell you, there is a curse though of success is that you do need to go ahead and start having, and surely y'all have already been doing it with the, the girls being the age that they are. I've had to start talking to my daughter about money much because there is something about growing up in a successful family. Now you guys live a tight lifestyle, but

• 1:02:35Speaker 02

  You're successful.

• 1:02:36Brian Preston?

  It's pretty obvious that y'all have a big net worth and you want to start just planting those seeds because you don't want your kids best life to be while they're under your roof. You still want them to have drive to kind of create. That's, I think there is, look, we both grew up without any money. And I know you both shared, y'all come from very humble beginnings as well. So I think we all want to make our kids' lives as easy so they don't have the struggles. But we need to still have enough struggle in there that they get all the fulfillment when you get to go do all the big experiences of life. When you buy your car, your house and stuff, there is something, that hedonic treadmill, that I know you've probably talked about that concept before.

• 1:03:18Brian Preston?

  You, you always remind people, spread out the good stuff as much as possible. So every time you get that dopamine hit, it's actually as healthy. And that's why you don't start with the Lamborghini or the Mercedes, you know, or even the fancy BMW, you know, or something like

• 1:03:32Speaker 04

  With a roadster.

• 1:03:33Brian Preston?

  You start, you start, you start with the smaller cars, you know, and then that way as you're going up the train, you know, and it's the same way with vacations, you know, you're, you're hoping your kids, now I love giving experiences, but you're hoping that they also, as they're going through their own life, you know, have some achievements built in there so they get to live their best version of themselves.

• 1:03:53Speaker 04

  We've put some carrots out there. I'm trying to, what's the term, wag the dog or whatever? I'm like, hey, girls, because we've been open with money and we've told our girls, hey, you have to make it on your own. We will help you, but you've got to, this help isn't going to come for another decade or two. Like maybe your thirties, but you got to get out there, go get good grades and, and then

• 1:04:12Speaker 05

  We're rich. You're not, I love it.

• 1:04:14Speaker 04

  Our money.

• 1:04:14Speaker 05

  I love it.

• 1:04:16Brian Preston?

  Do parental matching though. That's one of the things, probably the best thing I did with my daughter when she was 15 and started babysitting. And then she started working fast food at Chick-fil-A all through high school was I started priming the pump by doing a dollar for dollar match on Roth contributions.

• 1:04:30Speaker 04

  Our kids got it from Taco Bell.

• 1:04:32Brian Preston?

  Huge. It's been huge because now, I mean, she's full time employed out of college and she's still like, she's loading up Roth IRAs and doing other things. And so the priming of the pump, you know, just like you pour a little, a little gas in the carburetor to get things going. You do the same thing with your kids with parental matching and it works beautifully. Cause you're modeling that behavior and then they start seeing the, the power of compounding growth.

• 1:04:54Speaker 02

  And it sticks.

• 1:04:55Brian Preston?

  It's nothing, when you realize your children are hard workers and they understand the value of deferred gratification and investing. Man, that is like, that's like parental dividends right there.

• 1:05:05Speaker 04

  Heck yeah. It'll take over the world.

• 1:05:06Speaker 05

  I will say you have to be very clear with your kids what you're talking about. I had told, our youngest just started at Taco Bell like a week ago.

• 1:05:15Speaker 02

  Okay.

• 1:05:16Speaker 05

  And I told her, yeah, dad and I will match your salary dollar for dollar. And she's like, this is great. And then we were having a conversation a little bit later. I'm like, oh, you think I'm just going to give you?

• 1:05:27Speaker 02

  No, no, no, that's not what's happening. That's not what's happening.

• 1:05:30Speaker 05

  You have to put it in your Roth IRA.

• 1:05:32Brian Preston?

  Right.

• 1:05:33Speaker 05

  Oh.

• 1:05:33Speaker 02

  Oh, I don't get to, I thought I was making double time.

• 1:05:35Speaker 05

  I was just going to give her cash.

• 1:05:36Speaker 02

  That's hilarious.

• 1:05:37Brian Preston?

  But think about the learning experiences on that, because that's deferred, learning the concept of putting a little bit away that you just don't get access to, but you get the value of watching it grow and build. So you don't have to work so hard in the future.

• 1:05:48Speaker 05

  Yeah. And I understand, I mean, the whole reason I want to do that is she's 16 years old. She, 60 is a thousand years for her. When she can actually get access to this money, she's like, that's so far away. It is. I hope that you make it to 59 and a half and I would love for you to have a lot of money in your Roth IRA when you do it.

• 1:06:08Speaker 02

  I love that.

• 1:06:08Speaker 05

  So that's why we have talked about doing that. Our oldest one actually doesn't have any taxable income right now. So you said something about your daughter was babysitting. Did you do this when she was babysitting too?

• 1:06:19Brian Preston?

  Yeah. I mean, well, those years, because you know, when you do a neighborhood stuff, you have to file a tax return for, and report, claim that. There's not really any taxes due on it, except for self-employment, you know, for Medicare and social security. But you just had to file so you qualify then for doing the custodial Roth IRAs.

• 1:06:36Speaker 05

  Okay.

• 1:06:37Brian Preston?

  Yeah. It's a great planning thing for, for anybody who has children who are starting to work, earning money. Go ahead and let them know that a portion of that ought to be working for them, going into their army of dollars. So that they can get that behavior and that habit. And what I always did, we get the statement. I would look at it and we look at the change, especially on good months. And I'd be like, you, you see you made $300 on that, that, what you put in over the, you know, a year ago. And like, you'd have to work, if you're making $10 an hour, that's almost, that's almost, you think about it, that's like two weeks worth of work, part-time work for you. You just made without doing absolutely anything. I mean, and that's, you start building those connections in the brain. You, you, you see the fireworks that are going on. And that's what we all have kind of figured out is that yes, it's fun to spend money.

• 1:07:23Brian Preston?

  But what's really cool is when your money can grow so it can, you can spend without having to work. Because everybody I know, and you know, I come from a public accounting background. Everybody, all the public accountants I know that are still working in public accounting, they might be worth a thousand dollars an hour on what they can bill. But they all hate that they have to go work that hour to bill that hour. And I think that we all get tired at a certain age that you don't, it doesn't matter what your, your bill rate is. You won't eventually to be able to say, I don't have to work. And it's, the only way you can do that is if you have money in the bank that can do the work for you. And that, and that's the, the biggest game that I always share with people. And this is more of the education, because you guys knew this and you, you instinctually knew it. This, if you come from nothing, own stuff. That's, that's the secret to success.

• 1:08:08Brian Preston?

  Whether it's real estate, whether it's index funds, whether it's the five biggest names, because Carl's just brilliant. Without realizing he's brilliant at picking all the big wins. How about, you didn't know Nvidia? You didn't, you didn't feel like, hey, let's go under, you didn't want to go and grab that one too? Cause you got a pretty good track record here.

• 1:08:25Speaker 05

  Don't want to be greedy.

• 1:08:26Speaker 04

  I, I whiffed on that one and Anthropic. I wish, someone told me about Anthropic a couple of years ago and that was a, yeah, not moving on that one. It was bad.

• 1:08:35Speaker 05

  Nice job, Carl.

• 1:08:36Speaker 04

  Yeah. Thanks for nothing.

• 1:08:37Speaker 02

  I'll tell you, it turned out okay. What, any other questions we can answer? Any other things that you guys are curious about that we could speak to?

• 1:08:42Speaker 05

  The comment about the long-term capital gains versus 72 T income is kind of eye-opening. I know the long-term capital gains tax rates are 015 and 20% and income tax is more. And it didn't click.

• 1:09:00Brian Preston?

  Yeah.

• 1:09:00Speaker 04

  Right.

• 1:09:01Speaker 05

  I really appreciated that comment. Did you hear that part about selling after-tax stocks?

• 1:09:05Speaker 04

  I did. Yeah. Capital gains rate is like 98 thou, when does capital gains kick in? Like for a married couple, 98 thou?

• 1:09:10Speaker 02

  Something, it's around there.

• 1:09:12Speaker 04

  Yeah, it's pretty high.

• 1:09:12Speaker 02

  Do you have your tax?

• 1:09:13Brian Preston?

  Yeah, I've got it right here. It's the 0%. Let me see on here. I was just looking, oh. Capital gains, married jointly, $96,700. This is for 2025 though, probably. Yeah, it's 2020. So we're a year off from an indexed, if it, you know, they, they index that stuff.

• 1:09:33Speaker 02

  So right under a hundred thousand.

• 1:09:34Brian Preston?

  Right under a hundred thousand dollars.

• 1:09:35Speaker 04

  Yeah, that's huge. I think people don't appreciate a brokerage account because it's kind of like, if you're not a big spender, it's similar to a Roth, but even better, because it doesn't have the restrictions as long as you standard that amount. Uh, I guess the only other thing we had talked about was, uh, we'd like to be charitable. We're gonna start a donor advice fund.

• 1:09:52Brian Preston?

  Those are brilliant. Yeah. We, we, we both use those. They, I mean, I love to nerd out on those things because you feel like it's a win-win. You're, you're giving appreciated assets so the, the charity gets full access to whatever the market value is, but you get full charitable deduction for it. Never pay the capital gains tax on it. So it's with you guys having huge capital appreciation, you, you get the, the huge benefit on that.

• 1:10:17Speaker 02

  And the one thing I would think through is depending on the level at which you want to give, you know, a lot of people, you guys have appreciated holdings, so it's going to make sense to use a donor advice fund, no matter what. You ought to review how much you think about giving, uh, because some folks, they, they, they give an amount every year, but because the standard deduction is so high now, they're not even able to take advantage of the charitable deduction from that. So whatever we review one of our clients' tax returns and we see that going on, we say, hey, instead of you giving to the donor advice fund every single year, let's make a donation every two years. So if they're given $15,000 a year, instead of giving $15,000 every year and never taking the deduction because standard deduction high, we'll give 30,000 one year and zero the next year and

• 1:11:00Speaker 02

  30,000 one year and zero the next year, allowing them to itemize standard deduct, itemize standard deduct. It allows you to still get the tax deduction and you can still give the money to your charities on whatever cadence you want to. So they can still go out every single month, even in that year, you're not contributing. You're basically just bunching those donations.

• 1:11:19Brian Preston?

  Does that make sense? You know, you're given throughout the period. So the charities, because they kind of count on your, they know who their givers are and they start expecting that. So you can still fund it throughout, give distributions throughout that with a donor advised fund.

• 1:11:34Speaker 04

  Yeah, that makes a lot of sense. Okay. So we'll do huge gifts and then zero gifts for a couple.

• 1:11:39Speaker 05

  Is there any way to get the money out of the 401K into the DAF?

• 1:11:43Speaker 02

  Well, there is. You have to be 70 and, well, not in the DAF, but when you turn 70 and a half, there is a really, really efficient way that you can start giving. You can do qualified charitable distributions.

• 1:11:55Brian Preston?

  QCDs.

• 1:11:56Speaker 02

  Where you take money out of an IRA or out of a 401K and rather than it coming to you directly, you can have it go straight to the charity. And if you do that, again, this is after 70 and a half, when the money goes to charity, it never shows up on your tax return. So if you give $10,000 as a qualified charitable distribution to a charity, it goes from your IRA, from your 401K to the charity, no tax ever.

• 1:12:17Brian Preston?

  So it doesn't even show up on your tax return, really? The benefit is, is that that's just less forced income that year. Because you know, when you get to those required minimum distributions, you, you, you know how big that pushes it up. So it lets you meet the, you get to fund the charity and lower, you're not have the taxable income hit your, your tax return.

• 1:12:35Speaker 02

  So most folks are, who, who are giving in a tax efficient way, their donor advised fund, donor advised fund, donor advised fund, until they hit that age, and then they switch over to qualified charitable distributions.

• 1:12:46Speaker 05

  Okay.

• 1:12:46Brian Preston?

  You're a little too, too, y'all are young. It's nice being called young.

• 1:12:49Speaker 05

  Oh, nice. Yeah, he calls me old and young in the same episode. So, one last question about Roth conversions. Right now, because I'm 53 and he's 52, if we Roth convert, we have to pay the taxes. I thought I heard something about at age 59 and a half, you can Roth convert and then you're not, you can take, pay the taxes from what you converted?

• 1:13:12Brian Preston?

  Oh, no, you could, you could still, I mean, you can still.

• 1:13:16Speaker 02

  Pay the tax from what you converted. No, you, you can, you can still convert to Roth right now. Same as if you were after 59 and a half. What happens after 59 and a half is now your Roth assets come into play if you needed to take distributions from them. Like you could actually begin using Roth assets if you needed to. Brian calls it like your Gollum precious, you don't ever want to use it. Where we see clients practically do it is in years where you're doing tax planning, something comes up, oh, we had to replace the car. All right, well, I want, I need to pull out $40,000, but man, I really don't want to trigger any more capital gains, or I don't want to make a distribution from IRA. I'll use Roth dollars to do that so that I can still keep in the same tax, uh, tax strata that I'm trying to stay in.

• 1:13:59Brian Preston?

  And, and the reason people talk about Roth as the bridge pre 59 and a half is because you can always get access to your basis. I mean, your contributions can come out tax-free. So that's why everybody's usually talking, 59 and a half, you know, the key dates, 401Ks, if you're still employed is 55 for, if the plan is written right. And then for all IRA and other retirement and so forth, it's 59 and a half for access penalty free.

• 1:14:24Speaker 05

  Talk to me about that 55, because we are, we have a self-directed 401K, which is where his SpaceX is.

• 1:14:32Brian Preston?

  Right.

• 1:14:33Speaker 05

  If it's written right and we can get it at 55, that's like three years for him and two years for me.

• 1:14:37Speaker 04

  It's kind of squishy though, because don't you have to like close it and be disconnected from the company in which case you have to close that?

• 1:14:42Brian Preston?

  Yeah, you're basically, you have had separation from the company at that point, but it's back to, for you guys specifically, it's back to tax rates. You, you know, you're, you're paying ordinary income tax rates when you pull out that money versus still capital gains. So you, you could create that as a penalty-free access point, but from an optimization, I don't know if it will be the ideal choice for you guys.

• 1:15:03Speaker 02

  Yeah. Okay. So at 55, if you were separated, you could access your 401K so long as you were employed in the year that you turned 55 and then you stopped. So like, uh, so long as Carl's actively participating until that point, turns 55 and then retires, then he could access it. Much more efficient way, much cleaner way than trying to do 72T distributions, uh, because it's not a thing that's fixed in time. You can do it ad hoc. But like you said, you're still paying ordinary income tax rates, which can be less attractive than your capital gains rates.

• 1:15:35Speaker 05

  Okay. Well, I think we now have a lot of things to talk about.

• 1:15:39Speaker 04

  Yeah. One, one closing thing, we were talking this, we talk about money all the time, including on the walk here, but one thing I think I asked you about yesterday or the day before, I said, do you feel wealthy? What was your answer?

• 1:15:51Speaker 05

  No.

• 1:15:51Speaker 04

  Yeah. But I think part of the reason we don't feel wealthy is the reason we're here. We've got this, but we're too afraid to, like the monkey, like grabbing the food, the monkey trap or whatever.

• 1:16:00Speaker 02

  You don't want to put your hand in the cookie jar.

• 1:16:02Speaker 04

  So, but it would feel good to actually be able to use some of that stuff.

• 1:16:05Brian Preston?

  I would say, you know, we, we, we harped on a little bit, but we didn't actually give you the action point on it. I do think y'all need to boost your cash, just because of the college, you got, you got things you can't get away from with the college tuition coming up. Y'all probably should boost that cash up, just so you, the volatility of, because you're going to have to make the tuition payments anyway. The volatility of some of the things that are coming, it's a good time with markets as good as frothy, or frothy's not the right word, because I've just been on a trend of saying frothy.

• 1:16:32Speaker 02

  The markets are up.

• 1:16:34Brian Preston?

  They're up right now. So it's, it's a good time. So you don't have regrets. Just in case it turned into a rainy day, you, you know, it'd be nice to have a little more liquidity.

• 1:16:43Speaker 02

  Yeah. I'll put a few little homework items for you guys, if you're interested.

• 1:16:46Speaker 05

  Absolutely.

• 1:16:47Speaker 02

  Uh, homework, I, I'd number one, uh, talk about building your cash up. I wrote down the number $500,000, only because that's 5% of 10 million, right? That's not prescriptive. But as you guys think about like an appropriate cash goal to have, as you think about some of this stuff.

• 1:17:02Brian Preston?

  They about threw up in their mouth.

• 1:17:03Speaker 02

  Yeah. As you think about, as you think about how you're earning and what you're doing with real estate commissions or what you're doing with those sorts of things, rather than going and deploying those dollars, I might consider thinking about building up your cash holdings to the extent, to the extent that you can. Um, in doing that, if you do decide to put together some sort of like reverse dollar cost averaging or dollar cost divesting strategy, I would think through your overall allocation. You guys are 100% equity, 0% anything else. Uh, so perhaps is there some way to maybe mix in, you know what, we're talking about optimization. Maybe it's not bonds, maybe it's like municipal bonds, right? That's like a sexy way to say bond without just saying bond, right? So there's some opportunities there. Uh, so it's less about rate of return, more about

• 1:17:48Speaker 02

  risk mitigation, but review your allocation. I do think you guys are at the stage where every single year around October, November, you ought to be doing an end of the year tax projection. Hey, what's everything we earned this year? What's it all look like? What are all the dividends that have come in, all the capital gains that have come in? How much room do we have in whatever bracket we're in? If we're already in the 24, how much, because even if you're doing small Roth conversions, oh, we can only, we can only convert $15,000, that's still 15,000 that you were able to convert in that tax bracket. So it's worth doing the exercise every year to see where you fall. Um, and then I said, talk with your kids about money, which you're already doing, but if you are trying to figure out, how can they begin using some of these dollars now, or begin having access to these dollars at some point in the near future, are there efficient ways

• 1:18:32Speaker 02

  that we could begin doing that even today without them having to wait until we, we leave this planet?

• 1:18:39Brian Preston?

  Yeah. And I'll, I'll just, I'll put an exclamation point on that one, because we work with a lot of successful families and that's, y'all are the tell in of the influence you have on these girls. Please have those conversations now. Because we, look, we have conversations all the time with wealthy families. They're like, I screwed up. I didn't talk about money. I didn't talk about money early enough. So now they have these misunderstandings about money that somebody else placed in their heads. Y'all have been very successful with how you've allocated your capital. It would behoove you to please pay that forward into your daughters as well, because y'all, y'all understand how money works. Please put it in their head, because if you don't, somebody else will and it might not be the ideal way to be. Because then when you get spouses and other things, you know, it gets very, it gets very, um,

• 1:19:26Brian Preston?

  Inefficient. And so this is your moment in time to make good things happen.

• 1:19:30Speaker 04

  I laugh because we had that conversation on the way here too, like with the whole prenup thing for, we specify that our kid must have a prenup, so they don't have to, but that's a whole, yeah. If you talk to our kids, they would say, Mom and Dad, we'll never stop talking about money.

• 1:19:46Brian Preston?

  By the way, we talk about, I haven't, I haven't pitched you guys, but when you start getting into this stuff, this is the perfect reason why you should have a financial planner is because do you realize how often I'm the bad guy when we talk about prenups and other things is because we're, instead of you, because you have to, you have to eat Thanksgiving and Christmas with these people. So it's nice if you have a big bad boogeyman that, and that's us.

• 1:20:07Speaker 02

  I don't really want to do this, but Robert Ryan said I have to.

• 1:20:09Brian Preston?

  No, we've, I've had, I've had some adult marriages that we are brought in to kind of, because it's an uncomfortable thing, but we're also, it's a legal protection that needs to be, and we're all about to become one. I mean, we are, if you listen to any of our content, I love joint accounts, but I also think that if you come into marriages with assets, you also have to be smart and realistic on protecting that stuff as well.

• 1:20:31Speaker 04

  And I've never wanted a CFP more than I do right now.

• 1:20:35Brian Preston?

  But that's the thing, everybody always, you know, I'm always, I think, most people don't need a financial planner while you're building, but once you get to close to seven figures, you realize no matter how simple you've tried to create your life, it gets complex with success.

• 1:20:50Speaker 04

  I can picture it now. Talk to Uncle Brian about this.

• 1:20:53Speaker 02

  That's right.

• 1:20:53Speaker 04

  Talk to Uncle Bo.

• 1:20:54Speaker 02

  There you go.

• 1:20:55Brian Preston?

  It's a true thing.

• 1:20:56Speaker 05

  How do you feel about having $500,000 in cash? And what does in cash mean?

• 1:21:00Brian Preston?

  $500,000 in cash on a $10 million portfolio. Put the context on it.

• 1:21:05Speaker 02

  Yeah. So high yield savings account or a high yield money market fund, like right now, where my cash is, if you hold over a million dollars, or if you hold over a hundred thousand dollars in cash, it's like 3.47%. So it's like three and a half percent yield on that. If you want to get real, like, you know, sophisticated, you can look at treasuries and do some sort of ladder. I mean, you can make it complicated if you want, but.

• 1:21:27Speaker 05

  No, no, don't tell him he can make it complicated. Did you see this?

• 1:21:30Speaker 02

  I know he's gonna optimize.

• 1:21:33Speaker 02

  But just readily available liquid cash paying somewhere between three and a half to 4% right now. And it's just kind of sitting there for when you need to pay for things or write checks, or when opportunities present themselves. And it's kind of one of those things, like your portfolio is not going to start growing. So even as you use that 500, maybe you have to use 100 of it for tuition, whatever, as you're selling securities over here, you replenish it, right? So it kind of is like this revolving door. We go down a little bit and then come back up and go down a little bit and come back up. And that's okay. That's the life cycle of what your total portfolio allocation should look like.

• 1:22:06Speaker 05

  So how does that feel?

• 1:22:07Speaker 04

  It feels good now that I talk to Uncle Brian and Uncle Bo.

• 1:22:11Speaker 04

  Sorry, you're younger than me, so it's a bit awkward.

• 1:22:13Speaker 02

  Oh, that's all right.

• 1:22:14Speaker 04

  Weird family dynamics. Some people start young.

• 1:22:17Speaker 05

  I really appreciate the time that you took to make all these fun slides and to look at our situation. I mean, obviously we know that we probably have a little too much money in Elon controlled companies, or a lot too much money in Elon controlled companies. And the 70,000, when I saw this slide, I was like, wow, we really only have 70,000 in cash. And that's, I mean, that sounds so snotty to say, oh, we only have 70,000. But compared to our net worth, that's probably not enough compared to our upcoming known expenses.

• 1:22:49Brian Preston?

  Surrounding error.

• 1:22:50Speaker 05

  Seven years of college at least, the next seven years.

• 1:22:55Speaker 04

  And I think it's actually less than that because I paid a bill this week.

• 1:23:00Brian Preston?

  While you're building a house, by the way, which if anybody's ever built a house, it's like your builder is like, yeah, I can do that, but it's going to cost you, back when I built my last house, it was probably like $3,000 to $5,000. Now with inflation, it's probably, yeah, but for $10,000, $15,000. So you can make that disappear with four upgrades probably.

• 1:23:18Speaker 04

  One of the workers pulled up in a new pickup truck this week. I'm like, wow, that's better than any of our cars. And it's probably from the last bill I paid. They're great.

• 1:23:27Brian Preston?

  Finance for the next seven years.

• 1:23:29Speaker 04

  If you're listening, you guys do great work. So I'm not throwing you under the table, but yeah, enjoy the pickup truck.

• 1:23:34Speaker 05

  The orthodontist also drives a really nice car.

• 1:23:38Speaker 04

  We don't drive a nice car. I mean, they're okay.

• 1:23:39Speaker 05

  You have a nice car?

• 1:23:40Speaker 04

  $35,000. It's a Tesla Model Y.

• 1:23:43Speaker 05

  Of course.

• 1:23:43Brian Preston?

  I figured it was a Tesla.

• 1:23:46Speaker 02

  You didn't have to say that. We all knew. We all knew.

• 1:23:48Speaker 04

  It drives itself. I don't drive it.

• 1:23:51Speaker 06

  The Money Guy Show is hosted by Brian Preston and Beau Hanson. Brian and Beau 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 Making a Millionaire. 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. The guests featured on Making a Millionaire are not clients of Abound Wealth Management at the time of recording. Their participation should not be considered a testimonial or endorsement of Abound Wealth Management.

• 1:24:36Speaker 07

  Does anyone know where the bass is? Hey, Beau's here. When your next track starts, listen for the decisions that the artist makes. The vocal pushed right up front, the bass that waits half a beat, that sample from a 70s underground gem, every choice deliberate. With Bo's, you'll hear it all. Your music deserves those.

• 1:25:07Speaker 00

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