Don’t Make This Huge Roth Mistake

⁠⁠⁠⁠Roth conversions can be an incredible retirement tax-planning tool—but doing one at the wrong time could leave you paying more in taxes than necessary. Brian and Bo break down 5 situations where a Roth conversion may not make sense, including high-income years, future tax brackets, paying conversion taxes from your IRA, estate planning, and state income taxes. If you’re wondering when to do a Roth conversion, whether Roth or Traditional is better, or how Roth conversions affect retirement taxes and RMDs, this episode will help you understand the numbers you should consider before making the move. 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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• 1:07Brian Preston?

  Don't make this huge Roth mistake.

• 1:11Speaker 04

  Brent, I am so excited because we love Roth dollars. They're some of the most valuable dollars that end up in our entire army of dollar bills. So if there's a mistake that one might be able to make with these dollars and with these accounts, we want to make sure that you do not make that mistake.

• 1:30Brian Preston?

  Yeah. And, and look, we, we don't make any secret about it. We are big fans of Roth dollars. I mean, think about what you get with a Roth IRA. You get contributions. Yes, you don't get a deduction. That's the negative side of it. But it grows completely tax-free. So this whole thing of compounding growth, this is giving you the best of it.

• 1:49Speaker 04

  Not only does it grow completely tax-free for your lifetime, the other great thing is it grows completely lifetime, completely tax-free for up to 10 years of your beneficiaries' lifetimes. And it's not subject to things like required minimum distributions and other things that regular 401ks or traditional IRAs are subject to. So it really, really is a remarkable, amazing and wonderful thing. And the reason why we like them so much, or the reason why we talk about them so much is because they are so good. Oftentimes, the federal government, government, the federal government limits who can even put money in there. So a lot of people, as their incomes rise and as they make more money,

• 2:34Speaker 04

  they can't even contribute directly to Roth. And so they start trying to figure out, what are some other ways? What are some other strategies? What are some other mechanisms that I could begin to beef up my Roth bucket?

• 2:45Brian Preston?

  And that's where, look, Roth conversions, this is a cool little tool that really got opened up. If you think about in 2010, they took away the income limits on doing Roth conversions. So a lot of people get really excited about it. And that's why we want to make sure that we share the good, but also all the negatives. So you don't fall into some traps.

• 3:05Speaker 04

  And what a Roth conversion is, the actual like textbook dictionary, the textbook dictionary definition of Roth conversion is we take pre-tax dollars, money that sits in a 401k, sits in an IRA, and we actually convert pay tax to turn those into Roth dollars. And they're so valuable that we actually did a wonderful episode with BiggerPockets Money where we walked through just how valuable a Roth conversion strategy can be. If you remember, we had Mindy and Carl who had this huge portfolio and a lot of it in pre-tax retirement accounts. And what we showed them is because they had so much in assets, when they retired, when they actually left the workforce,

• 3:50Speaker 04

  they were going to be in this little tax desert where essentially from about the year 2030, all the way out until late into the, into the early 2040s, they were going to have a very, very low tax situation. But if they waited and just let their pre-tax money continue to grow, when they got hit with required minimum distributions at the age of 75, they were going to go from being below the 22% federal tax bracket to now all of a sudden jumping into the 32 and even the 35% tax bracket, which is a bit of a tax bomb that exists for folks who have big pre-tax IRAs.

• 4:26Brian Preston?

  Well, we should, we were able to show them, look, you can manage. It's, it's a choice. If you do good financial planning, you can manage those tax bombs, as you called it. Because if you just, during those low income years, take advantage of doing some Roth conversion planning, we were able to show that we could actually increase their assets, the end value by almost $3 million and then save them a little over $1.1 million of taxes paid to the federal government by just doing a little bit of prep. So Roth conversions, very powerful tool in your financial planning arsenal. However, um, there are times you gotta be careful. And that's what, because you, we, there is a checklist you ought to go through to figure out, should I pay the taxes now, pay it later?

• 5:08Brian Preston?

  And that's why we wanted to cover today's show, because there was actually an article that came out. And this was, um, who, who did this article? This was, was this Forbes? So Forbes had the five times you should absolutely not do a Roth conversion. And we wanted to kind of cover that because we, people can get excited when they see an episode like we did with Making a Millionaire with Mindy, that we had, I remember we, we had a close friend.

• 5:32Speaker 04

  Yep.

• 5:33Brian Preston?

  Went, his, his accountant went to a seminar on Roth conversions and got so hopped up on excitement for this, that he came to our client and said, "Hey, you ought to go ahead and convert all of your..."

• 5:44Speaker 04

  All of your SEP IRA.

• 5:45Brian Preston?

  All of your SEP IRA into a Roth IRA so it can grow tax-free." And we looked at each other because we knew his income threshold. It was right under.

• 5:53Speaker 04

  That's on the tax bracket, 39%.

• 5:55Brian Preston?

  It was tippity top of the tax rate. So it was 39.6% at the time.

• 5:59Speaker 04

  Plus a state federal tax.

• 6:00Brian Preston?

  Plus the state taxes, 6%. So I mean, it was 45, close to 46% was just going to completely evaporate. And back then also with the tax code, you lose a lot of deductions.

• 6:09Speaker 04

  That's right.

• 6:09Brian Preston?

  I, I think it's easy to say, it was going to be 50 cents on the dollar was going to go to taxes. So we were like, no, this is a bad time to do this. So that's why we wanted to kind of dispel the rumors. Yes, this is a powerful tool, but what, what other questions should you ask yourself? So you don't fall in this trap of excitement of doing things you shouldn't and make a Roth mistake.

• 6:30Speaker 04

  Yeah. And I think we said, I think we said Forbes. This article was actually in Kiplinger's and it was five times that you should not do a Roth conversion. And as we're reading through it, we're like, okay, yeah, that sounds right. Yeah, that sounds right. I don't know about this one. And so we thought we'd go through these five and kind of give you our take on it. So the first one is exactly what we just described. If you're someone who's in a high income year or a high income season, you're someone earning in the 37% marginal tax bracket, 35% marginal tax bracket, there's a really good chance that at some other point in your life, when you leave the workforce, when you shift careers, when you downshift on what you're doing, that you may be able to convert in a lower tax situation. So if you're able to have a lower tax situation in the future than you have right now,

• 7:14Speaker 04

  that probably is a sign that this might not make sense if you did Roth conversions. Now, for, for a moment, we are talking about taxable Roth conversions. Don't miss here. If you're someone who's in a very high income tax situation and you're doing non-taxable, tax-free backdoor Roth conversions, we love those.

• 7:31Brian Preston?

  Because there's zero tax.

• 7:32Speaker 04

  That's right. These are the ones where you're going to trigger taxes. If you're someone that's in a high income year, high income season, you might not want to do Roth conversions.

• 7:41Brian Preston?

  The second time that it's not a good idea to do Roth conversions. And now, look, I had a dear friend in the publishing world who reached out to me and he, he got hopped up on this whole Roth conversion thing. And he's like, "I think I ought to do more Roth conversions." And we started talking about it and I was like, "Wait, you're going to have to use the IRA itself to pay the taxes. That's less than ideal."

• 8:03Speaker 04

  That's right.

• 8:03Brian Preston?

  That is not what you want to be doing to be doing the Roth conversion strategy here. Because you're going to eat up, yes, you're going to get tax-free growth. But if you're eating up the principal to pay the taxes, you're creating, not only you're accelerating the loss of the value through the taxes, but you're also, it's just, it's not a good use of those resources.

• 8:23Speaker 04

  Well, and you gotta think about it. It's kind of like this, like circular reference, right? Like I gotta pull money out of the pre-tax IRA to then pay the tax. So I'm pulling money out that's going to incur more tax to pay the tax. And it just turns into this vicious cycle where you end up wasting a lot of dollars. So we think that folks who ought to be considering Roth conversions need to have outside resources, after-tax assets or liquid cash available in order to pay taxes on the Roth conversion.

• 8:49Brian Preston?

  So we agree with Kiplinger's on that, on that point.

• 8:51Speaker 04

  We agree with that one. Number three says, if you're someone who expects your tax rate to fall in retirement, meaning you're, again, this is kind of like restating number one, you're in a high tax bracket now, but you're going to be in a lower tax bracket when you retire, probably doesn't make sense to do Roth conversion unless for some reason you're thinking through legacy planning or passing this on as part of your estate plan. If you're going to be in a lower tax bracket, it might make sense to wait and do Roth conversions at that point in time.

• 9:17Brian Preston?

  Now, this next one, number four, you're going to have to explain this, bro. Because I read it all through the show prep meeting and I was like, "What is this saying?" The month, number four was, "The money will pass to heirs who get a step up anyway." And I was like, "Wait a minute. No, if you have traditional IRAs, they don't qualify for step, step up in basis. It's only after-tax assets that get step up in basis when you pass away and people inherit it." So what the heck is number four saying?

• 9:43Speaker 04

  Yeah. What this is saying is it's not exactly an apples to apples comparison, but it's saying if, if you're going to do Roth conversions and the way that you have to do Roth conversions is you convert the pre-tax assets to Roth, but you burn down all of your after-tax assets to pay the taxes, what you've done is you've burnt down assets that Would have otherwise been available to have a step up in basis when they pass on. But I'm going to argue, if you're in the situation and you have the choice between passing on after tax dollars to your beneficiaries or passing on Roth dollars, while they're both fantastic and they're both great for legacy planning, I'm going to argue Roth dollars are just slightly better because not only do they grow tax free for your entire life, they also grow tax free for up to 10

• 10:25Speaker 04

  years of your beneficiary's life. And when your beneficiary goes to pull that money out, it is still tax free. So I'm going to argue those Roth dollars are still even slightly more valuable than those after tax dollars that get the step up in basis. So I'm going to disagree with this. And I think this one is not purely and completely an apple.

• 10:41Brian Preston?

  Well, it's not an apples to apples. And it is, I guess, you know, look, the ideal is if you have enough cash, just pay the taxes. If it's in highly appreciated holdings that you have to now pay taxes, it at least should go into your analysis.

• 10:54Speaker 04

  That's right.

• 10:54Brian Preston?

  Number five, state taxes erase the federal benefit.

• 10:59Speaker 04

  Yeah. If you're someone who lives in a high tax state, you're someone who perhaps lives in a state like California and you're in the very highest tax bracket in the state of California, but you're thinking, okay, when I retire, I might move to a state like Washington or Tennessee or Texas or Florida, where there's going to be a much lower state tax benefit. It might not make sense for me to convert in the state that I live now, because I'm going to pay a substantial tax when I convert. I might be better off waiting until I'm in one of those tax free states, or maybe Roth conversions don't make sense in my situation at all. I would agree with that. If that's true for you, perhaps taxable Roth conversions don't make sense for you right now.

• 11:41Brian Preston?

  So, you know, look, I think that's pretty solid. Kiplinger's did this article, four out of five, we agreed with in the four. I didn't even give it four and a half because you should take into account the tax considerations of your after tax holdings. So now that we've kind of gone through this checklist of the article, we want to take it a step further and actually give you, what are the things you should consider? So if you're in this mindset of, hey, I love the benefit of Roth, you know, accounts in general, whether it's 401ks, whether it's IRAs, I love the tax free growth, what mindset or what questions should I ask to make this right decision?

• 12:13Speaker 04

  Yeah. And as we were kind of walking through all of these, these are the things that sort of came up. Number one, you want to think about your income, my income now, what tax bracket, what tax rate does that put me in? And then what do I think my income tax bracket, income tax rate is going to be later? And I want to make sure that if I'm going to convert either now or later, it's a positive arbitrage. I want to convert when I have low tax years, so I'm not forced to have higher tax years later on.

• 12:41Brian Preston?

  The next point we put was savings. You know, this is really in your after tax account. Do you have enough cash or access to cash to, you know, what's the tax structure? Go through and don't skip out on this step to make sure that you can actually pay to do the Roth conversions.

• 12:56Speaker 04

  And when it comes to Roth conversions, we also want you to answer the why. Is this part of an estate plan? Meaning the reason that I'm doing these Roth conversions is so that I can leave assets to my beneficiaries when I'm no longer here? Or am I converting to Roth because those are going to be tax free dollars that I'm going to use at some point during my retirement lifetime? You wanted to find how and when you're actually going to use those dollars.

• 13:16Brian Preston?

  And then of course, state taxes, you know, look, a lot of you, the easy, easy button is you say, well, I'm just moving to Tennessee where the Money Guy Show is filmed.

• 13:23Speaker 04

  Come on.

• 13:24Brian Preston?

  But unfortunately, population is pretty full here. So you'll have to find another low tax state. You know, there's a lot of others out there, Nevada, well, you said Washington.

• 13:33Speaker 04

  Washington, Florida, Texas, all these are some zero tax states.

• 13:37Brian Preston?

  Lots of opportunities to get some tax free growth in retirement.

• 13:40Speaker 04

  Awesome. Uh, this, as you can tell, is a big decision. And the decisions you make can have a huge impact. Again, I think Mindy and Carl are a great example. They were no longer at the pass fail situation in their financial store. They had done very well. They were financially independent. But this decision had huge implications in terms of how much tax they were going to pay and what legacy they were going to leave behind. Perhaps you're not at that decamillionaire level and you're trying to figure out, do I have enough? Am I at the place? Are the decisions I'm making today going to impact what kind of life that I live in retirement? These are big decisions. And most people, Brian, when they face that, it's the first time they've tried to make that decision. The first time that they've navigated it. And so if you are someone who's there thinking

• 14:22Speaker 04

  about that or trying to navigate that, this might be a great time to consider taking the relationship to the next level.

• 14:27Brian Preston?

  We often say, look, you know, we love giving away free advice because I think keep hitting the easy button as long as you can. But one day, when you reach enough level of success, complexity will find you. And that's what we love for clients, to listeners, to become clients. Let us help you take that relationship to the next level. Because we just covered just the whole Mindy and Carl thing, but also even the, the, the, the little grayness that even the Kiplinger's article talking about how your after tax assets are structured to pay the taxes on the Roth conversion. I mean, when you start strapping in, you know, taxability, social security, your Irma calculations for Medicare and the surcharges that are out there, you quickly see how all these things are stacked on top of each other. So what seems like it was just a simple decision to do a

• 15:12Brian Preston?

  Roth conversion, has a lot of waterfall elements of additional things that are impacted in this. And the thing about water down a hill, you can't get it back up the hill.

• 15:22Speaker 04

  Yep.

• 15:22Brian Preston?

  So we love for when your life reaches those level of complexity, consider reaching out to us. Keep taking advantage of all the free stuff if you're not there. We love being the educators that come in, show you how wealth works. And then one day, we hope that you reach that graduation.

• 15:37Speaker 04

  Brian, I love that we get to do this. I love that we get to see these articles and give you our take, let you know what we think about them. And I love even more that we can answer your specific questions. Speak to the things that you guys care about. It's why we have the team every Tuesday out in the wings, collecting your questions. So if you have a question you want to get us to weigh in on, you want to get our take, make sure that you get it in the chat right now. So with that, Creative Director Rebe, I'm going to throw it over to you.

• 16:03Speaker 05

  Yes, I'm excited. I have Andrew S.'s question up first, but before that, very important PSA to everyone listening. Tomorrow night, the Millionaire Mission merch store will be closing.

• 16:16Speaker 04

  Wait, there's a Millionaire Mission merch store?

• 16:18Speaker 05

  There's a Millionaire Mission merch store. To get access, to get your very own Money Guy and Millionaire Mission mugs, tumblers, paraphernalia, you need to just preorder Brian's paperback. We're very excited. In November, Brian's updated and revised version of Millionaire Mission, now on paperback, is releasing. And we're excited because this means it's just the next iteration of getting this financial, good financial ideas out to the masses. So by pre-ordering the book, you are really helping us further that mission. It shows bookstores, the publisher, that there's some energy behind this book and that this message is important. And so to say thank you

• 17:00Speaker 05

  for helping us with that mission, we have a ton of preorder perks all lined up for you, one of which being an exclusive Millionaire Mission merch store for pre-orders. So to get access to that, go to moneyguide.com/millionairemission, preorder your book from wherever you want to get your book. It's on all the major retailers. And then go back to that page because there's a preorder perks button where you can fill out a form showing you ordered the book and we'll email you with all the perks, including a secret link to the store. But the store closes tomorrow night. There are still some other awesome perks like Brian's book club that we're going to be talking more about soon. Very exciting stuff happening there. And then also a special role in a secret channel on

• 17:42Speaker 05

  our Money vs Discord. So lots of reasons to preorder, but the big one today is to get access before the store closes tomorrow night. So, and if you're listening to podcasts, it might be tonight. It's October 7th. It's going to close. So that's my announcement, PSA.

• 18:01Speaker 04

  What I think is great, uh, these, this book would make a wonderful Christmas gift, wonderful stocking stuff or wonderful thing to pass along to someone so that you can spread the good news of sound financial decision making. So if you have someone in your life, maybe you've read the book, but you want to figure out how you can pass it on, it's a great gift to load up the next generation with because, uh, we've got some stuff coming up. We're going to be talking about the next generation and what's going on with some of the Gen Z'ers out there and millennials out there. And man, if we can have our young people start making better financial decisions, it will change the way our country looks. That's our challenge.

• 18:37Brian Preston?

  I was in an airport this weekend.

• 18:41Speaker 04

  What airport?

• 18:42Brian Preston?

  Well, Nashville.

• 18:43Speaker 04

  Oh.

• 18:44Brian Preston?

  You know, we live here in Nashville. I didn't know if you knew that, you know, we lived here in Nashville. So I was in the Nashville airport and, um, lots of young people could listen to, and that makes me have no idea. Now, look, if you're a fogey like me, I get excited that you talk to us too. But really, when 20 somethings come up, I'm like, oh my God, this, if this person is listening to our content, do you realize we are literally changing the future? Not only their future, but their children's future. That stuff excites me more than y'all realize. So just thank y'all for, for coming up. And I think to Bo's point, we got it brand, you know, because now they gave us our first printed copies so we could go see it all in print. This, this book is the better version. I look, I loved the first version, but they took it from me. You

• 19:28Brian Preston?

  know, it was like, you know, I felt like if you're having a nine month baby, you know, my first book was taking its, you know, seven and a half months.

• 19:36Speaker 05

  Oh my, okay.

• 19:38Brian Preston?

  No, because I mean, they took it from me. I mean, it was one of those things. I was, I felt like it was, they said, quit making changes to it. This is it. And it went out. This, when, when this one was done, fully developed baby.

• 19:50Speaker 05

  Feel good about, yeah.

• 19:51Brian Preston?

  I mean, because it was a full nine months because I was actually ready to give it away when it, when it was time for it to be born, you know, that is a horrible analogy.

• 20:01Speaker 04

  It's falling apart.

• 20:02Brian Preston?

  Just falling apart as we speak. But yeah, I think you get the point. I mean, I made a lot, I made it, it's not a completely different book, but I got to go deeper on some things that I felt like needed some love on.

• 20:12Speaker 05

  The stuff you know and love. So if you're gifting it, they're getting that same awesome book that is Millionaire Mission, but some new stories, updated numbers for 2026. You were, are very proud of some of the case studies you went and like redid and like made a little meteor. So yeah, it's really good stuff.

• 20:27Brian Preston?

  Well, I didn't feel like it was going to scare kids enough, you know, making bad decisions. So I was like, we gotta, we gotta ump this up a little bit.

• 20:33Speaker 04

  You know, Halloween right around the corner. It's a great gift for Halloween to really scare those kids.

• 20:38Speaker 05

  Scare the kids, he says. My goodness. Okay.

• 20:41Brian Preston?

  Yeah.

• 20:42Speaker 05

  All right, let's get to Andrew's question. Are you ready?

• 20:46Speaker 04

  I'm sorry, whose question is this?

• 20:47Speaker 05

  Andrew.

• 20:48Brian Preston?

  Andrew S's.

• 20:50Speaker 05

  If the Trinity study showed the best portfolios had 100% stocks, why do advisors suggest bonds for retirees if mathematically, stocks are always better in terms of both growth potential and long-term success?

• 21:05Speaker 04

  Well, okay, first, what was the Trinity study? For those of you who aren't familiar, it was this study that was done that determined, okay, looking at a standard 30-year retirement time horizon, over all the different 30-year periods that we've had over some period of time, I can't remember, it was 70, 80 years, what probability of these specific allocations of portfolios made it to the end of the plan, were not depleted before the end? And then it came out and figured, okay, what was the most likely, highest probability, long-term sustainable withdrawal rate across the vast majority of those periods that existed?

• 21:47Speaker 04

  And what they determined originally was it was somewhere around a 4% withdrawal rate would allow that. But what was interesting is they did the Trinity study. They did it based on portfolio allocation and they did, okay, what's the rate of success for a 100% portfolio? What's the rate of success for a 60-40 portfolio? What's the rate of success for a cash-only portfolio? And they kind of calculated where that existed across those. And what Andrew was alluding to is, man, that all-stock portfolio, the 100% equities, seemed to be the best, seemed to be the top one. And his question is, well, if that's the case, why wouldn't I just do that?

• 22:22Brian Preston?

  Well, because you actually have to start using the money.

• 22:25Speaker 04

  Mm-hmm.

• 22:25Brian Preston?

  And that's the problem, you know, look, there's a difference between risk tolerance and then risk capacity. And there's also sequence of returns risk that you, you gotta pay attention to. Is because if you, think about the fact that if you retired in 2007, that you would probably be petrified if you then experienced 2008 in your first year. If you retired in 2021, I mean, which, you know, 2022 would have been a shock and awe moment on your retirement because if you're consuming assets when markets are down 20, 30%, it can be devastating to your long-term success. So that's why you always have to be careful and have the context of,

• 23:10Brian Preston?

  what is this study actually showing me on what you do? And then also, I'd be careful every time you listen to anything about investments, there's usually an asterisk or a little voice that comes in at the end and says, past performance is not indicative of future performance, you know? So be careful. Because like right now, he zoned out, he put in bonds. Why would anybody ever want bonds? If you're paying attention right now, bonds are absolutely getting crushed. If you look at like what's happened to the 10-year treasury, it's reaching highs, which if you're a bond, existing bond holder, that actually hurts you because why would they want your bond portfolio? We can go get newer bonds at a higher rate. But if you're a person who's adding a retiree, now, if you're 20-something, you can go to sleep for this part. But somebody who's quickly approaching retirement,

• 23:54Brian Preston?

  bonds is actually going to probably be something that's going to have a little wind to its back coming in the next 10 years. So that's why you have to be careful just reading a research study like this and be like, well, I never want to have bonds in my portfolio. You might need bonds not only to give you stability, but they might actually be a decent asset allocator based upon just what is going on in the wonderful world of finance right now.

• 24:18Speaker 04

  And look, we know that personal finance is 80% behavioral and a lot of reasons, a lot of times people diversify because there's a mental psychological thing happens that when you go from using your back and your brain and your hands to create wealth and now you're counting on your army of dollar bills to do it for you, it messes with your mind.

• 24:37Brian Preston?

  It does.

• 24:37Speaker 04

  And what you don't want to do is reach that 2008 or that dot-com bubble burst and go through that hard thing. And because you're an all-equity portfolio, you reach that capitulation point where like, I can't do it, I can't take it, I can't handle it. I had the worst luck, I had the absolutely most awful sequence of returns right at my retirement, and you end up making a very bad decision. So that's why most people do it. But I would argue this for people who've been building and saving, the question I'd ask is why risk it? And this is what I mean by that. Even if you look at the 100% portfolio, the probability of success that existed there, it wasn't 100% probability. There were still some failure rates based on bad sequences of returns. And I would liken it to this.

• 25:20Speaker 04

  In a firearm, in a revolver, there's what? Six chambers, you can load six ammo, right? If you were going to play-

• 25:30Brian Preston?

  Can't wait to see where this goes.

• 25:31Speaker 04

  If you were going to play Russian roulette, right?

• 25:35Brian Preston?

  Halloween edition here.

• 25:36Speaker 04

  It's 1 out of 6, 16.6% chance you have a bad outcome, right? And so there's a vast, there's a much higher percentage to be a good outcome. Is it worth risking it? Would you play the game if the one bad outcome or the 16% chance could be so bad that it was devastating? That it was an outcome that was unrecoverable? Your portfolio is no different. Could you be, would you be, is it likely for you to be okay with a 100% equity portfolio? Maybe. But if there's a chance that you could fail and there's a chance it could derail, there's a chance that you could go from financially independent to very much financially dependent, is it worth it? Why not not only focus on your risk tolerance, how much you think you can handle,

• 26:21Speaker 04

  but shift and think about your risk capacity? How much risk should you take based on where you are and based on your financial situation? It was a decent analogy.

• 26:31Brian Preston?

  It was a decent analogy. And I also like that you brought it back full circle to risk capacity and risk tolerance. You did a good job and you got all the mindset stuff in there. Well done.

• 26:41Speaker 04

  I gotta think of a better lope. What, content team? Because Russian roulette's kind of a morbid one. Help me think of a better-

• 26:49Brian Preston?

  I've seen analogies where you're trying to show you can have a very large population. Like if you have a candy dish full of M&M's and there's five of them out of 100 are poisonous, would you eat any M&M's out of that? And the answer is typically no.

• 27:09Speaker 04

  How many would you eat?

• 27:10Brian Preston?

  It's not worth the risk.

• 27:11Speaker 04

  Ruby?

• 27:12Speaker 05

  And what was in there? Something that's going to kill me?

• 27:13Speaker 04

  100 M&M's, five of them are poisonous. How many would you eat? Zero.

• 27:18Speaker 05

  I truly wouldn't. Why? I don't need M&M's, is that bad?

• 27:22Speaker 04

  What if, Brian, it was 100 Almond Joys?

• 27:25Brian Preston?

  Oh, gosh. Okay, maybe, maybe if 99 of them are good and one's bad, maybe eat the Almond Joy.

• 27:34Speaker 04

  I have an Almond Joy. That's hilarious.

• 27:37Speaker 05

  Oh.

• 27:40Speaker 00

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• 28:08Speaker 01

  Blowing ad budget on metrics that look great till the CFO sees them? That's bull spend. And marketers are calling it out in. Dashboard, confessions.

• 28:17Speaker 02

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

• 28:25Speaker 01

  Cut the bull spend. LinkedIn lets you target by company, job title, and more. Advertise on LinkedIn. Spend $250 on your first campaign and get a $250 credit. Go to LinkedIn.com/campaign. Terms and conditions apply.

• 28:38Speaker 05

  Oh, man.

• 28:40Speaker 05

  All right, let's move on to Chris H.'s question. But before I do, get your rapid-fire questions in. If you're watching live on YouTube, put RF at the beginning of your question and enter it into the chat. And we'll see later in the show if Brian and Beau can answer them in 30 seconds or less, or maybe less. We'll see.

• 28:59Speaker 04

  I can't remember last time we had to do 15.

• 29:01Brian Preston?

  Yeah.

• 29:01Speaker 04

  And we crushed it.

• 29:03Speaker 05

  You actually did much better than I thought you would. I was proud. All right, Chris says, my wife, 31, and I, 36, have 300-

• 29:12Speaker 04

  Y'all all heard it. Y'all all heard it too. Keep going.

• 29:18Brian Preston?

  I didn't hear it, so I'm not reacting.

• 29:21Speaker 05

  I was busy doing my job, it's fine.

• 29:23Speaker 04

  That one was for the content team and, you know, the couple million y'all out there that heard it. Keep going.

• 29:28Speaker 05

  All right. My wife, 31, and I, 36, have 300K saved to put down on a home. We're looking to buy in the 400 to 500K range. Is 300 too much to put down? We have 440K in retirement and we're saving 25%.

• 29:48Speaker 04

  Oh, my goodness gracious.

• 29:50Speaker 05

  What are you going to say? I can't wait.

• 29:51Speaker 04

  Hold on, how, um, what is, I wish I knew their income. Man, it'd be super cool to know their income.

• 29:57Speaker 05

  Chris, if you're out there, share your income if you're willing. That would help us with the question.

• 30:02Speaker 04

  Let's talk about some-

• 30:02Brian Preston?

  Yeah, but you're trying to figure out if he's ahead of the curve.

• 30:04Speaker 04

  Yeah, that's right. Because at 31 and 36, right, you're early 30s, mid-30s, right? And so we know that by the time that you get, by the time you get 30, we want you to have one time your annual salary saved up in liquid investments. By the time you get to 40, we want you to have three times your annual salary. So my question would be, how close is $440,000 in retirement savings to being to three times your annual salary? Because that's where, that's like the direction you're trending towards. If you're ahead of the curve- And if you are saving 25%, which it says, that tells me, Brian, will you hold the thing up for me? That tells me that you're in step seven, eight of the financial order of operations. And if you decide at that level that one of your goals is to be debt free and is to have

• 30:49Speaker 04

  a super low mortgage, to have a lot of equity in your home, I think that you get to choose if you want to put $300,000 down on a $500,000 home. Now, for me, income is $200,000. So I'm going to do some quick math, 200, 400, 600. Are you on track to hit $600,000 by the time that you get to 40? It sounds like you are. 31, 36, 440, saving 25%.

• 31:14Brian Preston?

  It's interesting because he's, his wife is 31, he's 36. Your one times income at 30, you're trying to be at least three times income by the time you're 40. He's four years from that. They have four, what do you say? They have $440,000 in retirement? So that's a little over two. So they're on track to probably be at three.

• 31:38Speaker 04

  Easily.

• 31:40Brian Preston?

  In four years?

• 31:42Speaker 04

  Yeah, I guess. Well, and at average their ages, one's 31, one's 36. Yeah. And they're saving 25% of $200,000. So they're saving $50,000 a year. Is that good math? Yeah, they're going to hit.

• 31:53Brian Preston?

  Here's my advice for Chris.

• 31:55Speaker 04

  I didn't finish.

• 31:55Brian Preston?

  Okay, go ahead, finish.

• 31:57Speaker 04

  Can you do it? Absolutely. I think you can absolutely do that if you want. Is it the most optimal financial decision? Mathematically, I would say perhaps not at your age because you know what's cooler or just as cool as being debt free is having the ability to be debt free. So I might think about, based on my income, if I were to do the, okay, how much do we put down, keep our mortgage reasonably where we were, but what if we put 100,000, 150, whatever the number is, and had that money working for us, might that create the mechanism by which we could actually be debt free sooner than if we all put down the mortgage? Even though I know rates are gross right now, they're like seven and a half percent. I'm going to give you the pass to do it. I don't know if it's what I would do as mathematically optimal.

• 32:40Brian Preston?

  Well, look, I was just going to take it one step further. Definitely, Chris, go do our Know Your Number. It's a free tool that's out there on moneyguy.com/resources. Just to ensure, because that lets you actually put in your true goals that you think you want to do at retirement with, based upon living expenses and everything else, so that we're not having to guesstimate if you're ahead of the curve, behind the curve, or right where you're supposed to be. Go do that exercise first. The second thing I'd have you do is create a 10-year spending and goals list. Because what I don't want you to do is put down this huge sum of money on this house, but then you tell me next year, because y'all are growing your family, you need to go buy a minivan for the family, because there might be a balance there. If you think mortgage rates.

• 33:23Speaker 04

  We literally had a Making a Millionaire guest that came here last week that did this exact thing.

• 33:28Brian Preston?

  Right. That's what, that's what I'm saying. If, because if you think mortgage rates are gross, wait until you see what car rates are right now, especially, I guess if you're buying new, sometimes they will subsidize the rate. But it's worth the exercise or do a 10-year spending list, just to make sure there's not some big goal that you've got coming up. You know, I can't imagine you have kids, college education, but if there's medical procedures, if there's, you know, cars and other things that are coming up, just know that going in, because once the money goes into the house down payment, it's hard to get it back out until, you know, unless you refinance or sold the property. And both those things can be, are expensive endeavors. So it's a measure twice, cut once. But if you go through that checklist, you do those things, then, yeah, I see no

• 34:13Brian Preston?

  balance. You definitely should put down more than 20% with where interest rates are right now. It's just to put down 75% on a purchase seems a little aggressive at your age.

• 34:25Brian Preston?

  So that's why we gave you extra homework.

• 34:27Speaker 04

  Love it. Good spot. Oh, man.

• 34:30Speaker 05

  I know. Lots of positives there and good thoughts from you guys. Next question is from Mega Veggie Burger. How do you make the mindset shift into spending on lifestyle, even if you can comfortably afford it? P.S. We have used your online calculator and know what we can afford.

• 34:54Brian Preston?

  Meaning they're ahead of the curve.

• 34:55Speaker 05

  I think use Know Your Number, saw they were ahead of the curve or on the curve, is my read.

• 34:59Brian Preston?

  I mean, here's the thing. I think you will get to a point, and this is something I had to do, is that, and I think I've shared, you know, I'm in my 50s now, but it wasn't until I was probably 42, 43, that I actually started feeling, okay, I don't have to be so rigid. Because I started noticing when we had good quarters in the investment marketplace, this thing was literally replacing months, if not even a year, of what I spent, because we just didn't spend crazy. And then I started thinking about the time, I mean, you know, when you look at your children and you realize, holy cow, they're only going to be in the house for another six, seven years before they go off to college. And I want to make

• 35:41Brian Preston?

  sure that they look at this place with, with excitement to where they might actually come back down the road. It's those type of things. If you start feeling that your tightwaddedness is impacting relationships, this is probably the time to reevaluate. Because look, we're not here to tell you, go hog wild and start spending lavishly. But it is one of those things, it's more like the die with zero mindset, is that if you're way ahead of the curve, you do need to balance it. Because I know the typical American typically is not saving enough. But there are a lot of you financial mutants that, that kind of, you drift into financial miser territory if you don't ever update the mindset shift as you

• 36:24Brian Preston?

  start building enough traction with your army of dollar bills that you can start enjoying these resources. Because you're only going to be in your 30s once, you're only going to be in your 40s once, you're only going to be in your 50s. You need to plan accordingly.

• 36:35Speaker 04

  Yeah. So often in the financial world, we talk about regret that people have financially. Man, I wish I would have started earlier. I wish I would have saved more. I wish I would have done these things. There's another kind of regret that, that we don't talk about too often, but it's very real. And I, look, I don't mind sharing with you, I personally have this. I was so tight in my 20s and so focused on building and achieving and growing, I wish I would have gone to more Tuesday night movies. I wish I would have gone to more like, just coffee dates with my wife. Because now we've got kids, messy middle, all this stuff. We don't get to do that stuff as frequently. And had I done that and had I spent that money, it would not have changed our financial circumstance. Even if things continued on the way they were back then, it really wouldn't have changed a whole lot.

• 37:19Speaker 04

  And so what I would do, the way that I would shift your mindset, Mega Veggie Burger, is I'd begin asking, hey, what are the things we truly care about? And it doesn't have to be spending on things like nice cars, nice homes, whatever. Maybe for you, it's memories, it's traveling, it's going to have experiences, it's seeing different parts of the world. Maybe it's convenience. Man, I loathe cutting my grass. I want to spend letting someone else cut my grass, or I want to have someone else clean my home, or I want to have someone else change my oil, or whatever those things may be. Start figuring out. If you know that you're ahead of the curve, and you know that you've done the things that you want to do, are there things, and this is the question I asked, if money

• 37:57Speaker 04

  didn't matter, if tomorrow I had $100 million, what would I spend my money on? Okay, I'll do this, this, this. Well, eventually, if you make your list long enough, you'll get to be, you'll get down to some stuff, you'll be like, well, man, I don't have to have $100 million to do that. I could probably do that today. Oh, man, I could probably. And you'll start recognizing that if you're doing all the things you're supposed to do, saving the way you're supposed to be saving, building the way you're supposed to be building, you're out ahead of the curve, there's nothing wrong with increasing your lifestyle, because you can't go back and redo it. Brian just said, you don't get your 20s back, you don't get your 30s back, you don't get your kids' youth back. So if there are things that you could do now, and it will not sacrifice the ability of your future self to live the life

• 38:41Speaker 04

  that you want to live, I think, I think getting to that point and regretting it later would be super sad.

• 38:47Brian Preston?

  You just said something that triggered a thought in my head, is that so much in your 20s, that latte effect that we tell everybody, hey, watch how often you're going to get in the coffees and those type of things, it does. Because that's why we talk about budgeting when you're at the beginning of the journey. The latte effect matters. Maybe the first thing you thaw out on trying to, you know, go from this miser to the full mutant, to where you can unleash more, is you thaw out the latte effect. Meaning that you, because you just, when you said, go to more movies on Tuesday night, take your wife out to eat, to go on more dates and other things like that. Those are things that probably in your 20s, you were rewarded because you did tighten up those things. But now that you've had a little success, thaw those things out first. Because I mean, I'll give an example. I went

• 39:32Brian Preston?

  on a trip recently, and one of the, because we have three couples, and one of the gentlemen said, hey, you know what, if y'all don't mind, just to make things simple for dinners, and when we go to restaurants and bars and other things, I'm just going to pay for everything, then I'm going to send y'all a bill at the end. I'm going to, so we can all Venmo. I was horrified at first.

• 39:51Speaker 04

  That sucker, he wanted the point.

• 39:52Brian Preston?

  I don't know if that was the point. I was horrified at first because I was thinking about, man, this is one of those things where I'm not going to have any control, it's just going to let everybody. But then when he sent the bill, and he sent a spreadsheet with it, it really wasn't.

• 40:06Speaker 04

  Wasn't that bad.

• 40:07Brian Preston?

  If you looked at the total price of the trip that we spent, and then the cost of the food for the restaurants, it was so small to it. It was kind of an eye opening thing for me. I was like, if I would have done this trip, the way I was planning, probably, you know, with, with, you know, do you order a glass of wine at dinner? And I'm like, no. But because everybody else is in, you know, that's going to come out of one bill, yeah, I'd had the glass. I was like, probably there's a mindset shift, even in my state now, that that experience gave me, is because the cost of that, that he asked for reimbursement compared to the total trip was just, it was not relevant, but I had a better experience. So maybe thaw out the latte effect first, and see how you enjoy going on those Tuesday

• 40:49Brian Preston?

  nights, or doing vacations a little nights, or restaurants. There might be something there.

• 40:55Speaker 05

  Good stuff. All right. Thanks for the questions. And now we're going to move into our rapid fire segment, where Brian and Beau will answer your finance questions in 30 seconds or less, or maybe even 15. And they cannot say the words, it depends, just to really see how they can answer these questions. At the end of rapid fire, we will make sure we clear up anything that doesn't get to be said in those 30 to 15 seconds. But with that, let's get 30 seconds on the clock. Let's start with 30. Here we go.

• 41:25Speaker 05

  First question, how much of the 25% savings rate rule should go towards retirement versus a down payment for a first home purchase?

• 41:39Brian Preston?

  I mean, I, I, I think it's, it's not, it's just a savings rate and then you're putting it towards the financial order of operations. So you have to be careful thinking about compartmentalizing instead of thinking about each dollar in the plan.

• 41:51Speaker 04

  You have to define your goals. Is your whole goal for home ownership and your goal for financial independence and the timeline around those goals. And then you want to construct your savings behavior based on those. So for some people, a hundred percent to 25% might go towards the home. For other people, it might be 5%.

• 42:08Speaker 05

  Just made it.

• 42:09Speaker 04

  Stuck the landing.

• 42:10Speaker 05

  Next question. If a person is middle aged and has a good mind for business and a great business idea, would you guys oppose investing into a business over a 401k but still maxing out a Roth IRA?

• 42:25Speaker 04

  Investing in a business like you're going to start it yourself or like a buddy has a business that you want to invest in?

• 42:31Speaker 05

  He has a great business idea and a good mind for business.

• 42:34Speaker 04

  That sounds like it's a buddy. I think this is, I think this is, I think this is a private investment into a friend. And so here's my question. Would I do that instead of 401k? I don't, I, I, I do not think I would. I don't think it's an either or. I think it could likely be a both and, assuming you're saving 25%, assuming you're ahead and assuming you're at the place in your financial journey where a private type investment would make sense, not early on in the journey.

• 42:56Brian Preston?

  Private investment is a step eight endeavor. If this is an entrepreneurial where you have a work in the business, it's before that, but you better make sure you have enough cash. So it balances out your passion, has enough capital to make it through the first three to five years.

• 43:10Speaker 04

  Do you think it was entrepreneur? Do you think it was private?

• 43:12Brian Preston?

  I couldn't tell. It was, it was unclear.

• 43:14Speaker 04

  It sounded like a buddy.

• 43:16Brian Preston?

  It, I could have gone either way.

• 43:18Speaker 05

  I thought it was him, but I don't know.

• 43:20Brian Preston?

  By the way, no way that was a 30 second answer. They, they, they were like pump faked, starting the clock so many times. I know that was so failed. It depended so much.

• 43:29Speaker 04

  Oh, no.

• 43:31Speaker 05

  All right. Well, we'll go to the next one. Try to nail this in 30. What are your thoughts on using Trump accounts as a way to fund a Roth IRA for my kids? So he would start with a Trump account, then move that to a traditional IRA, then to a Roth IRA, conversion during low income years. It's for my one and three year olds. Does that make sense? So he wants to do like essentially end with a Roth conversion.

• 43:56Brian Preston?

  So, oh, look, the, the Trump accounts, we even, I want to do a Q and A show on Trump accounts versus 529s so that we clear, take the free money. If you're not doing, now look, I think the federal government's actually stepping and making these accounts for the go pre fund them whether you sign up or not, but do the Trump accounts for the free money.

• 44:13Speaker 04

  Yeah, I think that there are distribution requirements, distribution limitations. So the ability to have money in a Trump account, take it out, fund a traditional IRA, your kid has to have earned income in order to be able to do that. So if they don't have earned income, can't even do an IRA. I think that strategy won't work.

• 44:29Speaker 05

  Great. Sorry, I was slacking the team. All right. Next question.

• 44:33Speaker 04

  That means I got secrets. We don't know.

• 44:34Speaker 05

  At what level does a giving account make sense?

• 44:37Speaker 04

  Uh, two different options here. One, if you have a lot of highly appreciated securities, doesn't matter your level of giving, a donor advised fund or charitable giving account makes sense because you can gift appreciated securities. Secondly, even if you don't, but you're someone who the amount that you give doesn't necessarily get you into itemizing your deductions, you might want to group your deductions into multiple years instead of one year. Either one of those two makes sense.

• 44:59Brian Preston?

  Bo showed he could answer that question in 15 seconds or 20 seconds. Cause you did, you did a highly appreciated and you did stacking on multi taxes.

• 45:07Speaker 05

  And then he spent 10 seconds complimenting you. So that was a nice use of his 10 seconds.

• 45:11Speaker 04

  Let's do that more. Let, let me go for 15. You just tell me how awesome my 15 was.

• 45:15Speaker 05

  All right. Next question. Why not use the medical out of pocket limit for foo step one instead of the deductible? I just got billed more than my deductible because of my out of pocket limit is higher.

• 45:29Brian Preston?

  I mean, look, it's a, it's a fair, fair question, but the thing is, is that we're basing this off the realistic risk versus you actually having the ability to start saving and investing. If we did full out of pocket, I, I'm worried that you never start your journey because it's just a hot, much higher threshold. It's like 14, 15,000.

• 45:46Speaker 04

  That's what I was saying. Step two is so valuable. Employer match is like a hundred percent rate of return. Out of pocket maxes can be huge. They can be 8,000, 10,000. For a lot of folks starting out, it takes forever to get there. I don't want you missing out on the employer match for that long. And that's why I picked deductible.

• 46:01Speaker 05

  Well said. Let's get 15 seconds on the clock for these last few. Next question says, I'm on step seven slash eight of the foo. Subaru, he has a Subaru that's 14 years old with 250K miles and he needs a new one soon. 7K per month is going to brokerage to catch up after a very late start. Should I pause for a few months to pay cash for the new car? Split 50 50 to save slow or finance part of the car?

• 46:33Speaker 04

  If you're behind, that's the very reason 23 eight was invented. I would consider 23 eight in this situation.

• 46:39Brian Preston?

  I, I think it doesn't, I think, realize we have, you know, for nicer cars paid off in 12 months. Do a balance. If you're saving seven grand a month, you can get a lot done and still fund your Roth IRA.

• 46:49Speaker 04

  I don't think you're saving seven grand a month.

• 46:51Brian Preston?

  That's what, isn't that what he said?

• 46:52Speaker 04

  You can't do a 15 second question when there's three paragraphs to the question.

• 46:56Speaker 05

  All right. We'll come back to it. We'll come back to it. We'll come back to it.

• 46:59Speaker 04

  Was he seven, saving seven grand a month?

• 47:01Brian Preston?

  I think it said seven grand a month.

• 47:02Speaker 05

  Next question.

• 47:03Speaker 04

  I thought it was just seven grand to is taxable.

• 47:05Brian Preston?

  No, I think it's seven grand a month.

• 47:06Speaker 05

  We'll clarify. Next question says, I'm thinking of moving my Merrill Lynch 401k into a fidelity IRA. Wondering if losing ERISA protection in the IRA is something to be concerned about.

• 47:19Brian Preston?

  I mean, it's definitely something to consider, but I mean, it's, I, I would go through the fund choices and the expenses first.

• 47:26Speaker 04

  There have been some, uh, some recent legal things that have suggested that the ERISA protection will follow from the 401k to the IRA. It's not for sure. Give it away.

• 47:36Speaker 05

  Whoo. Okay. Should we come back to that?

• 47:38Brian Preston?

  Man, can I tell you all what's cruel? Bo alluded to it. The previous question had three paragraphs. That one had a very nuance because there's even stuff going on in the wonderful world of finance. It's almost like this system is stacked against us.

• 47:51Speaker 04

  Yeah. Like, like there was, I saw a question in here. Someone was like, hey, I'll enjoy your mouths. Like that's a good 15 second question. Over here asking us about ERISA protection and 15 seconds.

• 48:03Speaker 05

  All right. Two more, and then we'll go back to a couple of questions to make sure we got them fully answered. Next one is our low, our income is low enough that we cannot max out both our HSA and Roth IRA. Should we max our HSA, then every year reimburse myself for medical expenses and put that money into our Roth?

• 48:23Speaker 04

  If you do.

• 48:24Brian Preston?

  I don't hate that.

• 48:25Speaker 04

  If you do that, you're kind of essentially turning your Roth into an HSA, but I don't know that I would actually reimburse the medical expenses. I think I'd leave it inside the HSA.

• 48:32Brian Preston?

  No, obviously their income is still on the upside of their building.

• 48:38Speaker 05

  Oh, there was a disagreement there. We're coming back.

• 48:41Brian Preston?

  It might as well just said depends.

• 48:44Speaker 05

  And last but not least, how does Brian get so much aura?

• 48:49Brian Preston?

  How do I get so much what?

• 48:50Speaker 05

  Aura.

• 48:51Speaker 04

  Aura.

• 48:52Speaker 05

  Aura. Yeah, there you go.

• 48:53Speaker 04

  How do you get so much aura, Brian? Start the clock.

• 48:56Speaker 05

  How do you do it?

• 48:58Brian Preston?

  Well, I don't even know what that is.

• 48:59Speaker 05

  What do you think? What do you think it is?

• 49:01Brian Preston?

  Exudes from me? What is aura?

• 49:03Speaker 05

  The color that exudes from.

• 49:05Brian Preston?

  I need, I need a clarifier on that.

• 49:07Speaker 04

  The fact that he doesn't know what aura is, is how he gets so much aura. You know what I mean? Like that's, the fact that he's even oblivious to it is how, that's how.

• 49:15Speaker 05

  Absolutely. Um, the team has defined aura as.

• 49:19Brian Preston?

  Term by the way.

• 49:20Speaker 05

  Your, your vibe or like, it's kind of like riz that we, that used to be like the riz.

• 49:25Brian Preston?

  Riz was like dating. I've been married 28 years.

• 49:28Speaker 04

  Did you just define aura with riz and expect the extra here to give that?

• 49:32Brian Preston?

  Been married 28 years to know what it means? Cause I've been out of the dating pool for a long time.

• 49:36Speaker 05

  Aura is like their charm.

• 49:38Speaker 04

  Their what?

• 49:39Speaker 05

  Charm.

• 49:39Speaker 04

  How is Brian so charming? Like, how does he just, how's he come off?

• 49:43Speaker 05

  It's your vibe, you know?

• 49:45Brian Preston?

  I, I had a, I had great, I had great, a great father and great parents, but my father, if you thought I was funny, my dad was hilarious. I mean, he was, I just, so I grew up with a kind of goofball father who was also, you know, so I, I attribute a lot of that to him.

• 50:02Speaker 04

  I love that.

• 50:03Speaker 05

  Love it.

• 50:04Speaker 04

  Can I tell you another thing that helps with aura in general?

• 50:07Brian Preston?

  We're acting like this is a real word. Is this a real word?

• 50:10Speaker 04

  This is a real thing, Brian.

• 50:11Speaker 05

  It's a real thing.

• 50:12Speaker 04

  Health is a thing. And I will say as someone who's had a front row seat to Brian's life journey for the last 20 years, he started taking his health super seriously. And I think that's had impacts, gotten serious about eating right, uh, exercising, all those sorts of things.

• 50:28Brian Preston?

  Three months are questioning the eating right.

• 50:30Speaker 04

  I'm just saying, I think that's a big thing. Uh, you're kind of Benjamin Button. You're aging in reverse. You go look at some of our clips from 10 years ago and look at our clips now. It is like a different, it's a different thing. Uh, and I think it has a lot to do with it.

• 50:42Speaker 05

  Aura maxing, one might say. I'm kidding. I didn't say that.

• 50:45Speaker 04

  Y'all are a bunch of.

• 50:46Brian Preston?

  I guess we blew up the 15 seconds.

• 50:48Speaker 05

  No, the Gen Z years were like, no, no, no, cut the tape. All right. Let's go back to our questions that we didn't quite get to. Um, we, there was a lot of information on the car question and you wanted, it says in the question, he is saving 7K per month to a brokerage to catch up after very late savings.

• 51:10Brian Preston?

  Yeah. So shutting it down to zero to pay for a car seems ridiculous.

• 51:14Speaker 04

  Yeah. But also how much, how much does a Subaru cost? I don't, I'm, I'm never, I've never shot.

• 51:19Brian Preston?

  I think it's a balance. This is where it depends. At that threshold, you might feel pressure to buy a really nice car. I would buy reasonable cars, Subaru or something like that. But you know, and maybe it still needs to be used. It depends on how far behind you are.

• 51:35Speaker 04

  He said his has 250,000 miles. Apparently these things run forever.

• 51:38Brian Preston?

  Well, that's what, by the way, did you see on our video that we did with the, the, the, the hot wheels? It was, and I, I want to pick on, as we were doing it, we basically just said Toyota and Honda because we had Acura and Lexus in there also.

• 51:56Speaker 04

  I knew that.

• 51:56Brian Preston?

  So a lot of the Subaru and Mazda folks were upset. And that's probably, there's some clarifying that could have gone into it, but I guess Subaru's last a long time too.

• 52:06Speaker 04

  This says a new Subaru typically ranges from 25 to 51. So in my mind, that's not crazy. That's a, that seems like a very reasonable automobile.

• 52:13Brian Preston?

  So, so if you could, let's just say 35 to 40,000, you could still keep funding some and, and hopefully through savings and your great savings rate, you could balance those things. So it's not an either or, it's and.

• 52:28Speaker 05

  Well, great. Glad you got to clarify.

• 52:31Speaker 04

  Can we do the HSA Roth one, too?

• 52:34Speaker 05

  Yes, that was one of the ones I had. HSA versus Roth. He wanted to max out the HSA, then every year reimburse himself for medical expenses and put that money into their Roth.

• 52:45Speaker 04

  So what I'm getting, I'm getting the front end tax deduction.

• 52:47Brian Preston?

  Yeah, I like that.

• 52:48Speaker 04

  And then I'm just taking the distribution and then redepositing to another tax-free account.

• 52:53Brian Preston?

  Right.

• 52:53Speaker 04

  I'm basically-

• 52:54Brian Preston?

  You're making the Roth deductible and a little bit of a tax hack way.

• 52:58Speaker 04

  But why not just leave it in the HSA?

• 52:59Brian Preston?

  Because you don't, because if they're already, if they're maxing out their savings rate with just doing a Roth IRA essentially, because you know, think about, we all, say if they're in their twenties, early thirties, and they haven't reached their full maximum earning potential yet, then sometimes these are decisions you make because you don't, you don't have money laying around everywhere.

• 53:17Speaker 04

  All the more reason to have it in HSA where you can access it, not lock it up in the Roth. It's gonna be there till 59 and a half. I mean, yeah, I guess you can get access-

• 53:23Brian Preston?

  Yeah, but you can always break glass on and get the access to the Roth basis. And I'm here to say-

• 53:27Speaker 04

  You need an HSA also.

• 53:28Brian Preston?

  Most people live, are healthy enough that they don't need the medical reimbursement first. They need the-

• 53:34Speaker 04

  I'll say it. I think HSAs are more valuable than Roth. I said it.

• 53:39Speaker 05

  There it is. Agree? Disagree? Want to fight?

• 53:42Speaker 04

  I said it.

• 53:43Brian Preston?

  I mean, he's technically with the triple tax advantage, but-

• 53:45Speaker 04

  Sometimes quadruple.

• 53:47Brian Preston?

  Quadruple, but-

• 53:48Speaker 04

  And you can access basis and earnings before, look, I love Roth IRAs, too. That's why it's not an either or. But if you told me, Bo, you can only do one, you can only do one, I'm probably doing the HSA.

• 54:02Brian Preston?

  Here's the thing, though, and maybe I have a bias on this. If you look, Millionaire Mission, I described, there's $10,000 I missed out on on Roth IRA contributions, and it still pains me. So just realize you don't get those, those tax-free dollars back on years that you missed funding Roth IRA.

• 54:20Speaker 04

  No, HSA might not have good investment options. Eh, you can open them up at Fidelity now. Like, you can do HSAs at major custodians, entire investment universe. Whoever, MTB, nope, not a good point. HSAs still, if I get one, I'm doing that one.

• 54:35Brian Preston?

  Nobody's asking you to go and they'll start trashing, you know, live streamers.

• 54:41Speaker 05

  He's getting into fights with the live streamers now, too.

• 54:43Speaker 04

  Now mama wants some smoke. Mama, no. I just think the HSA has so much flex. Here's the, you know what I think? The Roth is much better from a legacy planning standpoint. And that's where, for me, it would like push it over the edge to Roth, as if I'm thinking more about legacy planning, and less about funding during my lifetime, like, like paying for my lifetime.

• 55:06Speaker 05

  All right.

• 55:07Speaker 04

  Did we answer the Trump and the, the, uh, Trump, that was the other one I had.

• 55:13Speaker 05

  Sure. I mean, I had one other one as well, the Arisa protection one. But if you want to tackle the Trump account to Roth IRA question again, we can.

• 55:21Speaker 04

  Let's do the, let's do the Trump one. Um, because I, because I think with the Trump accounts, there's, there's an, you can roll those to an IRA. You can roll them to an IRA. Is that right? Can you roll them at any time?

• 55:31Speaker 05

  We're getting a yes. Not at any time.

• 55:34Speaker 04

  After 18, right? So like, you can't, I mean, like, if I get $1,000 and my baby was born in the last year, yeah, I can leave it in the Trump account. And then I guess maybe at 18, I could potentially move it to additional and then do some Roth conversions.

• 55:46Brian Preston?

  You could do Roth conversions, essentially, I think, past 18, right?

• 55:49Speaker 04

  Yeah, that's way later on.

• 55:50Brian Preston?

  But it's way in the future. So, but I, that's why I always tell people, and that's why I think we ought to do a Q and A on 529s and Trump accounts. Because those are the, the two probably options, because most kids don't have earned income to be doing Roth anyway.

• 56:03Speaker 04

  Yep.

• 56:03Brian Preston?

  So it's, that's the apples to, to somewhat apples is, but I would, I want people, and I'm glad to hear the federal government's going to just start opening these accounts for kids, because it broke my heart that, you know, people were not opening Trump accounts for their kids because it had the word Trump in it. Don't be, you know, what is it? Penny wise, you know, pound foolish and, or dollar, was it penny for dollar? Anyway.

• 56:29Speaker 04

  Penny wise, pound foolish.

• 56:31Brian Preston?

  Don't mess up the fact, is that a British term reference then?

• 56:36Brian Preston?

  No, because they don't want pennies. I don't know. We'll worry about the origin of, of, of sayings. But it's just free money. And look, it's, it's not just for, it's kids all the way up, is it 10 years of age now? Because of what Michael Dell and some of these other billionaires are dumping billions of dollars into these things. And I'm hearing that there's even potential for opening this thing up to where now some of these wealthy people can start putting in shares of stock and other things. And so what if, what if, I even saw, you know, what if they started giving one share of stock of some of these tech stocks into these, these, these accounts?

• 57:12Speaker 04

  That'd be wild.

• 57:13Brian Preston?

  Get in there and, and get these, this money for your kids. Take the politics out of it because, you know, politics are not red, they're not blue. It's green on what's going on with these Trump accounts. And we want to make sure your kids get the best of what they have in the, for the potential in the future.

• 57:29Speaker 04

  Did not know this. Britain does have pennies, according to two of our-

• 57:33Brian Preston?

  So is that what, is it penny wise, pound foolish? Is that, is that, is that a British?

• 57:37Speaker 04

  That's the saying. I don't know the etymology of it.

• 57:40Brian Preston?

  Okay. There's somebody, somebody in our, we have such a smart audience. I guarantee you somebody knows.

• 57:45Speaker 04

  Uh, Google knows. Do you have another question for us, Remy?

• 57:48Speaker 05

  I do. Um, did you want to clarify anything about the Arisa protection question? I feel like I cut you short, so I had it marked.

• 57:56Speaker 04

  There have been some cases recently where they're arguing that even though assets were rolled from a 401K into an IRA, because the source of those funds were originally retirement Arisa accounts, that perhaps that Arisa protection actually follows it. Now, I don't think that's set in stone. I think this is more like revenue rulings type, type things. But it's something worth investigating. Now, but you do want to think about that. If you're someone who's like highly litigious, and there's a really good chance you're gonna be sued, there's a really good chance you're gonna lose, and a really good chance you would be responsible, 401Ks, it probably makes sense to, to keep your assets protected.

• 58:32Brian Preston?

  Either way, look, go to moneyguy.com/resources. We have a decision matrix, because it's also that you could roll it into your current 401K. Because there's a whole group of things you ought to consider, and the fact that it might also be the internal expense ratio, or there, what are the fees associated with each of these account structures? Because he said it was a Merrill Lynch account. They're not exactly, I mean, if you're comparing like Merrill Lynch to Vanguard or Fidelity, I mean, there's typically probably some cost savings in there.

• 58:59Speaker 04

  The phrase penny wise and pound foolish comes from 16th century England and refers to the old British currency system, where a large British pound was worth 240 small pennies. Don't be penny wise and pound foolish.

• 59:13Brian Preston?

  I'm worldly.

• 59:14Speaker 04

  Good day, mate.

• 59:15Speaker 05

  Yes, aura. All right. Want to do one more question and then wrap this thing up?

• 59:20Brian Preston?

  Yes. By the way, I did want to say one thing about pounds that cracked me up, because I was in Scotland. The Scottish people, because the Bank of Scotland was founded three years before the, the Bank of England, they love to take their Bank of Scotland pounds into England and spend them there, because the English people don't like to take them.

• 59:40Speaker 04

  Oh, really?

• 59:41Brian Preston?

  It's such a weird dynamic, hearing them talk about it in those terms. I just thought it was fascinating, the, the, because I had no idea there was such a, I knew there was a beef between the, obviously, the Irish, the Scottish, and the English. But to hear how petty it can get to where even where the current, the bank that's stamped across the top of the currency was just to a level that, that entertained me.

• 1:00:05Speaker 04

  Had no idea.

• 1:00:06Brian Preston?

  Yep.

• 1:00:07Speaker 05

  Now you know. All right. Kug Nation says, hi, Money Guy team. Why is FU Step 5, specifically Roth, and not just IRA? What if I'm in a state with income tax and don't plan to retire in that state?

• 1:00:23Brian Preston?

  Now, this is, this is, this isn't part of the 15 second, fortunately. Why is FU Step 5 specifically Roth and not just IRA?

• 1:00:30Speaker 04

  Because specifically, IRA is the account type. We like the Roth version because it's tax-free. What we're trying to get you to realize, Kug, is that Step 5 is all about tax-free growth.

• 1:00:44Brian Preston?

  Yep.

• 1:00:45Speaker 04

  Roth IRA, health savings accounts. If you, uh, I can't even think of a reason why you would do traditional IRA, because I guess maybe if you don't have an employer-sponsored retirement plan and,

• 1:01:02Speaker 04

  and I'm trying to think about when you would prioritize a traditional IRA.

• 1:01:05Brian Preston?

  No, because even if, even if you're a young person, if you're, you know, and, and you want the tax, you want the compounding growth.

• 1:01:12Speaker 04

  Yeah.

• 1:01:12Brian Preston?

  Because that's why it's even, that's the only place where, because we, we're one of the crazy people that actually puts, you know, tax rates on when you should consider pre-tax versus just doing Roth on like your 401K. And we always say that 25 to 30% is gray zone. And part of what goes into that 25 to 30% is your age. Because if you're a young person, we want you to getting the, the power of that compounding growth. So, um, I, I'd be disappointed if I find out people are just funding traditional IRAs versus doing a Roth IRA.

• 1:01:40Speaker 04

  But to answer your question, why is it specifically Roth? It's because it's about tax-free growth.

• 1:01:45Brian Preston?

  Step 5 is a tax-free growth step. We're trying to get you in the mindset of that there is, just like there's an order of operations with math, there's an order of operations with finances. And specifically, we're trying to think of keeping your life, look, you don't have to guess about this. Deductible is covered. What's your risk of life? If something bad happens, you need to have money to cover it. Free money, 50 to 100% guaranteed rate of return. You don't want to sleep on that. You're never going to get wealthy if you're paying 20 plus percent to a bank. And then you got to have emergency reserves in case life happens, which it will happen. It might not be this year, but it might be next year. It might be the following year. Be prepared. And then you got to start thinking about tax-favored investments. The government has created a tax code.

• 1:02:25Brian Preston?

  You've got to get in there and take advantage of it. Don't let it just be something that benefits, you know, tax savvy corporations and others. You get in there and do it, too, through the Roth IRA, the HSA, and then of course, maxing out your employer retirement account, because they're also tax favored.

• 1:02:39Speaker 04

  Check out this happy little accident. I'd like to say that we did this on purpose, but we didn't. I just took $7,500 and I said, what percentage of 7,500, that's the current Roth IRA maximum, is that of the 401K salary deferral, which is currently 24,500? It comes out to exactly 30%. Not exactly, 30.6%. What that suggests to me is in your situation, if you're in a high tax state and you add up your marginal federal rate, your marginal state rate, and it's 30%, just maxing out your pre-tax 401K will save you enough in taxes that then you can then go fund a Roth IRA or fund it back to a Roth IRA. So I don't think it's an either or, Kug. I think it's a both and, and they can work very, very nicely together

• 1:03:24Speaker 04

  if you're in one of those higher tax situations.

• 1:03:26Brian Preston?

  Look at you putting even a bow on it, if, is taking some assumptions on, on earning potential and so forth.

• 1:03:32Speaker 04

  I do what I can. Trying to get more up.

• 1:03:35Speaker 05

  Don't forget to preorder your Millionaire Mission paperback and access your Money Guy Millionaire Mission merch store. Go to moneyguy.com/millionairemission to get all that taken care of. We can't wait to see you there as part of the mission crew.

• 1:03:50Speaker 04

  You doing anything on prom day?

• 1:03:54Brian Preston?

  You know, I'm actually, when you said that to me, because you showed me something you spent a few hundred dollars on, and it's like $120 cheaper today.

• 1:04:01Speaker 04

  Yep, pretty upset about it.

• 1:04:01Brian Preston?

  I bought a new pair of shoes on Amazon yesterday, and I'm like, gosh, I need to go check and see if I should have delayed that purchase until today. No, so because I bought my shoes yesterday, my new tennis shoes.

• 1:04:13Speaker 04

  You don't need anything.

• 1:04:14Brian Preston?

  I don't really need anything. I might go see if all the supplements, like, you know, creatine and things like that, that might be if that's cheaper, I might go ahead and buy some of those things and supplements that I buy anyway.

• 1:04:26Speaker 04

  Love it.

• 1:04:27Brian Preston?

  Because you said, health is wealth.

• 1:04:28Speaker 04

  Health is wealth.

• 1:04:30Brian Preston?

  More to come on that. Not really, but.

• 1:04:33Speaker 05

  Maybe.

• 1:04:34Brian Preston?

  Anyway, guys, we woke up. I woke up this morning, because like I said, I was traveling this weekend, got in late last night, but I woke up excited because guess what? It's Tuesday. We don't take for granted. Live streams are an important part of our life to the point that we actually schedule trips and things to make sure we're here Tuesday. We don't take for granted that you're here on a Tuesday. We appreciate you being financial mutants, working through the wonderful world of finance. We will continue to keep the porch light on, keep making great content. Thank you, thank you, thank you. I'm your host, Brian, joined by Mr. Bo and the rest of the content crew. Money Guy, out.

• 1:05:10Speaker 05

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

• 1:05:51Speaker 06

  Hey, Bo'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 70's underground gem. Every choice deliberate. With Bo's, you'll hear it all. Your music deserves Bo's.

• 1:06:16Speaker 07

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