Speaker 1: Welcome to Hada Money. I'm Joel, I'm Matt, and today
Speaker 1: we're answering your listener questions.
Speaker 2: We hope everyone had a fantastic weekend. Specifically, you buddy,
Speaker 2: a big old happy birthday. Today is Joel's.
Speaker 1: Forty ninth birthday, though at this point, at this age,
Speaker 1: we don't acknowledge birthdays.
Speaker 2: Matt right, Well, it's one thing to say that, Oh
Speaker 2: I'm forty one and a half as opposed he still
Speaker 2: celebrate your actual birthday though, But this is Monday, and
Speaker 2: I mentioned that because I want everyone to wish Joel
Speaker 2: a happy birthday. Thanks Pat. Okay, we do have those
Speaker 2: of their questions to get to.
Speaker 1: Honestly, I'm not ashamed of my age, so you know,
Speaker 1: I think some people are.
Speaker 3: I don't.
Speaker 1: It's just a number who cares. And I'm gonna be
Speaker 1: like Brian Johnson to live forever, so.
Speaker 2: You know exactly. It really is a number. Reference to
Speaker 2: that recently, but a listener is asking about direct index
Speaker 2: investing if it is worth the squeeze considering the benefits
Speaker 2: he's receiving from it versus the cost. We'll talk about that.
Speaker 2: Another listener is asking what he should do about this
Speaker 2: awkward family money situation. Things I think are going to
Speaker 2: get weird, but I love weighing in on awkwardness. Yeah,
Speaker 2: and another listener is asking for the easiest way for
Speaker 2: his kids to spend their money. We'll talk through some
Speaker 2: methods of payment.
Speaker 1: Sure, get to that more during today's episode, Buddy Quick PSA, Matt,
Speaker 1: My parents just came back from Houston. I have mentioned
Speaker 1: this on the show before. My mom is dealing with
Speaker 1: a kind of skin cancer and she's she's doing well,
Speaker 1: We're hopeful, but gosh, you just never know what this
Speaker 1: kind of thing, right, And it's true. So but one
Speaker 1: of the things that I was looking up because they
Speaker 1: were they were going to get a second opinion in
Speaker 1: Houston at MD Anderson, of course, and the hotel rooms
Speaker 1: were quite expensive, and so I just had this hunch.
Speaker 1: I was like, there has to be some sort of
Speaker 1: free place for people who have cancer who are going
Speaker 1: to some of these bigger cancer centers to stay, because
Speaker 1: there are a lot of people who I would imagine
Speaker 1: can't afford expensive hotel rooms near where they're getting treatment, right,
Speaker 1: So I just like did a quick search and found that, yeah,
Speaker 1: there is, in fact such a thing, and I'm sure
Speaker 1: there are even more resources that I'm completely unaware of it.
Speaker 1: If anybody is aware of them, please let us know.
Speaker 1: We'll like maybe compile them, put them on our website
Speaker 1: or something like that. But the American Cancer Society runs
Speaker 1: something called the Hope Lodge, and it turns out it
Speaker 1: was all booked up. My parents only had like a
Speaker 1: week that they knew in advanced. They didn't have enough planning,
Speaker 1: so they did Unfortunately, they had the funds to work
Speaker 1: over for a hotel. But for the future when if
Speaker 1: they have to make a return visit or at other
Speaker 1: cancer centers around the country. This Hope Lodge exists, and
Speaker 1: I mean it's kind of cool that there are resources
Speaker 1: out there for people. And I guess just don't assume
Speaker 1: that you got to go on a loan, you got.
Speaker 2: To fork it out. Yeah. Well, I mean this is
Speaker 2: like the Ronald McDonald house right in the essentially does
Speaker 2: that still exist? I think he does, Okay, Yeah, I mean,
Speaker 2: which is I'm pretty sure for setting up families to
Speaker 2: have a place to stay if there are somewhere where
Speaker 2: there's a where there's a child I guess getting receiving treatment.
Speaker 2: So this would be the adult equivalent of that, right,
Speaker 2: less orange and red. Perhaps, No, I'm pretty sure they
Speaker 2: make those house you were chicken nuggets, sir, look look
Speaker 2: pretty classy. But I appreciate your your outside of the
Speaker 2: box thinking when it came to trying to find a
Speaker 2: spot for them.
Speaker 1: But yeah, I mean I was like, literally my first
Speaker 1: initial knee jerk was go to hot wire, go to
Speaker 1: price line, see if I can find him a good
Speaker 1: deal in a hotel. And then second line of breastoning
Speaker 1: was wait a second, what if there's something even cheaper
Speaker 1: than that?
Speaker 2: Yeah, this isn't a typical vacation or you know, something
Speaker 2: like that.
Speaker 1: And that is how my brain works, by the way, Yeah,
Speaker 1: it's like orders of magnitude of money saving.
Speaker 2: So run on. A nice little quick tip for folks
Speaker 2: out there, Let's quickly introduce the beer that you and
Speaker 2: I are going to enjoy during this episode, Buddy, A
Speaker 2: Tiny S's, which is a sour ale with fruit candy flavor.
Speaker 2: And this is a beer by Prairie artisan Ales. Brew
Speaker 2: We've had on the show plenty of times, but not
Speaker 2: this one. Even though I know if I actually had
Speaker 2: this beer, oh really, we haven't had it on this
Speaker 2: I'm pretty sure.
Speaker 3: I don't.
Speaker 2: You're like the number one person I drink craft beer with,
Speaker 2: so I'm pretty sure it was with you, but maybe it. Yeah,
Speaker 2: But looking forward to enjoying and sharing our thoughts at
Speaker 2: the end of the episode.
Speaker 1: Yeah, Prairie makes great beers. This one is very unique,
Speaker 1: so we'll give our thoughts in.
Speaker 4: A little bit.
Speaker 2: But Mattle, Prairie gold Oki. Uh, those are just a
Speaker 2: couple of the Prairie beers.
Speaker 1: We've had a lot of, like big boozy stouts, but
Speaker 1: like some really great sours to funky mosaic I ever
Speaker 1: want to say? It was a good one?
Speaker 2: Is it Christmas Bomb?
Speaker 1: Oh?
Speaker 3: Yeah?
Speaker 2: That is that a Prairie total classic? Okay, yes, I
Speaker 2: remember that one too.
Speaker 1: All right, man, let's mention how people can ask a
Speaker 1: question if they're so inclined. If you've got a money question,
Speaker 1: we would love to tackle it on the show. Just
Speaker 1: go to how to money dot com slash ask for
Speaker 1: simple directions. Really just recording your question on the voice
Speaker 1: memo app of your phone, emailing it over to us
Speaker 1: at how to moneypod at gmail dot com. Hopefully we
Speaker 1: can take it next week on the show. Matt, Let's
Speaker 1: get to a question specifically about awkward family finances.
Speaker 4: Hi, Joe, this is move best. A couple of years ago,
Speaker 4: I signed a student loan for my great niece, which
Speaker 4: is my sister's granddaughter, and she graduated from Spilman College,
Speaker 4: and I think she's started to work and she's not
Speaker 4: paying on her student loan which I co signed for. Now,
Speaker 4: my backing institution was the Navy Federal Credit Union. They
Speaker 4: are going into my account and taking out payments without
Speaker 4: my permission. Is this legal? And what can I do
Speaker 4: to get my niece to pay off this student loan?
Speaker 2: Thank you, Joel. He addressed you specifically, so want you
Speaker 2: kick things off?
Speaker 1: Yeah, well, I don't know why. Maybe I maybe I'm
Speaker 1: more memorable Matt.
Speaker 2: Well, that's because he probably heard you talking with your
Speaker 2: buddy Bill Handle out there weekly appearances indeed with Bill
Speaker 2: Handle every Thursday on KFI. Well, Murph, let's get to
Speaker 2: your question. So sorry to hear about this. The truth
Speaker 2: has met.
Speaker 1: These kinds of things are financially and relationally frustrating. It's
Speaker 1: like a double way. I mean, it's like a gut
Speaker 1: punch and a face punch at the same time, which
Speaker 1: if you're like I'm thinking about Mike Tyson punch out
Speaker 1: when I say that, And the double combo can be
Speaker 1: really tough, tough to deal.
Speaker 2: With the old one too, Yeah, and that's what they
Speaker 2: call it. That's right.
Speaker 1: And the truth is like when you mix money with family,
Speaker 1: there are substantial pitfalls that can come about and often
Speaker 1: do come about. I feel like that's why our advice
Speaker 1: typically is like, don't mix family and close relationships. Most
Speaker 1: of the time it doesn't work out.
Speaker 3: Well.
Speaker 1: I guess you and I run a business together. We're
Speaker 1: best buds, so their pitfalls there too, right, and we
Speaker 1: have had to come up with certain guidelines to make
Speaker 1: sure that we are caring for each other well and
Speaker 1: that we're splitting duties properly. And I think the typical
Speaker 1: story we hear is that a family member lends another
Speaker 1: family member money. They're hoping that they're going to get
Speaker 1: paid back in a reasonable timeframe and that's probably what
Speaker 1: the promise is, and when that doesn't happen, it sours
Speaker 1: the relationship.
Speaker 2: And this merv situation is.
Speaker 1: A similar one, but co signing on a loan instead
Speaker 1: of directly putting money into a relative's hands, and so
Speaker 1: at the end of the day they can be similar
Speaker 1: in the way that they work. And this is why
Speaker 1: we typically advise, you know, financial transactions to be considered gifts.
Speaker 1: If you do lend somebody money and then if you
Speaker 1: can't afford to give them that money, don't give them
Speaker 1: any sort of money at all, right, Like, if you
Speaker 1: can't just kind of completely write it off, it could
Speaker 1: come back to bite you. In a Mervh's case, this
Speaker 1: co signing is going to come back to Biden sadly.
Speaker 2: It's indeed, yeah, and it's worth saying as well. We're
Speaker 2: not lawyers, but yes, MERVH. The stay on a holiday
Speaker 2: and last night. The financial institution, it can legally take
Speaker 2: money out of your account, out of your account there
Speaker 2: with the credit union as a co signer of this loan,
Speaker 2: if your great niece isn't making payments. This is known
Speaker 2: as the right to offset. We are getting a little loyally,
Speaker 2: you know, a little more technical in the weeds here. Basically,
Speaker 2: the lender wouldn't have given that loan to your niece alone. Like,
Speaker 2: the only way that they were willing to say yes
Speaker 2: is because of the fact that you signed. There's a
Speaker 2: reason for that, and it's becoming crystal clear to you. Now,
Speaker 2: I'm assuming like they were worried about her ability to
Speaker 2: pay and they wanted some additional recourse and you, in
Speaker 2: this case, specifically your money if she were to fall
Speaker 2: behind or if she were to stop making payments altogether,
Speaker 2: which is you know what's led now to the sticky situation? Yeah,
Speaker 2: that you find yourself and makes you think of my nephew, Matt.
Speaker 2: He's fifteen.
Speaker 1: If you wanted to go out there and buy a
Speaker 1: brand new Mustang or something like that, because you know
Speaker 1: he's about about to hit full driving age and he's like,
Speaker 1: let's go, let me get this forty thousand dollars car.
Speaker 1: If he shows up alone to the dealership, they're going
Speaker 1: to be like, sorry, buddy, you can afford maybe a
Speaker 1: nineteen ninety eight Mustang, right like you have like fifteen
Speaker 1: hundred bucks from working on odds and ends jobs. But
Speaker 1: if I show up with him, not because I've got
Speaker 1: the deepest pockets in the world, they'll be like, oh,
Speaker 1: you just like put your name on this paper too,
Speaker 1: and we can can get whatever Mustang he wants, and
Speaker 1: you have an income right exactly, and we know that
Speaker 1: you're going to be good for it, even if he's not.
Speaker 1: But if I did that, then I'm putting myself at risk,
Speaker 1: which is what happened here sadly with MERV. When you
Speaker 1: co sign alone, you've created a legal obligation for that debt,
Speaker 1: even if you never saw a dime of that money,
Speaker 1: which is exactly what happened in this case and exactly
Speaker 1: what happens in so many co signer cases, like you
Speaker 1: are on the hook for the thing and you see
Speaker 1: none of the benefits. And MERV, you said this was
Speaker 1: a student loan, but you co signers don't have a
Speaker 1: legal obligation if they signed for a physical item either.
Speaker 1: So just because my nephew stop making payments, let's say
Speaker 1: on that proverbial mustang, well I have to pay for them,
Speaker 1: and I don't have the right to be able to
Speaker 1: go get the mustang from him either. And this is
Speaker 1: why co signing is something that we're just not fans of.
Speaker 1: I get why people do it, right, being asked by
Speaker 1: a loved one for help, it tugs at your harsh
Speaker 1: strings and you're like, well, I want them to go
Speaker 1: to college, I know this is going to be good
Speaker 1: for the future, or I want to help them out
Speaker 1: and be able to buy this car that they might
Speaker 1: not otherwise be able to afford. And we should be
Speaker 1: willing to help our family members out, but just not
Speaker 1: by co signing for a loan. It's just too risky.
Speaker 2: It's pretty much one of those don't ever do it things.
Speaker 2: In our opinion, I don't want to have my name
Speaker 2: on those loan documents. And so MERV, what should you
Speaker 2: do legally financially as well?
Speaker 3: Here?
Speaker 2: Like you're on shaky ground. The only thing you can do,
Speaker 2: honestly is just to have a heart to heart with
Speaker 2: your with your great niece. It's worth coming in with
Speaker 2: like without your guns blazing, and having a more kind
Speaker 2: of honest conversation because she might not even be aware
Speaker 2: of what's going on here. I mean, I think given
Speaker 2: all the talk about student loan forgiveness over the past
Speaker 2: couple of years, there's a chance she's like, oh, I
Speaker 2: thought that got written off. I thought the gut that
Speaker 2: the federal government was gonna forgive that. At a point,
Speaker 2: there's a lot of people confused about the stack. It
Speaker 2: was just a constantly it seemed like every week there
Speaker 2: was something new.
Speaker 1: So she might not even know that MERV is being
Speaker 1: like getting their bills now and getting money taken essentially
Speaker 1: actively exactly, So I would just reach out to her,
Speaker 1: just first put that under radar. I can't imagine though,
Speaker 1: that she's also not receiving requests for this money delinquency notices. Yeah,
Speaker 1: but uh, you know, try to have this chat in person.
Speaker 1: I think that can go a long way as well
Speaker 1: as opposed to like shooting her text message or an email,
Speaker 1: but try and find out if she'll be able to
Speaker 1: resume making some payments, because the ability to show her
Speaker 1: how this is impacting you, right, Like, have a running total,
Speaker 1: show her how much you've paid, and let her know that, hey,
Speaker 1: it'd be great to receive that money back over time,
Speaker 1: maybe not expected all at once, but it's worth taking
Speaker 1: a more relational tact here because like I don't think you'd, like,
Speaker 1: you don't really have much legal recourse because your name
Speaker 1: is on the loan and so she doesn't have to
Speaker 1: pay you back, like you would have to go into
Speaker 1: more legal territory, which I'm guessing you want to try
Speaker 1: to avoid doing. Like you could sue her if you can,
Speaker 1: if she has the ability to pay and she's not paying,
Speaker 1: you could see her in small claims but I'm guessing
Speaker 1: that's not something that you want to do, and that
Speaker 1: this is going to be able to be more eloquently
Speaker 1: solved by y'all talking this over. Yeah, it's one of
Speaker 1: the and you can tell her personally, Hey, I co
Speaker 1: signed for you in an effort to try to help
Speaker 1: you out when you needed it, and now I feel
Speaker 1: like the tables have turned and I need you to
Speaker 1: help me out and pay what you owe, and we
Speaker 1: need to come to a solution here. I think the
Speaker 1: emotional peel that you're right, Matt, is really all that
Speaker 1: MERVH has here. I think it's important to note that
Speaker 1: late payments or a lack of payments being made will
Speaker 1: impact your credit score as well as hers. So she's
Speaker 1: not paying that this could negatively impact her credit score.
Speaker 2: She needs to know that.
Speaker 1: I would highlight that for her. And then if you
Speaker 1: stop paying for some reason, you're harming both your credit
Speaker 1: and her. So this is one of those things where
Speaker 1: it's like lighting both of yourselves on fire at the
Speaker 1: same time, which I wouldn't advise. And because the truth is,
Speaker 1: if you do that and you say, let's say, try
Speaker 1: to prevent the credit union from taking money out of
Speaker 1: your account. That could prevent you from being able to
Speaker 1: buy a home or a car, or even rent a
Speaker 1: place in the near future. It will impact her for
Speaker 1: a long time to come from a credit perspective too,
Speaker 1: you would also likely be sued by the lender for
Speaker 1: the outstanding debt. So it's not like you're going to
Speaker 1: be able to get away with it either. Right at
Speaker 1: some point they're going to come for you, come for
Speaker 1: the money, and so we can't sugarcoat it.
Speaker 2: MERVH.
Speaker 1: You're between a rock and a hard place here. We
Speaker 1: wish you good luck with that conversation with your great niece.
Speaker 1: We hope you're able to convince her to start paying
Speaker 1: in order to keep your finances, your credit, and your
Speaker 1: relationship intact. There's just a lot at stake here with
Speaker 1: this conversation. It's not easy, No, it definitely is not.
Speaker 2: And hopefully this is a lesson learned without having to
Speaker 2: experience this firsthand. And I will say, Joel, this is
Speaker 2: one principle that we are in total agreement on with
Speaker 2: Dave Ramsey because I remember listening to him, like I
Speaker 2: don't know, fifteen twenty years ago, and he would always
Speaker 2: harp on folks not co signing for somebody else. It's
Speaker 2: a terrible decision, and this is exactly the exact kind
Speaker 2: of situation that you want to find yourself avoiding.
Speaker 1: The truth is, yeah, if you help co sign for somebody,
Speaker 1: you're on the hook and there's a decent chance you
Speaker 1: end up paying for it, and the relational damage that
Speaker 1: often gets done in these situations can be severe. All right, Matt,
Speaker 1: We've got more questions to get to, including well, is
Speaker 1: there a way that you can actually help out a
Speaker 1: much younger member of your family when it comes to
Speaker 1: building credit. We'll talk about that. Get to a bunch
Speaker 1: more of your money questions right after this.
Speaker 2: A right, Joel, we are now back in the break.
Speaker 2: Let's hear from another listener. This is a listener who
Speaker 2: has some crummy benefits from her employer.
Speaker 5: Hi, Matt, Joel. My name is Vicky and I'm from Ohio.
Speaker 5: I work for an employer that offers a four oh
Speaker 5: one K and an HSA. There is no matching for either.
Speaker 5: I max out my AHSA every year. My FIOH one
Speaker 5: K I do not use because it's through an insurance company.
Speaker 5: They have high fees and the paperwork says that they
Speaker 5: can change the pricing for services at any time without
Speaker 5: a learning the investor. I have some money in a
Speaker 5: brokerage account that I would like to put into a
Speaker 5: four oh one K, but I'm uncomfortable using this four
Speaker 5: oh one K, and I'm not sure what I should do.
Speaker 5: Thank you for your help by Matt.
Speaker 1: All Right, there's good news and bad news here for Vicky,
Speaker 1: isn't there? And I'm glad that she has access to
Speaker 1: multiple tax advantage retirement accounts.
Speaker 2: That's the good news.
Speaker 1: Yeah, sounds like she's using her HSA properly. She's maxing
Speaker 1: that out letting it grow. Also good news, which is
Speaker 1: something we talk about regularly on the show. And we'll
Speaker 1: put a link to an article about HSA's and how
Speaker 1: good they can be in the show notes. By the way,
Speaker 1: just random note here, Vicky, you could always move funds
Speaker 1: from that HSA to Fidelity over time if the fees
Speaker 1: are high on that account too. You didn't mention kind
Speaker 1: of what the HSA fees you're encountering are, but that
Speaker 1: might be the best move to avoid some of the
Speaker 1: fees that you might be encountering. But huge bummer about
Speaker 1: your four to one K being with an insurance company.
Speaker 1: That's the bad news. That is always a giant red flag.
Speaker 1: Makes me frustrated for anybody out there dealing with that reality,
Speaker 1: because that means that the fees are significantly higher than
Speaker 1: what they would be if you are with one of
Speaker 1: the low cost broken terms that we talk about here
Speaker 1: all the time, specifically Vanguard, Fidelity, Schwab. Those ones are
Speaker 1: the those broken terms make costs essentially non existent for
Speaker 1: anybody who does business with them.
Speaker 2: Yeah.
Speaker 1: Yeah, there are small expensary shows, but they're infinteslaly small
Speaker 1: and they barely impact the return that you see. But
Speaker 1: if you're with an insurance company, they could be ten, fifteen,
Speaker 1: twenty times as high and they can massively eat into
Speaker 1: your returns over time. So this is yes, a big problem.
Speaker 1: And if you had a match offer to you, well,
Speaker 1: the advice would be to suck it up and get
Speaker 1: the match, even though the investment options are massively inferior.
Speaker 1: But with no match, I think that four one k man,
Speaker 1: I think if that is like a it's dead to me, right, Like, yeah, totally,
Speaker 1: I don't need that four one k honestly if it's
Speaker 1: that bad and it doesn't come with any match either, well,
Speaker 1: and good on her for having looked at the fine print,
Speaker 1: the fact that it's with an insurance company, the fact
Speaker 1: that they can change the terms, you know, the price,
Speaker 1: the rate at any point. Too many folks make a
Speaker 1: really important decision like this without having dug into the details,
Speaker 1: without any due diligence. And I'll say so, regarding the
Speaker 1: money that you have over there in your separate investing account,
Speaker 1: your brokerage account, what I would do here is to
Speaker 1: leave that money that you have in that account, like,
Speaker 1: leave it in place.
Speaker 2: I would not. It sounds like you might be considering
Speaker 2: selling some positions, selling some funds, some stocks there where
Speaker 2: you would trigger capital gains tax in order to fund
Speaker 2: a very subpar for one k, again with no match,
Speaker 2: And that would be just a terrible situation to find
Speaker 2: yourself in. Like, if you have additional funds and you
Speaker 2: want to invest outside of that brokerage account, then we've
Speaker 2: got some ideas for you. But I would not be
Speaker 2: looking to pull that money from that in order to
Speaker 2: get it within a four to one k somewhere else. Yeah.
Speaker 1: No, the four to one k, I think is just
Speaker 1: I would ignore it, pretend like he doesn't exist. Essentially,
Speaker 1: you're already funding your HSA quite nicely. You've also got
Speaker 1: money in the brokerage account, and VICKI, I'm not sure
Speaker 1: if you have any additional dollars in particular outside of
Speaker 1: the brokerage account that you would like to use to invest,
Speaker 1: but if you do, we'd love to see you contribute
Speaker 1: to a roth IRA with one of those low cost
Speaker 1: providers I mentioned just a second ago, because that's another
Speaker 1: tax advantaged account that we love, and you could stick
Speaker 1: up to seven thousand dollars a year, thousand dollars more
Speaker 1: than that if you're over the age of fifty five,
Speaker 1: eight thousand dollars a year in total, every single year.
Speaker 1: If you wanted to write you're getting some tax diversification.
Speaker 1: You'd be stocking more money away for your future. Plus
Speaker 1: you're completely in control of the costs, potentially to the
Speaker 1: point of zero percent. Matt, Like we talk about with
Speaker 1: fidelities zero index funds like fz ro X, which is
Speaker 1: their total stock market index fund. You could like, how
Speaker 1: much more fun is it to say FC rocks. Yeah,
Speaker 1: I mean, it's amazing the fact that the race to
Speaker 1: the bottom went to the legit bottom. Actually it is
Speaker 1: sometimes even better for some investors where we talk about
Speaker 1: the match that some firms like robin Hood offer. It's
Speaker 1: gotten incredibly competitive the individual retirement account landscape for individual investors,
Speaker 1: and you stand to benefit. But it's all about opening
Speaker 1: up the roth IRA and looking at those options.
Speaker 2: Yeah, and ross are great from the standpoint of pull,
Speaker 2: like ripping the tax band aid off right now and
Speaker 2: never having to think about it ever again. But I
Speaker 2: think it's worth mentioning if you know that you are
Speaker 2: wanting to invest maybe a little more aggressively of let's
Speaker 2: say the next five years, and if you know that
Speaker 2: you're going to be in the highest income producing years
Speaker 2: of your life, if you're basically at peak income, it
Speaker 2: might be worth considering.
Speaker 1: A traditional IRA to be able to reduce the taxes
Speaker 1: owed because of your potentially higher income. But that's of course,
Speaker 1: knowing that these are your peak earning years. Sometimes we
Speaker 1: know we have more of an idea of what that's
Speaker 1: going to because if you're thinking, well, yeah, I'm going
Speaker 1: to go after pretty hard for five years, but then
Speaker 1: after that I'm planning to switch to part time. I've
Speaker 1: got other things i want to pursue. Well, now's the
Speaker 1: time potentially to consider that traditional IRA obviously doesn't give
Speaker 1: you as nearly as much flexibility. It's hard to project
Speaker 1: those things perfectly, but yeah, most people have kind of
Speaker 1: something to think through of them. Yeah, career trajectory they're
Speaker 1: hoping for.
Speaker 2: Totally, here's an outside of the box, maybe a less
Speaker 2: orthodox way of thinking. Let's talk about your actual job.
Speaker 2: Because so I just laid out a scenario where you're, like,
Speaker 2: at the peak of your career, you're making a sweet income.
Speaker 2: Maybe it's worth considering a different job at a different company.
Speaker 2: I wouldn't necessarily go hunting for a new job just
Speaker 2: because you're four to one k offerings are trash because
Speaker 2: they don't offer a match. But if there are other
Speaker 2: reasons that you're unhappy with your job, like maybe it's
Speaker 2: just like the hours or the career potential. Maybe you've
Speaker 2: got more in the tank and you're thinking, I don't
Speaker 2: I don't see much of a future for me there,
Speaker 2: then I would consider this as a good reason to
Speaker 2: feel a job search. Great companies they should offer competitive
Speaker 2: four to one k's. It's almost like a non starter. Honestly, now,
Speaker 2: at this point for a company to not offer it's
Speaker 2: some kind of match.
Speaker 1: It's table stakes. Yes, for literally to hire great employees.
Speaker 1: A match in a four oh one K is like, yeah,
Speaker 1: you have to have it in order.
Speaker 2: To get the right people, it seems like, and it
Speaker 2: just doesn't speak well of the company if that's not
Speaker 2: the base, the bare minimum that they're looking to offer.
Speaker 2: And you know, you probably weren't expecting us to tell
Speaker 2: you to get your resume ready, but I think it's
Speaker 2: worth considering if there are other things that you're unsatisfied
Speaker 2: with at your current employer.
Speaker 1: Agreed, Yeah, you don't want it to be the whole
Speaker 1: kitten Cammodle reason to leave. You might be unhappy if
Speaker 1: you did, but it is certainly one of those factors
Speaker 1: that you want to consider. And the other thing Matt
Speaker 1: I would at least think through is maybe your employer
Speaker 1: doesn't know any better, at least when it comes to
Speaker 1: the fees that this foreign K plan is charging to employees.
Speaker 1: You would think that they would know, but they might not.
Speaker 1: I mean, think about the fact that employers often have
Speaker 1: to find health care plans for their employees and guess
Speaker 1: what the people in charge of that. They're not always
Speaker 1: health care specialists. They might not have the expertise to
Speaker 1: know exactly what's getting passed on to employees and what's not.
Speaker 1: So maybe give them the benefit of the doubt, and
Speaker 1: in that case, will petition them to help them understand
Speaker 1: what sort of product they're giving to their employees. Right,
Speaker 1: let them know about the four one KA options that
Speaker 1: would save them and you money. Yeah, and that's right.
Speaker 1: It's not just about you and your fellow employees. It's
Speaker 1: about them too. There are lower cost plans for them
Speaker 1: to implement. In all likelihood, tell them about companies like Guideline,
Speaker 1: like Betterment that offer low cost four to one case
Speaker 1: for small and medium sized employers, and they massively minimize
Speaker 1: fees for employees too. Maybe they'll be so grateful and
Speaker 1: they'll save enough that they can be more generous and
Speaker 1: start offering a four to one K match too. You
Speaker 1: never know, but it's one of those things where that's
Speaker 1: two birds one stone. Yeah, there's a kind of gentle
Speaker 1: way to let them know. Wait a second, Hey, look
Speaker 1: what I found over here. This might be great for
Speaker 1: the company and great for everyone in it too, in
Speaker 1: order to minimize the crappy fees they're forking over so
Speaker 1: people can't actually utilize the account I mean the employer.
Speaker 1: I'm sure they offer a four one K they want
Speaker 1: their employees to take advantage of it hopefully. Yeah, you know,
Speaker 1: like I mean that's assuming the best. Like that's a
Speaker 1: good faith sort of.
Speaker 2: Argument, the fact that they don't know better, and once
Speaker 2: you just provide them with the information, they're gonna change
Speaker 2: their minds and they're gonna want to treat their employees better.
Speaker 2: But like I guess a bad faith sort of scenario
Speaker 2: would be like if they're getting a sweet trip out
Speaker 2: of it every year from the insurance company or somebody
Speaker 2: who always takes them to a certain golf course, and
Speaker 2: those are deals that still happen today, unfortunately, And if
Speaker 2: that were to be the case, then this could be
Speaker 2: again going back to the suggestion of considering a different company.
Speaker 2: If this is just one of many reasons that you
Speaker 2: are finding yourself unsatisfied, and.
Speaker 1: You think those insurance companies are taking the HR people
Speaker 1: out to the.
Speaker 2: Disc golf course or the real golf course, I'm guessing
Speaker 2: this thea's the latter. Yeah, But let's hear from another listener, Joel.
Speaker 2: This is a listener who has a question about direct indexing,
Speaker 2: which is not something I think we've talked about here
Speaker 2: on the show.
Speaker 3: Hey, Matt, Joel Greg here calling from Lynnwood, Washington, and
Speaker 3: I have a question about direct indexing through an SMA.
Speaker 3: I'm thirty two married. We have about three hundred and
Speaker 3: fifty thousand income and our portfolios five hundred thousand, with
Speaker 3: half in retirement and half in a brokerage account. So
Speaker 3: with the brokerage account, I have an advisor. I'm not
Speaker 3: paying a fee. It's through Fidelity, and they make that
Speaker 3: available if you have more than two hundred and fifty
Speaker 3: thousand invested with Fidelity. But he's suggesting a direct indexing
Speaker 3: approach opening an SMA. It has to be one hundred
Speaker 3: thousand plus and there's a point four percent fee, And
Speaker 3: just using easy math here, his suggestion is, you know
Speaker 3: we can we can donate the winners the top gains
Speaker 3: and tax loss harvest the losers. So out of one
Speaker 3: hundred thousand portfolio, say we grew to one hundred and
Speaker 3: ten in an ETF fund, you just have your holdings
Speaker 3: grew to one hundred and ten. In a direct indexing approach,
Speaker 3: you might have stocks that grew by fifty percent and
Speaker 3: you have other stocks that lost fifty percent so instead
Speaker 3: of having, you know, just a plus ten thousand, you
Speaker 3: might have plus fifty and minus forty. And in that
Speaker 3: instance you could donate the ones that gained a lot
Speaker 3: and rebuy at a higher cost basis plus. Then you
Speaker 3: can tax loss, harvest the losers, and reduce your taxable
Speaker 3: income this year. So I think the math works here.
Speaker 3: The point four percent fee is going to be more
Speaker 3: than turned with that tax efficiency. But I wanted to
Speaker 3: run it by you in case I'm missing anything.
Speaker 2: Thanks so much, ooh man, I like this question and
Speaker 2: a lot of mass.
Speaker 1: It does show that that actually some of the changes
Speaker 1: that have happened on the investing front are not insignificant
Speaker 1: when it comes to individual investors being able to save
Speaker 1: on taxes. And I'm glad that Greg is with Fidelity,
Speaker 1: by the way. I mean, although I have read that
Speaker 1: they regularly try to pitch folks on signing up for
Speaker 1: the more expensive account management services.
Speaker 2: But yeah, I am not happy with the scenario that
Speaker 2: it sounds like Greg is finding himself in because when
Speaker 2: it comes to f Z Rocks and the other zero funds, yeah,
Speaker 2: that's great, But when it comes to some of these
Speaker 2: other services that they're offering, I think there might be
Speaker 2: some better options out there that we'll get to.
Speaker 1: Although just the fact that he had this conversation and
Speaker 1: he's asking this question, I think it sounds like Greg
Speaker 1: has the ability to save money on taxes in ways
Speaker 1: that he hadn't really thought of before.
Speaker 2: That's true. Yeah, So we're talking about tax lost harvesting
Speaker 2: right now, which is one of the things that direct
Speaker 2: and takes advantage of. And you know, this is kind
Speaker 2: of like how we talk about the need for folks
Speaker 2: who have more complex tax situations the pay a pro
Speaker 2: If the tax savings outweigh the fee that you're going
Speaker 2: to pay, well, you'd be shortsighted to not pay. And
Speaker 2: when it comes to tax lost harvesting, it's similar. So
Speaker 2: it's define it real quick. Tax loss harvesting is when
Speaker 2: you sell an investment at a loss in order to
Speaker 2: offset other gains that you might have received, and if
Speaker 2: your losses exceed your gains, well, you can then deduct
Speaker 2: those losses. In a given year, it's up to three
Speaker 2: thousand dollars if you are married filing jointly for that
Speaker 2: given year, in order to reduce your ordinary income. If
Speaker 2: your losses are larger than that well, you can then
Speaker 2: carry those losses forward, claim those losses to offset ordinary
Speaker 2: income in future years. And it's not an insignificant amount
Speaker 2: of money here, and a good advisor who is paying
Speaker 2: attention can help you to save on taxes buy selling
Speaker 2: and buying in a timely manner without changing your portfolio
Speaker 2: allocation all that much.
Speaker 1: Yeah, I mean, think about this if you can even
Speaker 1: let's say, if your total stock market index fund has
Speaker 1: experienced some losses, you could sell in order to show
Speaker 1: a paper loss, rebuy an S and P five hundred
Speaker 1: index fund, and those are would not be subject to
Speaker 1: the wash sale rule because because they're dissimilar enough, and
Speaker 1: you can just reap tax savings because of it. And
Speaker 1: it's important to mention that the tax loss harvesting only
Speaker 1: works inside of a brokerage account. You're not creating, that's true,
Speaker 1: a taxable event when you sell a fund inside of
Speaker 1: your four oh and k or your IRA. Also, tax
Speaker 1: loss harvesting is more effective for higher income earners. So
Speaker 1: you know, Greg, he was pretty honest about what he makes.
Speaker 1: He makes a lot of money, close to three hundred
Speaker 1: and fifty kyah, which means that his highest marginal tax
Speaker 1: bracket is getting up there. He's not far from at
Speaker 1: least some of those dollars being taxed in the thirty
Speaker 1: two percent range if he continues to crush, which means
Speaker 1: the stakes are higher and that a tax loss harvesting
Speaker 1: strategy could have I would say, a not insignificant impact
Speaker 1: on his tax situation. Still the point four percent fee,
Speaker 1: it's not cheap, and tax lost harvesting is something you
Speaker 1: can do yourself without an insane amount of effort. But
Speaker 1: this direct indexing approach, I would say that the fidelity
Speaker 1: rep is talking about does make it easier, kind of
Speaker 1: in the way that Greg outlined, making it easier essentially
Speaker 1: to call the losers and to grab those tax savings
Speaker 1: than if you're talking about owning just a couple of
Speaker 1: funds inside of your brokerage account.
Speaker 2: Yeah, direct indexing it's a relatively new product. It's gaining steam,
Speaker 2: but it's an attempt to mirror the index strategy that
Speaker 2: you find with something like let's say an SMPF ETF
Speaker 2: for something similar, but you've got fractional shares, you've got
Speaker 2: zero commission trades, and both of these advancements in investing
Speaker 2: has made this method more widely available to investors in
Speaker 2: recent years. So instead of just buying a simple index fund, instead,
Speaker 2: what's happening is you buy small amounts of individual stocks
Speaker 2: that make up that index, and then this offers the
Speaker 2: potential for smater tax moves are when there is volatility
Speaker 2: there in the market.
Speaker 1: I am thinking of Matt. You know, you have a
Speaker 1: folder on your desktop and you have five hundred files
Speaker 1: in there, or you scatter shot them instead across the
Speaker 1: entirety of your desktop. That's what direct into indexing, at
Speaker 1: least in my mind, looks like instead of putting it
Speaker 1: in a folder inside an index fund, they're literally just
Speaker 1: all scattered all over. But Okay, what should Greg do here?
Speaker 1: And should he succumb to the Fidelity pitch go with
Speaker 1: their their separately managed account in order to have access
Speaker 1: to these tax lost harvesting benefits. I don't think so,
Speaker 1: And I also don't necessarily think it means that Greg
Speaker 1: needs to Diyatt himself, although he could, but there are
Speaker 1: ways to actually, I think maybe split the baby and
Speaker 1: get the best of both worlds. Betterment is a robo
Speaker 1: advisor that we're fans of, and tax loss harvesting is
Speaker 1: included in the feed that Betterment charges, which is only
Speaker 1: a quarter of a percent instead of four tenths of
Speaker 1: a percent. And the bigger that portfolio gets, the more
Speaker 1: that fee matters. So that's actually a s acial difference
Speaker 1: in price. And I think that's a big deal. Reducing
Speaker 1: taxes matters, yes, and I think it's important to highlight that.
Speaker 1: But Betterment has an automated algorithm that harvests losses without
Speaker 1: creating additional trading costs, while also helping you avoid running
Speaker 1: a foul of the irs, which is I guess from
Speaker 1: they perspective, that's the biggest potential pitfall is that you
Speaker 1: don't do it properly, either from a planning perspective or
Speaker 1: from a tax perspective. And hey, it turns out you
Speaker 1: didn't tax lost harvest to its maximum ability. And while
Speaker 1: we love Fidelity, moving over to Betterment might be best
Speaker 1: for Greg in this situation. Betterment also highlights on their
Speaker 1: website that seven out of ten Betterment customers have their
Speaker 1: taxable advisory fee their Betterment fee covered by the likely
Speaker 1: tax savings of tax lost harvesting, and Greg would almost
Speaker 1: certainly be one of them, especially when he ran the
Speaker 1: numbers and he's like, hey, I'm going to come out
Speaker 1: ahead with the higher fee from Fidelity, Well, then you're
Speaker 1: definitely going to come out more than a head with
Speaker 1: the lower fee from Betterment. So I think you can
Speaker 1: maybe have your cake and eat it too, just by
Speaker 1: doing business at the right place.
Speaker 2: Yeah, And I think more than anything, the red flag
Speaker 2: that gets raised in this scenario is the fact that
Speaker 2: it feels like a pitch. It feels like a pitch
Speaker 2: from Fidelity. And while there are many things that we
Speaker 2: love about Fidelity, specifically there's zero cost funds, it feels
Speaker 2: like they're trying to sell you on this and perhaps
Speaker 2: in order to gain more of your business and have
Speaker 2: you pay for slightly more expensive services that they're making
Speaker 2: slightly more profit on. And it's not that's the thing.
Speaker 2: It's not a ridiculous amount. Point four really isn't that bad.
Speaker 2: It's not gonna a lot better than a lot of
Speaker 2: about other advisors other than one percent, for sure, one
Speaker 2: percent of assets under management. It's not predatory. And that's the.
Speaker 1: Part that feels a little weird about this is that,
Speaker 1: like it's good enough for that to be folks who
Speaker 1: are satisfied with the services that they're receiving for that
Speaker 1: dollar amount. But what we're just saying is that hey,
Speaker 1: go with Betterment and you'll be able to get the
Speaker 1: same thing. Basically, you don't have somebody that you're talking to,
Speaker 1: but you're gonna get the same kind of service, the
Speaker 1: same tax loss harvesting there within your brokerage. And he
Speaker 1: said that that Fidelity advisor was saying that, hey, by
Speaker 1: the way, for the ones that gain that have seen
Speaker 1: a lot of gains, you can donate those and so
Speaker 1: you're not realizing your capital gains there. Well, that's not
Speaker 1: a unique selling proposition of Fidelity. You can do that
Speaker 1: with any brokerage, any brokerage account that's like yeah worth
Speaker 1: their salt. You can donate stocks or funds out of
Speaker 1: those brokerages and so that's not You can do that
Speaker 1: with Betterment as well. So in a similar way, it's like, well,
Speaker 1: you're getting all the benefit literally that you've mentioned with
Speaker 1: Betterment at a lower cost as opposed to going with
Speaker 1: you the same services that are being offered there at Fidelity. Okay,
Speaker 1: one minor downside actually to the zero funds from Fidelity. Matt,
Speaker 1: speaking of donation, I tried to donate some FC rocks
Speaker 1: last year and you can't actually donate that fund because
Speaker 1: it's a proprietary fund.
Speaker 4: There.
Speaker 1: You didn't realize that until I try to donate it.
Speaker 1: But so again, there are all sorts of tiny details
Speaker 1: you got to keep in mind. But in this case,
Speaker 1: I think the big thing is much lower price. You
Speaker 1: still get the tax loss harvesting. That's one of the
Speaker 1: things at Betterment. It does really well with their algorithm.
Speaker 1: So I feel very confident. If that's something you really
Speaker 1: want and you feel like it's going to help you
Speaker 1: come out ahead from a tax perspective, I'd go there instead.
Speaker 2: Totally. We got more to get to you, buddy. We're
Speaker 2: gonna talk about Apple Watches, HSA's and more right after this.
Speaker 2: All right, Matt, we're back.
Speaker 1: Let's get to the Facebook question of the week. This
Speaker 1: one comes from Chad. He posted this in the how
Speaker 1: to Money Facebook group. He said, authorized user or checking account.
Speaker 1: We got my eleven year old fifth grader and Apple
Speaker 1: Watch with cellular capabilities. Man, I'm pretty sure you didn't
Speaker 1: have any fancy technology like that in fifth grade.
Speaker 2: Of course I didn't, Chad said, my current fifth grade. Well,
Speaker 2: I don't have a current fifth grader, but my kids,
Speaker 2: right now don't even have a fancy tech like that.
Speaker 1: I get that. Sorry to interrupt, Chad says, I want
Speaker 1: to be able to give him the ability to use
Speaker 1: his watch to make purchases at the various events he
Speaker 1: attends bowling club sporting events, etc. Instead of having him
Speaker 1: use actually more like lose cash. Which do you think
Speaker 1: is better? I know that Chase has a checking account
Speaker 1: for kids, maybe it's for teens. I could fund that
Speaker 1: and put his debit card onto his watch. I could
Speaker 1: make him an authorized user on one of my Chase
Speaker 1: cards and set a really low limit on there so
Speaker 1: he can just use the.
Speaker 2: Watch to pay for stuff. Thoughts, Well, maybe I give
Speaker 2: it away a little bit. I'm not opposed to cash,
Speaker 2: and I will say I also, Chad, I've got an
Speaker 2: eleven year old who's a sixth grader, not a fifth grader,
Speaker 2: And over the past couple of years there have been
Speaker 2: numerous like basketball games, hangs with friends where they're out
Speaker 2: in public where they can like make their own purchases,
Speaker 2: And in all of those scenarios, she's taken her own
Speaker 2: cash with her. Yeah, And I guess the way I
Speaker 2: think about it, I'm like, would I rather her lose
Speaker 2: an Apple watch or have like direct access to all
Speaker 2: of her funds there, or just the ability to at
Speaker 2: most lose the amount of money that she's taken with her.
Speaker 2: So personally, man for us, at least, the going with
Speaker 2: the old school physical cash method for us has worked
Speaker 2: out fine.
Speaker 1: I can't imagine he's gonna lose the watch, right, but
Speaker 1: I don't. I think you can lose some loose money.
Speaker 1: So I get where Chad's coming from. And maybe his
Speaker 1: son has lost twenty bucks here or there before and
Speaker 1: he's like cash to day. Yeah, man, if you could
Speaker 1: just tap with his wrist, it's gonna make this a
Speaker 1: whole lot easier. And I totally understand what you're saying.
Speaker 1: And I think, especially for younger kids, cash makes the
Speaker 1: most sense.
Speaker 2: Sometimes MO money more problems, you know, like you want
Speaker 2: to go digital, and okay, so now you've got something
Speaker 2: that you've got to provide service for. That's true because
Speaker 2: like not only is the cost of the device or
Speaker 2: the phone or the watch or whatever, but then I mean,
Speaker 2: it's not cheap to pay for the cell plans now
Speaker 2: for these individual device, although it's.
Speaker 1: Gotten a lot cheaper. Actually we've talked about that is
Speaker 1: true US Mobile on the show and how you and
Speaker 1: I are US Mobile customers now for our cell plans,
Speaker 1: they're incredibly cheap. But they also have now service for
Speaker 1: smart watches. I think six dollars and fifty cents a month,
Speaker 1: which if that's what you want as it goes, it
Speaker 1: is a fortable Yeah. If he's already got the Apple
Speaker 1: Watch and you're like, man, we just need to save
Speaker 1: money on that because it's costing us a lot more
Speaker 1: with one of the big guys, We'll look at US Mobile.
Speaker 1: That's the best price I've seen, and I think getting
Speaker 1: used to digital money, this is probably right about the
Speaker 1: right time. I'm getting my sixth grade or fourth grader
Speaker 1: kind of used to it right now. I did cash
Speaker 1: kind of thrown in the towel on that. Honestly, it
Speaker 1: was mostly my fault. It's a pain in the butt. Yeah,
Speaker 1: I will say that that was not as good and
Speaker 1: dedicated to it as I should have been. So that's
Speaker 1: not my kids on my kids, that's on me. Although
Speaker 1: when we try to go digital too early that didn't
Speaker 1: work either, so it's a little bit of trial and
Speaker 1: error in our household. But yeah, we opted actually for
Speaker 1: free teen accounts from Capital One. They come with a
Speaker 1: debit card, and so now it's really easy for me
Speaker 1: to transfer money to them for my Capital One account
Speaker 1: to theirs. They've got a debit card, they could take
Speaker 1: it with them, and that's actually been kind of the
Speaker 1: best solution for our family. They don't have fancy watches
Speaker 1: to attach that card to, but you could.
Speaker 2: Yeah, I mean, if you do have that account, of
Speaker 2: course you can take that debit card, stick it in
Speaker 2: the wallet app and he could pay from his watch.
Speaker 2: You could actually you could even attach it to Apple's
Speaker 2: new Apple Cash feature, which exists within like the iOS framework,
Speaker 2: where you can even you know, you send your son
Speaker 2: money to his Apple Cash account via like text message.
Speaker 2: Not that this is something you should be doing on
Speaker 2: the RAG, but it's worth highlighting that it's even simpler
Speaker 2: than like Venmo or cash app. If you're so inclined
Speaker 2: and if this is something that you do want.
Speaker 1: To do, yeah, And I think the other thing Chad
Speaker 1: mentioned was, oh, sure I make him an authorized user
Speaker 1: on one of my credit cards so that he can
Speaker 1: use the watch to pay for stuff with that card. Well,
Speaker 1: I think you can and probably should make him an
Speaker 1: authorized user on your credit card that'll help with him
Speaker 1: building credit. Assuming you handle your credit well, he'll become
Speaker 1: a teenager and he'll have a score that many adults
Speaker 1: can only hope for. And if that's the case, if
Speaker 1: you have a long, great credit history, But he wouldn't
Speaker 1: want you to give him access to pay with that
Speaker 1: credit card that's in your name if you make him
Speaker 1: authorized user, don't actually get him the physical credit card,
Speaker 1: but being an authorized user on yours and then having
Speaker 1: his own account like the Capitol One account that I
Speaker 1: mentioned that allows him to use his money that you
Speaker 1: have at least some oversight of seems like the right
Speaker 1: balance to me. I just don't want Matt to have
Speaker 1: a credit card that's mine and my kids using that card.
Speaker 1: Way too young in my opinion for that, and I
Speaker 1: stand to lose more in that case too. So I
Speaker 1: just kind of like that, that separation of powers, Like
Speaker 1: I like them having their own card, their own accounts.
Speaker 1: You don't have them messing up your.
Speaker 2: Stuff, not that they would, but I just, uh, there's.
Speaker 1: Always the risk, right, yeah, there's the risk of them
Speaker 1: going and buying something that they couldn't actually afford and
Speaker 1: then on my credit card, whereas hey they've got a
Speaker 1: finite amount that's in there. It's in their you know
Speaker 1: account on the team account through Capital One, and.
Speaker 2: So downside being if there is any fraud or something
Speaker 2: that happens, they're out their own money. I guess while
Speaker 2: you're trying to claw that back, because that's obviously one
Speaker 2: of the benefits of using credit cards that we like,
Speaker 2: there are those extra protections built in. If I ever
Speaker 2: considered using a credit card, it would be for those protections,
Speaker 2: not because I was looking to try to like completely
Speaker 2: optimize and to teach my kids about how to use
Speaker 2: credit card cash back and rewards and points. Like if
Speaker 2: you're if that's what you're thinking, I think it's a
Speaker 2: little too premature, at least at this point in the game.
Speaker 2: I think, if you've got teenagers that are older like
Speaker 2: seventeen eighteen, hey, trying to start talking about points and
Speaker 2: cash back and how paying on time in fact ahead
Speaker 2: of time before the statement even hits at the end
Speaker 2: of the month, why not run that through the credit
Speaker 2: card company. But at this point, at least at eleven
Speaker 2: years old, that would not at all be on my
Speaker 2: mind at all trying to teach my kid how to
Speaker 2: use your credit card like a pro.
Speaker 3: Right.
Speaker 1: Yeah, you're not ready to gain that system at eleven, Yeah, exactly.
Speaker 1: But I think this is like a perfect fora getting
Speaker 1: him the right account, attaching it to the watch, and
Speaker 1: making sure he has money at his disposal. He knows
Speaker 1: how to spend, he knows where the money comes from.
Speaker 1: It sounds like Chad is, you know, handling his money
Speaker 1: lessons with his son like a pro Matt. Let's get
Speaker 1: to another Facebook question from how to Money Facebook group.
Speaker 1: This one comes from Megan. She says, given the benefits
Speaker 1: of HSA's health savings accounts, would you prioritize investing in
Speaker 1: an HSA over an IRA? Assuming funds are limited and
Speaker 1: it's not possible to fully fund both if you were
Speaker 1: forced to choose, that's what you're asking. If you have
Speaker 1: to choose a favorite child, Joel, which one.
Speaker 2: Would it be?
Speaker 1: Well, we all know that one. That's like playing Russian roulette. Man,
Speaker 1: that's a tough one. Yeah, it's difficult. Which one is superior?
Speaker 2: And I'll say hopefully Megan's talking and talking about the
Speaker 2: roth IRA as opposed to an HSA. Imagining you've got
Speaker 2: a high deductible health care plan here, which gives you
Speaker 2: access to an HSA. I'm assuming here that your income
Speaker 2: is such that you are able to contribute to a
Speaker 2: roth ray. So which one first? And I would say,
Speaker 2: despite the roth ira being far more popular, if you
Speaker 2: were looking at the technical details, well, then you can't
Speaker 2: beat an HSA. And that's because, yes, you can avoid
Speaker 2: a lot of tax when it comes to going with
Speaker 2: a roth ira, but you can avoid all the tax
Speaker 2: with an HSA. So I I guess I want to
Speaker 2: couch that answer in if you are optimizing for the
Speaker 2: absolute best rate, or not the best rate, but for
Speaker 2: the best accounts, Yeah, for the least amount of taxes
Speaker 2: paid as possible on your investments, then the HSA you
Speaker 2: literally can't beat that.
Speaker 1: Yeah, And that's why we sing its praises often on
Speaker 1: the show. The triple tax advantage is huge, and if
Speaker 1: your contributions are coming out of your paycheck, you get
Speaker 1: to skip additional payroll tax on top of That's it's
Speaker 1: almost like a quadruple tax advantage, and technically it is.
Speaker 1: And that puts the HSA on top of our opinion.
Speaker 1: And it's not like you give up on a lot
Speaker 1: of flexibility by doing that either.
Speaker 2: I think Matt.
Speaker 1: Sometimes that's the trade off you have to weigh with
Speaker 1: certain retirement accounts is, well, how long is this money
Speaker 1: going to be locked away? And especially if I feel
Speaker 1: like I need access to those funds before I reach
Speaker 1: like full retirement age, gosh, I'm not going to be
Speaker 1: able to touch it. Well, the WROTH offers some flexibility
Speaker 1: in that regard to being able to claw back some
Speaker 1: of those contributions, but the HSA allows similar flexibility for
Speaker 1: taking those funds out before retirement. So both of those
Speaker 1: funds have certain flexible withdrawal rules that are worth digging into,
Speaker 1: but flexibility on both first they can be helpful, right,
Speaker 1: I think the biggest trade off is, like, I think
Speaker 1: the question that someone needs to ask themselves is how
Speaker 1: committed are they to sticking with a spreadsheet? How organized
Speaker 1: can you be not over the course of months or years,
Speaker 1: but like even decades. Yeah, because yes, one is much
Speaker 1: much better than the other, but it takes a bit
Speaker 1: more work, you know.
Speaker 2: So in this case, the HSA requires more work. And
Speaker 2: it makes me think of something droll that we like
Speaker 2: to do, which is smoking meat. And you talk to
Speaker 2: anybody who's into barbecue, and you're gonna get a superior barbecue,
Speaker 2: a superior brisket or pork butt. If you go with
Speaker 2: an offset smoker where you've got lump charcoal, where you've
Speaker 2: got like white oak. Right, but guess what it takes
Speaker 2: my mouthwater. It takes more handholding, It takes a little
Speaker 2: bit more paying attention to that smoker to make sure
Speaker 2: that you're doing it right. The vast majority of folks
Speaker 2: out there, I think, are probably like, man, I just
Speaker 2: want some nice barbecue at home to where I'm not
Speaker 2: paying out the nose by ordering takeout every time I
Speaker 2: go out. And for those folks in those instances, guess
Speaker 2: what a pellet smoker a trigger because it's not quite
Speaker 2: as good of a product in the end, but dang it,
Speaker 2: you know what, it does a whole lot with a
Speaker 2: minimal amount of efforts, And for the vast majority of folks,
Speaker 2: I think that's going to be enough for them.
Speaker 1: And so I think you just set it and forget it,
Speaker 1: and it's idiot proof. And that's kind of what the
Speaker 1: roth IRA is like. You got to be committed to
Speaker 1: the system if you're gonna take full advantage of the HSA.
Speaker 1: I think the other thing worth highlighting about the HSA
Speaker 1: is that it can become like in traditional IRA after
Speaker 1: the age of sixty five. So if you're incredibly healthy,
Speaker 1: you don't rack up a ton of medical bills, which
Speaker 1: what we hope for you. Hey, it's not like that
Speaker 1: money is locked away because you didn't incur enough medical expenses.
Speaker 2: You could also split the difference, right.
Speaker 1: If if funds are limited, go fifty to fifty funding
Speaker 1: each account halfway. You know, hopefully further down the line
Speaker 1: you can contribute to both of those accounts in more
Speaker 1: meaningful ways. But why not go have these too? If
Speaker 1: you're kind of seriously split on which one is best.
Speaker 1: It's true, I think the HSA is a little bit better.
Speaker 2: I like it's ten but from a financial standpoint, from
Speaker 2: an optimization standpoint, but it's a lot worse from how
Speaker 2: much attention do I need to give to this thing yep,
Speaker 2: over the coming years. So great question, Megan. We hope
Speaker 2: that helps Matt. Let's get back to the beer that
Speaker 2: we had on this episode. This one was called tiny S's.
Speaker 1: It's like a fruited sour, I want to say, or
Speaker 1: I don't know, candied sour from the good folks of Prairie.
Speaker 2: And I think they've like just annoyingly embraced that, because
Speaker 2: like it's got an illustrated chemistry and motif going on,
Speaker 2: and even like some of the things that are so
Speaker 2: called atoms, they just look like nerds. And I literally,
Speaker 2: like when I smelled it before we started drinking it
Speaker 2: at the beginning of the episode, I was like, man,
Speaker 2: this smells like nerd ropes and that is told. It
Speaker 2: spells like your kid's candy basket post Halloween. This is
Speaker 2: exactly what it tastes like. I don't know if I've
Speaker 2: ever had a beer that was so sweet, Like I
Speaker 2: guess we've had some like big, boozy sweet beers, but
Speaker 2: I don't know. I don't know if I've ever had
Speaker 2: a sour that was this sweet before.
Speaker 1: Right, Oh, you're right, like, because usually they're they're they're
Speaker 1: sweet with fruit, but this is sweet with candy, and
Speaker 1: so it feels.
Speaker 2: Like sugary sweet. It's like Skittles sweet one hundred percent.
Speaker 2: It's like, as I drink it, I can kind of
Speaker 2: crunch my teeth together and I can almost feel the sugar.
Speaker 2: I can taste the rainbow, Matt, I can taste the rainbow. Yeah,
Speaker 2: like Sweethearts a little bit. It' art a little bit
Speaker 2: of sweet. This is just more sweet, less tart, for sure,
Speaker 2: And it reminds me of like country time lemonade as
Speaker 2: a kid, where you can like mix your own, because
Speaker 2: it does taste like that. It's less lemony, it's more
Speaker 2: pink tasting, and you know in the big canister where
Speaker 2: you can like add your own, oh yeah, extra, and
Speaker 2: you can make it as sweet or as not sweet
Speaker 2: as you want. This tastes like the pink lemonade I
Speaker 2: was making in seventh grade, Like yeah, high coned to me.
Speaker 1: This is a novelty beer and it's not really my style,
Speaker 1: but every once in a while it's fun to have
Speaker 1: a novelty beer and just see what people can create
Speaker 1: in the beer category. This one is very far afield,
Speaker 1: kind of goofy and very sweet, which is not my jam.
Speaker 2: Very sweet, and it's almos. It's almost like it's marketed.
Speaker 2: Like what do you think of that pencil there with
Speaker 2: like the pencil grip yeah on there, Like there's certain
Speaker 2: it's like a throwback to like middle school kind of days.
Speaker 2: It makes me think about Founders Breakfast Out, remember when
Speaker 2: it had the baby on there and who was it
Speaker 2: the Federal drug No, somebody like shut them down and said, hey,
Speaker 2: you have you can't have the baby be on your
Speaker 2: beer anymore because of it's like you're marketing to kids.
Speaker 2: What it's like an old school Norman Rockwell looking kind
Speaker 2: of picture as opposed to this talk about the different
Speaker 2: vapes getting marketing to kids. This is like totally something
Speaker 2: of nighth grade would see and be like, oh, but
Speaker 2: it tastes a good anyway, they might actually like this.
Speaker 2: I'm not trying to accuse Prairie of anything underhanded here.
Speaker 1: This tasty beer, just a bit sweet, good stuff, unique,
Speaker 1: not one I'll probably ever pick up again. All Right,
Speaker 1: that's gonna do it, though, Matt for this episode. And
Speaker 1: by the way, if you have a money question, please
Speaker 1: do send it our way. We'd love to hear from you.
Speaker 1: Just record it on the voicemail map of your phone,
Speaker 1: send it over to us. Hopefully we can take it
Speaker 1: next week and we'll put links to some of the
Speaker 1: resources we mentioned up in the show notes on our
Speaker 1: website at howtomoney dot com.
Speaker 2: You know it. So, until next time, best Friends Out,
Speaker 2: Best Friends Out,