RPF0539-Friday_QA
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00:00:31.000 | Happy Friday, amigos. Today, live Q&A.
00:00:34.000 | [MUSIC]
00:00:50.000 | Welcome to Radical Personal Finance, the show dedicated to providing you with the knowledge,
00:00:54.000 | insight, and encouragement you need to live a rich and meaningful life now while building
00:00:58.000 | a plan for financial freedom in 10 years or less. My name is Joshua. I am your host. I
00:01:03.000 | am your fellow traveler down this road of financial freedom, and I am your friendly
00:01:09.000 | local financial philosopher. Here today, we try to see if we can sort truth from fiction.
00:01:14.000 | [MUSIC]
00:01:22.000 | On each Friday that I am able to arrange the technology to record a call, I host a Friday
00:01:28.000 | Q&A call, and this is done in the style of a live Q&A call. I record it and then just
00:01:33.000 | release it just a little bit after the call. Usually, these calls are open exclusively
00:01:37.000 | to patrons of the show. You can become a patron at radicalpersonalfinance.com/patron. That
00:01:43.000 | allows you to have easy access to these Friday Q&A shows. At the moment, the calls are not
00:01:48.000 | jammed that I can't get you in. I can essentially promise you that if you want to ask a question
00:01:52.000 | or talk about something, raise any discussion point that you would like to do, then you
00:01:57.000 | can do that as a patron on a Q&A call. If you'd like to join as a patron at radicalpersonalfinance.com/patron,
00:02:04.000 | I would dearly love to have you there. On today's call, I have members of my email list.
00:02:10.000 | From time to time, I'll try to incentivize and give an unexpected bonus to those of you
00:02:14.000 | who connect with me in other formats. Today's, it is for my email subscribers. All of our
00:02:20.000 | callers today are calling in from the email group, but of course, some of them could also
00:02:24.000 | be patrons. If you'd like to join a Friday Q&A call, I would dearly love to have you
00:02:28.000 | call next week at radicalpersonalfinance.com/patron. We begin today with Ruha in Alabama. Ruha,
00:02:35.000 | welcome to Radical Personal Finance. How can I serve you today?
00:02:38.000 | Hi, Joshua. Thanks for taking my call today.
00:02:41.000 | My pleasure.
00:02:43.000 | I'm calling because in the next few years, we're expecting to have some pretty big medical
00:02:49.000 | bills, and I've been giving some thought as to whether I should use funds from our
00:02:55.000 | HSA to pay for them. I'm aware that there's several reasons why the HSA makes a good long-term
00:03:05.000 | savings plan that you might save and hold onto until retirement age. So I guess I just
00:03:12.000 | wanted to see if I could get your insight on when it makes sense to use it today rather
00:03:18.000 | than save it for tomorrow.
00:03:20.000 | How much money do you expect to need to pay out in medical expenses?
00:03:26.000 | About $4,000.
00:03:28.000 | How much money do you expect to have in the account?
00:03:32.000 | I'm guessing $10,000.
00:03:36.000 | Do you have other sources of money where you could pay for the $4,000 without going into
00:03:43.000 | debt?
00:03:44.000 | Definitely. It would be taxable money, but yes.
00:03:51.000 | Are you a scrupulous record keeper?
00:03:55.000 | Yes.
00:03:56.000 | Then in that case, my understanding is I don't see any downside for you to pursue the HSA
00:04:03.000 | maximization strategy. So a quick little bit of background for listeners for whom this
00:04:08.000 | may be coming out of the blue. The health savings account is a type of tax-advantaged
00:04:15.000 | account that is available to people who are enrolled in a high-deductible health plan.
00:04:20.000 | They first came out, I think it was under the George W. Bush administration, under President
00:04:24.000 | Bush II, and it was part of the idea to lower the cost of health insurance by allowing people
00:04:33.000 | to enroll in a high-deductible health plan and to fund some of their beginning medical
00:04:38.000 | expenses with tax-advantaged dollars.
00:04:42.000 | What the people who study health insurance have found is when there's a zero cost for
00:04:50.000 | going to the doctor, people are prone to go to the doctor just about any time. By zero,
00:04:55.000 | I mean either literally zero or just a very low $15 or $30 copay. So people have a high
00:05:01.000 | utilization for their medical providers, and they don't have much personal incentive to
00:05:07.000 | shop around or to be more discerning with which doctor they call and when.
00:05:12.000 | So in a high-deductible health plan, the idea was that we'll lower the cost of premiums
00:05:18.000 | for a participant, and if somebody participates in that, then because their premiums are lower,
00:05:23.000 | they'll have a higher upfront deductible. So high-deductible health plans usually will
00:05:27.000 | have at least about a $5,000 upfront deductible. And in order to meet those expenses, they
00:05:34.000 | did two things. First, high-deductible health plans had to cover all preventive care. So
00:05:39.000 | if you were just going in for a regular checkup or some other just preventive thing, that
00:05:43.000 | would be covered without any out-of-pocket. And then secondly, it qualified you to participate
00:05:48.000 | in a health savings account, which is an account that you can put money into pre-tax. And then
00:05:55.000 | as long as you use the money to pay for your medical expenses, you will be able to pay
00:06:01.000 | for those expenses without paying any income tax on the money. And so this became a fairly
00:06:08.000 | popular account. And one of the great things about it is it can have a fairly high contribution
00:06:14.000 | limit and is accessible to people without income qualification, but is accessible for
00:06:21.000 | saving for their health expenses. The 2018 figures are for a single person. You can contribute
00:06:28.000 | $3,450 to the account. And as a family, you can contribute $6,850 to the account. The
00:06:37.000 | account also has an additional catch-up contribution of $1,000 for those who are age 55 or older.
00:06:44.000 | And as long as you use the money for qualified expenses, which would include any kind of
00:06:50.000 | health expense, even including some things like long-term care expenses, then that money
00:06:55.000 | could be received without any income taxes. Another useful wrinkle to the HSA was for
00:07:01.000 | people who are enrolled in an HSA and for whom are enrolled as their employer, if the
00:07:09.000 | employer is helping them make those contributions via a payroll deduction, they can actually
00:07:15.000 | avoid the employment taxes on the contribution as well. So either way, if you're running
00:07:19.000 | as an individual writing your own check into the account or as an employer, you can avoid
00:07:24.000 | income taxes on the upfront contribution. But if you're enrolled through the context
00:07:29.000 | of an employer, then you can avoid employment taxes. So for an employee, this can be a very
00:07:34.000 | helpful account because it allows you to avoid the 7.65% employee contribution for your
00:07:40.000 | employment taxes as well as the upfront contribution for your income taxes. The other benefit
00:07:46.000 | of the account is if you don't use it for medical expenses, beginning at the age of
00:07:52.000 | 65, you can make distributions from the account and go ahead and pay taxes at that time.
00:08:00.000 | So tax-wise, it functions in that context just like a traditional IRA. You don't receive
00:08:05.000 | the money tax-free, you do receive the money on a tax-deferred basis. So this has come
00:08:11.000 | out in the early retirement community as being a useful planning idea that's accessible
00:08:16.000 | for people to help them save more money in tax-qualified accounts for their retirement.
00:08:22.000 | And one of the ideas that has been discovered is in order to take your money out of the
00:08:27.000 | accounts without paying current taxes, you don't have to do that in the year that you
00:08:33.000 | have the expenses. And so the idea that Ruha is referencing here is if she can pay the
00:08:39.000 | $4,000 of medical expenses now and just simply save those receipts, then perhaps when she
00:08:46.000 | turns 50 and she retires early, and that's the year that she wants to take some tax-free
00:08:51.000 | income, she can go ahead and use those receipts, which might be 20 years from now. I don't
00:08:55.000 | know how old you are, Ruha, but I'm just making it up. Pretend that you're 20 years from
00:08:59.000 | now. Then at that point in time, you can go ahead and use those receipts and take your
00:09:03.000 | tax-free money out. So I don't see, as long as you can pay for the money, pay for the
00:09:09.000 | expenses out of pocket without debt, I don't see any downside. You are still subject to
00:09:16.000 | legislative risk. Could the Congress change the legislation on you? Could somehow this
00:09:22.000 | loophole of your being able to not take the distribution in the year that you're earning,
00:09:29.000 | having the medical expense be eliminated? It's all possible. It's unlikely. I don't
00:09:33.000 | think many people are doing this. I don't think it's a big—I haven't heard any musings
00:09:36.000 | in the tax world. I doubt that Congress will ever be functional enough to make any substantial
00:09:41.000 | changes to this. So I think that I don't see any downside to it.
00:09:46.000 | OK. I actually was not aware that I could potentially save a $4,000 receipt from today
00:09:53.000 | and withdraw that 20 years from now. So that makes it an obvious answer.
00:09:58.000 | So you were just thinking about it in the context of, "I'll take the money out as
00:10:02.000 | a retirement benefit."
00:10:04.000 | Right.
00:10:05.000 | OK. So no, it's even better for you because, remember, you don't have to—so let me
00:10:09.000 | clarify this because this is important. Let's pretend that that benefit did not exist. It
00:10:16.000 | wouldn't matter whether you saved the receipt or had the expenses at all. You could never
00:10:20.000 | incur that $4,000 cost. And then as long as you are age 65 or older when you take the
00:10:28.000 | distribution from the HSA, you can take it out and spend it on anything. And you will
00:10:34.000 | be taxed at your marginal tax rate at the time of distribution, but you won't incur
00:10:40.000 | the penalty tax that you would have before 65. So you could take it out for either of
00:10:45.000 | those—you could take it out when you wanted to. However, if you wanted to get the maximum
00:10:52.000 | benefit from the tax-free growth of the account, then essentially what you could do is save
00:10:57.000 | that $4,000 receipt. And then 30 years from now, then you go back and you say, "Here's
00:11:04.000 | my $4,000 receipt," and now you go ahead and take that $4,000 out with no income taxes
00:11:11.000 | because it's being used to pay for medical expenses. So it does work, but you're going
00:11:16.000 | to have to be scrupulous with your record-keeping.
00:11:18.000 | Makes sense. That's fantastic. Thank you so much.
00:11:23.000 | My pleasure. Any other questions today?
00:11:25.000 | No, sir.
00:11:26.000 | All right. Thanks for calling in, Ruha. We go next to David in California. David, welcome
00:11:32.000 | to Radical Personal Finance. How can I serve you today?
00:11:34.000 | Hi, Joshua. Thanks for taking my call.
00:11:37.000 | My pleasure.
00:11:38.000 | I had trained for 10 years to become a church planning missionary overseas, and due to an
00:11:49.000 | unexpected medical needs of one of my children, we had to return to the States, and that was
00:11:55.000 | about a few years ago. And just ever since coming back, I've been struggling trying
00:12:00.000 | to find a new direction, a new career path that I could just pursue. So I was wondering
00:12:10.000 | what kind of advice you could give for finding a new direction after an unexpected life change.
00:12:15.000 | A friend of mine had said that you had mentioned in a previous episode about a personality
00:12:23.000 | test that matches you with potential careers. So I was wondering if you remembered what
00:12:30.000 | that was.
00:12:31.000 | I'll give you a couple of options for that. First, though, how is your current financial
00:12:35.000 | situation?
00:12:38.000 | I would say it's stable. I have a job. I work in public education as an administrator
00:12:46.000 | in the business office, and we have a $10,000 emergency fund. We're able to max out our
00:12:54.000 | IRAs every year.
00:12:57.000 | So financially, you came back from overseas, and now you're on a stable financial footing.
00:13:06.000 | You're currently employed; is that right?
00:13:08.000 | Yes.
00:13:09.000 | Okay. So you're currently employed. So here would be my question. Do you—and let's
00:13:19.000 | start first with the choices that you were making previously—do you still intend to
00:13:25.000 | be involved with the work of actively planting a church or churches?
00:13:36.000 | We have felt like if the Lord were to direct us clearly back overseas, then we would be
00:13:41.000 | open to that. But for now, we feel like He's brought us—He has us where we are, pretty
00:13:48.000 | obviously. And we are involved with our church and ministry in other ways, but not in full-time
00:13:55.000 | vocational ministry.
00:13:56.000 | And so previously, when you were overseas, you had solicited financial support, and you
00:14:02.000 | were using that financial support from others to pay your expenses, and now—and so the
00:14:08.000 | bifurcation that you're making here is that now you're not interested in pursuing that
00:14:11.000 | path?
00:14:12.000 | Not that I'm—we're not interested in it, but just that—I don't know. I don't
00:14:25.000 | know what direction we're going in now.
00:14:28.000 | Okay. So, the reason I'm asking about this is church planting and evangelization is deeply
00:14:35.000 | important to me. Extremely important. I'm—I have a deep interest in the subject, and I'm
00:14:42.000 | deeply interested in understanding how it can be progressed. So, I've studied this
00:14:49.000 | topic quite a bit. I'm seeking to be as involved myself in any possible outlet that
00:14:56.000 | I see for that work of planting and strengthening churches. However, I don't, first and
00:15:05.000 | foremost, make that a financial consideration. And I think that that's a bifurcation that
00:15:11.000 | can be a little bit questionable. As far as I can tell, in my understanding of Scripture,
00:15:17.000 | in my understanding of God's plan for how the Church grows, each and every disciple
00:15:23.000 | of Jesus must be involved in making other disciples. And that's just a simple—a
00:15:29.000 | different way of approaching the topic of church planting.
00:15:33.000 | Now, some people pursue the path of church planting in a very expensive way. I've
00:15:38.000 | been to a couple of church planting conferences, I've interacted with a number of pastors
00:15:43.000 | and books that are focused on this. And in the United States, there is often a very,
00:15:50.000 | very heavy cost that's associated with the work of church planting, especially the way
00:15:55.000 | that it is frequently done in the U.S. American context. Frequently, the cost is in excess
00:16:01.000 | of six figures, not even including the support for the individual person if they're pursuing
00:16:06.000 | it on a full-time basis. But I think my opinion—and this would be fighting words in certain circles
00:16:12.000 | with certain people—I think a lot of that is unnecessary. And I think that there are
00:16:16.000 | ways to approach that work that don't involve saying, "Well, I have to make money. I have
00:16:24.000 | to figure out how to start a church so I can get rich." All around the world, there are
00:16:27.000 | a lot of people who pursue that. And I think that we're well-served by disconnecting
00:16:33.000 | our financial needs from our work in the local church. I don't deny that churches should
00:16:42.000 | support those people who are working in them. The Bible is crystal clear that a worker is
00:16:48.000 | worthy of his wages, and so a person who's involved in working deserves financial support.
00:16:54.000 | However, I think that's a very dangerous place to be, because if you're ever dependent
00:17:00.000 | on the local church or local churches for your financial support, that can quickly lead
00:17:06.000 | to your having a temptation to make decisions with that in mind. I don't accuse all people
00:17:15.000 | of doing that, but it's a big temptation. And there are a whole lot of pastors and preachers
00:17:20.000 | who know that they should be preaching faithfully the conviction that they have, the clear biblical
00:17:27.000 | doctrine that they believe, but in so doing, they know that they would lose their financial
00:17:31.000 | support from the local church, and thus they keep their mouths quiet. The best way I know
00:17:35.000 | to protect against that is to never put yourself in a position where you're financially dependent
00:17:40.000 | upon the local church. That allows you the freedom to speak clearly without having their
00:17:47.000 | financial interests mixed up. Now, why is this so important? Because if you're going
00:17:51.000 | to be involved in the work of actively discipling others, actively encouraging the growth of
00:17:58.000 | your local church, actively involved in that, then you have to structure your life and your
00:18:02.000 | business in ways that are going to take that into account. And here's where you have to
00:18:07.000 | take a careful inventory of what your burden is that you feel before God with your actual
00:18:13.000 | work. If you feel that God wants you to be primarily involved, you feel a deep conviction
00:18:19.000 | or impression that you are to be primarily involved with the work in your local church,
00:18:25.000 | and if you have an idea of what that context that looks like, you may make career decisions
00:18:31.000 | that don't fall into the traditional, normal, current-day U.S. American self-fulfillment
00:18:37.000 | approach. For example, you might put yourself in a situation where your work is something
00:18:43.000 | that's done early in the morning. Years ago, I worked with a man who, for years, his means
00:18:49.000 | of support, he was engaged in what most people would call full-time missions, but for years
00:18:54.000 | his form of support was to deliver newspapers, back when that was a slightly more lucrative
00:18:59.000 | and normal occupation with a higher demand. But that allowed him to get up and go to work
00:19:04.000 | at 3 o'clock in the morning, and then he would be done and have his day free for interaction
00:19:09.000 | with others. And so you might make a choice like that. You might choose to engage in an
00:19:15.000 | occupation that doesn't give you a great degree of, perhaps, self-fulfillment, because it
00:19:22.000 | frees you up for something else. And that's a reference point that's frequently not going
00:19:27.000 | to be included in any of the personality tests or things that I'm about to give you. Likewise,
00:19:33.000 | you may pursue some entrepreneurial endeavor, and you may make an intentional choice that
00:19:39.000 | it's not going to be so financially productive. You might do something that allows you to
00:19:44.000 | work, but you know that if you worked more hours at that occupation, you could make a
00:19:48.000 | lot more money, but you choose to invest those hours elsewhere because of the burden and
00:19:52.000 | calling that you feel. If you do that, then that's not going to fit well into the personality
00:19:56.000 | profiles. So I'll give you a couple of ideas of personality profiles in just a minute,
00:20:01.000 | but I would encourage you to think seriously about that and to try to understand what burden
00:20:10.000 | you and your wife currently feel, what you currently sense is God's direction for your
00:20:14.000 | life at this point in time. I don't think it necessarily has to be one or the other.
00:20:19.000 | I think that--and here's where, if we go any farther with this topic, we would venture
00:20:25.000 | off of the world of personal finance. I guess I would just say that I think that the way
00:20:30.000 | that--without knowing what background you're involved in, I think that the way that many
00:20:38.000 | church organizations approach the process of church planting is simply unsustainable.
00:20:44.000 | It's unsustainable because it places too much pressure on one individual man to carry a
00:20:50.000 | load that God never designed for one individual man to carry. And I think especially when
00:20:55.000 | you involve finances in it, it leads to a great heavy, heavy burden on one man. And
00:21:05.000 | I'll leave you with one quote and an allusion to somebody who actually has some credentials
00:21:09.000 | in the world of church planting. I have been--I've been trying to--I've studied a number of
00:21:17.000 | different church planting movements around the world. One of the ones that has most interested
00:21:22.000 | me has been the work of David Watson. Without--are you familiar with that name, David?
00:21:28.000 | No, no.
00:21:29.000 | Okay, so David Watson, very concisely with his story, he was a--he was an international
00:21:38.000 | missionary who was sent out originally by the Southern Baptist denomination, I think,
00:21:43.000 | and he had been a very successful missionary in Asia until he was sent to India, to I believe
00:21:48.000 | Southern India. And while he was in Southern India, he faced total disaster. He--it was
00:21:55.000 | a very cold climate for the advance of the Christian gospel. He was, I think, four, three,
00:22:03.000 | four, five, a number of his entire--all of his mission--his ministry team that he was
00:22:07.000 | working with at that time and his work there in Southern India were killed by the local
00:22:12.000 | people. He was--he and his wife and his family were ejected from the country by the Indian
00:22:18.000 | government and he, in that context, he went back to Hong Kong as a failed missionary now
00:22:25.000 | with his entire ministry team killed and him as a failed missionary without anything to
00:22:30.000 | show. And it really put him through the wringer, and this was 20, 30 years ago, I think. This
00:22:35.000 | really put him through the wringer personally and he tried to figure out what on earth is
00:22:39.000 | going on. So, he wrestled with the Lord for months, seeking to get out of the call that
00:22:46.000 | he felt he had on his life, and then he never received any kind of permission or release
00:22:51.000 | from that context. So, he said, "Well, if we're going to do this, we've got to do this
00:22:54.000 | differently." And so, he went through the scriptures with a different view in mind and
00:22:59.000 | looking for what wisdom is there from the Bible on how to approach this work of church
00:23:04.000 | planting. And the reason it's important is, sometime later, a year or so later, he began
00:23:11.000 | again his work in southern India. And proceeding quickly through the story, he--the first year
00:23:19.000 | they planted something like zero churches, and then the next year, you know, he was sending
00:23:23.000 | these reports back to his denominational board, you know, one church, two churches. But five
00:23:27.000 | years in, they reported back that they had planted a thousand churches that year. And
00:23:33.000 | so, the denominational board was, of course, suspicious that he was making these numbers
00:23:37.000 | up. They came out for an audit of the work that he was doing and found that they had
00:23:41.000 | actually understated the number of churches. And so, the reason this is important is, over
00:23:47.000 | the last 20 years, David Watson and others--other organizations involved have planted hundreds
00:23:53.000 | of thousands of churches throughout the world. And this is a world that I would assume that
00:23:59.000 | we're a little bit plugged into, but most U.S. Americans have no context of how fast
00:24:03.000 | the Christian church is growing on an international basis, because we look at the U.S. American
00:24:08.000 | context, where all of the mainline liberal Protestant denominations are in collapse.
00:24:14.000 | But on a global basis, Christianity is growing by leaps and bounds. And you can trace--there's
00:24:20.000 | a--there's good academic study on what's happening as far as these what are called
00:24:24.000 | contagious disciple-making movements. So, he wrote a book called Contagious Disciple-Making
00:24:28.000 | by David Watson. I would encourage you to get it and to read it. But one of the things
00:24:32.000 | that he has done, and he's an elusive figure to find, but you can find some of his teaching,
00:24:37.000 | and one of the things that they noted on the work that they have involved, that they did
00:24:42.000 | in planting hundreds of thousands of churches, they found that on a global basis, anytime
00:24:52.000 | the church built a building, and anytime they started paying a pastor, then the growth always
00:24:58.000 | stopped. Because instead of putting the advance of the gospel first and foremost, then it
00:25:05.000 | develops in the pastors who were involved this idea of stability, and it stops the growth,
00:25:13.000 | it stops the advance. And so, they've learned over the years to never--to always discourage
00:25:19.000 | the building of a building, and always discourage the paying of a pastor. And so, what's the
00:25:26.000 | point? The point is that when somebody is devoted to their work, and it's not for their
00:25:30.000 | own pecuniary interest, that it changes the whole dynamic. Now, I do not deny, and this
00:25:37.000 | is why I'm affirming this, we have clear biblical support to say that the Bible says Jesus taught--is
00:25:45.000 | it Jesus or Paul? The Bible says that the preacher of the gospel is worthy of his wages.
00:25:52.000 | So, those who preach the gospel should make their living by the gospel. So, there is no
00:25:57.000 | denying that somebody who's diligently involved in the preaching of the gospel should be paid
00:26:06.000 | for that work. However, when that pay is first and foremost, it seems to totally change the
00:26:13.000 | dimension. And I think I would commend to you the study of the examples that we have
00:26:20.000 | from the preachers of the gospel in the actual New Testament, and look to see what worked
00:26:24.000 | and how did they do it. Now, let's go back to practicality. The point is that that work,
00:26:29.000 | if you're going to be involved in one local church, depending on the expression of that,
00:26:33.000 | if it's a small local working, that shouldn't need 50 hours of your week. And that's why
00:26:39.000 | one of the big growths within the U.S. American context is in the context of bivocational
00:26:44.000 | pastors. And that's really a model that I would commend to you to consider, because
00:26:49.000 | if you feel a burden or a call to be involved with church planting, then taking a personality
00:26:56.000 | profile, doing a Myers-Briggs here, is not going to change that. And frequently what
00:27:03.000 | you will find is if that burden is strong on your heart, you will have to approach it
00:27:09.000 | and say, "What's going to support me and allow me to do this other work?" Not so much, "What's
00:27:14.000 | going to be the most fulfilling?" So that was a very long preamble to, let me give you
00:27:19.000 | some personality tests that may help you. Any questions before I go on?
00:27:23.000 | No.
00:27:25.000 | Okay. So here are, there are four personality profiles that each have their own unique attributes.
00:27:35.000 | One is well known, it's the Myers-Briggs. That one is probably the most famous of the
00:27:43.000 | personality profiles. And in the Myers-Briggs context, I'm just going to give you the names
00:27:51.000 | and you can read about them. And also what I'll do for you, David, is I actually have
00:27:55.000 | a whole segment on this in the career and income course that I have been teaching and
00:27:59.000 | been updating. I'll privately, separately get your info and I'll just enroll you in
00:28:03.000 | that course in case it can be helpful to you at this transition stage.
00:28:07.000 | Great.
00:28:08.000 | But the four that are important is one is Myers-Briggs, two is Colby, three is StrengthsFinder,
00:28:13.000 | and four is the DISC personality profile. Now where I would start, the one of those
00:28:17.000 | that I think is the most practical for your career questions is the DISC profile that's
00:28:23.000 | sold by Dan Miller at 48days.com. He sells this, and my understanding of the DISC profile
00:28:31.000 | is that it's drawn a little bit with influence on the Myers-Briggs test. But what he sells
00:28:37.000 | at 48days.com is a product that is explicitly focused on career choice. It's a simple test,
00:28:49.000 | but it gives you kind of a little bit of your personality profile and gives you some potential
00:28:53.000 | careers. Of all of the ones that I have done, and actually in preparing for the course over
00:28:57.000 | the years, I've taken a lot of these personality profiles, and then in preparing for the course
00:29:01.000 | that I have been teaching, I took several more. But of all of these that I have done,
00:29:07.000 | the DISC is right to the point. And I was shocked when I actually looked at all of the
00:29:13.000 | things that it spat out to me, and I realized that something like 70% of the specific jobs
00:29:21.000 | that had been encouraged for me to pursue were things that I had either pursued in the
00:29:26.000 | past and enjoyed or were on my list purely from me thinking about things that I would
00:29:31.000 | be well qualified for to pursue. And so if you were only going to do one, do that one.
00:29:36.000 | I don't remember how much you charge for it. It's pretty cheap, $20, $30, but it's well
00:29:39.000 | worth it. Do the DISC personality profile at 48days.com. And if you'll stay on until I
00:29:45.000 | finish recording the show, I'll get your info and enroll you in my course for free, and
00:29:51.000 | hopefully that'll help you. Anything else? Any other questions? Any clarification needed
00:29:55.000 | on any of that? No, I don't think so. That's great, thank you. I will hang on until the
00:30:01.000 | end. And do yourself a favor and read David Watson's book called Contagious Disciplemaking.
00:30:10.000 | And--let me just confirm that. Yeah, it's Contagious Disciplemaking. Looks like he's
00:30:14.000 | got a website built up. And they've been working in the United States as well. But on a global
00:30:21.000 | basis, they've been doing some really good work, and it's well worth being aware of it.
00:30:30.000 | And I went to, a couple years ago, I went to a big church planning conference that was
00:30:34.000 | in Orlando. And I guess the thing that I would say is I appreciated so much of the work that
00:30:42.000 | many preachers are involved in. But man, if you have to spend six figures and figure out
00:30:48.000 | how to get supported for multiple years to establish a local church, that is utterly
00:30:54.000 | unsustainable. That just can't work for the growth that's necessary. But there are a lot
00:31:02.000 | of people who are involved in other expressions that it just doesn't involve that big of a
00:31:07.000 | financial cost. I'll link to the book in the show notes today as well. Jared in Arkansas,
00:31:11.000 | how can I serve you today, sir? Oh, hello, Joshua. Thanks for taking the time to answer
00:31:15.000 | my question. I recently began working for a company that offers a non-qualified deferred
00:31:22.000 | comp plan. And because I'm considered a highly compensated employee, I'm very limited in
00:31:27.000 | what I can contribute to the 401(k), which makes this account that much more important.
00:31:32.000 | In the past, I've only had access to typical retirement accounts like 457s, 401(a)s. So
00:31:39.000 | this type of account is very new to me. Really, I'm interested in what your thought process
00:31:44.000 | would be in determining how this tool should be used, kind of an overall financial plan
00:31:50.000 | towards trying to gain financial independence, given that it's a fairly complex, at least
00:31:55.000 | to me, complex type of account and there's inherent risk associated with the funds that
00:32:00.000 | you invest because it's non-qualified. Right. Tell me a little bit more about your understanding
00:32:05.000 | of what's available to you, the terms, the investment options, etc. Yeah, so the investment
00:32:11.000 | options are pretty good. They are fairly low fees, you know, typical index type funds you're
00:32:20.000 | able to invest in. Where it gets complex for me is that basically you have to determine
00:32:26.000 | each year the percent of your income and bonuses that go into the account. But at that time,
00:32:31.000 | you also determine disbursement. Basically, you can have the funds disperse up to 15 years
00:32:38.000 | after you separate employment, which could be a year from now, could be at retirement.
00:32:45.000 | But you have to determine where your money is going, how much and how you want it dispersed
00:32:50.000 | when you separate. But then the account is non-qualified, which to me means that basically
00:32:56.000 | if a company were to go bankrupt, my investment assets would be considered an asset of the
00:33:02.000 | company. That's right. So you are supposed to choose a percentage of your income to designate
00:33:09.000 | to the account. Does your employer put additional contribution in there for you or they're just
00:33:14.000 | simply saying, "Yes, you can defer some of your income in here"? No, there's a small
00:33:19.000 | match of 2.5%. Okay. So then you're investing into mainstream mutual funds, index funds,
00:33:35.000 | things like that. And then how is the distribution schedule determined? So each year that I decide
00:33:43.000 | where my money from the next calendar year is going to go, I determine based on the separation
00:33:51.000 | date when the funds will be distributed. They're done in annual equal installments based on
00:33:56.000 | the schedule I pick each year. So the limit is 15. So say this past year, when I elect
00:34:02.000 | the percent of income that's going into the account, I also determine if I could get the
00:34:08.000 | money in one lump sum, the January after I separate employment, or I could spread that
00:34:14.000 | out up to, in annual increments, up to 15 years, meaning they'll just divide my contribution
00:34:21.000 | and growth into annual payments that will be sent to me over that 15-year time period.
00:34:29.000 | Do you remember any names that were referred to in the paperwork for this type of plan?
00:34:34.000 | Was it called anything other than a non-qualified deferred compensation program?
00:34:38.000 | No. Basically, they titled it an Executive Deferred Compensation Plan, and it's through
00:34:48.000 | a company called PenCal. Right. So let me answer your, well, let's talk about your situation
00:34:53.000 | first, and then I'll go through a little bit of what is specific to you. First, is there
00:34:58.000 | any reason for you not to participate? No. I mean, I have the funds available. I'm
00:35:05.000 | using it as a tool to basically defer taxes. No, I can't think of any reason why I wouldn't
00:35:12.000 | participate. The company is very, it's about a 30, 40-year-old company. It's very stable.
00:35:20.000 | I don't, it was kind of a follow-up question I was going to have, is how to determine the
00:35:25.000 | stability of the company and whether or not there's a risk of bankruptcy in the future.
00:35:29.000 | But from the information that's available to me, it's a very stable company, and I have
00:35:33.000 | the funds for me to contribute to the account. Have you asked the plan representative how
00:35:37.000 | safe the assets are in terms of claims on the company's assets?
00:35:42.000 | No, I haven't asked the question. In the document, basically, it just states that it is a non-qualified
00:35:48.000 | account, and if the company were to go bankrupt, it is, you know, your assets are a part of
00:35:54.000 | the overall company assets. They do have, I think maybe it's a rabbi trust.
00:35:59.000 | I was just going to ask that. Are the assets held in a rabbi trust?
00:36:03.000 | Yes, they are.
00:36:04.000 | Okay. All right. So let me give, let me answer your question and then just give a little
00:36:08.000 | bit of commentary for the audience to understand in case this is a new question for them. If
00:36:16.000 | there's no reason for you not to participate, and the only reasons that come to mind that
00:36:21.000 | are the most important ones is, one, do you have the money? Do you need the money? Right?
00:36:25.000 | You've said, "No, I have the money. I'm able to participate in it and contribute to it."
00:36:30.000 | Two would be, do you have a better use for the money? So maybe you have some brilliant
00:36:34.000 | investment idea that you do out of your kitchen at home. In that case, putting money into
00:36:40.000 | index funds, well, what does that help me? I don't need any more money in index funds.
00:36:43.000 | I need to do this brilliant investment opportunity that I'm working on in my kitchen. So if you
00:36:47.000 | don't have a better use for the money, then there's not any reason to participate. And
00:36:51.000 | then the third thing comes involved with the financial stability of the company and the
00:36:55.000 | protection of those assets. So here's where we need to specify what is the difference
00:37:01.000 | between a qualified deferred compensation plan and a non-qualified deferred compensation
00:37:07.000 | plan. A qualified deferred compensation, most of the retirement plans that we're used to
00:37:11.000 | talking about in the United States with regard to the nomenclature that we use, a 401(k),
00:37:17.000 | a 403(b), etc., these are all qualified plans, which means that they are tax qualified, which
00:37:24.000 | means that they follow the law related to ERISA, E-R-I-S-A, the Employee Retirement
00:37:31.000 | Income Security Act, if my acronym is correct. And so because of a plan being qualified according
00:37:38.000 | to ERISA, there are certain requirements that must be met. So for example, you said that
00:37:44.000 | you are a highly compensated employee. Well, under ERISA, a qualified plan may not discriminate
00:37:50.000 | among employees and may not discriminate in favor of highly compensated employees. So
00:37:56.000 | when you sit down and look at a roster of people who are involved in a company, then
00:38:02.000 | you have to meet certain testing limits as far as participation rates and the incomes
00:38:09.000 | of the people who are involved. And if you're a highly compensated employee, sometimes you
00:38:13.000 | may not have enough of your employees who participate in a plan in order for it to meet
00:38:19.000 | the non-discrimination testing rates. Now, there are ways for a company to get around
00:38:23.000 | the non-discrimination testing rates. So for example, they'll establish what's called a
00:38:27.000 | safe harbor plan, where they make a standard contribution of additional amount of income
00:38:32.000 | for each employee, and that allows the highly compensated employees to participate. But
00:38:36.000 | sometimes this can work out well and sometimes it can't work out well, and it all has to
00:38:39.000 | do with the structure of the company. Is the company the type where a qualified plan works
00:38:46.000 | and do the people like it? By the way, Jared, do you also have access to a qualified plan?
00:38:53.000 | Does your company offer one to other employees as well?
00:38:56.000 | Yeah, so there's a 401k. We have a typical 401k, but because I'm a highly qualified employee,
00:39:01.000 | I can only put in 3% to that account. But yeah, the rest of the workforce does.
00:39:05.000 | And is that because you don't have a high enough participation rate from the other employees?
00:39:09.000 | Yeah, I don't know. I don't know that they would give me that information if I asked.
00:39:14.000 | Okay. It should be no problem as far as to understand, but it's immaterial for this discussion.
00:39:19.000 | So a qualified plan cannot discriminate among employees. All employees have to be able to
00:39:24.000 | participate after their eligibility. There can be a vesting schedule, but those vesting schedules
00:39:28.000 | are limited, etc. So you basically can't discriminate among employees in favor of the highly
00:39:33.000 | qualified employees. A qualified plan must satisfy all of the ERISA requirements regarding
00:39:38.000 | reporting, regarding plan design, etc. When somebody participates in a qualified plan,
00:39:43.000 | they do have the opportunity to take an immediate tax deduction for their contribution. So this
00:39:48.000 | is why you can defer money into your 401k plan and you can take your immediate tax deduction
00:39:53.000 | that's because it's a qualified plan. And then in a qualified plan, the earnings, the growth,
00:39:59.000 | the interest, those earnings on your accounts can accrue tax deferred until they are
00:40:04.000 | distributed from the plan. And then when they're distributed at the plan, then of course
00:40:08.000 | they're usually taxed to you at an ordinary rate, such as a 401k. Now you can get these
00:40:12.000 | things mixed up a little bit. And here's where the common personal finance nomenclature
00:40:17.000 | that we use conflicts a little bit with technical personal fin-- sorry, technical financial
00:40:23.000 | planning nomenclature. For example, a 401k plan is actually simply a form of deferred
00:40:29.000 | compensation, which allows the employee to make contributions to the account. So your
00:40:38.000 | employer could set up a deferred compensation program for you that didn't permit you to
00:40:43.000 | make contributions, but usually they do, and that's what's called a 401k plan. But people
00:40:49.000 | often-- this distinction is important because people often get bent out of shape when
00:40:54.000 | there are some companies that don't allow you to take distributions from your 401k plan.
00:40:59.000 | There are some companies that don't have loan provisions available for your 401k plan.
00:41:03.000 | And it's important that people know that it's a matter of how the account is written and
00:41:07.000 | what the plan design actually is. Now there has emerged to be a fairly standardized approach.
00:41:13.000 | Most 401k plans allow loan provisions. Some 401k plans allow in-service distributions.
00:41:19.000 | And so there has developed a fairly standardized approach, but that's because the
00:41:25.000 | benefits industry has tried to seek what has been the most helpful for people. Now,
00:41:33.000 | back to the point, a couple more comments, and then we'll-- I'll try to finish with your
00:41:41.000 | specific question. Now, a non-qualified plan doesn't meet those requirements. And it's
00:41:48.000 | called non-qualified because it doesn't match the ERISA law, but it still can have
00:41:53.000 | certain benefits. So for example, a non-qualified deferred compensation plan can
00:41:59.000 | discriminate among employees. You don't have to offer everyone access to the same plan.
00:42:05.000 | You can choose to offer plans to all of your key employees or to your highly compensated
00:42:11.000 | employees or to your management employees. An employer could offer an individual plan
00:42:16.000 | to one person. They can discriminate in favor of any person that they want to
00:42:21.000 | discriminate with. So your employer could come to you and say, "You are our key
00:42:27.000 | salesman. You produce millions of dollars of revenue for you. Here's what I want to
00:42:31.000 | offer you. I want to offer you a unique plan. I'll give you extra compensation if you
00:42:39.000 | follow these certain rules. You stay with us for a certain amount of time. You engage
00:42:43.000 | in these certain activities." It can be written with a wide degree of flexibility.
00:42:47.000 | It's exempt from all of those ERISA requirements, and so it allows the employee
00:42:52.000 | and the employer to come to an agreement that is mutually beneficial. And so this
00:42:58.000 | would be where if you were the CEO of a large publicly traded company, you would
00:43:03.000 | have your salary, but your ability to contribute to a 401(k) plan is meaningless,
00:43:08.000 | but you would go ahead and have a unique retirement plan negotiated in your
00:43:12.000 | contract that pays you out a million dollars a year under certain language.
00:43:21.000 | Now, you give up a good bit of the benefits that you have with a qualified plan to
00:43:26.000 | buy a non-qualified plan. So for example, in a non-qualified plan, you aren't
00:43:30.000 | allowed to take a tax deduction for any contributions on the account until it's
00:43:35.000 | actually available. Or those fund earnings, and this is where the big danger comes
00:43:40.000 | in, those earnings, the account has to be available to as an asset of the company.
00:43:46.000 | If your company, if you're participating in a qualified plan and you've got a
00:43:50.000 | million dollars in your 401(k), your company goes into bankruptcy, that million
00:43:54.000 | dollars in your 401(k) is not available to the creditors of the company. That
00:44:01.000 | million dollars in your 401(k) will be safe. It will not be affected by the
00:44:05.000 | bankruptcy of the company. However, if your company has a million dollars in a
00:44:09.000 | non-qualified contribution plan, then you may have a problem because that amount
00:44:17.000 | of money has to be kept as an asset of the company. Now, the term that you
00:44:23.000 | mention of a "rabbi trust" is important, and it's called a rabbi trust because
00:44:27.000 | one of the early, the ruling that allowed for this doctrine, I think it was a
00:44:33.000 | special plan that had been set up between a Jewish rabbi and the congregation that
00:44:38.000 | was employing him. And so in the rabbi trust, it allows for a slight separation
00:44:43.000 | of assets from the assets of the company. Now, the asset in a rabbi trust, it has
00:44:50.000 | to be available to the general creditors of the company if that company files for
00:44:54.000 | bankruptcy or otherwise becomes insolvent for some reason. And so it's not fully
00:45:02.000 | protected. You can't have greater rights in the asset than the unsecured creditors
00:45:08.000 | of the company. It has to have clear rules describing when the benefits will be
00:45:12.000 | paid, and the company has to notify the trustee of any bankruptcy or financial
00:45:18.000 | hardship that the company is undergoing so that you would know that if a
00:45:23.000 | bankruptcy or financial hardship is occurring, then the trustee can start to
00:45:28.000 | make factors for you. But it doesn't provide protection against the bankruptcy
00:45:40.000 | of the company. And so that's where, I'm getting so deep here. Let me just wrap it
00:45:44.000 | up with this. There's no reason not to participate. If the company is on a good
00:45:48.000 | setting, there's no reason not to participate. They've got this incentivized
00:45:52.000 | for you to incentivize you to stay with them for a longer period of time. But you
00:45:59.000 | do need to ask questions and read what the actual plan is and make sure that you
00:46:04.000 | understand it. And take these questions back to HR. And the biggest advice I would
00:46:08.000 | give you, if this is your first time participating in a non-qualified deferred
00:46:11.000 | compensation program, read the terms carefully, understand it, and ask these
00:46:16.000 | questions to your HR representative. I can't know what's in there because they
00:46:20.000 | can be customized. You can build a non-qualified deferred compensation
00:46:23.000 | program that's just for one individual. And so it's not as easy for someone like
00:46:28.000 | me to answer about it. But what you want to ask is, what are the terms under which
00:46:32.000 | I would lose the account? What are the terms under which my money is available
00:46:39.000 | for the claims of the creditors? What's the financial position of the company?
00:46:44.000 | And what are the tax implications for me? And if you just ask those questions and
00:46:48.000 | make sure that you understand, then you can decide for yourself if it will be
00:46:53.000 | helpful to you. We got really deep there, but is that enough to at least give you
00:46:57.000 | a good start, Jared?
00:46:58.000 | Oh, absolutely. That list of questions is incredibly helpful. Thank you.
00:47:02.000 | Absolutely. It's a good move. I don't see any reason not to participate in a
00:47:08.000 | non-qualified plan. Non-qualified plans, you want to just make sure you
00:47:12.000 | understand what it's funded with so that you can work that into your overall plan.
00:47:17.000 | It sounds like your plan is funded with stocks, with mutual funds. That's good.
00:47:24.000 | Frequently, these plans are funded with life insurance policies. That can be
00:47:28.000 | helpful. There's a whole other wrinkle with that. The reason they're frequently
00:47:33.000 | funded with life insurance policies is because the inside buildup of cash value
00:47:37.000 | in life insurance policies are exempt from that annual tax growth. And it also
00:47:44.000 | provides some stability and security for the pension payments if you have a
00:47:48.000 | defined benefit program that's structured with life insurance. There are a few
00:47:51.000 | life insurance companies and life insurance advisors who exclusively focus on
00:47:55.000 | selling life insurance policies with this particular structure. It doesn't sound
00:47:59.000 | like you have that here. Just ask questions and understand it. And basically,
00:48:04.000 | what you want to be aware of is what could go wrong that could harm me. And the
00:48:07.000 | most important thing is that you know that just because the assets are there in
00:48:12.000 | your account, you don't actually have the money until it's paid out to you. It's
00:48:17.000 | still an asset of the company that can be invaded if the company faces financial
00:48:22.000 | insolvency or bankruptcy. So understand that and then take advantage of what you
00:48:27.000 | got. Thank you all so much for listening to today's show. If you would like to
00:48:30.000 | join me on a future Q&A show, I'd love for you to do that. Again, safest way I do
00:48:33.000 | this, I mean, last time I did one of these calls for the email list was probably
00:48:36.000 | eight months ago. So your best way if you'd like to get on a call today is to go
00:48:40.000 | to RadicalPersonalFinance.com/patron. Sign up to support the show there. And I
00:48:46.000 | would love to have you on next week's call. RadicalPersonalFinance.com/patron.
00:48:50.000 | Have a great weekend, everybody.
00:48:52.000 | Thank you for listening. You've honored me with your time and attention, and I'm
00:49:09.000 | grateful for that. And I hope that I've effectively served you today with some
00:49:13.000 | ideas and strategies and tactics and techniques and tools that will help move
00:49:18.000 | you towards your goals. Before you go, three simple requests. One, if there's an
00:49:24.000 | idea that's been helpful to you in today's show, make a plan to take action on it.
00:49:29.000 | Listening does lead to learning, but learning in and of itself doesn't
00:49:34.000 | automatically lead to a life change. It's action that leads to a life change. So
00:49:42.000 | take action. Two, take something that was helpful to you in today's show and share
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