RPF0620-Friday_QA-Financial_Planning_for_Newlyweds_401ks_Without_a_Match_529_vs._Roth_IRA_for_College

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00:00:31.700 | Today on Radical Personal Finance, it's live Q&A.

00:00:34.700 | ♪

00:00:50.680 | Welcome to Radical Personal Finance,

00:00:52.140 | a show dedicated to providing you with the knowledge,

00:00:53.780 | skills, insight, and encouragement you need

00:00:55.820 | to leave, well, to live and to leave a rich life now

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00:01:01.660 | in 10 years or less.

00:01:03.460 | My name is Joshua. I am your host.

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00:01:14.340 | That's today.

00:01:15.340 | ♪

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00:01:46.600 | We begin today in the Empire State.

00:01:48.580 | Peter, welcome to the show.

00:01:49.540 | How can I serve you today, sir?

00:01:52.200 | - Joshua, I just got married,

00:01:54.140 | and I'm wondering what some good financial planning things

00:01:56.940 | to do are for newlyweds.

00:01:59.020 | - Congratulations.

00:02:00.920 | That's great.

00:02:01.760 | - Thank you.

00:02:02.580 | - So how old are you?

00:02:03.620 | - I just turned 41.

00:02:06.860 | - And is your wife of a similar age?

00:02:09.560 | - Late 30s, yep.

00:02:10.500 | - Okay.

00:02:11.320 | So you have benefits and disadvantages

00:02:13.700 | of being older than many people.

00:02:15.400 | At 41, you would be at this point

00:02:17.700 | much more stable in your life, I would imagine.

00:02:20.200 | And with your wife is also similar in age,

00:02:21.980 | you guys are at a different,

00:02:23.940 | your newly married life will look a little bit different

00:02:27.840 | than a 21-year-old who is entering into the same approach.

00:02:32.280 | Now, tell me a little bit about what you own,

00:02:35.920 | your living conditions, owning a house.

00:02:38.860 | Does she own a house?

00:02:40.120 | Like, what's your plan going forward?

00:02:41.600 | What do you have right now?

00:02:42.920 | - So we rent an apartment together.

00:02:47.400 | Previously, I was renting,

00:02:49.100 | and she actually owned an apartment that she sold

00:02:53.000 | about a year ago.

00:02:54.840 | So we are renting.

00:02:56.500 | No urgency to purchase,

00:03:00.800 | 'cause we live in a fairly expensive area

00:03:04.820 | from a housing market standpoint.

00:03:06.680 | But probably in the three to five year range,

00:03:09.920 | acquiring a home is a distinct possibility.

00:03:13.660 | And the proceeds from the sale of her apartment

00:03:17.320 | would probably make a pretty suitable down payment for that.

00:03:20.300 | - Great.

00:03:21.140 | Has she already sold the apartment,

00:03:22.360 | or is it on the market now?

00:03:24.360 | - Oh, no, she sold it.

00:03:26.240 | - Okay, great.

00:03:27.320 | And in terms of your income, your work,

00:03:31.140 | tell me a little bit about your financial flows

00:03:33.580 | through your household.

00:03:34.740 | - Sure, so I'm a professional, I'm a physician.

00:03:39.440 | I've got higher income than her.

00:03:43.060 | So I'm making in the sort of mid six figure range,

00:03:48.060 | and she's making in the very low six figure range in her job.

00:03:52.980 | - Okay, so household income,

00:03:54.760 | about three quarters of a million dollars-ish.

00:03:57.160 | And do--

00:03:58.400 | - It's less than that, but several six figures.

00:04:03.000 | - Okay, great.

00:04:03.840 | And does, after being married,

00:04:07.820 | have you guys talked about anything

00:04:09.700 | as that relates to your career plans?

00:04:11.420 | Do you both plan to continue working in your careers?

00:04:14.100 | Are there any kind of changes or transitions

00:04:15.940 | that you would hope to make?

00:04:17.340 | - I have no career change goals.

00:04:22.540 | I'm very happy with where I am.

00:04:24.100 | If she got a superior offer in the industry she's in,

00:04:30.460 | given that my job is portable,

00:04:33.320 | I would consider relocating

00:04:35.820 | if she got a really great opportunity.

00:04:38.580 | But she also has other opportunities locally.

00:04:40.760 | So there's no plans to move.

00:04:44.460 | If something happened,

00:04:46.340 | I think we've got flexibility to do that.

00:04:49.040 | - Do you and your wife hope to have children?

00:04:51.300 | - Yes.

00:04:54.020 | - Okay.

00:04:54.860 | Is there any thought on when that might occur?

00:04:57.300 | - Well, given that we're older,

00:05:00.380 | probably sooner than later would be the idea.

00:05:03.220 | But that would be something that in the next

00:05:06.540 | couple of years would sort of biologically need to be.

00:05:10.660 | - Right.

00:05:11.500 | - Cooking, if that's gonna happen,

00:05:13.980 | that's gonna be in the next couple of years.

00:05:15.020 | - Right, right.

00:05:15.860 | Yeah, without question,

00:05:17.040 | one of the most important things is

00:05:18.740 | if you and she hope to have children,

00:05:20.960 | it will be much easier and much less expensive

00:05:25.220 | to do it sooner rather than later.

00:05:27.320 | Especially when a woman starts to reach her late 30s.

00:05:29.660 | And if you're a physician,

00:05:30.500 | of course you all know the data.

00:05:31.780 | But when a woman starts to reach her late 30s,

00:05:33.700 | it becomes much more challenging for her to have children.

00:05:35.940 | And then even the having of those children

00:05:37.780 | comes with additional risks, concerns,

00:05:39.700 | which can add to the cost, can add to the stress, et cetera.

00:05:42.820 | So definitely sooner is certainly better than later.

00:05:46.560 | If you and she were to conceive a baby,

00:05:50.060 | how would that affect her thoughts

00:05:52.980 | about her career and her work?

00:05:54.540 | Would that make any impact to you?

00:05:56.240 | - So I think that the,

00:06:01.100 | she's interested in still working ultimately

00:06:04.580 | if we have children.

00:06:05.600 | I think the big question is,

00:06:09.540 | what happens to alternate career trajectories

00:06:13.420 | she could go on versus staying in the same,

00:06:16.660 | for instance, making a move at that point

00:06:18.420 | might not be as appealing.

00:06:20.020 | I don't think she would stop working.

00:06:24.360 | I think that's as granular as we've gotten on that

00:06:29.540 | at this point though.

00:06:30.620 | - Got it.

00:06:31.460 | With regard to your and her financial position

00:06:37.820 | prior to marriage, were both of you similarly wealthy?

00:06:42.820 | Did one of you have a lot more money?

00:06:44.820 | Was one of you deeply in debt or anything like that?

00:06:47.420 | - She, other than having the apartment

00:06:53.900 | which she made money on, she has no debt.

00:06:58.580 | She has no student loans or anything like that.

00:07:01.660 | I still have student loans from med school.

00:07:07.660 | And I had more money saved

00:07:12.660 | by virtue of being in a higher income job.

00:07:16.180 | She's been working a little bit longer than me,

00:07:17.560 | but I've been in a higher income job for longer.

00:07:20.020 | And since I never really prioritized home ownership,

00:07:24.060 | socked more away into retirement

00:07:27.140 | and other types of investment accounts than she did.

00:07:29.820 | - Do you and she have similar attitudes

00:07:32.580 | about the spending of money

00:07:33.900 | or is there a significant disparity

00:07:36.180 | in your approaches toward spending decisions?

00:07:38.440 | - I think the disparity is primarily

00:07:43.460 | because I've had more disposable income than her.

00:07:46.420 | So I would say generally speaking,

00:07:50.540 | neither of us is reckless or racks up

00:07:54.660 | a bunch of credit card debt or anything like that.

00:07:56.780 | I think that she might be slightly more frugal than I am,

00:08:00.580 | but I think if you sort of normalized our incomes,

00:08:02.780 | I think it'd be pretty comparable.

00:08:04.980 | - One more question.

00:08:06.460 | Do you and she have any current philosophy

00:08:10.180 | that would govern your decisions around money

00:08:13.540 | and how you would handle it together?

00:08:15.380 | - I think that given that I've had more cashflow,

00:08:21.020 | I think that I'm more willing to do things

00:08:23.060 | like buy something on a credit card

00:08:25.940 | and pay it off next month

00:08:27.420 | and maybe make some larger purchases than she is

00:08:32.580 | because I've had that higher degree of cashflow.

00:08:34.580 | I think, and with a high student loan balance

00:08:37.180 | and handling that for almost a decade now,

00:08:39.540 | I think I'm more comfortable with having debt

00:08:43.380 | and paying it off through cashflow.

00:08:45.740 | And I think she hasn't had the same degree

00:08:47.460 | of cashflow before,

00:08:48.460 | so I think there's a little bit of a difference there.

00:08:51.460 | - Okay.

00:08:52.500 | And I should never say questions like,

00:08:54.660 | oh, this is my,

00:08:55.500 | I should never say things like final question

00:08:56.980 | 'cause I always come up with one more.

00:08:59.900 | Do you and she have any kind of prenuptial

00:09:04.220 | or pre-marriage financial agreements

00:09:06.580 | between the two of you?

00:09:07.740 | - No, but her family has some holdings

00:09:14.300 | that are out of the country

00:09:16.380 | that by virtue of where they are

00:09:19.180 | and how they are situated,

00:09:22.180 | it's something I can't touch.

00:09:23.900 | So it's not something I wanted to touch anyway,

00:09:26.140 | but I mean, it wasn't an agreement we entered,

00:09:29.220 | it was a pre-existing agreement

00:09:30.540 | that there's nothing I can do about it.

00:09:32.140 | - Understood, okay.

00:09:33.380 | So let's start with some tactical stuff,

00:09:35.660 | just kind of very tactical stuff to clean things up.

00:09:38.860 | And then we talk a little bit about philosophy.

00:09:41.220 | We could do it in either philosophy first or tactics.

00:09:43.620 | The harder thing is going to be philosophy,

00:09:45.700 | but let's start with tactics.

00:09:46.860 | So first, you wanna sit down

00:09:49.140 | and make a complete accounting of everything that you have.

00:09:53.640 | And both of you should do this.

00:09:56.220 | Both of you should sit down

00:09:57.780 | and make a complete accounting of any bank accounts

00:10:00.840 | that you currently own,

00:10:02.480 | any investment accounts that you currently have,

00:10:07.480 | any credit accounts that you currently have,

00:10:10.260 | and talk about those with each other.

00:10:12.460 | It'd be good way to do this,

00:10:14.580 | make sure you pull your credit reports

00:10:16.900 | so you have that information

00:10:18.540 | and make sure that all the information is out there,

00:10:21.860 | that you know what's going on in each other's past.

00:10:25.700 | You know what credit cards she has,

00:10:27.740 | what credit cards you have,

00:10:28.660 | you know what accounts she has,

00:10:29.960 | what accounts you have, et cetera.

00:10:31.780 | Now, in my opinion,

00:10:33.180 | it would be ideal to do this before marriage.

00:10:35.680 | This should not wait until after marriage.

00:10:38.060 | - Yeah, we've already done that for the most part,

00:10:40.220 | except for the credit score.

00:10:41.340 | - Good, so at least--

00:10:42.180 | - We know roughly what our credit scores are,

00:10:43.940 | but I've never shown her my credit report.

00:10:46.700 | We've basically done all that.

00:10:48.140 | - Okay, so now you wanna go through those accounts

00:10:50.580 | and talk about them,

00:10:51.760 | and then do any kind of simple housekeeping items

00:10:54.900 | that need to be done.

00:10:55.740 | An example would be for your bank accounts,

00:11:00.660 | talk about, are we going to have joint accounts

00:11:04.060 | on everything?

00:11:04.900 | Are we gonna maintain separate accounts?

00:11:07.300 | If you're gonna maintain joint accounts,

00:11:08.860 | then you need to sign up,

00:11:09.860 | which is gonna be our primary checking account.

00:11:12.300 | How are we gonna establish this?

00:11:14.020 | Make sure that any accounts that you want to be joint

00:11:16.460 | are going to be joint.

00:11:17.520 | Any accounts that are gonna remain separate are separate,

00:11:20.300 | but make sure that you adjust

00:11:22.060 | any kind of beneficiary designation

00:11:24.100 | or any separate account.

00:11:25.520 | Make sure that there's a payable on death

00:11:27.520 | arrangement for that,

00:11:30.020 | since a bank account

00:11:31.100 | wouldn't have a beneficiary designation.

00:11:32.980 | But if you have any separate accounts

00:11:35.660 | that you're going to maintain

00:11:36.660 | for any reasons that you decide is important,

00:11:38.980 | then make sure that that's payable on death

00:11:40.660 | to the other person.

00:11:42.040 | Go through all of your investment accounts,

00:11:44.340 | and you need to update

00:11:45.540 | all of the beneficiary designations.

00:11:47.540 | Make sure that she is listed as the direct beneficiary

00:11:50.620 | on all of your 401(k) accounts,

00:11:53.980 | on any investment accounts, and vice versa.

00:11:56.320 | And then talk about your secondary beneficiaries.

00:11:59.520 | At this point in time,

00:12:00.800 | usually that would be your other direct family members,

00:12:04.280 | but make sure that you know about that.

00:12:05.880 | So if you die together,

00:12:06.960 | what would happen to the money?

00:12:08.000 | And this will be important

00:12:09.040 | as you start to move in the direction of,

00:12:11.560 | in the future,

00:12:12.400 | establishing wills and trusts together,

00:12:15.820 | to make sure that you're starting to talk about that.

00:12:17.980 | So frequently, for a newly married couple,

00:12:20.560 | it would look something like,

00:12:21.620 | well, we'll be direct beneficiaries

00:12:23.000 | of each other's investment accounts,

00:12:24.800 | but we'll keep our blood family lines

00:12:27.820 | as the secondary beneficiary.

00:12:29.220 | So if we die together,

00:12:30.840 | then our current assets will go to our parents,

00:12:35.680 | or my brother, or something like that.

00:12:38.120 | So go through and update those.

00:12:39.880 | Same things with insurance policies.

00:12:42.580 | Make sure that your insurance policies all get updated.

00:12:45.280 | So make sure that your life insurance is updated.

00:12:47.820 | Make sure that it has both the primary

00:12:50.280 | and the contingent beneficiary established.

00:12:52.680 | And then finally, with your credit accounts,

00:12:55.040 | go through your credit accounts

00:12:56.400 | and talk about your strategies.

00:12:58.440 | If you, for example,

00:12:59.640 | maybe you use an Amex Platinum

00:13:01.480 | and you wanna go ahead and add her as an authorized user

00:13:04.400 | so she can get the benefits of that.

00:13:05.960 | Or, you know,

00:13:07.280 | we're gonna keep these separate credit cards,

00:13:10.040 | or we're gonna keep these credit cards together,

00:13:12.040 | and go through and go ahead and order authorized cards

00:13:14.720 | or secondary cards,

00:13:15.720 | whatever your personal plan is.

00:13:18.080 | Take a look through any other things,

00:13:19.840 | safety deposit box, combinations on the safe.

00:13:23.200 | Just go through all that bookkeeping

00:13:24.460 | and make sure that she knows where you hide the cash.

00:13:26.720 | Make sure that she knows who your financial advisor is

00:13:30.040 | so that if you die, she knows who to call,

00:13:31.920 | things like that.

00:13:33.360 | And deal with all of that bookkeeping.

00:13:35.520 | Now, the next thing is,

00:13:37.240 | start to talk about your longer-term financial goals.

00:13:41.520 | So you wanna think and discuss your financial goals.

00:13:45.340 | And one of the most exciting things about being newlyweds

00:13:48.800 | is the ability to start to make plans together

00:13:51.600 | on the solid foundation of togetherness.

00:13:55.000 | Because now it's not a matter of,

00:13:56.600 | well, if we do this someday,

00:13:58.200 | now it's, okay, we're one, we're together.

00:14:00.860 | Now, what are we going to plan for?

00:14:02.640 | What are we going to work towards?

00:14:04.080 | So what I did with my wife is I'm the writer,

00:14:08.100 | and so I would give her things to try to pull things out of,

00:14:10.720 | I'd give her journaling assignments and say,

00:14:12.400 | think about this, talk about this.

00:14:13.960 | And we would start to make lists.

00:14:15.200 | If we're gonna live in a house,

00:14:16.520 | here are the kinds of things

00:14:17.580 | that we'd like to have in that house.

00:14:19.520 | If we're gonna, and et cetera,

00:14:21.400 | any kind of things that you'd like to have,

00:14:23.220 | things that you'd like to do, career aspirations.

00:14:25.800 | Try to get those things out and get them put on paper

00:14:28.920 | so that they can be discussed and brainstormed

00:14:32.200 | and dreamed about together.

00:14:34.280 | That's a big challenge,

00:14:35.280 | because especially with your and she

00:14:38.000 | both being a little bit older,

00:14:39.860 | for all of your life, you've made your plans individually.

00:14:43.680 | You've not had to consider another person.

00:14:45.960 | And she has made her plans individually.

00:14:47.800 | She's not had to consider another person.

00:14:49.880 | But now you have to consider one another,

00:14:51.640 | and you have to work and say,

00:14:52.960 | how do we actually consider one another's goals?

00:14:56.180 | There will be goals that each of you has

00:14:58.380 | that are in direct conflict.

00:15:00.520 | You may want to go right, she wants to go left.

00:15:03.100 | Well, you can't go together, both right and left.

00:15:05.800 | And so you have to think about how do we accomplish this?

00:15:08.640 | How do we find an option that will fulfill those things

00:15:13.200 | that are important to both of us?

00:15:15.100 | Sometimes this is easy.

00:15:16.700 | Sometimes this is very hard.

00:15:18.680 | And so sometimes you have to look

00:15:20.260 | for a third or fourth option.

00:15:22.200 | Sometimes you make a plan and say, for right now,

00:15:24.600 | for example, you talk about careers.

00:15:26.420 | She has an exciting opportunity.

00:15:28.760 | She wants to move into this different career path.

00:15:31.240 | Then you might need to change and move to a different city.

00:15:33.780 | And so if that's gonna happen, that should happen soon.

00:15:37.220 | If it's not gonna happen, then you figure out,

00:15:38.960 | well, what would be the best path

00:15:40.200 | to move to this other thing?

00:15:41.840 | And so you work through those goals

00:15:44.680 | and start to talk about them.

00:15:46.200 | And the best way to do it is long in advance

00:15:48.760 | of any decisions so that there can be lots of time

00:15:51.340 | to think with one another,

00:15:52.960 | to consider what each other wants,

00:15:54.600 | and then to work out plans where both people

00:15:56.560 | will be satisfied in the very best way possible

00:15:59.880 | so that there's less and less conflict down the road.

00:16:02.940 | So those are just some tactical things.

00:16:04.960 | And that goal-setting process will be the most important

00:16:07.840 | and influential thing to be done along the way.

00:16:11.680 | Now, let me pause for a moment

00:16:13.940 | before I go to philosophy.

00:16:15.080 | Any questions so far on those tactical discussions?

00:16:18.280 | - Are there any good tools or prompts or forms

00:16:22.560 | for the goal-setting exercise?

00:16:24.560 | I mean, should it be freeform or should it be structured?

00:16:27.400 | Or does it matter?

00:16:28.280 | - Yeah, I've done both and I find both helpful.

00:16:31.440 | I can't cite any one specific exercise right now.

00:16:34.980 | I've done, I have a number of exercises.

00:16:37.080 | Let me just give you a few questions that are useful

00:16:40.660 | that I've done from freeform journaling exercises.

00:16:43.840 | I've delivered these in my career

00:16:45.920 | and income planning course,

00:16:46.880 | and I've found that the students there

00:16:49.080 | really benefited from these.

00:16:50.400 | And so I'll just give a list of questions

00:16:52.120 | that I often will start from,

00:16:53.720 | but I'm sure that there are books and good books

00:16:55.820 | and good things out there.

00:16:56.800 | So a quick web search using DuckDuckGo

00:16:59.800 | will find various options that you'd like to do.

00:17:03.120 | But here are a couple of questions

00:17:04.080 | that I've often asked people.

00:17:05.160 | One, just the 10 goal method.

00:17:07.560 | What are 10 things that you'd like to do in the next year?

00:17:10.520 | Just sit down and make a list of 10 things.

00:17:12.340 | Just 10 goals that you have for the next year.

00:17:13.980 | Very freeform, can be anything that you want.

00:17:16.160 | Make a list of 10 goals that you'd like to accomplish

00:17:18.220 | in the next year.

00:17:19.340 | Another number-oriented one.

00:17:21.940 | Make a list of 30 things you'd like to do,

00:17:24.620 | 30 things you'd like to be,

00:17:26.340 | and 30 things you'd like to have before you die.

00:17:29.460 | And I like that one because it focuses

00:17:31.420 | on that extensive list.

00:17:32.840 | If you study the philosophy or the,

00:17:36.700 | I hate to use the word science

00:17:38.140 | 'cause this stuff is not appropriate

00:17:40.280 | to use that word in this.

00:17:41.660 | But a lot of times if you force an extensive list,

00:17:45.820 | you can force more ideas out of the back of your mind.

00:17:48.540 | So I really like that one.

00:17:49.460 | 30 things you'd like to do, 30 things you'd like to have,

00:17:51.880 | and 30 things you'd like to be before you die.

00:17:54.540 | And put those on there.

00:17:57.060 | That was one that when I made my wife do that,

00:17:59.820 | it was very helpful 'cause it could give me a list

00:18:01.880 | into the things that were on her list.

00:18:04.060 | And she does these exercises

00:18:05.740 | dramatically different than I do.

00:18:07.560 | They're just, there's no comparison.

00:18:09.800 | But when she puts them on the list,

00:18:11.200 | then I can work those into our overall family goals.

00:18:16.200 | Another one would be the three-year question,

00:18:21.360 | the Dan Sullivan question.

00:18:22.740 | If we were sitting here having a conversation

00:18:24.640 | three years from today,

00:18:26.860 | what would have to have happened for you

00:18:28.620 | personally, professionally, and financially

00:18:31.300 | for you to really feel satisfied with your progress?

00:18:33.660 | That was my variation of how I used

00:18:35.100 | to ask financial planning clients that.

00:18:36.840 | I can't say his exact question right off the top of my head,

00:18:41.020 | but it's something like that.

00:18:41.860 | Three years from today, what has to have happened

00:18:43.740 | for you to feel happy about your progress?

00:18:45.900 | And then I'll just give you one more.

00:18:47.200 | I really love the perfect day exercise.

00:18:49.700 | And so basically you close your eyes

00:18:52.960 | and you imagine yourself waking up in the morning,

00:18:57.480 | and it's a perfect day for you.

00:18:59.660 | And you sit down and you imagine,

00:19:03.220 | what does that day look like?

00:19:05.100 | And the way that I like to do this one

00:19:06.660 | is just with a voice recorder,

00:19:07.660 | turn on the voice recording app on your phone,

00:19:09.240 | close your eyes, and walk yourself through an ideal day,

00:19:12.420 | a perfect day.

00:19:13.480 | So if you wake up in the morning,

00:19:15.540 | in your mind's eye, look around the room

00:19:17.380 | and see where are you waking up?

00:19:19.060 | What does the room look like?

00:19:20.580 | Where is the room?

00:19:21.980 | Some people, when they do that exercise,

00:19:23.820 | they wind up living in a little apartment

00:19:26.660 | on the 47th floor in New York City.

00:19:28.740 | Some people, when they do that exercise,

00:19:30.500 | are looking out of a ski chalet.

00:19:32.540 | Some people are at the beach.

00:19:33.940 | Some people are in a bus,

00:19:36.020 | traveling the world in a converted school bus.

00:19:38.860 | And so you think through everything that you'd like to do,

00:19:43.260 | and you say, "Here's my perfect day."

00:19:46.220 | And then describe what you do.

00:19:48.940 | What do you have for breakfast?

00:19:50.320 | Who are you with?

00:19:51.160 | Who can you imagine being there?

00:19:52.820 | And then go through the day in exhaustive detail

00:19:57.180 | with as much as you can see in your mind's eye.

00:19:59.620 | And then what I like to do is go back and transcribe that

00:20:01.620 | so I can look at it so that I can see that.

00:20:04.420 | And that for me has been one of the most powerful

00:20:06.460 | because it grasps my imagination

00:20:09.020 | and helps it to apply to real life.

00:20:12.180 | And then I can figure out what changes are in that.

00:20:14.860 | And so for me, when I do that exercise,

00:20:17.300 | some changes involve physical location.

00:20:20.140 | Some changes involve the daily schedule that I keep.

00:20:23.140 | Some changes involve what I do for work.

00:20:26.540 | And I can really see that.

00:20:28.580 | That one's always been useful for me.

00:20:30.300 | And then, well, I'll just quit with that.

00:20:33.180 | So those are just a few freeform ones

00:20:35.420 | that I find really useful.

00:20:36.500 | But the key is I tend, I like to go for freeform

00:20:40.740 | more than structured,

00:20:42.980 | because a lot of times what happens with structured prompts

00:20:46.440 | is you fit into the standard methodology.

00:20:50.780 | So I'll give you an example.

00:20:52.200 | I used to do structured prompts,

00:20:54.040 | and I would write down goals based upon that.

00:20:57.700 | And I would write down a new list of goals every day.

00:20:59.740 | I'd write my goals out every single day

00:21:01.220 | to keep myself focused on them.

00:21:02.700 | And one of my goals was to have a fancy car.

00:21:06.020 | One of my goals was to have a Harley Davidson.

00:21:08.900 | I wanted a big black Harley Davidson.

00:21:10.340 | So I'd write these goals down.

00:21:11.780 | Then finally I sat there and looked at the list,

00:21:13.380 | and I said, "This is stupid.

00:21:14.460 | "I don't actually care about a fancy car.

00:21:16.280 | "I only care about that

00:21:17.700 | "because that's what everyone says I'm supposed to do.

00:21:19.600 | "So you're supposed to come up with a dream,

00:21:21.080 | "and that dream is supposed to care with a fancy car."

00:21:23.540 | I don't care.

00:21:24.740 | I don't actually care about owning a Harley Davidson.

00:21:27.100 | I like to ride them,

00:21:28.460 | but I don't actually wanna own one,

00:21:30.060 | and I don't wanna own one at this point in time.

00:21:31.980 | I much more care about my time with my children

00:21:36.840 | and what I'm teaching them

00:21:38.040 | than I do about the Harley Davidson.

00:21:39.820 | And so once I stopped all those prompted stuff

00:21:42.540 | where you're supposed to imagine a fancy house

00:21:44.500 | and a fancy car,

00:21:45.620 | then I was able to get to the things

00:21:47.100 | that I actually cared about,

00:21:48.540 | which were much less materialistic

00:21:50.700 | and much more about impact and meaning and people and work

00:21:55.340 | than it was about consumption.

00:21:57.380 | So that was my experience,

00:21:58.860 | but your mileage may vary.

00:22:00.160 | So let's go now to philosophy.

00:22:06.140 | So once you've got those tactics out of the way,

00:22:08.520 | then I think you have to start to talk with one another

00:22:11.120 | about philosophy and start to put together a concept

00:22:14.380 | of how you're going to approach your life together.

00:22:18.100 | And there are a few major sticking points in marriage.

00:22:22.220 | Number one is the handling of money

00:22:24.880 | in terms of decisions and authority.

00:22:28.120 | That's a big one.

00:22:29.180 | Number two is going to be careers.

00:22:31.580 | And so the really tough one is handling money.

00:22:34.980 | Now, there are some couples

00:22:36.400 | who seem to just automatically think alike

00:22:39.100 | and they don't ever have any problems,

00:22:40.920 | but that's pretty rare in my experience.

00:22:44.100 | And so when it comes to the handling of money,

00:22:46.320 | how are you gonna do it?

00:22:47.420 | And here is where your religious philosophy,

00:22:50.360 | your worldview, your outlook on what marriage looks like

00:22:53.580 | will come to play.

00:22:54.420 | So let me use two kind of extreme examples as a foil.

00:22:59.420 | I come from a religious tradition

00:23:03.580 | that emphasizes unity, oneness.

00:23:06.240 | And so one of the things that's very important for me

00:23:09.260 | in terms of how my wife and I approach our money

00:23:12.340 | is to focus on making decisions together.

00:23:15.700 | Ultimately, I'm the head of my household,

00:23:17.800 | so I bear the responsibility for the ultimate decision,

00:23:21.020 | but we wanna make our decisions together.

00:23:23.620 | And so everything in how we approach money,

00:23:26.260 | we wanna emphasize unity, oneness together.

00:23:29.660 | And so we don't have separate checking accounts for usage.

00:23:33.920 | We do everything with one joint account,

00:23:37.060 | with the exception of, there may be exceptions to this

00:23:39.620 | for simple tax or legal reasons.

00:23:43.020 | There can be many reasons for somebody

00:23:44.380 | to have a separate checking account

00:23:46.340 | for the isolation of legal rights,

00:23:49.980 | but in terms of overall function

00:23:52.960 | or the way of going forward,

00:23:54.620 | I would always emphasize and encourage a togetherness,

00:23:58.100 | a joint work.

00:23:58.940 | So we don't have her money and my money, we have our money.

00:24:03.420 | It doesn't matter who brings it into the household,

00:24:05.380 | whose income is reflected,

00:24:06.820 | and it doesn't matter who's actually

00:24:08.820 | making the physical transaction to pay out money.

00:24:11.100 | We have our money and we're accountable to one another.

00:24:14.500 | And so we emphasize that

00:24:15.980 | in the practical outworking of things.

00:24:17.860 | We have a joint checking account.

00:24:19.500 | The money that we spend is always spent together.

00:24:21.940 | And that's because of this emphasis

00:24:23.320 | on oneness and togetherness.

00:24:25.320 | There is no hers, there is no mine.

00:24:28.400 | There's no her money, there's no my money.

00:24:30.040 | There's no her rights or my rights.

00:24:32.160 | There is only us, even to our own bodies.

00:24:35.400 | My body is not my own, her body is not her own.

00:24:37.880 | Everything is together, we belong to each other.

00:24:40.520 | And that comes from the religious tradition

00:24:42.680 | and ideology that governs our lives.

00:24:45.180 | Now, if you take that over to an extreme opposite,

00:24:48.640 | one of the conversations that I've had many times

00:24:51.240 | with people in my generation,

00:24:52.820 | with especially of the modern secular

00:24:55.260 | and highly feminist influenced philosophy,

00:24:57.960 | is a deep lack of trust.

00:25:00.780 | And so I've worked with couples

00:25:02.620 | where they cannot even conceive of doing things together.

00:25:06.000 | And they've had to figure out how do I,

00:25:08.120 | it's basically, it's all about mine.

00:25:10.680 | So for example, I've heard and read financial advice

00:25:13.680 | that would counsel, usually women especially,

00:25:15.540 | because in the modern age,

00:25:16.960 | the philosophy is that women are disadvantaged

00:25:19.860 | and underprivileged, and so because of that,

00:25:23.080 | they have to look out for being oppressed by men,

00:25:26.680 | is basically how it goes.

00:25:27.920 | And so I've listened to advice where women are encouraged,

00:25:31.340 | don't ever give your husband the money,

00:25:34.140 | don't ever work together, always maintain,

00:25:36.420 | you always have to maintain your own career

00:25:38.440 | so that if your husband abandons you and divorces you,

00:25:40.800 | that you're not left destitute,

00:25:42.960 | you always have to maintain your own money.

00:25:45.000 | Because if you allow your husband

00:25:46.480 | to have supervision over your money,

00:25:48.380 | then you're ceding your power.

00:25:50.040 | So you always have to maintain your own accounts,

00:25:51.920 | you always have to maintain everything externally.

00:25:54.160 | And so many modern couples,

00:25:56.040 | their approach to this kind of thing is,

00:25:57.880 | they'll figure out, well, what's ours, our joint accounts,

00:26:00.720 | and we'll pay our rent together,

00:26:02.280 | we'll pay our mortgage payment

00:26:03.440 | 'cause we're living in the same house,

00:26:04.920 | but then I'll pay my bills over here,

00:26:06.740 | you pay your bills over there.

00:26:08.480 | I've even seen this and read, I've read in my files,

00:26:13.480 | there's a lengthy essay that I read by a libertarian guy

00:26:17.920 | who came down to, he and his wife paid one another

00:26:21.520 | for household chores, and they viewed,

00:26:25.040 | and there was no exaggeration, I had the same chuckle,

00:26:28.100 | but he was very sincere

00:26:29.280 | about how it had been a great thing,

00:26:30.620 | where they would sit down

00:26:31.540 | and they would bargain with one another

00:26:33.420 | over the dollar value of who would clean the bathroom.

00:26:36.340 | And they would have an auction and a bid with one another

00:26:39.460 | over who would clean the bathroom,

00:26:40.580 | and they literally would pay each other money

00:26:42.180 | to each other's accounts.

00:26:43.100 | They held nothing in common other than the thing

00:26:46.900 | that would be ultimately required,

00:26:48.040 | but they held nothing in common,

00:26:49.480 | and they just, they viewed it as an auction process

00:26:52.240 | with one another.

00:26:53.280 | And he opined as to why this was the perfect way

00:26:56.280 | of handling money together.

00:26:57.700 | Now, I'm not gonna say to somebody,

00:27:01.120 | here's how you have to do it,

00:27:02.740 | because I think there are things that,

00:27:05.240 | the relationship between a husband and a wife

00:27:07.160 | is the most intimate relationship out there,

00:27:09.720 | and husbands and wives have to learn

00:27:11.400 | to work with one another.

00:27:13.260 | But I do think you have to identify

00:27:14.940 | your undergirding philosophy

00:27:17.240 | and discuss it with one another

00:27:19.160 | so that you know what direction you're going.

00:27:21.280 | My wife and I, even though we were firmly committed

00:27:24.620 | to the same philosophy, you know, she bears my name,

00:27:28.800 | she, we're one, we're firmly committed,

00:27:31.520 | but that wasn't an easy transition.

00:27:33.560 | It takes time to work that in.

00:27:35.200 | It takes time for husbands and wives

00:27:37.500 | to learn to dwell with one another

00:27:38.640 | with understanding and love.

00:27:40.280 | And it takes a lot of showing a lot of mercy to one another.

00:27:43.440 | So don't expect it to be perfect.

00:27:45.380 | And I would say for you, my caution is,

00:27:47.440 | it's going to be extra difficult

00:27:49.980 | because you and she are fully formed mature adults.

00:27:53.620 | And for the last 20 years of your adult life,

00:27:55.660 | you've never talked to somebody about your decisions.

00:27:57.540 | You've never submitted your decision-making one to another.

00:28:00.140 | And so it's extra hard for people who marry older

00:28:02.780 | to be able to make decisions together

00:28:05.580 | than it is for younger people.

00:28:06.460 | You have the benefit of having a lot more money.

00:28:07.980 | Younger people usually are broker,

00:28:09.540 | and so they learn those things together.

00:28:11.500 | But you and she are much more likely to be calcified

00:28:14.320 | in your own approaches as individuals.

00:28:16.760 | Make sense?

00:28:17.880 | - Got it.

00:28:18.720 | Oh, absolutely.

00:28:19.540 | - And then one more thing with regard to careers,

00:28:21.640 | and this is another huge philosophical divide

00:28:25.120 | that I think you have to tackle openly

00:28:27.000 | and honestly and identify.

00:28:28.760 | One of the biggest tensions that happens

00:28:30.820 | in modern marriages as it relates to money

00:28:32.960 | is what career are we going to handle?

00:28:38.840 | And again, this comes down to philosophy,

00:28:41.660 | your religious philosophy, your worldview,

00:28:44.060 | and your basically life philosophy is gonna drive this.

00:28:46.700 | So back again, let me use these foils

00:28:49.060 | of kind of extreme opposites.

00:28:50.820 | For my wife and for me, there was never any question

00:28:55.620 | as far as money and career.

00:28:59.140 | I was the one who had the responsibility

00:29:02.380 | for providing the income for the family.

00:29:04.460 | And for her, her primary career

00:29:07.900 | is in being my wife and mother,

00:29:10.260 | and that was decided before we entered into marriage.

00:29:13.060 | That wasn't always the case in terms of easy.

00:29:16.640 | She has earned income at different times,

00:29:19.100 | but that was clearly decided in advance,

00:29:20.980 | which meant that we didn't have career tension.

00:29:22.780 | She never had career tension between children and income.

00:29:27.060 | And one of the things that we have worked hard at

00:29:30.220 | is to try to help her to avoid the consistent

00:29:34.660 | kind of screaming of people saying

00:29:36.460 | that if you don't earn income, you're worthless.

00:29:39.260 | Because basically everything in our modern society

00:29:41.860 | is based upon earning income,

00:29:43.740 | especially in the wake of the feminist revolution

00:29:45.840 | in the last 75 years,

00:29:47.540 | women feel worthless if they don't earn income.

00:29:50.620 | And it's very, very hard for many women

00:29:54.140 | who are influenced by this philosophy

00:29:56.540 | to feel a place of contentment and satisfaction.

00:29:59.060 | So they're often in a fight with their husbands,

00:30:01.380 | feeling like I have to have power over my husband

00:30:03.900 | because of earning money.

00:30:04.940 | And if I give up my income, then I give up my independence,

00:30:08.140 | and now I'm in this place of becoming a victim,

00:30:10.760 | and that's not what my mother fought for

00:30:12.500 | and went marching in the streets for.

00:30:14.340 | And so women usually have a strong urge towards motherhood

00:30:19.340 | and towards being focused on raising children.

00:30:24.260 | If you study the data, it's very, very clear

00:30:26.520 | that women in the United States of America

00:30:28.300 | want more children than they have,

00:30:30.460 | and they want to be with children more than they are.

00:30:33.780 | But that's a politically impossible thing to admit

00:30:38.780 | in public conversation among polite company.

00:30:41.460 | And so that often will put your wife

00:30:43.500 | in a very difficult situation

00:30:45.300 | where she feels like she has to do both things well.

00:30:47.960 | She feels like she has to be a hard-charging businesswoman

00:30:52.120 | who is erasing the gender wage gap single-handedly,

00:30:57.120 | but also she wants to be a mother.

00:30:58.740 | And that's a really difficult lifestyle to have.

00:31:01.780 | I don't understand how it's possible.

00:31:03.180 | Of course, there are women who run themselves ragged

00:31:05.760 | trying to do both things,

00:31:06.780 | but I don't understand how it's possible.

00:31:08.660 | So you've got to talk about that.

00:31:10.420 | And if your wife wants to be a mother,

00:31:12.860 | if she wants to be a wife and a mother,

00:31:14.840 | if she wants to be at home and be focused on her home,

00:31:17.820 | you've got to work with her to help her to see

00:31:20.340 | that that is every bit, in fact, more valuable

00:31:23.420 | than earning income.

00:31:24.380 | Because if your wife labors under this idea

00:31:27.220 | and this ideology in the modern era,

00:31:29.420 | that the only thing that brings her self-worth is her income.

00:31:33.100 | And that's the thing that, you know,

00:31:34.660 | when she's asked the question of what do you do,

00:31:36.820 | if all of her girlfriends look at her as being a loser

00:31:39.820 | and not advancing the revolution that needs to happen

00:31:43.220 | because she's being a wife and mother, she won't do it.

00:31:46.500 | She won't do it happily.

00:31:47.620 | She'll feel like she has to do both.

00:31:49.660 | And that can bring a huge amount of tension

00:31:51.740 | into a relationship.

00:31:53.340 | Now, on the flip side, if you and she talk about it,

00:31:56.320 | and for her, this expression of her career

00:31:58.800 | is deeply important, and she needs to do this work,

00:32:02.560 | and she doesn't want to, you know, care for the,

00:32:06.680 | she doesn't want to be home with the kids,

00:32:08.080 | she doesn't want to give up this career thing,

00:32:10.200 | and she doesn't want to give up this income,

00:32:12.160 | then if you try to say, well, this has to happen,

00:32:15.740 | it's a recipe for unrest.

00:32:17.460 | If you try to say, hey, you've got to go

00:32:19.400 | and, you know, be home with the children,

00:32:21.440 | you've got to do this.

00:32:22.440 | So I would say one of the most important things

00:32:24.800 | is to talk it through with one another.

00:32:27.000 | Study the actual data, for example.

00:32:29.840 | Study the data on the well-being of children.

00:32:32.320 | Study the data on what happens

00:32:34.440 | if your child is raised by a daycare.

00:32:36.760 | Study the data in terms of the impact.

00:32:38.960 | Study, talk about it in terms of philosophy.

00:32:41.960 | Find out what she's thinking, what's important to her.

00:32:44.700 | Find out what's important to you.

00:32:46.280 | And do it prior to having children

00:32:48.600 | so that you can hopefully come to a more peaceful solution.

00:32:53.480 | It is one of the biggest conflicts that I see

00:32:56.000 | in most of the married couples that I have counseled.

00:33:00.000 | And it's often very, very difficult

00:33:03.560 | for couples to work it through,

00:33:05.440 | and it usually takes a lot of discussion

00:33:07.720 | to come to a place of peace

00:33:09.400 | where they can move confidently.

00:33:11.440 | And so if your wife is going to be a mother,

00:33:12.960 | for her to be able to be confident

00:33:14.600 | and to tell her girlfriends and say,

00:33:17.760 | listen, this is what we're doing,

00:33:19.880 | she's gonna need to be clear on that decision

00:33:22.320 | because she will be very susceptible

00:33:23.880 | to peer pressure one way or the other.

00:33:25.600 | And so it's gonna take some time and conversation

00:33:28.160 | to come to the solution that's right for you

00:33:29.960 | based upon your undergirding philosophy and worldview.

00:33:33.060 | - Got it.

00:33:36.080 | - That was a lot of philosophy,

00:33:37.420 | but I guess those are some of the things

00:33:38.560 | that I think are important.

00:33:39.480 | And then finally, I guess I shouldn't skip past,

00:33:42.520 | go ahead and get some insurance for each other.

00:33:43.880 | You have enough money.

00:33:47.360 | If you don't have,

00:33:48.440 | do you have a bunch of term life insurance already?

00:33:50.800 | - Yeah, we both just upped what we're,

00:33:54.600 | we need to verify everything went through

00:33:56.400 | as far as beneficiaries and everything,

00:33:57.640 | but we both through work are able to do that

00:34:00.080 | and increase that.

00:34:01.400 | - Get some private insurance for,

00:34:04.160 | get some that's outside of your work, especially,

00:34:06.640 | because if you change jobs, she changes jobs,

00:34:09.000 | now especially, that you start to have commitments

00:34:11.640 | to one another, and those commitments go beyond finances.

00:34:14.960 | Life insurance gains additional importance.

00:34:17.560 | Get some term life insurance, at least 10,

00:34:20.480 | closer to 20 times your annual income

00:34:22.200 | of term life insurance that's not connected to your job.

00:34:25.080 | And then secondarily, get some disability income insurance

00:34:28.720 | if you don't have it.

00:34:29.880 | And then--

00:34:30.720 | - Oh yeah, I've got that.

00:34:32.000 | - And then also with her,

00:34:33.000 | make sure she has disability income insurance.

00:34:34.920 | If she has disability income insurance--

00:34:36.560 | - She does outside of work as well, yeah.

00:34:37.960 | - Good, good.

00:34:38.800 | So then that will still cover her

00:34:40.040 | and she could choose to keep it

00:34:41.240 | even if she leaves her job

00:34:43.080 | and/or it could provide income for her during pregnancy,

00:34:46.640 | especially in case of complications of pregnancy,

00:34:48.640 | which can be helpful as well.

00:34:49.760 | So get all that stuff squared away

00:34:51.360 | so that if she does decide to stop her job

00:34:55.000 | while she's having children,

00:34:56.360 | then that can be done easily.

00:34:58.860 | - If you're able to take your life insurance policy

00:35:02.320 | from your employer if you leave,

00:35:04.600 | would you consider that sufficient

00:35:06.080 | or would you still consider

00:35:08.600 | getting a completely separate policy?

00:35:10.600 | - I wouldn't run away from that.

00:35:13.040 | Obviously, if you're able to take it,

00:35:14.880 | but I would make sure that you understand it very carefully.

00:35:17.240 | Usually--

00:35:18.160 | - Got it.

00:35:19.000 | - You can't take just a term life insurance policy

00:35:21.460 | from your employer

00:35:22.800 | and keep it as a term life insurance policy

00:35:24.940 | without changing it.

00:35:25.880 | Usually that's not possible.

00:35:27.740 | Usually if you can take a life insurance policy

00:35:30.620 | from your employer,

00:35:31.460 | you have to convert it from a term insurance policy

00:35:34.080 | to a whole life policy.

00:35:35.680 | And so that can be a real challenge.

00:35:37.880 | So I'm not saying that it's not possible,

00:35:40.200 | I'm just saying the standard approach is,

00:35:42.360 | yes, you may be able to buy term life insurance at work,

00:35:45.080 | but let's say you're signed up

00:35:46.120 | for a half a million dollars of coverage there.

00:35:47.760 | If you leave that job,

00:35:48.680 | you can't usually take it as half a million dollars

00:35:50.800 | of term insurance coverage.

00:35:52.400 | So make sure you're very clear on those details.

00:35:55.100 | Now, if your job is providing you

00:35:57.520 | with a substantial discount for it,

00:36:00.680 | then you should save the money.

00:36:02.800 | Don't waste money unnecessarily on insurance premiums.

00:36:05.840 | But most people can't get the maximum amount of insurance

00:36:09.080 | that they probably should have at their work.

00:36:11.320 | So usually you need at least some additional,

00:36:13.720 | and usually the insurance that you get at your work

00:36:15.800 | can't go with you as a term policy.

00:36:18.440 | So think through your insurance strategy.

00:36:19.760 | Just make sure that you're okay in case you leave the job,

00:36:22.280 | she leaves her job,

00:36:23.480 | and make sure you understand how those options work.

00:36:26.300 | - Okay, that is good to look into.

00:36:30.120 | - Congratulations on your marriage, Peter.

00:36:31.720 | Anything else?

00:36:32.720 | - Thank you.

00:36:33.540 | - Yeah.

00:36:34.380 | - That'll do it.

00:36:35.200 | - It's an exciting time.

00:36:36.040 | And I guess I would,

00:36:37.480 | my closing comment,

00:36:39.240 | you're older than I am,

00:36:40.140 | but I've been married for longer than you are.

00:36:41.720 | I would say this.

00:36:43.080 | One of the pieces of advice

00:36:44.680 | that I wish I had been given much more strongly

00:36:47.640 | is during the beginning of marriage,

00:36:50.840 | don't make big decisions

00:36:52.520 | and don't try to climb the corporate ladder.

00:36:55.280 | There's a principle that comes from the Old Testament

00:36:57.300 | in the Bible.

00:36:58.480 | And it's from the Mosaic Law

00:37:01.040 | that was given to the Jews under Moses,

00:37:03.920 | where it says,

00:37:04.740 | "When a man is newly married,

00:37:06.040 | "he must not be sent off to war

00:37:08.600 | "for the first year of his marriage."

00:37:10.580 | And the Bible says,

00:37:11.840 | "But he must stay at home

00:37:13.760 | "and learn to please his wife."

00:37:16.400 | And I've talked with a lot of married couples.

00:37:18.340 | And one of the regrets that I have

00:37:19.940 | and that many married couples that I've spoken with

00:37:22.540 | is they wish that they had made plans and provisions

00:37:25.580 | for that in a much more intentional way.

00:37:29.100 | In hindsight,

00:37:29.940 | I wish I hadn't worked as much as I did

00:37:31.420 | the first year we were married.

00:37:32.500 | In hindsight,

00:37:33.420 | I wish we hadn't only taken a two-week honeymoon.

00:37:35.700 | In hindsight,

00:37:36.660 | I wish that I had taken more time to stay at home

00:37:40.040 | and learn how to please my wife that first year of marriage,

00:37:43.000 | because it's a very, very special time.

00:37:45.520 | And it's a time of transition in life

00:37:47.780 | that will quickly pass by.

00:37:49.800 | So my encouragement to you is,

00:37:52.680 | during the next year,

00:37:54.260 | take time,

00:37:55.280 | be at home,

00:37:56.160 | and learn how to please your wife.

00:37:57.760 | And then simultaneously,

00:37:59.400 | don't make any big decisions quickly,

00:38:01.540 | because it takes time to learn

00:38:03.120 | how to work with one another

00:38:04.320 | and to really understand what's important to people.

00:38:06.400 | Most married couples have lied to one another

00:38:10.320 | to some degree prior to marriage,

00:38:13.120 | even just to try to make themselves seem

00:38:15.080 | some way that they weren't.

00:38:16.140 | And so it takes some time to build that comfort

00:38:18.480 | to say, "Oh, you know,

00:38:19.840 | "I told you that this was always important to me,"

00:38:21.800 | or, "I led you to believe that I was this kind of person,

00:38:23.880 | "but in reality,

00:38:24.880 | "I was doing that because I wanted you to like me more."

00:38:28.080 | And so it takes time to smoke those things out

00:38:31.200 | to where you can make better decisions.

00:38:32.720 | I wouldn't buy houses.

00:38:33.800 | I wouldn't move.

00:38:34.620 | I wouldn't do any of that stuff

00:38:35.460 | in my first year of marriage, at least.

00:38:37.000 | Take the time and just enjoy being with one another.

00:38:39.000 | Keep your...

00:38:40.120 | When I got married,

00:38:41.060 | I got out of almost every organization.

00:38:45.040 | When I was single, I was in every organization,

00:38:47.040 | everything around town, everything from my career.

00:38:49.560 | When I got married,

00:38:50.380 | I got out of every single one of them,

00:38:51.760 | except two that I couldn't get out of.

00:38:53.240 | And by the time we had our first baby,

00:38:54.880 | I got out of those.

00:38:55.840 | And so I don't participate in community stuff anymore.

00:38:59.120 | I'm not interested in going to your thing

00:39:00.880 | at five o'clock on Thursday afternoon

00:39:03.240 | for your stupid local networking thing.

00:39:04.840 | That was fine when I was single,

00:39:06.280 | but at this point, I'm not going, I'm not doing it.

00:39:08.480 | And so I'm gonna hang out with my family

00:39:11.080 | 'cause that's the phase of life that I'm in.

00:39:12.760 | And if you wanna talk to me,

00:39:13.940 | it's gonna be during business hours.

00:39:15.280 | I'm not coming in the evening.

00:39:16.400 | I'm not gonna go and do that in the morning.

00:39:18.920 | So you figure out how to make that happen.

00:39:21.080 | But I think it's underappreciated

00:39:23.600 | how special that first year is of marriage

00:39:26.160 | and how much good can come from it

00:39:28.600 | if you really intensively focus.

00:39:30.380 | And I would say this to you, you have the money.

00:39:32.520 | So take every day of vacation you have,

00:39:34.920 | you and she should take a month off that unpaid,

00:39:40.000 | arrange a small sabbatical,

00:39:41.280 | take multiple honeymoons this first year.

00:39:43.200 | You have the money, spend it on time together

00:39:46.920 | because it's a very, very special and wonderful time.

00:39:49.760 | - We are on that.

00:39:52.640 | - Good.

00:39:53.480 | - You don't have to worry about that.

00:39:54.640 | - Well, good, then we're successful.

00:39:56.460 | So congratulations on that.

00:39:57.960 | And I wish both of you well,

00:39:59.440 | and hopefully my ideas were useful.

00:40:02.600 | We go now to the great state of California.

00:40:04.040 | Welcome to the call.

00:40:04.880 | How can I serve you today?

00:40:06.040 | - Hi, Joshua, how are you?

00:40:08.480 | - I'm very well, sir.

00:40:09.320 | Tell me your name and how I can serve you, please.

00:40:11.720 | - Yeah, my name's Cody.

00:40:13.840 | As you mentioned, I am from the great state of California.

00:40:17.000 | Current employer just recently offered a 401k

00:40:22.000 | for my position, but there's no matching on it.

00:40:27.160 | And as lovely as the great state of California is,

00:40:30.680 | it's not a cheap place to live.

00:40:32.320 | I'm in the greater Los Angeles area.

00:40:35.260 | And this year was kind of a transitionary year for me.

00:40:38.800 | And I knew that I wanted to save a lot of money.

00:40:41.680 | Part of that meant living with my parents for this year.

00:40:45.120 | And I've done a really good job, I think, saving money.

00:40:47.960 | And when this 401k option came about,

00:40:51.840 | the no matching was kind of the thing that kept me

00:40:54.320 | from contributing to that at all.

00:40:58.560 | And I'm just curious on your thoughts about,

00:41:00.780 | is it worth contributing to it if there's no match,

00:41:03.720 | especially given the fact that I have no debts

00:41:07.480 | and I feel like I'm doing a good job saving the money.

00:41:11.040 | Now it's not actively being invested,

00:41:13.880 | but yeah, just kind of curious

00:41:15.080 | what your thoughts are on that.

00:41:16.360 | - Sure.

00:41:17.240 | So how much is your income?

00:41:21.080 | - So we're gonna see with a bonus,

00:41:24.280 | probably like 58, 59,000.

00:41:27.960 | - All right.

00:41:28.800 | And what do you see happening in the next few years

00:41:31.440 | with your income and with your career?

00:41:33.700 | - Yeah, so career could take me

00:41:38.360 | kind of anywhere in the country.

00:41:40.160 | So definitely need to be available to move.

00:41:43.920 | And I think having some cash on hand,

00:41:45.680 | that's definitely a consideration

00:41:47.680 | as to why I've been saving this money.

00:41:50.300 | How high that income can go, I don't know exactly.

00:41:55.300 | I think that's a good question.

00:41:58.220 | I don't know exactly where it can go.

00:42:00.820 | - Okay.

00:42:02.020 | When you look at, so you're out of debt,

00:42:05.800 | you've been living with your family to save money.

00:42:08.660 | How much savings have you been able

00:42:10.760 | to accumulate at this point?

00:42:12.140 | - So this year alone, by the end of December,

00:42:18.800 | by the end of 2018, I should be a little over $20,000.

00:42:23.280 | And that'll put me at about $40,000 in savings.

00:42:27.340 | - Great, congratulations, well done.

00:42:29.240 | - Thanks.

00:42:31.180 | - Why are you working for this employer

00:42:33.980 | and why are you living in California?

00:42:36.200 | - So I was living in Utah and working for a tech company.

00:42:42.560 | I didn't want to sell HR and financial management

00:42:48.720 | software, I wasn't passionate about that.

00:42:50.820 | And so I left that and this might sound kind of strange,

00:42:56.780 | but I'm very passionate about alcohol

00:43:00.780 | and the alcohol industry.

00:43:02.060 | I'm not an alcoholic, I need to try

00:43:04.700 | and make that distinction.

00:43:05.700 | I feel like when you say you're passionate about alcohol,

00:43:07.580 | people get the wrong idea.

00:43:08.880 | I study it, really.

00:43:11.860 | - Interesting.

00:43:13.780 | - Yeah, and so I left because I wanted to pursue a job

00:43:18.780 | in that industry and pretty much any job

00:43:23.480 | that you can get starting out is gonna be in Los Angeles,

00:43:26.440 | in New York, or San Francisco, maybe Chicago,

00:43:29.440 | but a major city.

00:43:30.820 | As I mentioned, I've got family here in LA,

00:43:34.020 | so it made sense to move back and move in with them.

00:43:36.700 | I was working at a couple of restaurants for a few months

00:43:40.280 | and then ultimately got hired by the company

00:43:42.440 | that I now work for.

00:43:44.760 | So it was a lifestyle move.

00:43:48.100 | I knew that financially I was gonna be taking a hit

00:43:53.600 | a little bit in the short term, relative short term,

00:43:57.500 | but in the long term, I think I'm gonna be a lot happier

00:44:02.260 | talking about something and getting to work with something

00:44:04.780 | that I'm passionate about rather than talking about

00:44:08.360 | recruiting modules and a statement.

00:44:12.060 | - I understand the feeling.

00:44:13.860 | There are two questions to your answer.

00:44:19.100 | Let me just answer the 401(k) question quickly

00:44:21.700 | and then we'll discuss more options beyond that.

00:44:26.640 | Should you participate in your 401(k)

00:44:29.900 | if they don't give you a company match?

00:44:33.220 | Yes, if you value having the tax deduction on your income.

00:44:41.380 | And this would be particularly valuable for you

00:44:44.860 | if you were to move outside of California

00:44:49.860 | at some point in the future.

00:44:51.780 | One of the wrinkles with California

00:44:53.700 | is a very high state income tax.

00:44:56.820 | Now, at an annual income of $58,000,

00:45:00.380 | this is not affecting you quite so much

00:45:02.500 | as when you're earning $258,000,

00:45:05.680 | but it is still affecting your money.

00:45:07.300 | You are still paying California state income tax.

00:45:10.540 | If you put money into the 401(k),

00:45:13.100 | you can not pay currently your federal income tax

00:45:18.100 | on those dollars.

00:45:20.540 | And in addition, you cannot pay currently

00:45:22.860 | your state income tax on those dollars.

00:45:25.900 | And then if you move out of California

00:45:28.460 | at some point in the future,

00:45:30.540 | then to a state, especially perhaps a state

00:45:32.700 | that doesn't have a state income tax,

00:45:34.700 | when you take the distribution on those 401(k) dollars,

00:45:37.680 | you will avoid ever paying California state income tax

00:45:41.000 | on those dollars if you can move your domicile

00:45:43.100 | outside of California.

00:45:45.040 | Given that you sound relatively young in your career,

00:45:47.960 | how old are you, Cody?

00:45:49.060 | - Yeah, I'm 25.

00:45:51.680 | - Great.

00:45:52.520 | - So yeah, young in my career would be an accurate description.

00:45:55.000 | - And currently single, is that right?

00:45:56.900 | - Yes, sir.

00:45:58.940 | - Okay, so at 25 and unmarried,

00:46:02.640 | you have a lot of flexibility in your lifestyle.

00:46:06.620 | So let's talk about some things that you could do.

00:46:09.360 | Contributing money to the 401(k) can be helpful

00:46:12.040 | because it will reduce your current taxable income.

00:46:15.000 | And if you will calculate,

00:46:17.160 | let's say you made an $18,000 contribution to your 401(k).

00:46:21.520 | If you've saved $20,000 in cash in the last year,

00:46:26.240 | that means that you could live on,

00:46:28.300 | your living expenses could be less than $40,000,

00:46:31.200 | 58,000 minus $40,000.

00:46:33.760 | What you should do is calculate

00:46:35.360 | what your total tax burden would be

00:46:37.520 | as a 25-year-old unmarried individual

00:46:40.100 | living in California,

00:46:41.720 | reporting $58,000 of income

00:46:44.460 | versus reporting $40,000 of income.

00:46:47.120 | Calculate what your total tax burden

00:46:49.280 | would be estimated to be under that circumstance.

00:46:53.160 | So let me help you with just a quick estimate here.

00:46:55.160 | If you are 25 single,

00:46:57.620 | excuse one quick tax estimator here, earning $58,000,

00:47:02.800 | then you will incur $6,060,

00:47:05.920 | would be just about an estimated amount

00:47:07.620 | of federal income taxes

00:47:09.240 | that you would pay at the federal rate.

00:47:11.360 | Secondly, if you are earning $40,000,

00:47:14.080 | you would incur a federal income tax,

00:47:17.040 | federal income taxes of about $3,100.

00:47:20.640 | So about $3,000 difference between that.

00:47:23.280 | That's the amount that you would pay

00:47:25.080 | on that $18,000 of income.

00:47:27.000 | Now I don't know,

00:47:27.840 | I'm not competent enough to do California taxes

00:47:29.800 | off the top of my head.

00:47:30.620 | I don't even know if you'd owe any California taxes.

00:47:32.400 | Do you know with a $58,000 income,

00:47:34.960 | how much money you can expect to pay this year

00:47:36.600 | with California state income taxes?

00:47:38.320 | - I don't, but that's, I mean,

00:47:40.920 | that's an easy enough number to look up

00:47:42.760 | once we get off the call.

00:47:43.720 | - Yeah, so you need to look that up

00:47:45.240 | and try to get an idea of what that tax number might be,

00:47:49.760 | if anything, because, you know,

00:47:52.520 | not to be insulting, but you're not making a ton of money.

00:47:55.080 | So you're not paying a lot of taxes yet

00:47:57.640 | at this point in time, which is fine.

00:47:59.600 | - Oh, believe me, I know.

00:48:00.720 | - Okay, just to be clear.

00:48:02.720 | Always sounds a little bit insulting

00:48:04.200 | when you say to somebody,

00:48:05.320 | the good news is you're not making very much money right now.

00:48:07.880 | Like I'm doing the best I can.

00:48:09.520 | So if you could put that $18,000 in there,

00:48:13.680 | that saves you $3,000 of taxes.

00:48:16.320 | And that's something that you lose

00:48:18.520 | if you don't do it this year.

00:48:20.320 | Now, even if you put it in

00:48:21.760 | and then take it out in the future,

00:48:23.200 | even if you have to pay a penalty tax,

00:48:25.160 | it would still be cheaper for you to put the money in

00:48:27.880 | and take it out than if you never put it in

00:48:30.240 | in the first place.

00:48:31.120 | And then with being young and with being somewhat flexible,

00:48:34.920 | you could use this and put this into play

00:48:38.040 | in a way that it could save you all kinds of benefits.

00:48:41.480 | So let's say that you put the money in there

00:48:43.840 | and then two years from now, you decide,

00:48:45.480 | number one, I'm gonna move to Nevada.

00:48:48.920 | And then number two, I'm going to start a business.

00:48:51.320 | And so your income is very low.

00:48:53.160 | If you need to take money out of your 401k,

00:48:55.380 | you could go ahead and take it out at that point in time.

00:48:57.460 | And even though you pay the 10% penalty,

00:48:59.680 | it would still be lower than what you're paying right now.

00:49:03.440 | So you run the math, but in general, I would say, yes,

00:49:06.440 | you should use the 401k unless you have a specific,

00:49:10.960 | a specific thing that you're saving for

00:49:14.760 | that's in the short term,

00:49:16.640 | because you could afford to put money in the 401k

00:49:19.440 | and you still have enough other cash

00:49:20.880 | to make most moves in life.

00:49:23.800 | So short answer to your 401k question is yes,

00:49:26.860 | I would say do it unless you have other things.

00:49:29.480 | Now, if you didn't have any liquid savings,

00:49:31.280 | if you didn't have $40,000 saved,

00:49:32.840 | I would say, no, don't do it.

00:49:34.880 | If you didn't have other options, if you had debt,

00:49:37.680 | I would be more careful, but I would say, yes,

00:49:40.200 | it's good to put the money in the 401k,

00:49:42.200 | because even if you take it out a few years from now,

00:49:44.460 | even though you pay the 10% penalty tax,

00:49:46.800 | as long as your income is low

00:49:48.200 | and you're not paying a high tax rate at that point in time,

00:49:51.680 | the 10% penalty tax probably will still be cheaper

00:49:55.680 | than the current tax bracket that you're paying,

00:49:58.440 | the current rate that you're paying

00:49:59.920 | on that top $18,000 of income,

00:50:02.320 | if you think you'll lower your income in the future.

00:50:05.280 | Now, let's talk about California.

00:50:07.080 | Your big challenge is living in the state of California.

00:50:09.720 | And it's very hard, the number one state

00:50:12.200 | in the United States, where I have the most listeners,

00:50:14.640 | is California.

00:50:16.140 | So I recognize that there are a lot of people in California,

00:50:19.600 | 'cause of course it's an extremely populated state.

00:50:21.660 | But it's very hard to see the future

00:50:23.600 | for a young person living in California,

00:50:26.040 | unless you're moving there specifically for the culture,

00:50:29.660 | the ideology, the politics, or a specific career

00:50:35.380 | that is not available in another place.

00:50:38.700 | Those are my reasons why I could understand

00:50:40.640 | somebody moving there.

00:50:41.880 | Whether, and let me kind of lay those out for you.

00:50:44.200 | The culture, so you might wanna live in a place

00:50:46.820 | that has a beach surfing culture, or a Latino culture,

00:50:51.240 | or you wanna live in San Francisco

00:50:53.840 | for the lifestyle culture that is common in San Francisco.

00:50:58.840 | So those are things that are related to culture.

00:51:01.560 | You might wanna live in California for the politics.

00:51:04.040 | If your political persuasion is best expressed

00:51:07.360 | by living in California,

00:51:09.120 | then you might wanna consider there for that,

00:51:11.520 | or some ideology, or a career, a specific career

00:51:15.920 | that is most available to you,

00:51:17.540 | or where you can most advance it in California

00:51:20.480 | that you can't in another place.

00:51:22.440 | But it's very hard for me to see the growth prospects

00:51:26.040 | for a young man living in California.

00:51:28.480 | If you build a life and stay in California,

00:51:31.680 | basically you are locked in to a very, very expensive

00:51:37.840 | lifestyle going forward.

00:51:40.520 | And about the best thing I can give for California

00:51:43.600 | is that property taxes are not egregious.

00:51:46.080 | So if you can structure your life in a way that,

00:51:49.020 | yes, you can afford to pay the property values,

00:51:51.440 | but you don't earn a lot of income,

00:51:52.960 | and you don't deal with a lot of the restrictions

00:51:55.680 | and just the legal environment

00:51:58.000 | that makes running a business so burdensome,

00:52:00.480 | then maybe California has a future.

00:52:02.120 | But it's hard for me to see a future

00:52:03.640 | for young people in California

00:52:05.200 | because of everything that you know around you.

00:52:08.200 | So I don't know the answer to your career question,

00:52:11.840 | but there is a big price to pay for living in California

00:52:14.760 | versus living in somewhere that is a little bit more free

00:52:17.480 | and has a little bit of a freer economy

00:52:19.320 | so that you can get better deals on stuff.

00:52:22.320 | - Yeah, I mean, as I mentioned,

00:52:24.360 | part of why I moved back there was just 'cause

00:52:26.360 | I needed to get out of the current job I was in.

00:52:28.640 | I had family here, and it just, it made sense to move back.

00:52:31.640 | For those not really maybe aware of what's going on

00:52:35.840 | with sort of the alcohol culture in the US,

00:52:38.720 | historically there's kind of three great cities

00:52:41.760 | for drinking, it's New York, San Francisco, and New Orleans.

00:52:44.800 | And Los Angeles right now is actually kind of

00:52:47.840 | establishing itself as another hub.

00:52:49.560 | And so there are a lot of really influential bartenders,

00:52:53.880 | bar managers, salespeople for the off-premise side

00:52:57.200 | that are here right now.

00:52:58.280 | So I think that for me to sort of as a response

00:53:03.280 | to those thoughts that you had,

00:53:04.360 | there is a culture here from sort of the bar community

00:53:08.120 | that makes sense right now for me to be here.

00:53:11.520 | And I think it's good that I'm here for a period of time.

00:53:16.040 | Long-term, I lived in Colorado for a little bit.

00:53:19.520 | I would love to get back to Colorado.

00:53:21.420 | There are other states that I would consider living in.

00:53:24.800 | So yeah, I agree with you with everything that you said.

00:53:28.240 | As someone experiencing it firsthand,

00:53:30.400 | I don't think that California is my long-term solution,

00:53:33.320 | but I do think there are some advantages for me

00:53:35.920 | just in the connections that I'm making

00:53:37.920 | in the time that I'm here right now.

00:53:40.880 | - Right, and that's the challenge.

00:53:42.880 | And so I would just say, Ken, is there a way

00:53:44.960 | that you can use those connections

00:53:46.960 | and build a really exciting plan

00:53:49.040 | that's also financially wise?

00:53:51.840 | Can you build the connections

00:53:53.160 | and then go and help a new company that's in Austin, Texas?

00:53:58.080 | Or can you build the connections

00:54:02.040 | and then go and work with a company in Hong Kong

00:54:05.040 | or something else that gets you out

00:54:07.840 | of the constraints of California?

00:54:10.100 | So you have to analyze it on the ground.

00:54:12.840 | Each location is actually individual.

00:54:15.520 | And in most places,

00:54:16.480 | you can figure out a way to make things work.

00:54:18.760 | But if your only reason for being there is a career

00:54:22.160 | and not those other reasons,

00:54:23.560 | not because you like the political environment,

00:54:25.500 | not because you like the culture,

00:54:27.000 | the ideology of your neighbors, things like that,

00:54:29.560 | just recognize that you pay a high price

00:54:32.400 | and calculate it carefully.

00:54:34.200 | And always look to see,

00:54:35.160 | is there a way that I could build this career

00:54:36.760 | without actually being here?

00:54:39.200 | Because it will wind up costing you a lot more money.

00:54:42.300 | Good news is you're not paying a ton at this point in time.

00:54:45.640 | You may not,

00:54:46.480 | I just ran a quick calculator while you were talking

00:54:48.760 | with the California standard deduction.

00:54:50.920 | You may not be paying significant state income taxes

00:54:54.040 | at this point in time,

00:54:54.960 | because by the time you put together

00:54:56.940 | your California deductions,

00:54:58.920 | it may not be,

00:55:01.760 | nevermind.

00:55:06.020 | I shouldn't try to do this kind of thing live on the radio.

00:55:10.320 | So it looks to me like with your standard deduction,

00:55:14.300 | actually at $58,000,

00:55:15.820 | you may be paying about $2,444

00:55:19.000 | for the privilege of living in California.

00:55:22.820 | So run the math, run it carefully, study your career.

00:55:25.480 | I think it's wise for you to be in a place

00:55:27.620 | where there are growth prospects for your career.

00:55:29.820 | So if the alcohol industry

00:55:31.500 | is something that you really love,

00:55:33.140 | and if Los Angeles is the place to do it, do it.

00:55:36.180 | And if you can get your income off

00:55:37.300 | from 58 to 158 to 258 to 558 to 1,000,058,

00:55:42.300 | and you can do that because you're in Los Angeles, California

00:55:45.900 | you can live very well in Los Angeles, California

00:55:47.940 | on a million bucks a year.

00:55:49.240 | Anything else, Cody?

00:55:51.260 | - No, thank you so much.

00:55:53.360 | I really appreciate your time and everything that you do.

00:55:55.740 | - My pleasure, sir.

00:55:56.740 | We go now to, speaking of Texas,

00:56:00.380 | we go now to Houston, Texas.

00:56:01.580 | Welcome to the call.

00:56:02.420 | How can I serve you today?

00:56:03.500 | - Hey Joshua.

00:56:06.340 | Yeah, thanks for taking my call

00:56:07.700 | and thanks for setting up these,

00:56:09.500 | this string of calls for all of us this week.

00:56:12.500 | So I was listening to your most recent show

00:56:16.660 | that came out yesterday

00:56:18.540 | and got me thinking about whether or not

00:56:22.220 | I am thinking through college planning

00:56:25.980 | as effectively as I can.

00:56:28.980 | My wife and I, we live here in Texas

00:56:31.460 | and we have a one-year-old baby boy

00:56:33.980 | and obviously thinking through

00:56:36.500 | what college might look like in the next 17 to 18 years.

00:56:40.820 | And as far as I can tell,

00:56:43.380 | there aren't too many benefits of a 529 here in Texas

00:56:49.280 | in terms of like tax deductions or anything like that.

00:56:52.420 | So we did open up a 529, put about $8,000 in it,

00:56:56.740 | but I've since adjusted my plan

00:56:59.300 | in that we have opened up a Roth IRA under my wife's name.

00:57:03.740 | And are contributing the maximum to that

00:57:08.540 | with the plan of taking out the contributions

00:57:11.260 | in 18 years to pay for college.

00:57:13.780 | My question is, does that sound like, excuse me,

00:57:17.580 | an effective way of thinking through college plans?

00:57:21.660 | And I mean, is that something that can be done?

00:57:25.780 | And then the second part to that question is,

00:57:28.540 | when is time for him to look at

00:57:33.380 | perhaps financial aid or scholarships?

00:57:37.140 | What all do the institutions look at

00:57:40.140 | in terms of assets under the family name?

00:57:43.500 | - Have you listened to a podcast that I did a few years ago

00:57:48.460 | called "Why This Financial Planner Refuses to Save

00:57:51.100 | for His Kid's College Education?"

00:57:53.820 | - I don't believe I have, no.

00:57:57.580 | - Okay, so the very best one,

00:57:59.580 | and I'll give you the show number in a moment,

00:58:03.020 | but what I would recommend to you

00:58:04.380 | and any other interested listeners

00:58:05.980 | is to go back and listen to that complete podcast

00:58:09.380 | because it will give you some specific suggestions.

00:58:14.380 | It's podcast number 276, released on January 6, 2016.

00:58:19.420 | It's called "Why This Financial Planner Refuses

00:58:22.260 | to Save Money for His Kid's College,"

00:58:24.300 | which is obviously, I mean, not obviously,

00:58:26.340 | but I'm the financial planner

00:58:27.860 | and I'm talking about my own kids.

00:58:30.020 | So I'll give you just an abbreviated version

00:58:31.900 | and answer your specific question,

00:58:33.780 | but I would commend episode 276 to you

00:58:37.300 | for you to consider in terms of how it would apply

00:58:41.180 | to your situation.

00:58:42.100 | First, with regard to a 529 plan.

00:58:44.160 | Yes, if you do not pay a state income tax,

00:58:48.980 | as you do not pay in Texas,

00:58:51.740 | a 529 plan is of limited value

00:58:55.220 | with regard to tax considerations.

00:58:58.660 | When you put money into a 529 plan

00:59:00.940 | or a Coverdell Educational Savings Account,

00:59:03.860 | you do not get an upfront tax deduction.

00:59:07.020 | As the money grows over time,

00:59:11.420 | when you take it out and use the money

00:59:14.740 | for a qualified education-related expense,

00:59:18.700 | you can take the money out and pay for that expense

00:59:22.140 | without paying taxes on the growth.

00:59:25.420 | So what you save with a 529 plan

00:59:28.300 | is the amount of tax that you would incur

00:59:30.900 | on the growth of the asset.

00:59:33.380 | Because you have a young child,

00:59:36.340 | you said one-year-old, right?

00:59:38.620 | - One-year-old, yes, sir.

00:59:39.500 | - Because you have a young child,

00:59:42.060 | that tax growth might be substantial.

00:59:46.080 | So it might be.

00:59:47.980 | And let's talk about, let's run a quick analysis.

00:59:51.460 | How much would you put away in this account

00:59:54.140 | for your one-year-old's education?

00:59:56.300 | - How much would I put away into the 529 account?

01:00:00.580 | - Yes, per year.

01:00:02.060 | - Per year, probably about $5,000 per year.

01:00:06.460 | - Okay, and would you do that for the next 17 years?

01:00:09.680 | - Unless I had an increase in income, yes.

01:00:15.060 | - All right, so let's run a quick financial calculator

01:00:17.540 | and see how much would be the interest

01:00:19.580 | on that particular account.

01:00:21.820 | So the first thing we're gonna do

01:00:23.180 | is we're gonna put in a $5,000 annual payment

01:00:26.340 | for 17 years at a 0% interest,

01:00:29.580 | starting with an account value of zero.

01:00:32.220 | And at the end of 17 years,

01:00:33.780 | that would be total contributions of $85,000,

01:00:37.140 | simply $5,000 times 17.

01:00:39.900 | Now, how much do you think you will earn

01:00:42.980 | on your 529 account investments

01:00:45.220 | in terms of annual rate of return?

01:00:47.120 | - The challenge with the 529,

01:00:50.540 | the way that I have it set up in this case

01:00:54.380 | is it's through Vanguard, and it's one of their,

01:00:59.380 | I guess, scaling portfolios,

01:01:01.060 | so they add in more bonds

01:01:03.100 | toward the maturity of the due date.

01:01:07.880 | And so, I don't know, it's been hard for me

01:01:10.140 | to think through what I would and could expect

01:01:13.460 | as an interest on those contributions.

01:01:20.300 | - So give me your best guess that you would be comfortable

01:01:23.340 | in using for calculation purposes.

01:01:28.500 | - 5%.

01:01:29.660 | - Okay, so let's put in now a 5% interest rate,

01:01:33.180 | or annualized rate of return,

01:01:35.060 | which means that at the end of 17 years,

01:01:37.380 | if you could earn 5% each year,

01:01:39.940 | you would have an account value of $135,600.

01:01:44.300 | So let's just round it off to $135,600.

01:01:47.920 | So 135,600 minus $85,000 equals $50,600.

01:01:52.920 | So the value of the 529 account would be

01:01:58.300 | that you can avoid paying tax on the growth

01:02:02.500 | from that $50,600.

01:02:05.340 | Now, what is your effective tax rate personally?

01:02:08.640 | - 2019, I think it's 24%.

01:02:15.940 | - Okay, so a 24% effective tax rate is $12,000 of taxes

01:02:20.940 | on that $50,000 number.

01:02:23.740 | So by using a 529 account,

01:02:27.020 | you could potentially, if your tax rate stays the same,

01:02:29.900 | you could potentially save yourself about $12,000 in taxes.

01:02:33.560 | Now, does that number seem to you like a lot or a little?

01:02:37.540 | - To me, it seems like a lot.

01:02:41.140 | - Okay, now I would say that it's not insubstantial.

01:02:44.060 | It does sound on the higher end.

01:02:46.220 | Now, the reason that it's on the higher end

01:02:47.900 | is because you're talking about a one-year-old.

01:02:50.540 | Most people will never have that much growth

01:02:53.360 | on a 529 account because they start

01:02:55.260 | when their children are eight or 10 or 12,

01:02:59.500 | and they wanna put the money away for college,

01:03:01.580 | but because they're so close to college,

01:03:03.420 | they can't actually invest the money all that aggressively.

01:03:06.420 | And that's one of the challenges

01:03:07.380 | with even the age-banded portfolios

01:03:09.740 | is they constantly move money from stocks to bonds,

01:03:12.400 | which you kinda have to do because as you get closer,

01:03:14.540 | you don't wanna suffer a 30% correction in the stock market

01:03:18.060 | that takes away 30% of your money

01:03:19.260 | right when you need it for college,

01:03:20.660 | but unfortunately, it also puts a major drag

01:03:22.580 | on your potential returns from stocks.

01:03:24.660 | So the reason I go through those calculations,

01:03:28.140 | you are in the perfect position to use a 529 account,

01:03:32.460 | but yet even you, it's only about $12,000 of tax savings

01:03:36.500 | that you would incur.

01:03:38.420 | Now, I wouldn't sneeze at that,

01:03:40.260 | but it's also not hundreds of thousands of dollars.

01:03:43.300 | That's very different than the calculation

01:03:45.100 | on a retirement account.

01:03:46.460 | When you have a 40-year or 30- or 40-year

01:03:49.060 | investment time horizon

01:03:50.220 | instead of a 17-year time horizon,

01:03:52.700 | then you can really produce major gains.

01:03:54.780 | Now, investing in the retirement account

01:03:57.700 | is a really big deal.

01:03:59.100 | So I would point out to you

01:04:00.940 | that you should know the actual numbers

01:04:03.220 | from the benefit of a 529 account.

01:04:05.900 | Secondly, remember that that's not the only way

01:04:09.220 | for you to save on taxes.

01:04:11.560 | Example, you could purchase assets

01:04:15.500 | that you don't pay ordinary income tax rates on.

01:04:17.520 | You could purchase assets

01:04:18.660 | that are long-term capital gains assets.

01:04:20.780 | You could buy a stock or an efficient index fund

01:04:23.900 | or a piece of real estate,

01:04:25.380 | hold that real estate for many years.

01:04:27.580 | And if you could find a way to make more

01:04:29.220 | than the 5% that you get in the Vanguard 529 portfolio,

01:04:32.820 | and if you can find a way

01:04:35.060 | to pay long-term capital gains rates

01:04:37.220 | instead of personal income tax rates,

01:04:39.020 | your rate could be lower than the 24%

01:04:41.180 | that you are currently paying on your personal household.

01:04:44.060 | So 529 accounts aren't the only path to that solution.

01:04:48.060 | Secondly, or next, your plan with putting money

01:04:51.180 | into a Roth IRA, in my opinion, is a great one.

01:04:54.380 | If you put $5,000 aside into a Roth IRA each year

01:04:58.100 | for the next 17 years, at that point in time,

01:05:00.540 | you have $85,000 available to you for college

01:05:04.980 | that you could just take out and pay for college.

01:05:08.340 | You wouldn't be able to take out the $135,000,

01:05:11.920 | which would be the growth,

01:05:13.180 | but all of the rest of that money

01:05:14.300 | could stay in the Roth IRA,

01:05:15.860 | and then you could use it for other needs as well.

01:05:18.460 | And so you would have the $85,000 available to you.

01:05:21.260 | So if you were choosing between a Roth IRA or a 529

01:05:25.260 | with the amount of money that you have to save,

01:05:26.780 | I would move you in the direction of a Roth IRA.

01:05:29.260 | If you're already maxing out Roth IRAs

01:05:31.420 | and you're looking for an additional account to use,

01:05:34.380 | then I would put you in the direction

01:05:36.180 | of another type of account.

01:05:37.780 | Make sense?

01:05:38.600 | - Yeah, yeah, that makes sense.

01:05:41.780 | So, you know, let me ask you this,

01:05:44.760 | and deciding between the two,

01:05:48.340 | when it comes time for, like,

01:05:52.300 | applying for scholarships or perhaps financial aid

01:05:55.420 | or whatever it might be,

01:05:56.660 | and the institution wants to look into

01:06:01.220 | specific assets or income to see what you qualify for,

01:06:05.020 | will they look into retirement accounts like a Roth IRA?

01:06:09.980 | - Let me ask you a question.

01:06:12.000 | How confident are you that the environment

01:06:14.780 | that your one-year-old will go into with college

01:06:18.260 | will look the same as it looks today in 17 years?

01:06:21.640 | - Not very confident.

01:06:25.340 | - Right, that's the problem,

01:06:27.560 | is I can answer the question today,

01:06:29.620 | but you have a one-year-old,

01:06:32.120 | you have a one-year-old, not a 17-year-old,

01:06:35.500 | and I have zero, okay,

01:06:37.940 | I have .01% confidence that the situation

01:06:42.940 | will look anything like it looks in 17 years.

01:06:46.160 | We are undergoing a revolution right now

01:06:49.040 | in the world of college academics,

01:06:51.240 | and let me identify just a couple things for you to watch.

01:06:54.320 | Number one, there is a major debate going on between people

01:06:58.840 | as to whether or not a college degree has financial value,

01:07:02.760 | and this debate is difficult to find the answer to

01:07:05.040 | because all college degrees are not created equal.

01:07:09.300 | So there is clear and compelling evidence

01:07:12.940 | that people with college degrees earn a lot more

01:07:16.060 | over the course of their lifetime

01:07:17.460 | than people without college degrees.

01:07:19.780 | I don't know, and I have never seen any writing

01:07:22.600 | or effective persuasive argument

01:07:24.480 | as to whether that is a matter of causation or correlation.

01:07:28.700 | I went to college because I'm not a loser,

01:07:32.380 | and when I was in high school,

01:07:34.040 | I was under the impression

01:07:35.860 | that only losers don't go to college,

01:07:38.400 | and I'm not a loser, so I went to college,

01:07:40.740 | but I can trace none of my personal success or failures,

01:07:45.740 | but I can't trace any of my personal success in life

01:07:48.660 | to my college degree.

01:07:50.020 | I can't trace any of it.

01:07:51.940 | About the best thing that I can say

01:07:54.220 | that came for me from my college years

01:07:56.580 | was the fact that I met my wife,

01:07:58.180 | and we married happily after college,

01:08:00.860 | but I can't trace any direct causation of my college degree

01:08:05.860 | on my personal success in life.

01:08:08.260 | Rather, I look at it and say,

01:08:09.860 | if someone had come along and given me a different path,

01:08:12.340 | I think I would have a lot more money.

01:08:14.300 | I think I'd be a lot more successful today

01:08:15.820 | if I hadn't gone to college,

01:08:17.040 | if I'd pursued a different path.

01:08:18.600 | College cost me a lot of money and a lot of time,

01:08:21.120 | and I don't trace a lot of value from that.

01:08:23.440 | So how do you find the answer?

01:08:25.120 | I don't know.

01:08:25.960 | Some of the academic will have to figure out

01:08:27.560 | and how to suss out causation versus correlation

01:08:30.200 | on college degrees and lifetime earnings.

01:08:32.360 | I don't know.

01:08:33.200 | I'm not competent enough to do that,

01:08:34.480 | but that's a big thing that's happening.

01:08:36.400 | Number two, a lot of people that go to college

01:08:39.080 | are very hurt by college.

01:08:40.660 | When I look around my peers,

01:08:43.000 | very few of us trace any major benefits to college.

01:08:46.540 | Most of us would simply agree

01:08:48.040 | that college allows us to get jobs more easily

01:08:50.320 | because we can tick the box

01:08:51.900 | that we have a college degree.

01:08:54.520 | But if you look at the trends in employer data,

01:08:56.640 | that is changing.

01:08:58.200 | Many employers are not requiring college degrees,

01:09:01.480 | or at least are not so strict about it as they once were.

01:09:06.000 | Traditionally, the biggest value of a college degree

01:09:08.500 | for an employer was that a college degree

01:09:10.200 | demonstrated to the employer

01:09:12.000 | that the applicant was successful at finishing things.

01:09:17.000 | It takes somebody who's a finisher to finish high school,

01:09:21.840 | to go to college and finish college.

01:09:24.000 | And so that was useful.

01:09:26.080 | But, and then also someone who's smart

01:09:28.400 | and has a basic level of knowledge.

01:09:29.960 | But jobs are changing,

01:09:31.160 | and the information that's needed,

01:09:33.260 | the skills that are needed are changing so quickly

01:09:35.480 | that with the exception of the hard sciences,

01:09:38.160 | where you need that four years in engineering classes,

01:09:41.240 | you need those four years in mathematics classes,

01:09:43.980 | you need those four years in chemistry classes,

01:09:46.280 | because it's directly relevant

01:09:47.760 | to your materials science research.

01:09:50.560 | Most college degrees,

01:09:51.880 | the information is obsolete by the time you get out.

01:09:54.600 | They're not current.

01:09:55.640 | They're not cutting edge at all.

01:09:57.920 | Just the simplest example was when I was in college,

01:10:00.200 | I had a class on writing,

01:10:01.880 | and they would teach us proper business writing.

01:10:03.920 | And so I used to do it.

01:10:05.100 | When I got out in the business world,

01:10:06.200 | I'm a good writer and I would write proper emails.

01:10:08.520 | Nobody read my emails.

01:10:09.880 | So the only way that I got my emails answered

01:10:11.920 | in the business world,

01:10:12.880 | is I put the text of my email in the subject line,

01:10:15.560 | and then I copied and pasted it to the body of the email,

01:10:17.840 | which would make any English teacher

01:10:19.600 | break out in cold sweats,

01:10:21.240 | but I would get answers to my emails that way

01:10:23.180 | when I wouldn't with my perfectly formatted

01:10:24.940 | professional letter.

01:10:26.500 | So, you know, the things that are taught in college,

01:10:28.840 | with the exception of the hard sciences,

01:10:30.280 | are largely obsolete.

01:10:31.560 | Other things that are happening,

01:10:32.720 | there is a massive problem in the student debt market.

01:10:36.720 | And the student debt market is very, very difficult.

01:10:39.680 | There are a lot of people with student debt

01:10:41.400 | who went into student debt for worthless degrees

01:10:44.120 | that feel like they were bamboozled.

01:10:45.920 | They were hoodwinks.

01:10:46.760 | They were fooled.

01:10:47.800 | And so they have a job that doesn't pay for the debt.

01:10:51.480 | And so you have this massive clamoring on all sides

01:10:54.520 | for a political solution.

01:10:56.340 | Look at the tremendous upswell of support

01:11:00.520 | that Senator Bernie Sanders had.

01:11:01.840 | And one of the bases for his economic plan

01:11:05.920 | was the idea that we're gonna wipe out student debts.

01:11:08.640 | We're gonna make college free.

01:11:10.100 | Now, I don't know what direction the politics

01:11:11.640 | in the United States of America are going,

01:11:13.380 | but it's very hard to see

01:11:14.600 | that that just disappears overnight.

01:11:16.600 | That political position is very, very strong.

01:11:19.920 | And I could go on and on, but today, even today,

01:11:22.900 | college, if you look at it and say, is it expensive?

01:11:26.360 | Anybody with good academic competence

01:11:30.240 | and decent cognitive ability today

01:11:33.080 | can go to college working a minimum wage job

01:11:36.460 | at a fast food restaurant

01:11:37.880 | and pay for the whole thing in cash.

01:11:41.080 | There are so many free and inexpensive options available.

01:11:44.600 | There's a big press.

01:11:45.440 | First of all, online universities

01:11:46.840 | are really coming into their own.

01:11:48.360 | Today, you can get an accredited degree

01:11:49.940 | from an online university for less than 10,000 bucks total

01:11:53.000 | for a four-year degree.

01:11:54.500 | The state colleges, the community college approach,

01:11:56.800 | the state college approach is stronger than it's ever been.

01:11:59.560 | Prices are coming down.

01:12:01.000 | And the financial aid market

01:12:03.600 | for people with good college skills,

01:12:06.140 | good cognitive ability is stronger than it's ever been.

01:12:09.000 | There are so many colleges all across the country

01:12:11.760 | that somebody with good skills, good grades,

01:12:14.400 | good test scores can go to and be guaranteed a full ride.

01:12:18.240 | And so I look at it and say,

01:12:20.060 | we should pay attention to that.

01:12:21.300 | If your child does not have good cognitive ability,

01:12:24.140 | it is not academically skilled,

01:12:26.340 | they shouldn't go to college

01:12:27.860 | because the horror stories of college

01:12:29.620 | are the people who go and are not well-suited for it.

01:12:32.480 | They go and they fail out.

01:12:33.840 | Now they have $15,000 of student loan debt.

01:12:36.340 | They finished two years of a degree.

01:12:38.420 | They don't have the degree and all they have is the debt.

01:12:40.520 | They weren't a good match for college.

01:12:42.540 | So the only people that should go to college

01:12:43.940 | are people who are a good match for college

01:12:45.340 | and people who are a good match for college

01:12:46.900 | don't need to pay for it today.

01:12:48.260 | Or if they do need to pay for it,

01:12:49.580 | they can work part-time and pay for it

01:12:52.420 | out of their earnings.

01:12:53.540 | So I think 17 years from now,

01:12:55.900 | these trends are just going to continue.

01:12:58.020 | I think 17 years from now,

01:12:59.700 | you'll be able to get an accredited degree

01:13:02.340 | from an online university while you're a teenager

01:13:05.540 | for less than a few thousand bucks less.

01:13:07.900 | And there's no reason to save for that kind of thing.

01:13:10.140 | I think the costs for state universities and such like that

01:13:13.960 | will be forced by the market to come down

01:13:16.920 | because of the market pressures

01:13:20.040 | or because of government legislation

01:13:25.940 | where state universities become free,

01:13:28.460 | as in paid for by other people other than the student,

01:13:31.760 | and/or the cost for the elite universities,

01:13:35.320 | the sorting mechanism of the elite universities,

01:13:37.040 | those will continue to ride,

01:13:38.680 | but there will continue to be plenty of option

01:13:41.220 | to have those things paid for by the universities

01:13:46.220 | and by scholarship programs and things like that.

01:13:49.440 | So that's your problem.

01:13:50.880 | Your problem is how's your crystal ball 17 years from now

01:13:54.120 | trying to tell you how much money you should pay for college?

01:13:59.120 | - Yeah, yeah.

01:14:01.640 | And I think that's one of the most attractive things

01:14:04.600 | about using the contributions from a Roth IRA

01:14:08.240 | rather than a 529 is with that evolution

01:14:12.180 | and not knowing what that's gonna look like

01:14:14.020 | or if it's even gonna be relevant in the next 17 years,

01:14:17.720 | or if for whatever reason,

01:14:19.780 | my little boy doesn't wanna go to college,

01:14:22.180 | I can go ahead and leave those in there

01:14:23.460 | to continue to grow for retirement

01:14:24.980 | or use those contributions for another endeavor.

01:14:28.220 | But so I just wanted to run that by you.

01:14:31.980 | I mean, the gentleman that called in yesterday

01:14:34.860 | that was asking about transfer of beneficiaries

01:14:39.240 | from one 529 to the other on his two girls,

01:14:43.200 | just got me thinking about the scholarship side of things.

01:14:48.200 | And if I were to leave them in a Roth IRA,

01:14:52.740 | would that open up more doors for potential scholarships

01:14:57.080 | later on down the road,

01:14:58.120 | rather than being limited to the scholarship institutions

01:15:03.000 | that could look behind the 529 curtain and say,

01:15:05.180 | well, you don't necessarily need this scholarship.

01:15:08.000 | - Right.

01:15:08.840 | So let me answer that question specifically.

01:15:10.960 | There are many scholarships that are available

01:15:14.740 | that do not take into account any assets, income,

01:15:18.900 | or resources of the parent or student

01:15:22.260 | in their consideration.

01:15:24.120 | Example, where I live in Florida,

01:15:27.220 | the Florida Lottery underwrites a scholarship program,

01:15:30.660 | and that scholarship program is exclusively based

01:15:33.780 | upon the grades of the student.

01:15:37.620 | All of my siblings and I got many thousands of dollars

01:15:41.560 | per year for college because we had good grades,

01:15:44.620 | and there was no requirement that we submit any information

01:15:48.220 | about our parents' assets, our parents' income, et cetera.

01:15:53.220 | So there was no requirement from that perspective.

01:15:57.020 | Secondly, there are many scholarships that are available

01:16:00.020 | that don't pay any attention to assets

01:16:02.400 | that are available from schools and from organizations.

01:16:05.680 | If you are a Choctaw Indian or whatever,

01:16:09.500 | you have some ethnic heritage,

01:16:11.300 | there's a scholarship for that.

01:16:13.340 | If your child winds up designing robots,

01:16:15.700 | there's a scholarship for that.

01:16:18.020 | There are tons of scholarships that don't take into account

01:16:21.080 | any financial considerations.

01:16:23.620 | And so that's important for you to notice and to recognize

01:16:26.820 | is the best thing to do is to make sure

01:16:28.980 | that your child is academically skilled

01:16:31.060 | and that they qualify for as many scholarships as possible

01:16:33.900 | that don't relate to their personal income or assets,

01:16:38.900 | because those are available.

01:16:40.660 | Now, the big problem is that most scholarships,

01:16:45.140 | especially from schools,

01:16:46.800 | and are based upon what's called the FAFSA,

01:16:49.740 | the Free Application for Federal Student Aid.

01:16:52.180 | And the FAFSA is a document you can go on

01:16:54.340 | and you can use a free FAFSA estimator online right now.

01:16:59.340 | And so if you go on and you use that FAFSA,

01:17:04.420 | you can put your numbers in and put your expected numbers in

01:17:07.380 | and you can play with the formula

01:17:08.700 | and you can find out

01:17:09.660 | what your expected family contribution is.

01:17:12.860 | So when you run that FAFSA,

01:17:14.580 | it will create a number that's called your EFC,

01:17:16.980 | your expected family contribution.

01:17:18.980 | And that's how much money you're supposed to give

01:17:21.620 | to your children for their college expenses.

01:17:25.740 | And that FAFSA will relate,

01:17:28.420 | it will list out your assets

01:17:31.380 | and it will list out your income.

01:17:34.040 | So that's the basic function of it.

01:17:38.860 | Most schools, most colleges and universities

01:17:42.220 | will also use that number

01:17:43.840 | in determining their own financial aid calculations

01:17:46.740 | within their local scholarship department.

01:17:48.900 | Many of them will require you to fill out the FAFSA

01:17:51.900 | in order to be eligible for their school's scholarships.

01:17:56.340 | Now, I'm not convinced that people should use that form,

01:17:59.980 | but if you're gonna do college planning,

01:18:03.340 | then you're gonna do that.

01:18:05.020 | So the question is how,

01:18:06.020 | the specific question is how are things reported

01:18:08.500 | on the FAFSA?

01:18:10.680 | Now, on a FAFSA,

01:18:12.340 | the assets are reported of a 529 account.

01:18:17.560 | But what, so any assets that are owned by the parent

01:18:22.560 | or the student or which they're a beneficiary,

01:18:25.280 | those assets, sorry,

01:18:26.680 | any assets that are owned by the parent or the student

01:18:28.360 | are gonna be reported on the FAFSA.

01:18:30.680 | And then what they do is they take that,

01:18:33.400 | the amounts that are in those accounts

01:18:35.440 | and then they assess a rate.

01:18:37.120 | I think it's about 5.5%.

01:18:39.020 | So they take a 529 plan and they take the balance of it,

01:18:43.240 | take about 5.5% of that,

01:18:45.080 | and they apply that towards the financial aid eligibility.

01:18:50.080 | It's my understanding at the moment,

01:18:52.760 | I'm not an expert, check me out,

01:18:54.080 | but it's my understanding that things like a Roth IRA,

01:18:56.640 | the balance is not brought

01:18:58.080 | to the expected family contribution.

01:19:00.040 | That can be a benefit to it.

01:19:01.660 | But if you take income out of the Roth IRA,

01:19:04.160 | then now all of that income will be assessed

01:19:07.280 | based upon its contribution,

01:19:09.240 | which is a much higher rate.

01:19:10.360 | I think it's about half.

01:19:11.880 | And so if you take out money from the Roth IRA

01:19:16.760 | and use that to pay for college,

01:19:18.980 | the higher income amount that's reported on the FAFSA

01:19:22.480 | will be a bigger problem than the 529 account.

01:19:26.400 | So for the purposes of the FAFSA,

01:19:28.440 | the 529 account is a good account to have

01:19:33.880 | because of that 5.5% rate versus the 50% rate.

01:19:39.520 | So that would be the kind of advice

01:19:41.900 | that would apply to somebody who's 16 or 17

01:19:44.120 | as they're trying to figure it out.

01:19:45.560 | But for you, given that you don't even know

01:19:47.960 | what you're gonna do,

01:19:49.280 | you don't know where you're gonna be in 17 years,

01:19:51.160 | I think the Roth IRA offers many more flexible options,

01:19:54.200 | and I don't think the FAFSA will look

01:19:56.520 | like it does today in 17 years.

01:19:58.960 | So that's the technical answer to your question

01:20:01.400 | as I understand it,

01:20:02.840 | and then you have to figure out what to do with that.

01:20:05.200 | Make sense?

01:20:06.800 | - Yeah, it makes sense.

01:20:07.640 | One last quick question for you though

01:20:09.080 | is are the contributions that are pulled out

01:20:11.640 | of the Roth IRA considered income

01:20:15.000 | even though you've already paid taxes on them?

01:20:17.300 | - Huh.

01:20:21.720 | I don't know.

01:20:23.760 | - Okay.

01:20:26.440 | - That's a good question.

01:20:28.760 | I don't know.

01:20:30.640 | I never thought about that

01:20:31.760 | when I was reading college advisors

01:20:33.480 | talking about this debate.

01:20:38.280 | I think not,

01:20:39.540 | which might turn, well.

01:20:44.120 | - Doesn't seem like it would be

01:20:45.360 | since it was already reported as income.

01:20:47.840 | - Right, right.

01:20:49.240 | That is a good question.

01:20:50.320 | I don't know the answer to it.

01:20:52.600 | I will attempt to research it and try to find out,

01:20:54.900 | but it doesn't seem to me,

01:20:56.300 | because when you take a distribution from a Roth IRA

01:20:58.520 | that's just simply a return of contribution,

01:21:00.760 | why would that be counted as income

01:21:02.480 | if it's not reported as income on your tax return?

01:21:05.140 | Good question, sir.

01:21:07.680 | Let's close it out with I don't know.

01:21:09.640 | You research it.

01:21:10.560 | I'll try to research it

01:21:11.520 | and see if I can come up with an answer,

01:21:13.680 | because I didn't think about that wrinkle

01:21:16.200 | until you just asked the question.

01:21:18.560 | - Yeah.

01:21:19.440 | Yeah, I'll dig into it a little bit,

01:21:21.920 | and if I come across anything,

01:21:23.520 | I'll just post it to the show notes

01:21:25.080 | in the comments section.

01:21:25.920 | - That would be great.

01:21:26.740 | And I'll say this to you.

01:21:27.720 | I don't think parents should,

01:21:29.600 | the only place I see for five to nine accounts

01:21:32.400 | is for somebody who has a long time horizon.

01:21:37.640 | There are a number of situations.

01:21:39.240 | For example, if somebody has a lot of money,

01:21:40.560 | a grandparent has a lot of money,

01:21:41.640 | a five to nine account is one of the most useful

01:21:43.640 | estate planning tools out there

01:21:44.880 | because you can give a gift to present interest,

01:21:47.040 | but still control, a completed gift to present interest,

01:21:50.120 | but still control the account.

01:21:51.080 | So grandparents, very useful.

01:21:53.240 | There's an addition with now that five to nine accounts

01:21:55.240 | are opened up to pay for private schools,

01:21:57.880 | for K through 12,

01:21:59.000 | I think more parents should consider them.

01:22:01.080 | But for what you're describing to me,

01:22:02.840 | I don't think they should be a primary use.

01:22:05.020 | I think better,

01:22:05.920 | make sure your children get good grades,

01:22:07.800 | are intelligent people and get a good deal on college

01:22:10.920 | or make the university pay you to go there.

01:22:13.240 | Don't bother with these accounts

01:22:15.040 | thinking that somehow saving money for college

01:22:18.000 | is gonna be a big deal.

01:22:18.960 | I think that by the time your 17 year old is in college,

01:22:23.000 | by my political finger up in the wind,

01:22:26.480 | it sure seems to me like there's not going to be,

01:22:29.600 | there's not gonna,

01:22:30.440 | that government sponsored tuition at college

01:22:36.200 | will be fully available.

01:22:37.440 | And let me just explain why,

01:22:38.560 | so you can consider if you think so as well.

01:22:41.600 | Should government schools exist for K through 12?

01:22:44.320 | - You're asking me?

01:22:47.880 | - Yes.

01:22:49.440 | - Should government schools exist for K through 12?

01:22:51.480 | - What's your opinion?

01:22:53.880 | - My opinion is yes.

01:22:55.960 | - Okay.

01:22:56.800 | - As long as we're paying taxes.

01:22:57.640 | - Okay.

01:22:58.480 | Now, in that case,

01:23:01.760 | should government schools exist

01:23:03.760 | for four years of undergraduate school?

01:23:06.200 | - You know, I haven't thought about that.

01:23:12.400 | - So if you'll think about it,

01:23:13.880 | in my analysis,

01:23:14.920 | if you think government schools should exist

01:23:17.920 | for K through 12,

01:23:19.040 | the logic of that position will also lead you to believe

01:23:24.040 | that you think government schools should exist

01:23:26.120 | for kindergarten and preschool.

01:23:28.440 | And the same logic will lead you to think

01:23:30.880 | that government schools should exist

01:23:33.000 | for undergraduate degrees at least,

01:23:35.160 | and maybe graduate degrees.

01:23:37.280 | Because there's no difference in logic

01:23:39.400 | between pre-K, sixth grade, 12th grade,

01:23:43.520 | or a four-year undergraduate degree

01:23:46.000 | if you think government schools should exist.

01:23:48.520 | And the majority of people think

01:23:50.400 | that government schools should exist.

01:23:52.240 | And so I don't see any logical or ideological difference

01:23:56.480 | between four years of an undergraduate school

01:23:58.880 | versus 10th grade.

01:24:00.560 | So how can this artificial demarcation exist?

01:24:03.520 | You have government schools for K through 12

01:24:05.840 | that are free for anybody who lives in that district.

01:24:08.620 | You have government-sponsored state universities

01:24:12.200 | that are not free.

01:24:13.240 | Why shouldn't they be free too?

01:24:14.840 | Now, I personally don't think government schools

01:24:18.120 | should exist.

01:24:19.040 | That's my own personal ideological position.

01:24:21.120 | I believe that it's theft for the government to come in

01:24:24.860 | and say, "We're going to take from people over here

01:24:27.280 | with taxes, and we're gonna force other people

01:24:29.840 | to pay for your children's schooling."

01:24:31.880 | So I don't think government schools should exist.

01:24:34.220 | So therefore, I don't think

01:24:35.440 | that government-paid colleges should exist.

01:24:38.000 | And I also don't think that government-paid preschool

01:24:40.320 | or kindergarten or primary or secondary school should exist.

01:24:43.740 | But I'm in a very tiny minority of the population.

01:24:47.960 | I don't know the percentage,

01:24:48.840 | but it's gotta be less than 10%

01:24:50.280 | of people who would agree with me.

01:24:51.760 | So I don't see how, in that political environment,

01:24:54.620 | given that most people, my guess, at least 80%,

01:24:57.440 | if not 90% of people,

01:24:58.800 | think that government schools are just fine,

01:25:01.320 | I don't see how that logic doesn't automatically,

01:25:03.760 | over the next decade or two, get extended to colleges,

01:25:06.460 | because there's no ideological difference

01:25:08.600 | that I can find between 10th grade

01:25:10.580 | versus an undergraduate degree.

01:25:12.200 | And so for that reason,

01:25:13.680 | I think by the time that you're in my one-year-olds

01:25:16.240 | are 17 or 18, college education will be paid for

01:25:20.440 | by the state.

01:25:21.660 | You're my, you think about that,

01:25:25.800 | but I can't find any reason,

01:25:27.520 | if I believed that government schools should exist,

01:25:29.960 | I can't find any reason to oppose government-paid colleges.

01:25:33.160 | - Right, okay.

01:25:35.440 | All right, good stuff to think about.

01:25:37.800 | I appreciate it.

01:25:38.620 | - My pleasure, sir.

01:25:39.460 | Have a great day.

01:25:40.520 | And with that, ladies and gentlemen,

01:25:41.840 | we close out today's show.

01:25:44.280 | A little bit longer than I intended.

01:25:46.240 | I hope you've enjoyed the Q&A.

01:25:47.280 | Thank you to the callers.

01:25:49.080 | My just request for you, go and take these ideas,

01:25:52.400 | think about them, and think about your own personal life.

01:25:55.920 | Analyze your set of circumstances as is appropriate.

01:25:59.880 | Any tool, 529 account, Roth IRA,

01:26:02.960 | Coverdell Educational Savings Account,

01:26:05.000 | any tool can be used in the right set of circumstances.

01:26:08.200 | And so I can design, as I constantly do,

01:26:10.600 | I can design ideas for you in which this tool is wonderful.

01:26:14.440 | I can identify several plans

01:26:16.800 | in which 529 accounts are incredible,

01:26:18.800 | but you'll only be able to understand what's right for you

01:26:21.480 | if you understand the attributes of the tool,

01:26:23.560 | you understand your goals,

01:26:24.680 | you understand your own thoughts,

01:26:26.240 | and then can apply them to your own situation.

01:26:28.800 | So I hope that these ideas have been useful to you.

01:26:32.080 | And as I go, I've just hit pause

01:26:34.420 | on the recording for a moment

01:26:35.520 | and looked up the answer to the question

01:26:37.400 | on the Roth IRA return of contribution.

01:26:42.400 | And the answer is, for the purposes of financial aid,

01:26:46.300 | the Roth IRA is counted as income.

01:26:49.640 | It's not on your taxable, on your tax return,

01:26:53.300 | but the FAFSA form,

01:26:55.560 | the Free Application for Federal Student Aid,

01:26:57.960 | requires you to list untaxed income.

01:27:01.320 | And that untaxed income,

01:27:03.320 | which is coming in from your Roth IRA

01:27:05.640 | that you list on the FAFSA form

01:27:08.520 | will count in the expected family contribution formula.

01:27:13.480 | So the answer is that, as described,

01:27:17.840 | the 529 account, for the purposes

01:27:20.480 | of having a lower expected family contribution,

01:27:23.740 | the 529 account is superior

01:27:26.080 | to taking distributions from the Roth IRA

01:27:29.000 | because the FAFSA will require you

01:27:31.440 | to report untaxed income.

01:27:33.320 | And in that category,

01:27:35.700 | you will report the return of contributions

01:27:38.500 | from your Roth IRA,

01:27:40.280 | or at least that seems to be

01:27:41.760 | what I found based upon research.

01:27:43.800 | Now, I still think that caller

01:27:45.720 | should go first to the Roth IRA

01:27:47.880 | for the reasons previously stated

01:27:49.320 | that I don't think they will need

01:27:51.080 | to take distributions from the Roth IRA.

01:27:54.000 | And it would seem to me,

01:27:55.320 | although I'm not an expert on the FAFSA,

01:27:57.120 | it would seem to me that there would be

01:27:59.300 | a very simple and easy way of handling this problem

01:28:03.180 | so that you don't have untaxed income.

01:28:04.960 | First, obviously, eliminate the need.

01:28:08.120 | Send your child to a cheap school.

01:28:10.520 | Make sure that your child has good grades.

01:28:12.240 | Make sure that your child has lots of other options.

01:28:15.340 | As far as for academic scholarships

01:28:18.200 | and things that don't rely on the FAFSA,

01:28:20.000 | make sure that you've adjusted your finances

01:28:21.960 | so you can just pay cash with your income during that time.

01:28:24.960 | But how I would get around this issue with the FAFSA

01:28:28.600 | is since Roth IRA assets are not reported on the FAFSA

01:28:33.600 | because they don't factor into the EFC,

01:28:35.840 | as long as you don't take a distribution from them,

01:28:38.160 | I would keep the money in the Roth IRA.

01:28:40.500 | Then I would not make a distribution from the account

01:28:43.580 | while the child is in college,

01:28:45.000 | while if I'm even filling out the FAFSA.

01:28:47.660 | I would take out a loan and use the loan to pay for college.

01:28:51.200 | And then if to pay back the loan,

01:28:53.280 | I would pay back the loan with the Roth IRA

01:28:55.200 | after the child is out of college,

01:28:56.840 | after I don't have to fill out the FAFSA anymore.

01:28:59.280 | Seems to me the most obvious and simple workaround.

01:29:02.340 | So I still think for that particular listener,

01:29:04.440 | the Roth IRA is superior.

01:29:06.700 | As we go today, wow, what a great time for me

01:29:08.880 | to plug to you my credit card course.

01:29:10.680 | How would I take a loan out against my Roth IRA

01:29:13.920 | for my child's tuition payments?

01:29:16.060 | Well, I would put it on credit cards.

01:29:19.480 | If I had a decent income and a nice big credit score,

01:29:22.320 | I would get a nice big fat 0% interest rate credit card.

01:29:26.120 | I would take that credit card

01:29:27.360 | down to the college accounting department.

01:29:29.760 | I would swipe that thing

01:29:31.080 | and I would get a 15 month interest free loan

01:29:33.460 | on my 0% credit card.

01:29:35.020 | And or I would put it on an Airlines Miles credit card

01:29:39.000 | and get myself a free plane ticket because of it

01:29:41.100 | or something like that.

01:29:42.340 | I would surf those balances around,

01:29:45.020 | never paying more than a very small balance transfer fee

01:29:48.320 | for a few years while my kid was in college.

01:29:50.240 | And then after my kid was in college,

01:29:51.880 | at that point in time,

01:29:52.800 | if I didn't pay those credit cards off

01:29:54.280 | with just income and extra money that was available,

01:29:57.200 | that's when I would take those distributions

01:29:58.880 | from the Roth IRA and pay off those credit cards.

01:30:02.620 | It's very simple and easy to do.

01:30:04.320 | And as long as you're not paying $100,000

01:30:06.240 | a year tuition payments, it's very, very doable.

01:30:08.680 | It would be silly to pay $100,000

01:30:09.960 | a year tuition payments anyway.

01:30:11.480 | A reasonable approach to college is a few thousand dollars

01:30:14.320 | a year, not hundreds of thousands of dollars a year.

01:30:16.740 | So if you'd like to understand how to do that,

01:30:18.300 | how to build that strategy up so that when your child

01:30:20.580 | is 17 or 18 years old, you can easily do that.

01:30:23.660 | Go to radicalpersonalfinance.com/creditcardcourse,

01:30:26.340 | sign up for my credit card course.

01:30:27.580 | Radicalpersonalfinance.com/creditcardcourse

01:30:31.900 | will get you that information.

01:30:33.500 | Hey, guess what?

01:30:34.460 | You can even use a credit card and buy my course.

01:30:38.220 | It is the best use of a credit card that I know of.

01:30:41.460 | Radicalpersonalfinance.com/creditcardcourse.

01:30:44.520 | - With Kroger brand products from Ralph's,

01:30:46.440 | you can make all your favorite things this holiday season

01:30:49.600 | because Kroger brand's proven quality products

01:30:52.080 | come at exceptionally low prices.

01:30:54.320 | And with a money back quality guarantee,

01:30:56.760 | every dish is sure to be a favorite.

01:30:59.040 | ♪ These are a few of my favorite things ♪

01:31:02.640 | - Whether you shop delivery, pickup or in store,

01:31:06.320 | Kroger brand has all your favorite things.

01:31:09.440 | Ralph's. Fresh for Everyone.

01:31:11.440 | (upbeat music)

RPF0620-Friday_QA-Financial_Planning_for_Newlyweds_401ks_Without_a_Match_529_vs._Roth_IRA_for_College_Education