I'm here with Duncan, as we are each week. We get a lot of questions from people. A lot more tax questions this week, so we're going to break back on Bill Sweet. We've actually got a lot of follow-up questions, if you remember. Our email here is askthecompoundshow@gmail.com. Today's show is sponsored by Liftoff, our automated investing platform, powered by Betterment.

Duncan, one of the cool things about Liftoff, I was looking at the asset allocation for my kids. When I started their accounts, it signed up. I said, "Go aggressive," and I think it gave me like a 90/10 split. I thought about this recently. I was looking at it, and I said, "You know what?

This doesn't make any sense. They need to be 100% in stock. Let's make a change." One of the cool behavioral nudges that they have on their system is, you go to make an allocation change. Before you do it, it says, "Wait, wait, wait. Let's think about this. What are the tax implications?" Because this is a taxable account.

I like how they just give you that little nudge. I'm not going to name any names. Some other platforms would like you to make those changes no matter what. They pop champagne bottles and confetti every time you make a trade. Liftoff and Betterment are not like that. They want you to be thoughtful about making changes you propose.

If you want to check it out, talk to one of our advisors. Take a look. Liftoffinvest.com. All right. Let's do it. First question. Okay. Wow. Diving right in. I got nothing. I was in Miami this week. I thought you were going to have some jokes or something you came back from Miami with.

Nothing? The only joke on me is, there's a lot of money there. How's that? Seems like it. Yes. No. I hear everyone always says, when you talk about Miami, everyone says something about Brickell. Should I say an obligatory, "Oh, did you go to Brickell?" That's the Brooklyn of Miami, I guess?

I have no idea. I've never been. It makes me question my life decisions every time I go somewhere warm when I come back and there's snow on the ground and it's 14 degrees, but there's trade-offs here. One of these days, Miami is going to be wiped off the map by a hurricane.

This is a trade-off you make. That's the give and take, right. Yeah. All right. Let's do it. Up first, I've just come across your blog post from 2016 called "Deconstructing 30-Year Stock Market Returns." Thank you for that. It was about exactly what I was looking for, and I wonder if you've updated your findings since then.

Also, have you run the analysis for other time periods? 10-year and 20-year rolling averages would also be interesting. So, we're digging deep, going back in your library. Yeah. So, Matthew McConaughey did his book tour a couple of years ago. Someone asked him about his writing process, and he said, "I don't write to remember.

I write to forget." I guess it's kind of the way -- so, he's like, "I want to journal so I know how I'm feeling at any particular moment, and I can kind of go back and see where I was at that time." I guess I feel kind of the same way about blogging.

I never thought I would compare myself to Matthew McConaughey, but here we are. All right, all right, all right. I'm not going to do it. So, I've written a lot of blog posts, and I kind of forgot about this one. So, I looked back at it. It was in 2016.

John, pull up the blog post if you can. Maybe we didn't have that. So, what I did at the time was, I looked at the data on rolling 30-year annual returns for the stock market. I have data going back to 1926 from our friends at Dimensional Fund Advisors, and their Returns 2.0 database.

So, I'm happy to update this one, because it's been a while. 2016 was a while ago. So, I'm happy to do the 10- and 20-year numbers too, right? Because this is kind of my thing. I like looking at long-run data for the stock market, provide that context. So, let's look at the 10-year numbers, John.

So, this is rolling 10-year returns, 1926 through January 2023. The best 10-year return of all time, these are using monthly returns, a little more than 21% per year for 10 years, ending in 1959. That's a total return of 600%, call it. Pretty good. Worst 10-year return, the 10 years ending August 1939.

The stock market was down 5% per year almost. That's a total return of a loss of about 40%. The 1930s were no joke, obviously. You still can see, though, even in the 10-year return numbers, a decade is a long time to invest. There's still a lot of variation in here, right?

Between really great and really poor numbers. Let's look at the 20-year returns, see if that does a little better. Alright, 20-year returns. Now, we're looking a little better, because there's nothing in the red here. There has been no 20-year period in the U.S. stock market with losses, right? So, these dates at the bottom are the ending dates, right?

Best 20-year return, a little more than 18%. That was at the peak of the market in early 2000, right? Starting in the early 1980s through March of 2000, 18% per year. Pretty good. Worst 20-year return, a little less than 2% per year. That's the 20 years ending in the summer of 1949.

Makes sense, because you're talking about the Great Depression and World War II. So, if you have really poor returns, that seems like the time that would make sense. But again, no times where you had a 20-year period with a loss. That's pretty good. Alright, last one, 30-year. This is one of my favorite all-time long-term charts.

You can see, the variation is compressed here. Best 30-year return since 1926, almost 15% per year. It's the 30 years ending in 1968, which kind of makes sense, because it coincides. The start of that period was when the worst 10-year return ended in 1939. So, you go from the worst 10-year return to the best 30-year return.

Not bad. Now, here's one of my favorite long-term stats about the market. Worst 30-year return of all time, 7.8% per year, starting in September 1929. So, you top-tick the Great Depression. John, you can do a chart off here. Duncan, that 7.8% per year over 30 years. Maybe I've shared this with you before.

Wait, that's the worst? The worst annual return. What's that on a total return basis over 30 years? So, the worst total return you've ever experienced in the U.S. stock market over 30 years? I don't know. All right. 850%, including dividends. So, that's the worst 30-year return you've ever got.

Obviously, usual caveats apply here. I didn't take taxes into account, or fees, or any of that stuff. Out of the way. But still, that's pretty darn good, right? I take that. I mean, you had to live through that time period. You had to live through the Great Depression, and World War II, and all this other bad stuff going on.

Deflation, all this stuff. The most recent 30-year return through January 2023. Gain of 9.8% annually. 20-year return through then, 10.3%. 10 years was 12.7%. Pretty good numbers if you ask me, right? I don't know what long-term returns will be in the future. In a recent show, I argued they could be lower.

It wouldn't surprise me. But in that 2016 PETA, I looked at three non-overlapping 30-year periods. Because these are rolling, so some of them aren't going to have the same returns, right? So, you think, what if we just broke them in and they're not overlapping at all? So, I looked at like 1926-1955, 1956-1985, 1986-2015.

And the respective returns were like 10.7%, 9.6%, and 10% for those 30-year returns, right? And all of these periods had really nasty stuff going on. So, again, the '30s to the '50s had the Great Depression, stock market crash of more than 80%, World War II, Korean War, four recessions.

The next 30-year period had Civil Rights Movement, the Vietnam War, one president was assassinated, one president was forced to resign, oil price shock, double-digit inflation, huge interest rates, six recessions. And that '86-2015 period had Black Monday, 1987, saving and loans crisis, Desert Storm, 9/11, Iraq-Afghanistan Wars, Great Financial Crisis, and three recessions, right?

You can point to really bad stuff in all those periods. Just think about what's transpired since then, since I wrote this in 2016. We had an insurrection at the Capitol, a global pandemic, oil prices went below zero, inflation at 40-year highs, all that stuff. Returns have still been pretty good, right?

So, obviously we're not going to be promised anything going forward. I don't know what's going to happen in the future. But it's hard to look at these numbers and not be optimistic about the future. I think if you're betting against human progress, do so at your own peril. That's my general take.

Yeah, well said. And I think we're all going to have, even if you're approaching retirement, we've talked about this in the past, you could still have a 20- or 30-year period ahead of you. As always, I think the long run almost always wins. Undefeated. And that's why we weather up so much, right?

Just kidding, just kidding. Definitely don't do that. All right, let's do another one. Okay, up next we have a question from -- Oh, wait, hang on, before we get to this. Someone in the comments said you wanted Miami take. Someone asked, "How many Miami vices did Ben have?" I think before we got in here I said I had three, by the pool, right?

That's the best poolside drink there is. Can you drink one anywhere else? I mean, it pretty much has to be by a pool, right? You have to have sun and you have to have -- yeah, it's the when in Rome thing, when in Miami, you have to do it.

Like, I can't go in a cellar bar in Brooklyn and get a Miami vice. No, no, no. If you're ordering a drink from a guy with a mustache and high-waisted pants, then no, you can't order Miami vice. Right, right. And suspenders, yeah. Next one. Okay. Up next we have a question from Will, a young viewer, a student.

I'd love to see that. We love to see that we have students watching. Huge fan of the show. I'm a finance student at Michigan State and I have a question about bonds. I know the bond market is on fire right now and I'm wondering how to get in. Listening to your channel has truly paid dividends towards my education and I recommend it to anyone trying to break into finance.

That second part was immaterial but I left it in because we like compliments. Yeah, we'll take it. Not to brag. Will, good for you for paying attention to this stuff when you were in college. I'm not even sure I realized the stock market existed until I was maybe a senior in college and I had to figure out what I want to do with my life.

I couldn't have told you what a bond was. None of that. I was more interested in extracurriculars, which explains the Miami vices. I have to say, this is the first time we've ever heard anyone clamoring to get into the bond market, right? And I guess with interest rates much higher now and more interest in fixed income, I thought it would be a good idea, especially for someone like Will, but our regular listeners too, let's do a good bond primer for everyone.

I want to look at the different risks of investing in bonds. So first one is interest rate risk. So this one, one of those important things to understand about bonds, bond prices and interest rates are inversely related, right? When rates move up, bond prices go down. When rates fall, bond prices rise.

This makes sense when you consider if you have a 5% bond that you're holding, Duncan, and rates go to 4%, your bond should be worth more. If rates go to 6%, your bond should be worth less. The other important factor to understand about interest rates is that bonds typically provide a good estimate, the starting yields typically provide a good estimate of your long-term return on bonds.

John, do a chart on here of the five-year Treasuries. This is the starting yield of the blue line. Orange line is your subsequent five-year annual return. Those are pretty close, right? The correlation between the starting yield and the ensuing five-year return is 0.92. So that's a strong to quite strong relationship.

Now, it may seem obvious that a five-year bond would have a yield that the starting yield matches its five-year return, but this works for other maturities, too. I've done this for five-year, seven-year, ten-year. Pick a return over the long-term. You're starting to yield on bonds. Less some sort of default/credit risk, which we're going to get into, and that's kind of where you end up.

So, duration risk is probably the next thing. So, duration is a good proxy for how sensitive your bonds are to changes in rates. It's a number that's expressed in years because it basically tells you how long it'll take to get your whole money back, right? Principal plus the yield.

So, it's a little less than the maturity. The good rule of thumb here is, the longer your maturity, the higher your duration, and thus the more volatility you experience to changes in rates. So, the other rule of thumb is, the decent approximation is, your duration will tell you how much your bond will move relative to a 1% moving interest rate.

So, let's say you have a bond with a duration of 3.5 years. If rates go up 1%, you should expect your bond to drop 3.5%. If rates go down 1%, you should expect your bond to gain 3.5%, right? Those numbers aren't precise because there's this thing called convexity where bonds tend to lose less money than they gain.

Yes, convexity. Yeah, sorry, close enough. The other one is, we talk a lot about government bonds. We won't even get into convexity, Duncan. It's not worth it. Credit risk is the other one. So, if you have corporate bonds or mortgage bonds or asset-backed bonds, you could have a downgrade.

Why do bonds drop on a credit downgrade? Most likely it's because a lot of times they're just sold. Institutional buyers or ETFs or mutual funds can't hold them anymore because of their investment mandates. So, if you had a corporate bond that went from a high credit rating that was quality credit to high yield, a lot of ETFs and institutional investors probably can't hold those anymore if they have a mandate that they can't hold high-yield bonds.

So, default risk is the next one. The long-term default risk for a high-yield junk bond is 3-4%. You can't really take your yield and high yield and say, "I'm going to get that going forward." You have to kind of lop off some for default. Obviously, that number is different depending on the economic environment that we're in, but you should take that number into account when having those expectations.

Finally, the last one is inflation risk. This is the biggie. So, I looked at the numbers before for long-term bonds. This is just to illustrate a point here. From 1946 to 1980, long-term government bonds in the U.S. returned about 2% per year nominally. Not bad considering rates went from like 2% to 15% in this timeframe.

So, people really worry about interest rates rising. That wasn't really that big of a deal, but inflation was almost 4.5% over this period. So, that means you lagged bigly on a real basis. How bad? Duncan, I'm not going to make you guess again. On an inflation-adjusted basis, long-term bonds were down 60% from 1946 to 1980.

You just got crushed by inflation. This is an extreme example, but it goes to show you that, again, rising rates aren't as big of a deal for investors as high inflation or rising inflation. Rising rates, eventually, you pick up those higher yields, and that'll kind of help you a little bit.

That's what's happening now. You had a really bad year, but now rates are higher, so investors are in a better place for bonds. So, listen, as a young person in college, I'm not sure you really need to worry about missing out on the bond market by any means. Bonds are still far more boring than the stock market.

I mean, at least you can earn some higher yield, but if I was a young person, I'd be far more concerned with the stock market, because bonds can help with short-term, intermediate-term goals, but the stock market is still your best bet against hedging inflation. So, I'd still pay more attention to the stock market if I'm a young person.

If you want to understand the bond market more, I'm sure you'll learn about it a little bit. But that was Ben's primary on bonds. How'd I do? That was good. I'm not going to lie, though. You still lost me a little bit there. Bonds are one of the most confusing topics to me as a non-finance person.

What's the confusing part to you? Tell me the confusing part to you. Just like when you're saying, "If rates go up by this much, then it means that you're going to go down by the percent." It loses me as soon as I start hearing about that. Okay. So, if your duration is 10 and rates go up 1%, 1% is the key here, right?

If rates go up 1%, you're going to go down 10% if your duration is 10. If rates go down 1%, you're going to go up 10%. Now, if rates go down 50 basis points, you're going to go up 5%. If rates go up 50 basis points, you're going to go down.

See? That's the relationship. It's not exactly one-to-one, but it's pretty darn close. I got it. So, the longer your maturity, that makes sense that you have more volatility to changes in rates because there's so much more that can happen in that time frame. Rates can change more. Inflation can change more.

Economic growth can change more. And so, it makes sense that shorter-term bonds have a lower duration than longer-term bonds. Right, right. Yeah, that makes sense. So, Oatly has a duration of 974, give or take. Yeah, sure. It's looking good year-to-date. I think so, maybe. Let's do another question. Okay.

Up next, we have a question from Dave. Have any of the Rihls tax bills -- and for those of you that are listening and are new to the show, these are people bills, not tax bills -- but have any of the Rihls tax bills encountered an online calculator for determining the RMDs, Required Minimum Distribution Rate, for a non-spousal IRA beneficiary, so-called inherited IRAs?

I'd sure like access to one. It would help, I think, if the IRS updated Notice 2022-53 in the form of a proposed or, better yet, a final regulation so that taxpayers know if they will have a penalty tax if they don't take an RMD in 2023. This is from Dave.

Dave went deep here. We're going to bring over our tax bills. We have a high concentration of bills in our tax department. Here's Mr. Bill Sweet. Bill, a lot of jargon going on here. I don't know where you want to start. Dave is locked in here. The IRS regulation notice, that's a first, so way to go, Dave.

Dave is in the chat right now, I think. It goes right to the tax code. It's beautiful. So help me sort out this mess here. What's going on here? Yeah, so I came in late to the back show because I was working on some ribs, Duncan. I grew these from a pig and they are delicious.

I got to tell you that. But John said, "Bill, your light's coming in hot," but it's not because Dave is coming in hot, citing IRS notices here. That was beautiful. The backstory here, the IRS changed the rules on us, right? Really Congress did, excuse me. The old rules, Ben, used to be, what?

You needed to take an IRA distribution within five years for an inherited IRA, right, if you inherit your uncle, your dad's IRA. But the old rule also allowed you to do what over your lifetime? Do you remember? The good old days? Nothing? All right, stretch IRAs. So stretch IRAs.

Stretch, okay. Yeah, do you remember the stretch IRA? Right, right, stretch Armstrong. Stretch Armstrong. Okay, cool, cool, cool. So what Dave's referring to is the IRS when they rolled out- We needed a crickets thing there. Dave knew what I was talking about. When the IRS rolled out the Secure Act, they moved the RMD age up, which was great.

But then they said, "Look, there's no more RMDs for inherited IRAs, but you need to take them all within 10 years," right? So now there's this 10-year window for anybody who inherits an IRA after 2020, and that includes this year. There was a gigantic freak-out from the people. They were like, "What about the kids and what about this?" The IRS came out, they changed the rules again, allowed eligible designated beneficiaries.

And then last year, but still for the 10 years, they said, "No RMDs required. Don't worry about it, guys. Everybody's cool." But then last year, the IRS said, "Guess what? We researched the tax law a little bit more, and there are actually RMDs due for these 10-year RMDs, inherited IRAs, for a certain class of folks, for somebody who died after they started their RMD during their life time." This is a giant confusing mess.

And it's kind of crazy that they don't just grandfather people into the old rules and say the new rules are going to start in five years or something. Yeah. Well, I guess they did, because if you inherited an IRA three years ago, you still are playing by the old rules.

But what Dave's getting at, this is a mess. And his question is, "How do I sort this out?" I would go to a trusted custodian. I think that ultimately is the place to go. WeCustody, Bennett, at Schwab, at TD, at Fidelity, these are trusted third parties. They're the best in the business.

I find Schwab's calculator to be very, very useful. We don't need to do a segment here on the differences of the rules, but basically they ask you a bunch of questions about your age, how old was the person you inherited the IRA from, when did they die, what type of IRA it is.

You spit that all out, and it'll tell you, "Here's your RMD for this year. This is what you should do." Or, "There's no RMD required until year 10." I find Schwab's calculator to be roughly the best, and I would encourage anybody else to check it out and use it.

Once again, we have job security for you, because it's a mess, right? Yeah. People... Trying to understand this stuff. Like I've said before, people hate paying taxes more than they like making money, Ben. And I think ultimately, if you understand nothing about what I just said, and you're dealing with an inherited IRA, you're right.

This is a perfect advertisement, Dave, for the services of a certified financial planner. Ritholtz Wealth are among them. Just make sure they're an investment fiduciary, they're not a life insurance salesman, and they're trying to help you solve this problem. I don't know. Dave knows the IRS tax codes. Maybe he's going to find it on the calculator and do it himself.

Can I comment, though, on his last part, which is, why haven't they finalized this? It is insane. And this, unfortunately, is the world we live in of below competence all of a sudden. But yes, just putting an IRS notice out saying, "Hey, you actually might be subject to RMDs.

Sorry we didn't tell you for two years. You probably need to do something for the end of the year," and not even making that guidance final, I think this is a problem of governance. And I'm with Dave. It's a mess, and God save us all. Duncan, what was harder to understand, this one or the bond stuff?

This one. I hope so. I mean, they both involve a lot of convexity. Convexity. Maybe I should show up to the meeting on time, right? So I'd be better prepared. But Dave, good luck to you. Send us an email if we can give you a hand. All right, next one.

Thanks, Dave. Dave's always in the chat and always writing in good questions, so I'm glad we got to use one. Big ups to Dave. OK, so up next-- and I made my screen larger, so now I can actually read, so I won't stumble over this one as much, hopefully.

All right, this question is from Sam. Do you think a backdoor Roth IRA is worth it? Assume that other tax-advantaged vehicles are maxed out and no traditional IRAs, so not concerned about the pro-rata rule. No idea what that means. I think if everything is maxed out and a higher earner wants to save more, options are backdoor Roth or brokerage account.

Personally, I feel like buying index ETFs in a brokerage account would be way easier, but not sure how to quantify the benefit of a backdoor Roth. So, your favorite topic here, backdoor Roth. Bill does like Roth IRAs. I'm kind of with Sam here on a lot of stuff. My first question is always, is it worth it?

Is it worth the hassle and the paperwork? And even if I could make 25 basis points more per year over the long term, is it just easier for me to just take the easy route and stick it in index funds in a taxable account and call it a day?

Bill, what say you? It's a great question. Sam, a very strong name. I named my firstborn son Sam, so I'm a big, big fan. My question for Sam is, do you like tax-free distributions? Is that something that would appeal to you? And I think the thought process is, if you have $6,500 to invest, and that's what we're talking about here, that's the IRA contribution limit for this year, would you rather get that back after it's grown?

Rule of seven, $6,000 grows to $12,000 over 10 years, $24,000 over 20 years, $48,000 over 30 years. I mean, we're not talking about small bits of money if we're dealing with a 30-year, 40-year timeline. Do you want all of that investment gain, that $40,000 of gain, to come to you tax-free?

Or do you want to pay tax on it? And that's the question. Is it worth it or not? So to quantify it, it's probably worth about $8,400 of tax. And so again, that is more than your initial contribution, assuming that you get a 7%, 8% return over the next 30 years.

Do I think it's worth it? I think so. But like everything else, there's pros and cons. One of my famous charts here, there are pros and cons. I know, Duncan's already spit his water out all over. He's getting it right every time. Ultimately, there are pros and cons, right?

So do you like tax-free distributions? We just talked about that. The cons of a taxable brokerage account are tax, tax, and tax. Tax number one, you have to pay tax every time a dividend hits that account, right? And Ben, where are yields today versus where they were two, three years ago, right?

I mean, they're not nothing. We're probably talking, yeah, 2% dividend, maybe a little less. Yeah, OK for dividends. But maybe you have a balance of fixed income, like you can get 4%, maybe 5% from a short-term treasury right now. Ultimately, you're going to give back about a third of that to taxes right along the way.

And that decreases the compounding effect of your gains. Second tax, like I discussed, about $8,000. Assuming you wait for 30 years, you're going to pay $8,000 in income tax from a brokerage account versus nothing from a tax-free Roth IRA distribution. And finally, there's the tax on rebalancing. And that's a significant effect.

If I move from a 60/40 to a 40/60 or whatever it is in an IRA, nothing happens tax-wise. It's only in the distribution that gets taxed. If I have a brokerage asset, Ben, if I don't pick my mutual fund wisely, if I want to move from mutual funds or ETFs, I need to eat that tax along the way with a brokerage account.

So my question to you, Sam, do you want to pay tax on the gains or don't you? And the trade-off there is flexibility, right? For a Roth IRA, you really can't mess with it until you're 59 and 1/2. If we did the cage match between you and Nick Majulie, Nick has said-- he's made the argument before that you shouldn't max out your 401(k) because a brokerage account gives more flexibility if you're going to buy and hold a low-cost index fund.

If, and if is a key question. And if you don't rebalance along the way, and if you don't like tax-free distributions, I don't think it's an either/or. I think it's a how much, right? And ultimately, what you want to have in your 60s and your 70s or 80s is diversification.

You want tax diversification. And if this person is already maxing out retirement vehicles, they obviously like-- they like to have tax-deferred accounts, right? So they-- you'd think it would maybe would make sense for them. Yep. Exactly. Do you think-- do people like have a little party when they turn 59 and 1/2 because they can access this?

I mean, I did for my dad. This is funny. It seems like my children who are eight years and younger, they still like to like kind of like celebrate their half birthday. Like, "Hey, I'm 5 and 1/2 now." So the only other time you do that is when you turn 59 and 1/2, I guess.

Yeah, it's a big deal, Duncan. Yeah, you get the penalty and you get tax-free Roth distributions. Why wouldn't you want that, Sam? I say go for it. It's like when a young person talks about their, like, six-month anniversary or something, you know? And you're like, "Oh, that's--" Or dating.

Sweet. You know, those cute little couples you're dating. Call me in 10 years. Yeah. All right. Exactly. Last question. Last but not least, we have a question from Eric. I really like this question a lot, and I'm curious to hear the answers. I just wanted to let Bill know, we've received multiple questions on this.

This was the best one, but we've seen a lot of questions on this. Oh, OK. Let's do it. Right. Yeah. Yeah. OK. So Eric writes, "I have two follow-up questions regarding the Roth 401(k) employer match topic you discussed a few weeks ago. How do taxes work on this portion?

Say your employer matched 5% of your salary of $100,000. Would that mean that you end up with $5,000 in your 401(k) as a Roth amount, or would that $5,000 be subject to income tax and leave you with less? Number two, do you need to contribute to your 401(k) as a Roth contribution in order to have your employer match be Roth?" OK, so just a reminder, we talked about this a few weeks ago with Bill, that now you have the ability to not only have a Roth 401(k), but get your company match in that 401(k) in the form of a Roth.

I didn't know how this worked before, that if you had a Roth 401(k), you put your money in the Roth, but then your match with the company would be in a traditional 401(k). Now, this year, it's changed, right? So, all right, Bill, I didn't think about the tax implications on me.

Explain to me how this works. Yeah. And may I cope on my side? I made a mistake on the last program. I was thinking in my head about FICA income tax. A 5% matching Roth IRA contribution is going to be taxable income in the year that you receive it, right?

That gets dumped into your account. But again, one last famous chart, so don't confuse. The question is, do you want to pay tax now or do you want to pay tax later, right? And so, it's the same dynamic. The addition to Bill's Roth IRA tattoo on the back is going to say, it's like a dragon tail.

It's going to be like, "Do you like tax-free distributions?" Yeah. Well, that is the question. So, yeah, so then that matching contribution, it is taxable in the year received. What does not get taxed, though, is on FICA. You do not have to pay employment taxes on the matching contribution to a Roth 401(k) or a traditional 401(k).

So, that was a mistake I made last time. No, yes, there is income tax on the contribution. There is no FICA. And so, that creates a level playing field. And again, the question is, where's my tax rate going to be now versus where's my tax rate going to be in distribution?

It's different for everybody. I think, while young, matching Roth contribution sounds absolutely peachy. So, this is essentially kind of like a backdoor Roth that you're doing in your 401(k), right? Yeah. Yeah, exactly. And so, their second question was, where is it? I forget. Oh, yeah. Do you need to contribute on a Roth in order to get the matching Roth?

God's honest answer is, we don't know. Also, you contribute to a traditional, but then your match is in a Roth. Correct. Can you mix and match? Can you flip the switch? That's what I would want. Yeah, I mean, it sounds super cool, right? Best of both worlds. The honest answer is, we don't know.

And the reason that we don't know is, the law just changed in December, right, for this year. It said immediately on passing the law December 27th, custodians, most custodians haven't rolled out the program on how to actually handle this. There's no IRS guidance that I'm aware of. Our custodian has not updated our plan.

And I don't believe that Fidelity or anyone else has. So ultimately, this is something, these are answers that are coming. I would direct that question to your custodian. And it's very possible that they might interpret the rules a little bit differently than another plan. But again, I think it's awesome to have different choices.

Ultimately, Congress wins because they're getting the taxable income now, right? And we have a massive budget hole. So why wouldn't you want to tax that income now? And you as an investor, you can pick and choose based on your situation. And again, I think for young people with a long time period to compound, it's very difficult.

That's a good point about Congress getting the tax dollars now. I see people a lot of times over the years have asked me, don't you think eventually they're going to come after Roths? But no, the tax has already been paid. They already got it up front. They got it down payment.

But what if they could tax it again? Right. So it is very possible. But I think it's rational just to plan on the tax code more or less staying the same, right? Yeah, it'd be catastrophic if Canada invaded and took over the U.S. and said, no more taxes at all.

Like, great. Like you can go to these hypothetical rules. The tradeoff there is we get more Tim Hortons though. And maple syrup, Molsons. Yeah, you get ham sandwiches with donuts. Fim du Monde, just a classic. But back to Roth, I just think the more dollars you can cram into long-term compounding tax-free money, why would you not take that option early in your career and then switch that later on as you make more and more money in your career?

Bill, you sold me. Great. I think I did about two years ago. I have one follow-up. For our Capitol Hill audience watching, what's your pitch? What would you ask them to do to make all this easier? Oh, we talked about it on the last show. TSP, open this thing to the masses.

Like, why are 401(k)s tied to employers? I don't want my employer making my investment decisions for me. Give us one limit. Make it $60,000 or whatever you're going to make it. It includes HSAs. It includes 529s. It includes 401(k). Put it all in the same bucket. Make it easy.

I actually kind of like having Bill Sweet make my investment decisions for me. Flattery will get you everywhere. But yeah, TSP for the masses. The program exists. It's fantastic. And why not just make those contributions to payroll the same way you pay your payroll tax? You don't have to think about it, right?

Wouldn't that be awesome? Perfect. I think Bill's other job security here on this show is we get an endless amount of Roth IRA questions every week. Honestly, taxes are taking over our inbox just along with bonds. Keep them coming. Because Duncan, I got a question from the stream here.

People want to know, is the Fed shirt coming back? I got my Fed godfather shirt. People want to know if it's coming back to the store. Maybe if there's enough demand. I think Josh said that we might bring it back when they cut. But if you want to see it before then, let us know.

Quick announcement here. No show next week. I'll be out of town because apparently spring break is not enough. Our kids now have to have a winter break. Or a mid-winter break. Get out of here. Yeah, so we're going somewhere. Send them to school. I know. So we're going somewhere.

That's the American mind. Leave us a review. Leave us a question. Thank you to everyone for tuning in live. Remember, YouTube, you can leave us a comment or a question. Email us, askthecompoundshow@gmail.com. And we will see you next time. See you, everyone. Roth IRA for life. (music fades) you