It's Friday here at Radical Personal Finance and that means Q&A. Good Friday to all of you, my radical friends. Welcome to Radical Personal Finance, the show dedicated to providing you with the knowledge, skills, insight and encouragement you need to live a rich and meaningful life now while building a plan for financial freedom in 10 years or less.

My name is Joshua Sheets and today on the show we do a live Q&A. I've got the phone lines open. I've got three callers on the line. It's going to be fun. Let's see if we can learn together. Whenever I possibly can due to my personal travel schedule, et cetera, and simple logistics, I always try to do on Friday a live Q&A show.

Basically it works like talk radio. You get a phone number, you call in and I go live to the call. I try to make these calls very open. I don't screen them in advance. All I do is jump on real quick as we're getting ready to record and see who's calling.

I get a quick idea of the questions but I don't screen them. This is the best way. If you want to ask me about anything in the world or talk about anything in the world, this is the best way to get through. I do screen out the callers based upon those who support the show on Patreon.

These calls are open to those of you who voluntarily choose to support me and pay me money through the Patreon program. If you're interested in doing that, I would welcome you to do that and would be deeply appreciative of your doing so. You can do that at RadicalPersonalFinance.com/patron. Once you sign up there to support the show, at that point in time you have the opportunity to gain access to the time and the phone number to be able to join a call like this.

Let's start with Erica in New Hampshire. Welcome to Radical Personal Finance. How can I serve you today? Erica Friedman Oh, thank you, Joshua. You've already served me so much. By following a lot of the things that you've spoken about on the podcast and some that we haven't followed, my husband actually lost his job of almost 13 years this past fall, 28 days shy of vesting for retirement because of a Facebook post.

That actually left us in a bit of a surprise. Yes, ouch. It left us very surprised, but thanks to a lot of things we've reexamined over the last few years and becoming pretty diligent in YNAB, we just said, "Oh, okay. Then we're going to go on vacation." We packed up a car to go visit family in California and drive cross-country.

We ended up actually getting a job before we'd even left New York State. We're already back on the bandwagon, but because of all of this, we have a pretty sizable 401(k) that we want to put to work. We are looking at doing a self-directed IRA. I actually was a market professional for over a decade.

His best friend and the godfather of our children does real estate in San Diego. We've been looking at getting rental properties out there and having a nice sizable chunk of cash that could buy a duplex outright. It seems like it might be a really nice opportunity to put the self-directed IRA into a duplex and then take that income from the rent later on when we need to take the distribution.

I don't know if there's any taxation issues that we might run into, though, when it comes time to pass to our kids. Let's talk about that in just a minute. But I just want to ask more about the story. Your husband was fired because he wrote a Facebook post that his employer considered to be offensive or against corporate policy, something like that?

Yes. In a private group on Facebook, he wrote a post that "did not represent company value." Interesting. He was fired for that reason. Was this industry-related or was this related to personal, political, religious, or ideological opinions? Second Amendment opinion. Interesting. He's made very sure not to comment publicly about anything that is within his field that would come back negatively towards his company or any other company.

This is... No criticism of FDA. Right, right, right. Interesting just because this is such a... I see this happening, but I see very little reporting on the subject. And so whenever I have an opportunity to talk to somebody about it, then it was just good to hear some of the personal anecdotes.

I've watched this for a number of years and just in terms of seeing either the public censorship or the specific outright firing of people for expressing opinions. And do you think was the company... How do you think the company was tipped off if it was in a private Facebook group?

Is there any... Do you have any opinion or thoughts on how that may have happened? I don't know. It's possible that it could be a former friend that didn't like that he didn't apologize appropriately for something he had said. But I think it's more likely that being... The retirement policies changed at his company since the time when he was hired.

And no, it's not the same years of service plus age anymore. And so he was one of the few young people, younger people who was close to retirement. And I think it's because the fact that he was fired 28 days before he was fully back. So we left almost $100,000 on the table because he was fired.

Is there a legal case there? We're looking at age discrimination because the company is based in California and age discrimination is an issue there for anyone over 40. But it's a challenge. It is one that we're going to pursue, but it's challenging. It's going to take a lot of time.

And it's always a balance of is it worth pursuing in terms of the emotional turmoil, the financial cost for the actual financial outcome? Well, interesting. My advice, and I say this very advisedly, what I recommend to people is in today's world, don't ever put anything in writing in any form that you are not content to see published on the front page of a newspaper.

And I mean in any form. Whether that's on Facebook, whether that is on your personal wall – actually, don't call it a wall anymore – on your personal timeline, on your personal page, on your personal website. Don't put it in a private group. Don't put it in a Facebook message.

Don't communicate with somebody in writing in a text message. Anything you put in writing very quickly is screenshotted and captured. And it's a significant, significant risk. I'm frequently disturbed at the risk that people expose themselves to based upon their written communication. And I think that we should all pay careful attention.

And I want to encourage people to speak their mind. Unfortunately, however, you've got to do so advisedly given that many companies demand ideological conformity or – and there are certain standards that if you don't follow them, then it's going to happen. So I support the right of employers to discriminate on any basis that they choose to.

That's not the law. But I support the right of employers to be able to hire and fire as they think is appropriate. But I think it's important that we consider carefully the impact of our words. But I'm glad that you are able to, number one, use it as an opportunity to travel a little bit.

I think that's one of the best strategies to use is when – if you're – hopefully – many people in the wake of a firing, it's such an emotional bit of turmoil that they can't easily relax. But whenever you leave a job or whenever you're laid off from a job, use that as a nice chance to move on – to take a little mini sabbatical, a mini break, a vacation, take some travel.

Financially, if you can – you just check your numbers and make sure you're financially secure and then use it to bounce on to the next opportunity. So that is – that sounds really good. I'm really thankful that you're in such a good position. Didn't that change – were you and he earlier in your lives – were you ever fired from a job or laid off from a job when you felt much less secure?

Was it a different experience when that happened? This is his first job after getting his doctorate. I worked in the financial industry. So the idea of being laid off was not a surprise for me. It happened to me several times. I just remember. As the normal course of business.

It did come to a shock to him especially because his dad served his whole career at one company as well. So he was still in the mindset of company loyalty which unfortunately seems to have gone extinct. I remember the time that I was laid off from a job and I – when it happened, I was – it was – I had always – I realized in the wake of it, I had adopted this idea which I think many of us share that the only reason that you're going to be laid off from a job is because you've done something wrong.

And even though I probably would have disavowed that idea if asked about it, I would have said, "No, you could be laid off from a job if not doing something wrong." I probably would have been a little bit more arrogant in my private thoughts and think, "Well, I'm better than that.

I'm better than the other person." When I got laid off from the job I was doing a decade ago, it was just out of the blue. I had no inkling it was coming. I had no expectation it was coming. And I remember just being so shocked and surprised in the sense of, "Wait a second.

This is happening to me? I'm a star employee. I'm Mr. Hard Worker. How is this happening to me?" That I just remember laughing and the little anecdote that I usually share in the story, a number of years previously I had studied Dave Ramsey's courses and one of the things that he did in his iteration of his Financial Peace University at that time is he talked about how if you're out of debt and you have a fully funded emergency fund, you can laugh in the face of the person who's laying you off and you can say, "How big is the severance?" In the sense of take this bad thing and turn it into a good thing.

When I finally realized what was happening as I was sitting there in the meeting, then I literally did that. I laughed and I snorted and I said, "How big is the severance?" Because I was so nervous and I remember to this day, both the president and the CEO who were in the meeting were taking it back and saying, "Well, it's three months but why do you ask?" Then I explained, "Well, I'm sorry.

I've worked really hard to be in a position where financially I'm prepared for this event and I didn't mean to be rude." But it was definitely a sobering experience and a very humbling experience. I think it's challenging for many people to keep a positive self-esteem out of that. I'm glad he's found another opportunity and I'm glad that it has worked out.

Back to the self-directed IRA, is there any reason why you think this is not a good path for you to pursue based upon your personal experience, your comfort level with the approach and the potential partners that you may involve in the process? I think it seems like an amazing opportunity to me.

My husband's best friend, our friend's godfather, does a huge amount of property. His brother is a real estate attorney and his dad has a huge amount of properties as well. We're pretty much in the family queue for whenever there's a good property and they're not ready to buy because they stack up the cash first, then we'd be put in line.

Also, in the asset, in lieu of having a life insurance to provide care for our kids, he said that having properties there, the income it will generate is more than enough for their care and for everything else as well, should the worst happen to both of us. My biggest concern is just, I have a friend who's relatively new to the financial industry and he said that there's huge taxation issues with inheriting IRAs.

I've just been so busy I haven't had a chance to look into that myself and that's my one stumbling block at this point. So specifically, based upon the scenario you're describing, it sounds to me like an ideal use of a self-directed IRA. You've got the money, it gives you a large amount of investment dollars available, you have experience and competence in the realm of investing, you can do your due diligence, you have the personal connection that is trustworthy.

I mean that checks all the boxes. From my perspective, that checks all the boxes as far as the use of a self-directed IRA. I think that's an ideal solution and especially with the inside connection on real estate and the fact that you and he are more sophisticated in your knowledge.

He's got a PhD, you have advanced education, you have experience in the financial industry. I think these are all important things that would lend a measure of sophistication to your personal approach. As far as taxation, I don't know what that person would be referring to. IRA taxation is extremely standardized and it's the same – you're going to face the same – to my knowledge, you're going to face the same taxation whether you're dealing with real estate in a self-directed IRA or whether you are dealing with stocks in a mutual fund portfolio.

In essence, the taxation is this. As the money grows, of course that tax will be directed to the future. Starting at the age of 70 and a half, the IRA will need to start to make required minimum distributions. You would want to make sure that the account given the real estate could actually disperse the cash for those required minimum distributions.

Of course you can take however much you need out of it for retirement or you can keep it as an asset for the benefit of your children. The downside to a traditional IRA, which is what this would be, given that he's going from a 401(k) to an IRA, the downside of course is those required minimum distributions.

If you don't need that money, it can be annoying to have to take those out and that could be a challenge in the world of real estate, especially if you had a property-intensive portfolio but you didn't have the actual cash coming out of it. With regard to taxation when he dies, of course generally you would be the beneficiary if he were to pre-decease you.

But let's assume that both of you die. If you leave the account as an asset for your children, then they would receive it under the standard rules and those rules would be either they could take the money out very quickly – they could of course have access to the full amount at any time – and they would – or they could turn it into a stretch IRA where they could take the assets out over the course of their lifetime, which is a great way to do it.

Now I guess perhaps the only consideration that he may be referring to would be that the taxation would be at income rates rather than dividends or profit from the ownership of real estate. Perhaps that's the difference that he's referring to. And frankly, having never done a transaction like that, I would need to research that.

I don't know if that would be what the fear is. The fear would be of course that if you have a normal property and you leave it behind as – in fact, here I've talked to myself. This must be what he's talking about. In general, if you and your husband buy a house and you pay $200,000 for this investment property, it grows over the course of your lifetime and then when you die, it sells – your heir is inherited at $600,000 of value.

At that time, if you own the property in the standard way, that property, because it's long-term capital gain property, would receive a step-up in tax basis and your children would be able to inherit it with a $600,000 basis, which they could then turn, sell for $600,000 and they would incur no income tax on the property.

Whereas if you put it into – if you purchase the property in the context of your IRA, then at that point in time, they would be receiving it as ordinary income property. And since we're getting money that's never been taxed and they're inheriting the money that's never been taxed, they're going to have to pay ordinary income tax rates on the money.

So if you bought the $200,000 property today, it grows in the IRA. You die, they receive $600,000 and it comes with the income tax bill on a $600,000 worth of income for them when they take the money out. So my guess would be that that's the problem that your friend is referring to.

My answer to that would be, of course, I want to have that long-term capital gains property, but that wouldn't necessarily be enough of a reason for me to walk away from pursuing a self-directed IRA because the capital being available is valuable. You would just need to make sure the deal is going to get you returns that are in excess of other investment opportunities that you have.

So that would be my best analysis of what he's saying and why he's saying it. Okay. And then with that, if it was one where they spread the distributions over their life, then it would get taxed at each distribution instead of in one chunk at our death? Yeah. And this is really powerful.

This is one of the big benefits of IRAs. Roth IRAs are superior here, but it's one of the big benefits of IRAs. If you leave an account balance behind to a descendant, to your children, your grandchildren, keep it simple, then they have to take the money out, but they have a couple of different choices on how quickly they can take it out.

They have required minimum distributions as well. And so this is loosely called a stretch IRA in the vernacular of financial planning, although it's not actually – that's not actually a technical term. What it means is you take it out over the longest period possible. So if I, as a 30-year-old son, inherit a $100,000 or a million-dollar IRA from my dad or my mom, then I can just take the required minimum distributions from that over the course of my entire lifetime.

And so there's an IRS table that calculates based upon life expectancy. So I don't remember the number, but let's say that the life expectancy for me as a 30-year-old would be an additional 60 years of life. Well, if I take a million-dollar portfolio, I just need to take out one-sixtieth of that account as at the age of 30.

And then the rest of the money continues to accrue with no taxation. It continues to maintain the character of the IRA account, which means that the taxation is deferred. And so it continues to build and to build and to build. And then if it's a traditional IRA, I just go ahead and take the money and I pay income taxes on whatever my distribution is in that year.

Now this is more powerful with a Roth IRA and this is one of the reasons why Roth IRAs can be such a valuable estate planning tool for people who have them, because Roth IRAs don't have required minimum distributions for a retiree. So if somebody is wealthy and they don't need the money, then the money can continue to grow tax-deferred from say age 70 to age 90 at a natural death.

And then the child can continue to maintain it and they receive the money over that same distribution schedule, but they still receive the money income tax-free. And so it's more powerful in a Roth IRA because Roth IRAs can be left alone for longer because they don't have required minimum distributions.

But it's still powerful for anybody who inherits an IRA from their parents or grandparents and they don't need the money. They can stretch those distributions out and wind up getting much more money out of it because the account stays invested and invested tax efficiently. Okay. And can I ask one more twist on that as well?

Go ahead. So we've used pretty much the whole amount in the self-directed IRA for a property. And then because we'd probably have to pay cash because that self-directed IRA can't take out a loan in years, because now that my husband is in the startup world, in years where he doesn't have an income, can we take those proceeds within the self-directed IRA and roll some of that into a Roth IRA?

Or am I just going completely off the charts here? I wish I – there are a number of businesses that peak my radical proclivities and this is one of them. The world of custodianship for self-directed investment accounts, it lights my fires because it's so interesting to me the things that could be done.

I don't see any reason why – in my knowledge, I don't see any reason why it's not possible conceptually. For example, I don't know why you couldn't establish an LLC and then have the IRA own the units of that LLC and then just simply transfer those from an IRA to a Roth IRA when you needed to.

I don't know any reason why legally it wouldn't be possible. My guess would be that just practically is it worthwhile. But if you – because conceptually that's exactly – and the reason is conceptually that's exactly what would happen if you were to say purchase shares of an existing publicly traded REIT, a real estate investment trust.

That's what somebody else is doing. They have established a REIT. They're issuing shares of that REIT. You purchase those shares within a traditional IRA and then when you convert from a traditional IRA to a Roth IRA, you're basically just transitioning those shares from a traditional IRA to a Roth IRA.

So I don't know why it wouldn't be possible conceptually to do that with your own private holdings. Many of these companies that will work and serve as custodians for your self-directed accounts will allow you to mingle various self-directed funds. So you could – in these accounts, you could have a self-directed educational savings account.

You can have a self-directed health savings account and you can have a self-directed 401(k) or self-directed IRA. And essentially, they market this under what they call the checkbook LLC and you can just simply have one checkbook and then the shares of your ownership of that entity are owned by these different accounts that you have.

So my answer is I don't know why it couldn't be done conceptually. But practically speaking, I don't know if the custodians will service that. If any listeners have done this or have additional advice, come on by RadicalPersonalFinance.com and comment on today's show and you can help educate Erica and educate me on the actual details of it.

It's one of those areas where I'd love to do more and I've been remiss in not doing more discussion of self-directed investing on the show. Anything else, Erica? That's it. After I get big into it, maybe we can get into it together for an episode. Absolutely. I would love that.

Let me know. Absolutely. Erica, real quick, since I know we've corresponded outside of this call, tell me briefly – I was going to do a full interview with you on the show about building your own house. You've educated yourself a lot in this area as one of the strategies of financial planning and I've been planning to do a standalone show on that but I haven't gotten it done yet.

Tell me quickly what you learned in pursuing the idea of building your own house, especially as it relates to the financial feasibility and how it's impacted your own plan. Well, I'm actually getting a tractor for Christmas with a backhoe because we are laying the foundation for it. Fortunately, things didn't line up to tear down the house this winter because otherwise we would have been in the tear-down phase right when my husband lost his job.

So I'm really lucky that everything got pushed out. We're looking at the question. We were going to partially finance the build but now we're not sure if we're just – we're probably just going to stock all the cash. I'm just trying to go through everything we have and get rid of all the excess belongings so we don't have clutter and we're a lot more streamlined.

And then once I do that I'm going to try and finalize the plans to build the house both as economically as comfortable and as basically as multifunctional as possible. I'm looking at doing the – basically doing buildings in sizes that optimize materials for strength and for open space. I'm looking at things like putting in a – because it's cold and also taking passive solar design.

So I'm looking to take a whole bunch of these different pieces but it's kind of hard when you're a perfectionist and you want to try and make it perfect. But I've charged myself as soon as I – as soon as I purge everything I can from the house I am making these plans and I need to start pricing it out because do that or do some remodels on the house.

I don't want to pour money into something I'm looking to tear down. And you went through the Shelter Institute course up in the Northeast, right? I did. It was up in Maine and it was the most amazing class that I've taken. I was there. I had a pretty extensive background because I was an architecture minor and I've built a few things around CR, a big chicken coop and a few other things.

And there were people who had no idea at all. So for me I was able to look into it and get a PhD level look when I asked clarifying and furthering questions. And then there were other people that just became acquainted through it. It was great. We got to go through all different aspects of the build, septic systems, electrical systems, all sorts of things.

And also got to have a field day when we got to play with some backhoes and bulldozers on the farm that the founder has. It's actually a family company. And so there was a father running a good part of the lectures and daughters and sons all there as part of the team and just helping with a really holistic look at it.

And also the understanding that sometimes you're still going to specialize even if you're going to do everything you can. And the mindset of doing everything, just basically the mindset of just trying to do everything that you can do on your own and then asking for help when you need it was fantastic.

He had a welding class on the Saturday in between the classes for anyone to learn how to weld. That's awesome. So for those who aren't familiar, the organization that Erica attended is called the Shelter Institute. It's the shelterinstitute.com. And they offer various courses at different amounts. But they bring in people who, as Erica just said, a variety of experience and walk them through the process of here's how you build a house.

And for those who have the interest and the patience, building your own house can be something – or at least doing much of the work to build your own house could be a really good financial move. The biggest challenge is education and then confidence. But you can do a lot of things yourselves in the home building process.

And also depending on the stage of your family, this can be very valuable. It's something that when I was about 10 years old, my father went through the process of building our house. And he didn't do all of it because he was – he didn't do all of it.

He was maintaining a full-time 40-hour-a-week job at the time. But he did a lot of it and it was a very formative process for me and helpful for me, for my siblings. We did a lot of the work ourselves, which was extremely valuable for me to have the experience.

I was the youngest one so I did the least. But for me to have the experience of going through and actually seeing a house built and building it from the ground up, it provided a tremendous amount of interaction between my parents and me and my many siblings. It was really, really valuable in our family.

And then it also allowed my parents to build a much bigger house than they would have been able to afford and it solved their housing needs at the time in about the only way that was financially viable. They couldn't afford with where we live and the size of our family.

They couldn't afford to buy the types of houses that would fit us and they couldn't afford to bring our whole family together, which was the goal at the time. The goal at the time was to – for my parents to be able to build a place where within the nature of the house, they could have a house that could accommodate six children and my grandparents living with us.

And so custom designing and then custom building was the only way that they worked out that they could actually build something that would give our family an ideal living space. My father is very competent. He's an engineer. He was very competent with his own background and experience to do many of the things.

But to this day, I value those experiences. I value the fact of we put on the roof. We did the wiring. We didn't do the plumbing but we did all the flooring. And so those experiences for children were very, very valuable and it solved a major financial need of our family at the time and was valuable.

So I think it's something that we've often neglected as a strategy. But for – whether for young people, for people with children, you can learn it. I remember seeing a story about a very inspiring lady who – she had young children. She was a divorced single mom. She had young children and I think she lived in an urban environment.

But basically she built her own house with nothing more than the help of YouTube, trying to study things on YouTube and then working on things. I've read story after story of people who don't have a lot of money who build slowly. They used reclaimed materials, salvaged materials and they just simply force themselves to learn the skills that other people have and they're able to build a really beautiful and functional housing for themselves and their families by doing the work themselves.

I would love to see that expand because it seems like it should be that fundamental human ability to build your own house, to craft with your hands, the shelter for yourself and your family should be a standard human skill that we teach all of our children. But unfortunately, we have lost it.

So Erica, keep me in the loop as you work through your project. I'd love to hear and then bring you on the show for a full discussion when you guys work out what actually ends up happening. We'd love to hear your experiences. That would be fantastic. Thanks so much, Joshua.

Absolutely. All right, going on to Nick in Indiana. Nick, welcome to Radical Personal Finance. How can I serve you today, sir? Hi there, Joshua. It feels weird to hear your voice not at 2X speed because that's how I always listen to your podcasts. I hear that constant so much from listeners.

And when I teach a class on a webinar, people say, "Oh, it's weird to hear Joshua's voice at 1X speed." And it makes me all nervous. Am I going too slow? Go ahead. No, no, no. It's not like that. But anyway, my first question relates to your experience when you were working with planning clients.

Are there any particular questions that you wish more clients would have asked or information that clients should have brought to your attention to kind of get the most out of your services? I know in my work as a doctor, I have patients all the time that kind of avoid talking about a lot of things that I could really help them with.

And I'd like to avoid that sort of mistake when I seek the services of planners. So what can clients do to kind of help their planners help them the most? Wow, what a fun question. Two big themes occur to me right off the bat, and then probably some individual questions specifically.

The first theme that occurs to me would be somebody simply making it clear that they're open to advice in any area. Frequently somebody has a stated scope. And as a financial planner, one of the things that you try to do is you lay out the scope of the engagement using kind of the formal language.

What is the scope and nature of our engagement? So if somebody wants a review of their investment portfolio, that's one thing. If they want a review of their tax plan, that's another thing. But if somebody were to talk with me as a financial planner and say, "I'm interested in your thoughts in a review of my, say, life insurance policy," then that doesn't necessarily give me permission to start talking to them about their plans for their child's education.

Now on Radical Personal Finance, I can do that, and I do that very freely. But in a professional context, that generally is not accepted. So the first thing that somebody could do is if they're interested in holistic advice or holistic input, then they can make that clear to a planner.

And just by simply saying something like, "By the way, as we talk about this, I want you to know that I'm interested in anything you have to say or any insight that you have about any other aspects of my financial situation." And a way that they could do that practically would be to be clear about everything that they have.

Instead of being secretive, they could just say, "Here's what I have. I have this here. I have this other thing here as well." Now, of course, you as a client would need to balance the need for privacy in those things. I've talked about that elsewhere on the show. But in general, most people, you don't have to protect every single thing, and just being straightforward with it helps a lot.

For a financial planner, a financial planner is in an interesting relationship with a client where much as you, Nick, as a doctor, you – there's a bit of – you have to have a certain amount of respect. As a doctor, you can ask your client to say, "Take off your clothes," when it's an appropriate time for your personal examination to tell them, "Take off your clothes." But if you told every single one of your clients right when they come in, "Go ahead and take off your clothes," that would obviously be a breach of trust.

It's not strictly necessary when someone has a problem in their throat. And so financially speaking, it's a similar scenario. Not everybody wants to get financially naked with their financial planner. But yet if they did, it would make it a little easier. And so the metaphorical parallel would be that, Nick, if every patient that you saw would come in, they would do all the vital measurements right off the bat.

They would do blood panels and have everything right there, a comprehensive portfolio of all their past medical exams, all their history, all their other doctor's comments, and at the risk of pushing this too far and be standing there naked in the waiting room when you come in, you'd probably be much more efficient and much more comprehensive with your advice.

You look at their diet log for their food log of how they eat, their calorie intake, et cetera. You'd probably give good advice. Well, the closer that you can get with a planner as far as opening things up in that way, that'll help. I think that'll really help. The second kind of major theme that I would see as valuable is forthrightly disclosing the opinions that you as a client hold and not hiding those for the sake of professional courtesy.

For example, when I sold life insurance, it's never been a surprise to me that some people have strong convictions about what's the appropriate way to buy life insurance policies. Some people believe very strongly that it would be idiotic to ever purchase a whole life insurance policy or it would be idiotic to ever do anything except buy a 10- or 20-year level term insurance policy for 10 times your annual income.

As a financial advisor, it's not surprising to me that people believe that. But it's much more valuable for me if they would just simply open their mouth and say, my belief is that with regard to life insurance, I should only ever buy 10- or 20-year level term insurance policy.

What do you think about that opinion? Because then that would give me the opportunity as a financial professional to say, well, here's what I think. When I actually interviewed for the very first time with the company that I wound up working with for six years, which was a leader in the area of whole life insurance, this was in whole life insurance sales, so massive amounts of whole life insurance.

I was at that time operating under the deep conviction that buying term life insurance was the only appropriate decision for every thoughtful, reasonable person who wants to make a good financial decision. So I led with that in my initial interview with the various life insurance agents that I talked to to try to figure out if this was a company that I wanted to associate with.

I said to them, I believe you should only buy term insurance and invest the difference. What do you think and why? And then being able to listen to them say, well, here are the advantages of that approach and here are the disadvantages of that approach and here are various scenarios and here's how you would know what's right, helped me to come to a different conclusion than I had previously.

But what I found is that clients always harbored their own opinions, convictions. You should only buy index funds. You should only buy term life insurance. You should never buy long-term care insurance until you're 55 years old. You should always buy disability insurance at your job. You should never buy individual stocks.

You should never do anything except – you fill in the blank with whatever that I could pick up on them, but many people didn't have the confidence in their opinion to actually hear my responses. And so if they would just simply say, by the way, here's my personal belief.

What do you think? That could get a whole lot of touchy-feely foreplay out of the way and we could get right too and I could say, well, here's what I think about that opinion. Here's where I think it's applicable and here is what I personally believe are the downsides.

So let's talk about your situation and figure out what may or may not be appropriate for you. There are going to be two big picture approaches that I think are valuable. Here would be I guess one more very important one, Nick, that I think also makes a difference. Many people when meeting with a financial advisor feel the need to be reticent about the actual circumstances that they're going through.

The best example of this would be family problems, family turmoil, marriage problems, et cetera. So they often want to pull back and not talk about things that they think are going to be uncomfortable. For a while when I was a new advisor, I didn't see it happen and I couldn't understand why did this person not do what I said they should do?

I sat with them. I listened to them. Why did they not implement what I told them they should do? Some people would say no to the recommendations that I made or they would often just disappear and not respond to the recommendations that I made and I didn't understand why.

I would go back through all the recommendations, through all the notes and I would say, "But this was exactly what they should do. My advice is right. Based upon everything they said and what they said was important, my advice was right." But as I grew and experienced and matured, I quickly realized that there were frequently things that they wouldn't tell me about and most commonly it was marital strife.

They would say if I'm meeting with the husband or the wife, they wouldn't want to tell me what the husband, their spouse was saying in their actual situation. And so later I would find out when I talked to them a year later, well, they had since gotten divorced. And if they had just simply told me, then I could have provided some actual useful advice for them and said, "Well, here are a few things that you should do and with regard to your divorce planning and definitely if you are considering consulting a divorce attorney, you definitely should not do all of these recommendations that I've made to you, but you should do these other things to protect yourself or protect your wife or etc., to come through this in the most inexpensive and the best possible way for all the outcomes." But they didn't want to tell me they were facing marital problems and therefore we basically all wasted our time.

And then I guess a corollary of that would be when I'm in a competitive situation. It's no surprise when I'm in a competitive situation with another advisor that I'm in that situation. I'm meeting with Joshua and I'm meeting with a firm across town and we're both presenting proposals on a $2 million portfolio that we're trying to bring under our stewardship.

Okay. Well, that's fine. That's fine competition. We know it's a big competition, but let's talk about what you're doing and I'll help you make that decision. Here's what we do. Here's what we don't do. And at least if I know who the competition is and what they're proposing, then I can tell you here are the flaws in it.

Same thing used to happen with insurance policies and one of the little things that was helpful with insurance policies is that when legally speaking, if somebody is seeking to replace a life insurance policy, which means a newly issued policy is seeking to be canceled and replaced by another contract, legally there has to be a notice made to the company who holds the contract and that company could then notify the agent.

But frequently the client wouldn't say, "Oh, I'm meeting with this other firm across town and I'm considering replacing your policy with this other company." And I often found that so maddening where I would say, for sake of example, "Listen, I can sell you a Prudential policy or I can sell you a MetLife policy or I could sell you a Northwestern Mutual policy or I could sell you a New York Life policy.

Here's why I've recommended for you policy number one. And yes, I understand that this other agent who you met through such and such is recommending to you a MetLife policy instead of my Prudential policy or my Northwestern Mutual policy and here are the advantages of that that they're telling you about, but here's what you don't know that could hurt you." But so frequently people didn't want to hurt my feelings by telling me they're in a competitive environment, that I'm in a competitive environment.

And the only person that was hurt by that was themselves. So honesty, frankness, and a recognition of the fact that these little questions are not unknown. In the same way, Nick, that you're in competition with WebMD and whatever so-and-so says on the nightly news, that's not a surprise to you if I come in and I'm curious, but you also have a lot to add that if I'm open to you that I could really gain from.

So those would be my thoughts in answer to your question. Okay, thanks for that, Dr. Huffman. That actually sounds remarkably similar to kind of my thoughts on seeing patients. So I was going to spin it around on you. All those things apply. So I was going to spin it around on you and let me just ask you, if you were answering that question from the perspective of a medical professional, how would you respond to it?

I mean, really, most all the things that you said certainly still apply. You know, one, kind of going back to something you kind of said about people being embarrassed about certain situations and things like that, you know, we hear, you know, "What to you is a weird, embarrassing, I can't believe this is happening to me situation." We see this stuff all the time.

So don't be embarrassed to bring something up to your doctor or, you know, as you said, you know, if there's trouble at home or, you know, your job is going to get lost, you know, don't be embarrassed to talk to your planner about that. I would imagine, you know, that's kind of one of the big, big things.

And also, you know, the, you know, say up front, you know, here are the issues that I'd like to kind of work on today because, you know, we get so many patients and I've certainly been guilty of doing this in the past of, you know, "Oh, hey, I know we're all done here, doctor, but X, Y, and Z as well." Well, okay, you've, you know, just like the divorce situation you talked about, okay, now we're in a completely different situation, you know, maybe that changes everything that I just spent the last 10 minutes talking to you about.

So yeah, I would certainly say a lot of things you said, but I'm going to add those two things on top of, you know, don't be embarrassed about what you've got going on and, you know, kind of say everything up front so that we kind of have all the information going in.

Yeah, absolutely. I have found that there's a strikingly consistent among the professions, and I'm lumping financial planning in with the professions that are more frequently considered, such as the practice of law or the practice of medicine, among the professions when I interact with other professionals, there's often striking similarities between the different approaches and the things that many of us struggle with.

And I think more than anything, frankness and honesty is usually the most helpful thing. Sometimes it's hard, frequently it's hard, but forthrightness, honesty, at least there we have the opportunity to make progress. You had a second question. Nick, go ahead with your second question, please. Yeah, the second relates to switching from a sole proprietorship to an S-corp.

I've been working as an independent contractor for the last two years, basically just under my own name, making about $120,000 a year. I am considering switching to an S-corp, and I've been thinking about this for a while, and, you know, with some of the new tax law changes, it looks like that might even be a more attractive option now.

But I'm just wondering if my, you know, what I'm being paid and what I'm doing is not changing, you know, same jobs, same pay, is that going to kind of trigger the IRS to say, "Hey, you were making $120,000, and now your salary is $90,000, but you're getting these $30,000 in dividends.

Is that going to cause a problem for me, or is that okay to do?" So the basic question is, is changing the approach to business, such as entity from sole proprietorship to S-corporation, is that conceivably a red flag that the IRS would say, "Hey, by the way, because you're doing this, we're going to give you extra scrutiny to your situation"?

Is that an accurate summary of the question? Sure, yeah. I guess it makes more sense if you're kind of starting a whole new business or something like that, but for mine, everything else would be staying the same, just how I'm being taxed on it. So, yeah. Trevor Burrus: Right.

I don't believe that that is something that is appropriate. I think it's – and here would be my more extended answer. Number one, I think it's a good idea. I am scared of the IRS. They have guns, they have men with guns, and they have jails. I'm scared of people with guns who have the law and all the legal authority of all of the force in the land at their disposal.

So I treat people in that situation with a very healthy amount of respect. So I'm scared of the IRS and I recommend that you be too. That's something that's very, very important. And they've cultivated that reputation over the years, especially in the area of tax enforcement. Number two, I'm not scared of the IRS because at the end of the day, the IRS doesn't put you in jail for just about anything except not reporting income.

They don't put you in jail because you messed up on your taxes or because you took a deduction that you were – that they don't think that you should be allowed to. So on the whole, although I think it's good to be scared of the IRS, you don't think we need to walk around on tiptoes thinking that they're all of a sudden peeking in the window and that we should never do anything that might ruffle their feathers.

I appreciate when people are aggressive with the IRS. I think they have a moral – that we have a moral duty to push back in any conceivable thing and to push back in our own business practices to take every single deduction that is allowable. We have a moral duty to make our tax bills as low as possible and then to press back in whatever way possible politically to make the overall system of taxation fairer and cheaper as is – in any way that is possible.

So that's kind of just a little bit of ideology. Practically speaking, what you're describing would not raise any red flag whatsoever. The natural progression of businesses is that they will grow and change over time. It's natural for businesses to begin as a sole proprietorship, to move into an S-corporation or an LLC and then as they grow to change to a C-corporation.

So practically that is the normal progression of many businesses and practically there are many reasons why that would be very much in your best interest, none of which necessarily relate to tax savings. So that is definitely not going to be a red flag. In addition to that, there is nothing wrong with structuring your affairs in the most tax-efficient way possible.

There's nothing wrong with it morally and there's nothing wrong with it legally. I think that you should morally and legally do both of those things to structure your affairs in the most efficient way possible. You simply have to pay attention to any stated rules that do exist on what you can and cannot do.

So the only danger in pursuing what you're describing would be if you were to ignore the rules or the policies that the IRS would follow and enforce with regard to S-corporation taxation and of course most specifically, practically speaking, to the actual structuring of your income with salary versus dividends.

If you move to an S-corporation and you started taking $1 of salary and $119,999 of dividends as compared to currently where you have $120,000 of self-employment income, that probably would trigger an audit. That probably would trigger the red flags. But it's because that's out of the guidelines. It's not because it's wrong to go from a sole proprietorship to an S-corporation.

It's because the requirement of an S-corporation is that, especially for professional services, that you're paid a salary commensurate with the salary in the area. So what you should do is you should research what's the salary in the area, figure out your scheme of defending that based upon the data that you've gathered in your area of what's an appropriate salary, and then you should set your salary appropriately.

I think that's the best way to handle it. But no, making the transition that you're describing is not wrong. Even if it were solely for the savings of tax savings, I don't think that would be a problem. The IRS has a doctrine where if the only reason for making a move is to save on taxes, for example, you structure a transaction in a certain way, and if the only reason for doing it is to lower your tax bill, they'll disallow that.

There has to be a compelling business reason. But changing entity is perhaps the easiest thing to properly, legally, and morally justify as an appropriate business reason. And you're not just structuring something to lower your taxes. There are many other benefits that will accrue to you from that perspective. So short answer, Nick, don't worry about it.

Be scared of the IRS because, again, they've got the men with guns who will come and back them up, and you should be scared of those people. But don't be scared of the IRS because the time that they show up with guns and the ways that they show up with guns are pretty well known, and what you're describing is nowhere near the line of danger.

Good answer? Yep. Sounds good. All right. Very good, sir. All right. Final caller for the day. Let's go to Ruha in Alabama. Ruha, welcome to Radical Personal Finance. How can I serve you today, please? Hi, Joshua. Thank you for taking my call. My pleasure. Okay. Let me just hand my baby off.

How old is your baby? She's going to be 18 months and a day or two. What a beautiful stage. Yeah, she is wonderful. We are so blessed. So today I wanted to talk to you about filing my taxes. In 2017, we made the big exciting transition from real house to tiny house, and that move actually precipitated a whole bunch of other actions and behaviors that should be pretty advantageous to us for reducing our tax liability for the year.

And then others, of course, will actually add to our tax liability. But long story short, this is my first year ever when we've had more than just a personal income from, what do you call that, a W-2, I guess? So because of all these added complexities, I'm feeling like it might be a good decision to get a professional to do our taxes this year.

But my other concern with that is, for instance, I've just been going through Jeff Schnepper's How to Pay Zero Taxes book. And I want to hire that professional. I want to hire the one who's really looking to help us save every dollar that should be ours and someone who's not just going to treat us like one more client through a revolving door.

You want to hire them. I want to hire them. Every business owner I've worked with wants to hire them. And unfortunately, they're a hard person to find, and they don't come cheap. So I think you've got to justify. So let me ask a couple of questions, and I will be able to help guide you in the right direction.

So this last year, 2017, was your first year in business. So this is your first year with revenue gained from your businesses. Is that right? Yes. And about how much money in total revenue would you say that you've earned from your business activities? Probably around $8,000. Do you have good records of your various financial transactions for the year across the board, personal expenses, business expenses, et cetera?

They could be better, but they're not bad. So here's been my experience. The biggest value of an accountant, a good tax planner, is in two things. It's in bookkeeping for a busy business professional, and it's in proactive tax planning. Those are the big, big valuable points, especially the proactive tax planning.

And so if you're wading into a book like Schnepper's book, which is excellent – it's called, again, How to Pay Zero Taxes, Your Guide to Every Tax Break the IRS Allows – he issues a new version every year – it's excellent, but it's also overwhelming. But if you're wading into a book like that and even looking at it, then you probably have the temperament or at least the willingness to study certain things to help you in the planning direction.

I don't know how to find a good planning – a good tax planner in your local area. My personal experience has been that many accountants are competent to provide good planning, but they get very accustomed to their client base not valuing it. And most clients just want their returns done.

They just want their returns done seemingly as quickly as possible and as cheaply as possible so they can get their refund back. And many accountants build and structure their practices in that way. They build and structure their practices in a way that serves the person who brings in their stack of stuff and just wants it done fast and cheap.

So how to find – and frankly, if I were an accountant, I would probably build a business like that because it's much harder to build and market the business related to advice and strategy than it is to market the advice related to doing the return. So I don't know how to help find someone like that.

But here's how I would approach it if I were looking for somebody. I would start to call different people in my local community that I had a relationship with, business people especially, any business person that I know from any context, someone in your church, someone in your local chamber of commerce, somebody that you are connected with and say, "I'm looking for a tax planner.

Do you know anybody in the area who I can talk to?" And you can start to get referrals in your local area to people and most accountants will be happy to sit and talk with you without charging you. The best time to do tax planning with them is to do it not during tax season.

Here in the beginning of January is still a decent time where you can get an accountant's time. But much farther than this, this is their busy season and the best time to talk to them is in July when they're not up against the corporate deadlines or the personal deadlines in July or December, something like that when they have more time.

So you can potentially pursue somebody in that area. With your current business revenue, I wouldn't think that it necessarily needs to be a high priority. The tax programs, like TurboTax being I think the most well-known one or TaxCut or other competitors to those, the tax programs do a really good job of walking you through all of the potential deductions that you can take, all the potential approaches to business.

And so here's what I would recommend that you start with at the very least. Print or compile as comprehensive of an inventory of your financial transactions for last year as you can get your hands on. Any accounts that they have, print the statements, et cetera, the best outcome is if you have a register or a spreadsheet or something that has every financial transaction possible.

And then start by going through something like the TurboTax software. I've used them for years. They do a fine job. I'm sure the others are excellent as well. But start by sitting with something like the TurboTax software and go page by page through every question that they ask you.

And when they ask you the question, sit and carefully read it and think, "Do I have any of these transactions? Is there anything related to this that I have?" and follow the prompts. Most people who are basically competent in the language of business, which you clearly are if you've taken the action step of buying a book like Schnepper's book, most people will be perfectly able to go through TurboTax and to walk their way through it.

You can walk your way through it without buying it. You can use their web interface. They don't charge you until the very end and you can start to see your results and see what you've got. And I would start with that DIY process. My experience has been that I've gotten big value when I was confused on certain things by consulting with a couple of accountants.

But then, for example, one of my favorite accountants that worked with me and that I used to file my returns for a number of years then sold his practice. And then the next guy, I didn't get much value. And he wouldn't take the time to sit and talk to me, wouldn't take the time to do proactive planning.

And I actually learned through the process of going to TurboTax and then starting to read more books, I learned much more to the point where I feel like there's a hard place for an accountant to be able to help me. And with $8,000 of business revenue at this point, it's going to be hard for an accountant to make a measurable difference in your tax bill, I would guess, if you do a good job with TurboTax.

As your business grows, then I would start to solicit the advice of a professional. Anything else or any specific questions? That sounds reasonable. Well, my plan was to start with TurboTax and start to go through it myself and then see if I can maybe get someone to review it.

And I think I'm aware of a few services that will review it for free. And then if you want advice back, they'll charge you. I don't know. I'll have to look into that a little more. But that pretty much covers my questions. It just had to do with the move.

We had a few relocation expenses. And then we started renting out our old home. We're actually taking tenants on our new-- the land that we bought to develop to park our tiny home. And we actually have a tenant there as well. So just with those few different categories of-- and charitable donations as well, the different categories I thought might make it worthwhile to have someone kind of on my side looking through things and saying, oh, look, you missed something there.

The challenge-- But I've been using those. Right. The challenge to that-- you're not wrong. But the challenge that I've experienced practically is the quality of the advice that you'll get from a tax accountant will be dramatically impacted by the quality of your records. In my early years in business, I didn't have very good records.

And most people don't have good records. And so their accountant is essentially forced to make a good faith estimate on certain things and to do the best that they can to say, well, this is probably what happened. But in general, if you don't have good records, it's going to be hard for them to be aggressive.

And they're certainly not going to be aggressive. And that's, I think, what many of us would like, is we'd like to have an accountant who's aggressive. But their license is at stake. And they're not going to-- if you think about it, if you're one of 200 clients, your accountant is not going to risk their business for the benefit of you, one of 200 clients, to be aggressive with something that you don't have.

And so if you don't have good records, then frequently, they can't help you all that much. The flip side is, if you have good records, it's relatively easy for you to go ahead and enter those records into the program. Most accountants don't sit down and manually fill in a Form 1040.

They use a professional tax preparation software. Usually they have a data clerk who will do the entering of the data for them. And then they'll sit down and review the overall return. And so if you're looking to save yourself a little bit of money, and you're looking to develop some skills, I don't see any reason for you not to start with a TurboTax.

Use TurboTax as your inspiration to dig through your records and build good records for the year and reconstruct anything you have. And then if you get stuck, go ahead and at that time go and solicit advice. And then take the output from TurboTax, which you learn, and go ahead and potentially consider getting a second opinion and use that referral process to try to work with a couple of accountants.

If you find a good accountant, they're well worth keeping. Just like with any professional, it's sometimes harder to find a good accountant as measured not by their competence, but as measured by their willingness to work with you in the way that you want to be worked with. And if you find them, I think you should continue to engage with them.

But they're not easy to find. I wish you all the best. And if you have any specific questions, then feel free to connect with me or feel free to use the power of – there's some great tax professionals in the Radical Personal Finance Facebook group, really strong professionals. Go ahead and ask your questions there, and sometimes that will point you in the right direction as well.

That is it for our Friday Q&A show. Thank you all so much for listening. Man, it's good to be back to these Q&A shows. I enjoy doing them. I invite you to join the show next week. In order to do that, remember to sign up to become a patron, RadicalPersonalFinance.com/patron.

And you'll be able to support the show there and also to gain access to these calls. Feel free if you want to talk to me, feel free to sign up there and that's a good way to do it. If you'd like to speak with me privately, please remember that I do a limited amount of private phone consulting.

What that means is if you want to speak to me about a specific issue, it can be a private issue or if you want to review, if you want some feedback on advice you're hearing from another professional, feel free to go to RadicalPersonalFinance.com/phonecall and you can book a call with me, RadicalPersonalFinance.com/phonecall.

That call you'll pay by the minute for however much time you choose to speak with me there. So go to RadicalPersonalFinance.com/phonecall and you can find those details. In general, I can't remember how many, I've got several dozen reviews there but I've not had any phone client express dissatisfaction either in a public review or dissatisfaction with their experience to me privately.

I can cut straight to the chase and oftentimes simplify complex questions and give you a valuable bit of feedback. And if you take the cost of a phone call with me and you compare it to the potential cost of a major financial mistake, I'm very confident in the service that I offer there.

I think that's it for today. Next week we'll get back to it and I look forward to speaking with you then. Thank you for listening. This show is part of the Radical Life Media network of podcasts and resources. Find out more at RadicalLifeMedia.com. Hey there, treasure hunters and bargain seekers.

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