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♪ Welcome to Radical Personal Finance, a show dedicated to providing you with the knowledge, skills, insight, and encouragement you need to leave, well, to live and to leave a rich life now while building a plan for financial freedom in 10 years or less. My name is Joshua. I am your host.

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If you want the fastest and most direct way to become a patron of the show, radicalpersonalfinance.com/patron. We begin today in the Empire State. Peter, welcome to the show. How can I serve you today, sir? - Joshua, I just got married, and I'm wondering what some good financial planning things to do are for newlyweds.

- Congratulations. That's great. - Thank you. - So how old are you? - I just turned 41. - And is your wife of a similar age? - Late 30s, yep. - Okay. So you have benefits and disadvantages of being older than many people. At 41, you would be at this point much more stable in your life, I would imagine.

And with your wife is also similar in age, you guys are at a different, your newly married life will look a little bit different than a 21-year-old who is entering into the same approach. Now, tell me a little bit about what you own, your living conditions, owning a house.

Does she own a house? Like, what's your plan going forward? What do you have right now? - So we rent an apartment together. Previously, I was renting, and she actually owned an apartment that she sold about a year ago. So we are renting. No urgency to purchase, 'cause we live in a fairly expensive area from a housing market standpoint.

But probably in the three to five year range, acquiring a home is a distinct possibility. And the proceeds from the sale of her apartment would probably make a pretty suitable down payment for that. - Great. Has she already sold the apartment, or is it on the market now? - Oh, no, she sold it.

- Okay, great. And in terms of your income, your work, tell me a little bit about your financial flows through your household. - Sure, so I'm a professional, I'm a physician. I've got higher income than her. So I'm making in the sort of mid six figure range, and she's making in the very low six figure range in her job.

- Okay, so household income, about three quarters of a million dollars-ish. And do-- - It's less than that, but several six figures. - Okay, great. And does, after being married, have you guys talked about anything as that relates to your career plans? Do you both plan to continue working in your careers?

Are there any kind of changes or transitions that you would hope to make? - I have no career change goals. I'm very happy with where I am. If she got a superior offer in the industry she's in, given that my job is portable, I would consider relocating if she got a really great opportunity.

But she also has other opportunities locally. So there's no plans to move. If something happened, I think we've got flexibility to do that. - Do you and your wife hope to have children? - Yes. - Okay. Is there any thought on when that might occur? - Well, given that we're older, probably sooner than later would be the idea.

But that would be something that in the next couple of years would sort of biologically need to be. - Right. - Cooking, if that's gonna happen, that's gonna be in the next couple of years. - Right, right. Yeah, without question, one of the most important things is if you and she hope to have children, it will be much easier and much less expensive to do it sooner rather than later.

Especially when a woman starts to reach her late 30s. And if you're a physician, of course you all know the data. But when a woman starts to reach her late 30s, it becomes much more challenging for her to have children. And then even the having of those children comes with additional risks, concerns, which can add to the cost, can add to the stress, et cetera.

So definitely sooner is certainly better than later. If you and she were to conceive a baby, how would that affect her thoughts about her career and her work? Would that make any impact to you? - So I think that the, she's interested in still working ultimately if we have children.

I think the big question is, what happens to alternate career trajectories she could go on versus staying in the same, for instance, making a move at that point might not be as appealing. I don't think she would stop working. I think that's as granular as we've gotten on that at this point though.

- Got it. With regard to your and her financial position prior to marriage, were both of you similarly wealthy? Did one of you have a lot more money? Was one of you deeply in debt or anything like that? - She, other than having the apartment which she made money on, she has no debt.

She has no student loans or anything like that. I still have student loans from med school. And I had more money saved by virtue of being in a higher income job. She's been working a little bit longer than me, but I've been in a higher income job for longer.

And since I never really prioritized home ownership, socked more away into retirement and other types of investment accounts than she did. - Do you and she have similar attitudes about the spending of money or is there a significant disparity in your approaches toward spending decisions? - I think the disparity is primarily because I've had more disposable income than her.

So I would say generally speaking, neither of us is reckless or racks up a bunch of credit card debt or anything like that. I think that she might be slightly more frugal than I am, but I think if you sort of normalized our incomes, I think it'd be pretty comparable.

- One more question. Do you and she have any current philosophy that would govern your decisions around money and how you would handle it together? - I think that given that I've had more cashflow, I think that I'm more willing to do things like buy something on a credit card and pay it off next month and maybe make some larger purchases than she is because I've had that higher degree of cashflow.

I think, and with a high student loan balance and handling that for almost a decade now, I think I'm more comfortable with having debt and paying it off through cashflow. And I think she hasn't had the same degree of cashflow before, so I think there's a little bit of a difference there.

- Okay. And I should never say questions like, oh, this is my, I should never say things like final question 'cause I always come up with one more. Do you and she have any kind of prenuptial or pre-marriage financial agreements between the two of you? - No, but her family has some holdings that are out of the country that by virtue of where they are and how they are situated, it's something I can't touch.

So it's not something I wanted to touch anyway, but I mean, it wasn't an agreement we entered, it was a pre-existing agreement that there's nothing I can do about it. - Understood, okay. So let's start with some tactical stuff, just kind of very tactical stuff to clean things up.

And then we talk a little bit about philosophy. We could do it in either philosophy first or tactics. The harder thing is going to be philosophy, but let's start with tactics. So first, you wanna sit down and make a complete accounting of everything that you have. And both of you should do this.

Both of you should sit down and make a complete accounting of any bank accounts that you currently own, any investment accounts that you currently have, any credit accounts that you currently have, and talk about those with each other. It'd be good way to do this, make sure you pull your credit reports so you have that information and make sure that all the information is out there, that you know what's going on in each other's past.

You know what credit cards she has, what credit cards you have, you know what accounts she has, what accounts you have, et cetera. Now, in my opinion, it would be ideal to do this before marriage. This should not wait until after marriage. - Yeah, we've already done that for the most part, except for the credit score.

- Good, so at least-- - We know roughly what our credit scores are, but I've never shown her my credit report. We've basically done all that. - Okay, so now you wanna go through those accounts and talk about them, and then do any kind of simple housekeeping items that need to be done.

An example would be for your bank accounts, talk about, are we going to have joint accounts on everything? Are we gonna maintain separate accounts? If you're gonna maintain joint accounts, then you need to sign up, which is gonna be our primary checking account. How are we gonna establish this?

Make sure that any accounts that you want to be joint are going to be joint. Any accounts that are gonna remain separate are separate, but make sure that you adjust any kind of beneficiary designation or any separate account. Make sure that there's a payable on death arrangement for that, since a bank account wouldn't have a beneficiary designation.

But if you have any separate accounts that you're going to maintain for any reasons that you decide is important, then make sure that that's payable on death to the other person. Go through all of your investment accounts, and you need to update all of the beneficiary designations. Make sure that she is listed as the direct beneficiary on all of your 401(k) accounts, on any investment accounts, and vice versa.

And then talk about your secondary beneficiaries. At this point in time, usually that would be your other direct family members, but make sure that you know about that. So if you die together, what would happen to the money? And this will be important as you start to move in the direction of, in the future, establishing wills and trusts together, to make sure that you're starting to talk about that.

So frequently, for a newly married couple, it would look something like, well, we'll be direct beneficiaries of each other's investment accounts, but we'll keep our blood family lines as the secondary beneficiary. So if we die together, then our current assets will go to our parents, or my brother, or something like that.

So go through and update those. Same things with insurance policies. Make sure that your insurance policies all get updated. So make sure that your life insurance is updated. Make sure that it has both the primary and the contingent beneficiary established. And then finally, with your credit accounts, go through your credit accounts and talk about your strategies.

If you, for example, maybe you use an Amex Platinum and you wanna go ahead and add her as an authorized user so she can get the benefits of that. Or, you know, we're gonna keep these separate credit cards, or we're gonna keep these credit cards together, and go through and go ahead and order authorized cards or secondary cards, whatever your personal plan is.

Take a look through any other things, safety deposit box, combinations on the safe. Just go through all that bookkeeping and make sure that she knows where you hide the cash. Make sure that she knows who your financial advisor is so that if you die, she knows who to call, things like that.

And deal with all of that bookkeeping. Now, the next thing is, start to talk about your longer-term financial goals. So you wanna think and discuss your financial goals. And one of the most exciting things about being newlyweds is the ability to start to make plans together on the solid foundation of togetherness.

Because now it's not a matter of, well, if we do this someday, now it's, okay, we're one, we're together. Now, what are we going to plan for? What are we going to work towards? So what I did with my wife is I'm the writer, and so I would give her things to try to pull things out of, I'd give her journaling assignments and say, think about this, talk about this.

And we would start to make lists. If we're gonna live in a house, here are the kinds of things that we'd like to have in that house. If we're gonna, and et cetera, any kind of things that you'd like to have, things that you'd like to do, career aspirations.

Try to get those things out and get them put on paper so that they can be discussed and brainstormed and dreamed about together. That's a big challenge, because especially with your and she both being a little bit older, for all of your life, you've made your plans individually. You've not had to consider another person.

And she has made her plans individually. She's not had to consider another person. But now you have to consider one another, and you have to work and say, how do we actually consider one another's goals? There will be goals that each of you has that are in direct conflict.

You may want to go right, she wants to go left. Well, you can't go together, both right and left. And so you have to think about how do we accomplish this? How do we find an option that will fulfill those things that are important to both of us? Sometimes this is easy.

Sometimes this is very hard. And so sometimes you have to look for a third or fourth option. Sometimes you make a plan and say, for right now, for example, you talk about careers. She has an exciting opportunity. She wants to move into this different career path. Then you might need to change and move to a different city.

And so if that's gonna happen, that should happen soon. If it's not gonna happen, then you figure out, well, what would be the best path to move to this other thing? And so you work through those goals and start to talk about them. And the best way to do it is long in advance of any decisions so that there can be lots of time to think with one another, to consider what each other wants, and then to work out plans where both people will be satisfied in the very best way possible so that there's less and less conflict down the road.

So those are just some tactical things. And that goal-setting process will be the most important and influential thing to be done along the way. Now, let me pause for a moment before I go to philosophy. Any questions so far on those tactical discussions? - Are there any good tools or prompts or forms for the goal-setting exercise?

I mean, should it be freeform or should it be structured? Or does it matter? - Yeah, I've done both and I find both helpful. I can't cite any one specific exercise right now. I've done, I have a number of exercises. Let me just give you a few questions that are useful that I've done from freeform journaling exercises.

I've delivered these in my career and income planning course, and I've found that the students there really benefited from these. And so I'll just give a list of questions that I often will start from, but I'm sure that there are books and good books and good things out there.

So a quick web search using DuckDuckGo will find various options that you'd like to do. But here are a couple of questions that I've often asked people. One, just the 10 goal method. What are 10 things that you'd like to do in the next year? Just sit down and make a list of 10 things.

Just 10 goals that you have for the next year. Very freeform, can be anything that you want. Make a list of 10 goals that you'd like to accomplish in the next year. Another number-oriented one. Make a list of 30 things you'd like to do, 30 things you'd like to be, and 30 things you'd like to have before you die.

And I like that one because it focuses on that extensive list. If you study the philosophy or the, I hate to use the word science 'cause this stuff is not appropriate to use that word in this. But a lot of times if you force an extensive list, you can force more ideas out of the back of your mind.

So I really like that one. 30 things you'd like to do, 30 things you'd like to have, and 30 things you'd like to be before you die. And put those on there. That was one that when I made my wife do that, it was very helpful 'cause it could give me a list into the things that were on her list.

And she does these exercises dramatically different than I do. They're just, there's no comparison. But when she puts them on the list, then I can work those into our overall family goals. Another one would be the three-year question, the Dan Sullivan question. If we were sitting here having a conversation three years from today, what would have to have happened for you personally, professionally, and financially for you to really feel satisfied with your progress?

That was my variation of how I used to ask financial planning clients that. I can't say his exact question right off the top of my head, but it's something like that. Three years from today, what has to have happened for you to feel happy about your progress? And then I'll just give you one more.

I really love the perfect day exercise. And so basically you close your eyes and you imagine yourself waking up in the morning, and it's a perfect day for you. And you sit down and you imagine, what does that day look like? And the way that I like to do this one is just with a voice recorder, turn on the voice recording app on your phone, close your eyes, and walk yourself through an ideal day, a perfect day.

So if you wake up in the morning, in your mind's eye, look around the room and see where are you waking up? What does the room look like? Where is the room? Some people, when they do that exercise, they wind up living in a little apartment on the 47th floor in New York City.

Some people, when they do that exercise, are looking out of a ski chalet. Some people are at the beach. Some people are in a bus, traveling the world in a converted school bus. And so you think through everything that you'd like to do, and you say, "Here's my perfect day." And then describe what you do.

What do you have for breakfast? Who are you with? Who can you imagine being there? And then go through the day in exhaustive detail with as much as you can see in your mind's eye. And then what I like to do is go back and transcribe that so I can look at it so that I can see that.

And that for me has been one of the most powerful because it grasps my imagination and helps it to apply to real life. And then I can figure out what changes are in that. And so for me, when I do that exercise, some changes involve physical location. Some changes involve the daily schedule that I keep.

Some changes involve what I do for work. And I can really see that. That one's always been useful for me. And then, well, I'll just quit with that. So those are just a few freeform ones that I find really useful. But the key is I tend, I like to go for freeform more than structured, because a lot of times what happens with structured prompts is you fit into the standard methodology.

So I'll give you an example. I used to do structured prompts, and I would write down goals based upon that. And I would write down a new list of goals every day. I'd write my goals out every single day to keep myself focused on them. And one of my goals was to have a fancy car.

One of my goals was to have a Harley Davidson. I wanted a big black Harley Davidson. So I'd write these goals down. Then finally I sat there and looked at the list, and I said, "This is stupid. "I don't actually care about a fancy car. "I only care about that "because that's what everyone says I'm supposed to do.

"So you're supposed to come up with a dream, "and that dream is supposed to care with a fancy car." I don't care. I don't actually care about owning a Harley Davidson. I like to ride them, but I don't actually wanna own one, and I don't wanna own one at this point in time.

I much more care about my time with my children and what I'm teaching them than I do about the Harley Davidson. And so once I stopped all those prompted stuff where you're supposed to imagine a fancy house and a fancy car, then I was able to get to the things that I actually cared about, which were much less materialistic and much more about impact and meaning and people and work than it was about consumption.

So that was my experience, but your mileage may vary. So let's go now to philosophy. So once you've got those tactics out of the way, then I think you have to start to talk with one another about philosophy and start to put together a concept of how you're going to approach your life together.

And there are a few major sticking points in marriage. Number one is the handling of money in terms of decisions and authority. That's a big one. Number two is going to be careers. And so the really tough one is handling money. Now, there are some couples who seem to just automatically think alike and they don't ever have any problems, but that's pretty rare in my experience.

And so when it comes to the handling of money, how are you gonna do it? And here is where your religious philosophy, your worldview, your outlook on what marriage looks like will come to play. So let me use two kind of extreme examples as a foil. I come from a religious tradition that emphasizes unity, oneness.

And so one of the things that's very important for me in terms of how my wife and I approach our money is to focus on making decisions together. Ultimately, I'm the head of my household, so I bear the responsibility for the ultimate decision, but we wanna make our decisions together.

And so everything in how we approach money, we wanna emphasize unity, oneness together. And so we don't have separate checking accounts for usage. We do everything with one joint account, with the exception of, there may be exceptions to this for simple tax or legal reasons. There can be many reasons for somebody to have a separate checking account for the isolation of legal rights, but in terms of overall function or the way of going forward, I would always emphasize and encourage a togetherness, a joint work.

So we don't have her money and my money, we have our money. It doesn't matter who brings it into the household, whose income is reflected, and it doesn't matter who's actually making the physical transaction to pay out money. We have our money and we're accountable to one another. And so we emphasize that in the practical outworking of things.

We have a joint checking account. The money that we spend is always spent together. And that's because of this emphasis on oneness and togetherness. There is no hers, there is no mine. There's no her money, there's no my money. There's no her rights or my rights. There is only us, even to our own bodies.

My body is not my own, her body is not her own. Everything is together, we belong to each other. And that comes from the religious tradition and ideology that governs our lives. Now, if you take that over to an extreme opposite, one of the conversations that I've had many times with people in my generation, with especially of the modern secular and highly feminist influenced philosophy, is a deep lack of trust.

And so I've worked with couples where they cannot even conceive of doing things together. And they've had to figure out how do I, it's basically, it's all about mine. So for example, I've heard and read financial advice that would counsel, usually women especially, because in the modern age, the philosophy is that women are disadvantaged and underprivileged, and so because of that, they have to look out for being oppressed by men, is basically how it goes.

And so I've listened to advice where women are encouraged, don't ever give your husband the money, don't ever work together, always maintain, you always have to maintain your own career so that if your husband abandons you and divorces you, that you're not left destitute, you always have to maintain your own money.

Because if you allow your husband to have supervision over your money, then you're ceding your power. So you always have to maintain your own accounts, you always have to maintain everything externally. And so many modern couples, their approach to this kind of thing is, they'll figure out, well, what's ours, our joint accounts, and we'll pay our rent together, we'll pay our mortgage payment 'cause we're living in the same house, but then I'll pay my bills over here, you pay your bills over there.

I've even seen this and read, I've read in my files, there's a lengthy essay that I read by a libertarian guy who came down to, he and his wife paid one another for household chores, and they viewed, and there was no exaggeration, I had the same chuckle, but he was very sincere about how it had been a great thing, where they would sit down and they would bargain with one another over the dollar value of who would clean the bathroom.

And they would have an auction and a bid with one another over who would clean the bathroom, and they literally would pay each other money to each other's accounts. They held nothing in common other than the thing that would be ultimately required, but they held nothing in common, and they just, they viewed it as an auction process with one another.

And he opined as to why this was the perfect way of handling money together. Now, I'm not gonna say to somebody, here's how you have to do it, because I think there are things that, the relationship between a husband and a wife is the most intimate relationship out there, and husbands and wives have to learn to work with one another.

But I do think you have to identify your undergirding philosophy and discuss it with one another so that you know what direction you're going. My wife and I, even though we were firmly committed to the same philosophy, you know, she bears my name, she, we're one, we're firmly committed, but that wasn't an easy transition.

It takes time to work that in. It takes time for husbands and wives to learn to dwell with one another with understanding and love. And it takes a lot of showing a lot of mercy to one another. So don't expect it to be perfect. And I would say for you, my caution is, it's going to be extra difficult because you and she are fully formed mature adults.

And for the last 20 years of your adult life, you've never talked to somebody about your decisions. You've never submitted your decision-making one to another. And so it's extra hard for people who marry older to be able to make decisions together than it is for younger people. You have the benefit of having a lot more money.

Younger people usually are broker, and so they learn those things together. But you and she are much more likely to be calcified in your own approaches as individuals. Make sense? - Got it. Oh, absolutely. - And then one more thing with regard to careers, and this is another huge philosophical divide that I think you have to tackle openly and honestly and identify.

One of the biggest tensions that happens in modern marriages as it relates to money is what career are we going to handle? And again, this comes down to philosophy, your religious philosophy, your worldview, and your basically life philosophy is gonna drive this. So back again, let me use these foils of kind of extreme opposites.

For my wife and for me, there was never any question as far as money and career. I was the one who had the responsibility for providing the income for the family. And for her, her primary career is in being my wife and mother, and that was decided before we entered into marriage.

That wasn't always the case in terms of easy. She has earned income at different times, but that was clearly decided in advance, which meant that we didn't have career tension. She never had career tension between children and income. And one of the things that we have worked hard at is to try to help her to avoid the consistent kind of screaming of people saying that if you don't earn income, you're worthless.

Because basically everything in our modern society is based upon earning income, especially in the wake of the feminist revolution in the last 75 years, women feel worthless if they don't earn income. And it's very, very hard for many women who are influenced by this philosophy to feel a place of contentment and satisfaction.

So they're often in a fight with their husbands, feeling like I have to have power over my husband because of earning money. And if I give up my income, then I give up my independence, and now I'm in this place of becoming a victim, and that's not what my mother fought for and went marching in the streets for.

And so women usually have a strong urge towards motherhood and towards being focused on raising children. If you study the data, it's very, very clear that women in the United States of America want more children than they have, and they want to be with children more than they are.

But that's a politically impossible thing to admit in public conversation among polite company. And so that often will put your wife in a very difficult situation where she feels like she has to do both things well. She feels like she has to be a hard-charging businesswoman who is erasing the gender wage gap single-handedly, but also she wants to be a mother.

And that's a really difficult lifestyle to have. I don't understand how it's possible. Of course, there are women who run themselves ragged trying to do both things, but I don't understand how it's possible. So you've got to talk about that. And if your wife wants to be a mother, if she wants to be a wife and a mother, if she wants to be at home and be focused on her home, you've got to work with her to help her to see that that is every bit, in fact, more valuable than earning income.

Because if your wife labors under this idea and this ideology in the modern era, that the only thing that brings her self-worth is her income. And that's the thing that, you know, when she's asked the question of what do you do, if all of her girlfriends look at her as being a loser and not advancing the revolution that needs to happen because she's being a wife and mother, she won't do it.

She won't do it happily. She'll feel like she has to do both. And that can bring a huge amount of tension into a relationship. Now, on the flip side, if you and she talk about it, and for her, this expression of her career is deeply important, and she needs to do this work, and she doesn't want to, you know, care for the, she doesn't want to be home with the kids, she doesn't want to give up this career thing, and she doesn't want to give up this income, then if you try to say, well, this has to happen, it's a recipe for unrest.

If you try to say, hey, you've got to go and, you know, be home with the children, you've got to do this. So I would say one of the most important things is to talk it through with one another. Study the actual data, for example. Study the data on the well-being of children.

Study the data on what happens if your child is raised by a daycare. Study the data in terms of the impact. Study, talk about it in terms of philosophy. Find out what she's thinking, what's important to her. Find out what's important to you. And do it prior to having children so that you can hopefully come to a more peaceful solution.

It is one of the biggest conflicts that I see in most of the married couples that I have counseled. And it's often very, very difficult for couples to work it through, and it usually takes a lot of discussion to come to a place of peace where they can move confidently.

And so if your wife is going to be a mother, for her to be able to be confident and to tell her girlfriends and say, listen, this is what we're doing, she's gonna need to be clear on that decision because she will be very susceptible to peer pressure one way or the other.

And so it's gonna take some time and conversation to come to the solution that's right for you based upon your undergirding philosophy and worldview. - Got it. - That was a lot of philosophy, but I guess those are some of the things that I think are important. And then finally, I guess I shouldn't skip past, go ahead and get some insurance for each other.

You have enough money. If you don't have, do you have a bunch of term life insurance already? - Yeah, we both just upped what we're, we need to verify everything went through as far as beneficiaries and everything, but we both through work are able to do that and increase that.

- Get some private insurance for, get some that's outside of your work, especially, because if you change jobs, she changes jobs, now especially, that you start to have commitments to one another, and those commitments go beyond finances. Life insurance gains additional importance. Get some term life insurance, at least 10, closer to 20 times your annual income of term life insurance that's not connected to your job.

And then secondarily, get some disability income insurance if you don't have it. And then-- - Oh yeah, I've got that. - And then also with her, make sure she has disability income insurance. If she has disability income insurance-- - She does outside of work as well, yeah. - Good, good.

So then that will still cover her and she could choose to keep it even if she leaves her job and/or it could provide income for her during pregnancy, especially in case of complications of pregnancy, which can be helpful as well. So get all that stuff squared away so that if she does decide to stop her job while she's having children, then that can be done easily.

- If you're able to take your life insurance policy from your employer if you leave, would you consider that sufficient or would you still consider getting a completely separate policy? - I wouldn't run away from that. Obviously, if you're able to take it, but I would make sure that you understand it very carefully.

Usually-- - Got it. - You can't take just a term life insurance policy from your employer and keep it as a term life insurance policy without changing it. Usually that's not possible. Usually if you can take a life insurance policy from your employer, you have to convert it from a term insurance policy to a whole life policy.

And so that can be a real challenge. So I'm not saying that it's not possible, I'm just saying the standard approach is, yes, you may be able to buy term life insurance at work, but let's say you're signed up for a half a million dollars of coverage there. If you leave that job, you can't usually take it as half a million dollars of term insurance coverage.

So make sure you're very clear on those details. Now, if your job is providing you with a substantial discount for it, then you should save the money. Don't waste money unnecessarily on insurance premiums. But most people can't get the maximum amount of insurance that they probably should have at their work.

So usually you need at least some additional, and usually the insurance that you get at your work can't go with you as a term policy. So think through your insurance strategy. Just make sure that you're okay in case you leave the job, she leaves her job, and make sure you understand how those options work.

- Okay, that is good to look into. - Congratulations on your marriage, Peter. Anything else? - Thank you. - Yeah. - That'll do it. - It's an exciting time. And I guess I would, my closing comment, you're older than I am, but I've been married for longer than you are.

I would say this. One of the pieces of advice that I wish I had been given much more strongly is during the beginning of marriage, don't make big decisions and don't try to climb the corporate ladder. There's a principle that comes from the Old Testament in the Bible. And it's from the Mosaic Law that was given to the Jews under Moses, where it says, "When a man is newly married, "he must not be sent off to war "for the first year of his marriage." And the Bible says, "But he must stay at home "and learn to please his wife." And I've talked with a lot of married couples.

And one of the regrets that I have and that many married couples that I've spoken with is they wish that they had made plans and provisions for that in a much more intentional way. In hindsight, I wish I hadn't worked as much as I did the first year we were married.

In hindsight, I wish we hadn't only taken a two-week honeymoon. In hindsight, I wish that I had taken more time to stay at home and learn how to please my wife that first year of marriage, because it's a very, very special time. And it's a time of transition in life that will quickly pass by.

So my encouragement to you is, during the next year, take time, be at home, and learn how to please your wife. And then simultaneously, don't make any big decisions quickly, because it takes time to learn how to work with one another and to really understand what's important to people.

Most married couples have lied to one another to some degree prior to marriage, even just to try to make themselves seem some way that they weren't. And so it takes some time to build that comfort to say, "Oh, you know, "I told you that this was always important to me," or, "I led you to believe that I was this kind of person, "but in reality, "I was doing that because I wanted you to like me more." And so it takes time to smoke those things out to where you can make better decisions.

I wouldn't buy houses. I wouldn't move. I wouldn't do any of that stuff in my first year of marriage, at least. Take the time and just enjoy being with one another. Keep your... When I got married, I got out of almost every organization. When I was single, I was in every organization, everything around town, everything from my career.

When I got married, I got out of every single one of them, except two that I couldn't get out of. And by the time we had our first baby, I got out of those. And so I don't participate in community stuff anymore. I'm not interested in going to your thing at five o'clock on Thursday afternoon for your stupid local networking thing.

That was fine when I was single, but at this point, I'm not going, I'm not doing it. And so I'm gonna hang out with my family 'cause that's the phase of life that I'm in. And if you wanna talk to me, it's gonna be during business hours. I'm not coming in the evening.

I'm not gonna go and do that in the morning. So you figure out how to make that happen. But I think it's underappreciated how special that first year is of marriage and how much good can come from it if you really intensively focus. And I would say this to you, you have the money.

So take every day of vacation you have, you and she should take a month off that unpaid, arrange a small sabbatical, take multiple honeymoons this first year. You have the money, spend it on time together because it's a very, very special and wonderful time. - We are on that.

- Good. - You don't have to worry about that. - Well, good, then we're successful. So congratulations on that. And I wish both of you well, and hopefully my ideas were useful. We go now to the great state of California. Welcome to the call. How can I serve you today?

- Hi, Joshua, how are you? - I'm very well, sir. Tell me your name and how I can serve you, please. - Yeah, my name's Cody. As you mentioned, I am from the great state of California. Current employer just recently offered a 401k for my position, but there's no matching on it.

And as lovely as the great state of California is, it's not a cheap place to live. I'm in the greater Los Angeles area. And this year was kind of a transitionary year for me. And I knew that I wanted to save a lot of money. Part of that meant living with my parents for this year.

And I've done a really good job, I think, saving money. And when this 401k option came about, the no matching was kind of the thing that kept me from contributing to that at all. And I'm just curious on your thoughts about, is it worth contributing to it if there's no match, especially given the fact that I have no debts and I feel like I'm doing a good job saving the money.

Now it's not actively being invested, but yeah, just kind of curious what your thoughts are on that. - Sure. So how much is your income? - So we're gonna see with a bonus, probably like 58, 59,000. - All right. And what do you see happening in the next few years with your income and with your career?

- Yeah, so career could take me kind of anywhere in the country. So definitely need to be available to move. And I think having some cash on hand, that's definitely a consideration as to why I've been saving this money. How high that income can go, I don't know exactly.

I think that's a good question. I don't know exactly where it can go. - Okay. When you look at, so you're out of debt, you've been living with your family to save money. How much savings have you been able to accumulate at this point? - So this year alone, by the end of December, by the end of 2018, I should be a little over $20,000.

And that'll put me at about $40,000 in savings. - Great, congratulations, well done. - Thanks. - Why are you working for this employer and why are you living in California? - So I was living in Utah and working for a tech company. I didn't want to sell HR and financial management software, I wasn't passionate about that.

And so I left that and this might sound kind of strange, but I'm very passionate about alcohol and the alcohol industry. I'm not an alcoholic, I need to try and make that distinction. I feel like when you say you're passionate about alcohol, people get the wrong idea. I study it, really.

- Interesting. - Yeah, and so I left because I wanted to pursue a job in that industry and pretty much any job that you can get starting out is gonna be in Los Angeles, in New York, or San Francisco, maybe Chicago, but a major city. As I mentioned, I've got family here in LA, so it made sense to move back and move in with them.

I was working at a couple of restaurants for a few months and then ultimately got hired by the company that I now work for. So it was a lifestyle move. I knew that financially I was gonna be taking a hit a little bit in the short term, relative short term, but in the long term, I think I'm gonna be a lot happier talking about something and getting to work with something that I'm passionate about rather than talking about recruiting modules and a statement.

- I understand the feeling. There are two questions to your answer. Let me just answer the 401(k) question quickly and then we'll discuss more options beyond that. Should you participate in your 401(k) if they don't give you a company match? Yes, if you value having the tax deduction on your income.

And this would be particularly valuable for you if you were to move outside of California at some point in the future. One of the wrinkles with California is a very high state income tax. Now, at an annual income of $58,000, this is not affecting you quite so much as when you're earning $258,000, but it is still affecting your money.

You are still paying California state income tax. If you put money into the 401(k), you can not pay currently your federal income tax on those dollars. And in addition, you cannot pay currently your state income tax on those dollars. And then if you move out of California at some point in the future, then to a state, especially perhaps a state that doesn't have a state income tax, when you take the distribution on those 401(k) dollars, you will avoid ever paying California state income tax on those dollars if you can move your domicile outside of California.

Given that you sound relatively young in your career, how old are you, Cody? - Yeah, I'm 25. - Great. - So yeah, young in my career would be an accurate description. - And currently single, is that right? - Yes, sir. - Okay, so at 25 and unmarried, you have a lot of flexibility in your lifestyle.

So let's talk about some things that you could do. Contributing money to the 401(k) can be helpful because it will reduce your current taxable income. And if you will calculate, let's say you made an $18,000 contribution to your 401(k). If you've saved $20,000 in cash in the last year, that means that you could live on, your living expenses could be less than $40,000, 58,000 minus $40,000.

What you should do is calculate what your total tax burden would be as a 25-year-old unmarried individual living in California, reporting $58,000 of income versus reporting $40,000 of income. Calculate what your total tax burden would be estimated to be under that circumstance. So let me help you with just a quick estimate here.

If you are 25 single, excuse one quick tax estimator here, earning $58,000, then you will incur $6,060, would be just about an estimated amount of federal income taxes that you would pay at the federal rate. Secondly, if you are earning $40,000, you would incur a federal income tax, federal income taxes of about $3,100.

So about $3,000 difference between that. That's the amount that you would pay on that $18,000 of income. Now I don't know, I'm not competent enough to do California taxes off the top of my head. I don't even know if you'd owe any California taxes. Do you know with a $58,000 income, how much money you can expect to pay this year with California state income taxes?

- I don't, but that's, I mean, that's an easy enough number to look up once we get off the call. - Yeah, so you need to look that up and try to get an idea of what that tax number might be, if anything, because, you know, not to be insulting, but you're not making a ton of money.

So you're not paying a lot of taxes yet at this point in time, which is fine. - Oh, believe me, I know. - Okay, just to be clear. Always sounds a little bit insulting when you say to somebody, the good news is you're not making very much money right now.

Like I'm doing the best I can. So if you could put that $18,000 in there, that saves you $3,000 of taxes. And that's something that you lose if you don't do it this year. Now, even if you put it in and then take it out in the future, even if you have to pay a penalty tax, it would still be cheaper for you to put the money in and take it out than if you never put it in in the first place.

And then with being young and with being somewhat flexible, you could use this and put this into play in a way that it could save you all kinds of benefits. So let's say that you put the money in there and then two years from now, you decide, number one, I'm gonna move to Nevada.

And then number two, I'm going to start a business. And so your income is very low. If you need to take money out of your 401k, you could go ahead and take it out at that point in time. And even though you pay the 10% penalty, it would still be lower than what you're paying right now.

So you run the math, but in general, I would say, yes, you should use the 401k unless you have a specific, a specific thing that you're saving for that's in the short term, because you could afford to put money in the 401k and you still have enough other cash to make most moves in life.

So short answer to your 401k question is yes, I would say do it unless you have other things. Now, if you didn't have any liquid savings, if you didn't have $40,000 saved, I would say, no, don't do it. If you didn't have other options, if you had debt, I would be more careful, but I would say, yes, it's good to put the money in the 401k, because even if you take it out a few years from now, even though you pay the 10% penalty tax, as long as your income is low and you're not paying a high tax rate at that point in time, the 10% penalty tax probably will still be cheaper than the current tax bracket that you're paying, the current rate that you're paying on that top $18,000 of income, if you think you'll lower your income in the future.

Now, let's talk about California. Your big challenge is living in the state of California. And it's very hard, the number one state in the United States, where I have the most listeners, is California. So I recognize that there are a lot of people in California, 'cause of course it's an extremely populated state.

But it's very hard to see the future for a young person living in California, unless you're moving there specifically for the culture, the ideology, the politics, or a specific career that is not available in another place. Those are my reasons why I could understand somebody moving there. Whether, and let me kind of lay those out for you.

The culture, so you might wanna live in a place that has a beach surfing culture, or a Latino culture, or you wanna live in San Francisco for the lifestyle culture that is common in San Francisco. So those are things that are related to culture. You might wanna live in California for the politics.

If your political persuasion is best expressed by living in California, then you might wanna consider there for that, or some ideology, or a career, a specific career that is most available to you, or where you can most advance it in California that you can't in another place. But it's very hard for me to see the growth prospects for a young man living in California.

If you build a life and stay in California, basically you are locked in to a very, very expensive lifestyle going forward. And about the best thing I can give for California is that property taxes are not egregious. So if you can structure your life in a way that, yes, you can afford to pay the property values, but you don't earn a lot of income, and you don't deal with a lot of the restrictions and just the legal environment that makes running a business so burdensome, then maybe California has a future.

But it's hard for me to see a future for young people in California because of everything that you know around you. So I don't know the answer to your career question, but there is a big price to pay for living in California versus living in somewhere that is a little bit more free and has a little bit of a freer economy so that you can get better deals on stuff.

- Yeah, I mean, as I mentioned, part of why I moved back there was just 'cause I needed to get out of the current job I was in. I had family here, and it just, it made sense to move back. For those not really maybe aware of what's going on with sort of the alcohol culture in the US, historically there's kind of three great cities for drinking, it's New York, San Francisco, and New Orleans.

And Los Angeles right now is actually kind of establishing itself as another hub. And so there are a lot of really influential bartenders, bar managers, salespeople for the off-premise side that are here right now. So I think that for me to sort of as a response to those thoughts that you had, there is a culture here from sort of the bar community that makes sense right now for me to be here.

And I think it's good that I'm here for a period of time. Long-term, I lived in Colorado for a little bit. I would love to get back to Colorado. There are other states that I would consider living in. So yeah, I agree with you with everything that you said.

As someone experiencing it firsthand, I don't think that California is my long-term solution, but I do think there are some advantages for me just in the connections that I'm making in the time that I'm here right now. - Right, and that's the challenge. And so I would just say, Ken, is there a way that you can use those connections and build a really exciting plan that's also financially wise?

Can you build the connections and then go and help a new company that's in Austin, Texas? Or can you build the connections and then go and work with a company in Hong Kong or something else that gets you out of the constraints of California? So you have to analyze it on the ground.

Each location is actually individual. And in most places, you can figure out a way to make things work. But if your only reason for being there is a career and not those other reasons, not because you like the political environment, not because you like the culture, the ideology of your neighbors, things like that, just recognize that you pay a high price and calculate it carefully.

And always look to see, is there a way that I could build this career without actually being here? Because it will wind up costing you a lot more money. Good news is you're not paying a ton at this point in time. You may not, I just ran a quick calculator while you were talking with the California standard deduction.

You may not be paying significant state income taxes at this point in time, because by the time you put together your California deductions, it may not be, nevermind. I shouldn't try to do this kind of thing live on the radio. So it looks to me like with your standard deduction, actually at $58,000, you may be paying about $2,444 for the privilege of living in California.

So run the math, run it carefully, study your career. I think it's wise for you to be in a place where there are growth prospects for your career. So if the alcohol industry is something that you really love, and if Los Angeles is the place to do it, do it.

And if you can get your income off from 58 to 158 to 258 to 558 to 1,000,058, and you can do that because you're in Los Angeles, California you can live very well in Los Angeles, California on a million bucks a year. Anything else, Cody? - No, thank you so much.

I really appreciate your time and everything that you do. - My pleasure, sir. We go now to, speaking of Texas, we go now to Houston, Texas. Welcome to the call. How can I serve you today? - Hey Joshua. Yeah, thanks for taking my call and thanks for setting up these, this string of calls for all of us this week.

So I was listening to your most recent show that came out yesterday and got me thinking about whether or not I am thinking through college planning as effectively as I can. My wife and I, we live here in Texas and we have a one-year-old baby boy and obviously thinking through what college might look like in the next 17 to 18 years.

And as far as I can tell, there aren't too many benefits of a 529 here in Texas in terms of like tax deductions or anything like that. So we did open up a 529, put about $8,000 in it, but I've since adjusted my plan in that we have opened up a Roth IRA under my wife's name.

And are contributing the maximum to that with the plan of taking out the contributions in 18 years to pay for college. My question is, does that sound like, excuse me, an effective way of thinking through college plans? And I mean, is that something that can be done? And then the second part to that question is, when is time for him to look at perhaps financial aid or scholarships?

What all do the institutions look at in terms of assets under the family name? - Have you listened to a podcast that I did a few years ago called "Why This Financial Planner Refuses to Save for His Kid's College Education?" - I don't believe I have, no. - Okay, so the very best one, and I'll give you the show number in a moment, but what I would recommend to you and any other interested listeners is to go back and listen to that complete podcast because it will give you some specific suggestions.

It's podcast number 276, released on January 6, 2016. It's called "Why This Financial Planner Refuses to Save Money for His Kid's College," which is obviously, I mean, not obviously, but I'm the financial planner and I'm talking about my own kids. So I'll give you just an abbreviated version and answer your specific question, but I would commend episode 276 to you for you to consider in terms of how it would apply to your situation.

First, with regard to a 529 plan. Yes, if you do not pay a state income tax, as you do not pay in Texas, a 529 plan is of limited value with regard to tax considerations. When you put money into a 529 plan or a Coverdell Educational Savings Account, you do not get an upfront tax deduction.

As the money grows over time, when you take it out and use the money for a qualified education-related expense, you can take the money out and pay for that expense without paying taxes on the growth. So what you save with a 529 plan is the amount of tax that you would incur on the growth of the asset.

Because you have a young child, you said one-year-old, right? - One-year-old, yes, sir. - Because you have a young child, that tax growth might be substantial. So it might be. And let's talk about, let's run a quick analysis. How much would you put away in this account for your one-year-old's education?

- How much would I put away into the 529 account? - Yes, per year. - Per year, probably about $5,000 per year. - Okay, and would you do that for the next 17 years? - Unless I had an increase in income, yes. - All right, so let's run a quick financial calculator and see how much would be the interest on that particular account.

So the first thing we're gonna do is we're gonna put in a $5,000 annual payment for 17 years at a 0% interest, starting with an account value of zero. And at the end of 17 years, that would be total contributions of $85,000, simply $5,000 times 17. Now, how much do you think you will earn on your 529 account investments in terms of annual rate of return?

- The challenge with the 529, the way that I have it set up in this case is it's through Vanguard, and it's one of their, I guess, scaling portfolios, so they add in more bonds toward the maturity of the due date. And so, I don't know, it's been hard for me to think through what I would and could expect as an interest on those contributions.

- So give me your best guess that you would be comfortable in using for calculation purposes. - 5%. - Okay, so let's put in now a 5% interest rate, or annualized rate of return, which means that at the end of 17 years, if you could earn 5% each year, you would have an account value of $135,600.

So let's just round it off to $135,600. So 135,600 minus $85,000 equals $50,600. So the value of the 529 account would be that you can avoid paying tax on the growth from that $50,600. Now, what is your effective tax rate personally? - 2019, I think it's 24%. - Okay, so a 24% effective tax rate is $12,000 of taxes on that $50,000 number.

So by using a 529 account, you could potentially, if your tax rate stays the same, you could potentially save yourself about $12,000 in taxes. Now, does that number seem to you like a lot or a little? - To me, it seems like a lot. - Okay, now I would say that it's not insubstantial.

It does sound on the higher end. Now, the reason that it's on the higher end is because you're talking about a one-year-old. Most people will never have that much growth on a 529 account because they start when their children are eight or 10 or 12, and they wanna put the money away for college, but because they're so close to college, they can't actually invest the money all that aggressively.

And that's one of the challenges with even the age-banded portfolios is they constantly move money from stocks to bonds, which you kinda have to do because as you get closer, you don't wanna suffer a 30% correction in the stock market that takes away 30% of your money right when you need it for college, but unfortunately, it also puts a major drag on your potential returns from stocks.

So the reason I go through those calculations, you are in the perfect position to use a 529 account, but yet even you, it's only about $12,000 of tax savings that you would incur. Now, I wouldn't sneeze at that, but it's also not hundreds of thousands of dollars. That's very different than the calculation on a retirement account.

When you have a 40-year or 30- or 40-year investment time horizon instead of a 17-year time horizon, then you can really produce major gains. Now, investing in the retirement account is a really big deal. So I would point out to you that you should know the actual numbers from the benefit of a 529 account.

Secondly, remember that that's not the only way for you to save on taxes. Example, you could purchase assets that you don't pay ordinary income tax rates on. You could purchase assets that are long-term capital gains assets. You could buy a stock or an efficient index fund or a piece of real estate, hold that real estate for many years.

And if you could find a way to make more than the 5% that you get in the Vanguard 529 portfolio, and if you can find a way to pay long-term capital gains rates instead of personal income tax rates, your rate could be lower than the 24% that you are currently paying on your personal household.

So 529 accounts aren't the only path to that solution. Secondly, or next, your plan with putting money into a Roth IRA, in my opinion, is a great one. If you put $5,000 aside into a Roth IRA each year for the next 17 years, at that point in time, you have $85,000 available to you for college that you could just take out and pay for college.

You wouldn't be able to take out the $135,000, which would be the growth, but all of the rest of that money could stay in the Roth IRA, and then you could use it for other needs as well. And so you would have the $85,000 available to you. So if you were choosing between a Roth IRA or a 529 with the amount of money that you have to save, I would move you in the direction of a Roth IRA.

If you're already maxing out Roth IRAs and you're looking for an additional account to use, then I would put you in the direction of another type of account. Make sense? - Yeah, yeah, that makes sense. So, you know, let me ask you this, and deciding between the two, when it comes time for, like, applying for scholarships or perhaps financial aid or whatever it might be, and the institution wants to look into specific assets or income to see what you qualify for, will they look into retirement accounts like a Roth IRA?

- Let me ask you a question. How confident are you that the environment that your one-year-old will go into with college will look the same as it looks today in 17 years? - Not very confident. - Right, that's the problem, is I can answer the question today, but you have a one-year-old, you have a one-year-old, not a 17-year-old, and I have zero, okay, I have .01% confidence that the situation will look anything like it looks in 17 years.

We are undergoing a revolution right now in the world of college academics, and let me identify just a couple things for you to watch. Number one, there is a major debate going on between people as to whether or not a college degree has financial value, and this debate is difficult to find the answer to because all college degrees are not created equal.

So there is clear and compelling evidence that people with college degrees earn a lot more over the course of their lifetime than people without college degrees. I don't know, and I have never seen any writing or effective persuasive argument as to whether that is a matter of causation or correlation.

I went to college because I'm not a loser, and when I was in high school, I was under the impression that only losers don't go to college, and I'm not a loser, so I went to college, but I can trace none of my personal success or failures, but I can't trace any of my personal success in life to my college degree.

I can't trace any of it. About the best thing that I can say that came for me from my college years was the fact that I met my wife, and we married happily after college, but I can't trace any direct causation of my college degree on my personal success in life.

Rather, I look at it and say, if someone had come along and given me a different path, I think I would have a lot more money. I think I'd be a lot more successful today if I hadn't gone to college, if I'd pursued a different path. College cost me a lot of money and a lot of time, and I don't trace a lot of value from that.

So how do you find the answer? I don't know. Some of the academic will have to figure out and how to suss out causation versus correlation on college degrees and lifetime earnings. I don't know. I'm not competent enough to do that, but that's a big thing that's happening. Number two, a lot of people that go to college are very hurt by college.

When I look around my peers, very few of us trace any major benefits to college. Most of us would simply agree that college allows us to get jobs more easily because we can tick the box that we have a college degree. But if you look at the trends in employer data, that is changing.

Many employers are not requiring college degrees, or at least are not so strict about it as they once were. Traditionally, the biggest value of a college degree for an employer was that a college degree demonstrated to the employer that the applicant was successful at finishing things. It takes somebody who's a finisher to finish high school, to go to college and finish college.

And so that was useful. But, and then also someone who's smart and has a basic level of knowledge. But jobs are changing, and the information that's needed, the skills that are needed are changing so quickly that with the exception of the hard sciences, where you need that four years in engineering classes, you need those four years in mathematics classes, you need those four years in chemistry classes, because it's directly relevant to your materials science research.

Most college degrees, the information is obsolete by the time you get out. They're not current. They're not cutting edge at all. Just the simplest example was when I was in college, I had a class on writing, and they would teach us proper business writing. And so I used to do it.

When I got out in the business world, I'm a good writer and I would write proper emails. Nobody read my emails. So the only way that I got my emails answered in the business world, is I put the text of my email in the subject line, and then I copied and pasted it to the body of the email, which would make any English teacher break out in cold sweats, but I would get answers to my emails that way when I wouldn't with my perfectly formatted professional letter.

So, you know, the things that are taught in college, with the exception of the hard sciences, are largely obsolete. Other things that are happening, there is a massive problem in the student debt market. And the student debt market is very, very difficult. There are a lot of people with student debt who went into student debt for worthless degrees that feel like they were bamboozled.

They were hoodwinks. They were fooled. And so they have a job that doesn't pay for the debt. And so you have this massive clamoring on all sides for a political solution. Look at the tremendous upswell of support that Senator Bernie Sanders had. And one of the bases for his economic plan was the idea that we're gonna wipe out student debts.

We're gonna make college free. Now, I don't know what direction the politics in the United States of America are going, but it's very hard to see that that just disappears overnight. That political position is very, very strong. And I could go on and on, but today, even today, college, if you look at it and say, is it expensive?

Anybody with good academic competence and decent cognitive ability today can go to college working a minimum wage job at a fast food restaurant and pay for the whole thing in cash. There are so many free and inexpensive options available. There's a big press. First of all, online universities are really coming into their own.

Today, you can get an accredited degree from an online university for less than 10,000 bucks total for a four-year degree. The state colleges, the community college approach, the state college approach is stronger than it's ever been. Prices are coming down. And the financial aid market for people with good college skills, good cognitive ability is stronger than it's ever been.

There are so many colleges all across the country that somebody with good skills, good grades, good test scores can go to and be guaranteed a full ride. And so I look at it and say, we should pay attention to that. If your child does not have good cognitive ability, it is not academically skilled, they shouldn't go to college because the horror stories of college are the people who go and are not well-suited for it.

They go and they fail out. Now they have $15,000 of student loan debt. They finished two years of a degree. They don't have the degree and all they have is the debt. They weren't a good match for college. So the only people that should go to college are people who are a good match for college and people who are a good match for college don't need to pay for it today.

Or if they do need to pay for it, they can work part-time and pay for it out of their earnings. So I think 17 years from now, these trends are just going to continue. I think 17 years from now, you'll be able to get an accredited degree from an online university while you're a teenager for less than a few thousand bucks less.

And there's no reason to save for that kind of thing. I think the costs for state universities and such like that will be forced by the market to come down because of the market pressures or because of government legislation where state universities become free, as in paid for by other people other than the student, and/or the cost for the elite universities, the sorting mechanism of the elite universities, those will continue to ride, but there will continue to be plenty of option to have those things paid for by the universities and by scholarship programs and things like that.

So that's your problem. Your problem is how's your crystal ball 17 years from now trying to tell you how much money you should pay for college? - Yeah, yeah. And I think that's one of the most attractive things about using the contributions from a Roth IRA rather than a 529 is with that evolution and not knowing what that's gonna look like or if it's even gonna be relevant in the next 17 years, or if for whatever reason, my little boy doesn't wanna go to college, I can go ahead and leave those in there to continue to grow for retirement or use those contributions for another endeavor.

But so I just wanted to run that by you. I mean, the gentleman that called in yesterday that was asking about transfer of beneficiaries from one 529 to the other on his two girls, just got me thinking about the scholarship side of things. And if I were to leave them in a Roth IRA, would that open up more doors for potential scholarships later on down the road, rather than being limited to the scholarship institutions that could look behind the 529 curtain and say, well, you don't necessarily need this scholarship.

- Right. So let me answer that question specifically. There are many scholarships that are available that do not take into account any assets, income, or resources of the parent or student in their consideration. Example, where I live in Florida, the Florida Lottery underwrites a scholarship program, and that scholarship program is exclusively based upon the grades of the student.

All of my siblings and I got many thousands of dollars per year for college because we had good grades, and there was no requirement that we submit any information about our parents' assets, our parents' income, et cetera. So there was no requirement from that perspective. Secondly, there are many scholarships that are available that don't pay any attention to assets that are available from schools and from organizations.

If you are a Choctaw Indian or whatever, you have some ethnic heritage, there's a scholarship for that. If your child winds up designing robots, there's a scholarship for that. There are tons of scholarships that don't take into account any financial considerations. And so that's important for you to notice and to recognize is the best thing to do is to make sure that your child is academically skilled and that they qualify for as many scholarships as possible that don't relate to their personal income or assets, because those are available.

Now, the big problem is that most scholarships, especially from schools, and are based upon what's called the FAFSA, the Free Application for Federal Student Aid. And the FAFSA is a document you can go on and you can use a free FAFSA estimator online right now. And so if you go on and you use that FAFSA, you can put your numbers in and put your expected numbers in and you can play with the formula and you can find out what your expected family contribution is.

So when you run that FAFSA, it will create a number that's called your EFC, your expected family contribution. And that's how much money you're supposed to give to your children for their college expenses. And that FAFSA will relate, it will list out your assets and it will list out your income.

So that's the basic function of it. Most schools, most colleges and universities will also use that number in determining their own financial aid calculations within their local scholarship department. Many of them will require you to fill out the FAFSA in order to be eligible for their school's scholarships. Now, I'm not convinced that people should use that form, but if you're gonna do college planning, then you're gonna do that.

So the question is how, the specific question is how are things reported on the FAFSA? Now, on a FAFSA, the assets are reported of a 529 account. But what, so any assets that are owned by the parent or the student or which they're a beneficiary, those assets, sorry, any assets that are owned by the parent or the student are gonna be reported on the FAFSA.

And then what they do is they take that, the amounts that are in those accounts and then they assess a rate. I think it's about 5.5%. So they take a 529 plan and they take the balance of it, take about 5.5% of that, and they apply that towards the financial aid eligibility.

It's my understanding at the moment, I'm not an expert, check me out, but it's my understanding that things like a Roth IRA, the balance is not brought to the expected family contribution. That can be a benefit to it. But if you take income out of the Roth IRA, then now all of that income will be assessed based upon its contribution, which is a much higher rate.

I think it's about half. And so if you take out money from the Roth IRA and use that to pay for college, the higher income amount that's reported on the FAFSA will be a bigger problem than the 529 account. So for the purposes of the FAFSA, the 529 account is a good account to have because of that 5.5% rate versus the 50% rate.

So that would be the kind of advice that would apply to somebody who's 16 or 17 as they're trying to figure it out. But for you, given that you don't even know what you're gonna do, you don't know where you're gonna be in 17 years, I think the Roth IRA offers many more flexible options, and I don't think the FAFSA will look like it does today in 17 years.

So that's the technical answer to your question as I understand it, and then you have to figure out what to do with that. Make sense? - Yeah, it makes sense. One last quick question for you though is are the contributions that are pulled out of the Roth IRA considered income even though you've already paid taxes on them?

- Huh. I don't know. - Okay. - That's a good question. I don't know. I never thought about that when I was reading college advisors talking about this debate. I think not, which might turn, well. - Doesn't seem like it would be since it was already reported as income.

- Right, right. That is a good question. I don't know the answer to it. I will attempt to research it and try to find out, but it doesn't seem to me, because when you take a distribution from a Roth IRA that's just simply a return of contribution, why would that be counted as income if it's not reported as income on your tax return?

Good question, sir. Let's close it out with I don't know. You research it. I'll try to research it and see if I can come up with an answer, because I didn't think about that wrinkle until you just asked the question. - Yeah. Yeah, I'll dig into it a little bit, and if I come across anything, I'll just post it to the show notes in the comments section.

- That would be great. And I'll say this to you. I don't think parents should, the only place I see for five to nine accounts is for somebody who has a long time horizon. There are a number of situations. For example, if somebody has a lot of money, a grandparent has a lot of money, a five to nine account is one of the most useful estate planning tools out there because you can give a gift to present interest, but still control, a completed gift to present interest, but still control the account.

So grandparents, very useful. There's an addition with now that five to nine accounts are opened up to pay for private schools, for K through 12, I think more parents should consider them. But for what you're describing to me, I don't think they should be a primary use. I think better, make sure your children get good grades, are intelligent people and get a good deal on college or make the university pay you to go there.

Don't bother with these accounts thinking that somehow saving money for college is gonna be a big deal. I think that by the time your 17 year old is in college, by my political finger up in the wind, it sure seems to me like there's not going to be, there's not gonna, that government sponsored tuition at college will be fully available.

And let me just explain why, so you can consider if you think so as well. Should government schools exist for K through 12? - You're asking me? - Yes. - Should government schools exist for K through 12? - What's your opinion? - My opinion is yes. - Okay. - As long as we're paying taxes.

- Okay. Now, in that case, should government schools exist for four years of undergraduate school? - You know, I haven't thought about that. - So if you'll think about it, in my analysis, if you think government schools should exist for K through 12, the logic of that position will also lead you to believe that you think government schools should exist for kindergarten and preschool.

And the same logic will lead you to think that government schools should exist for undergraduate degrees at least, and maybe graduate degrees. Because there's no difference in logic between pre-K, sixth grade, 12th grade, or a four-year undergraduate degree if you think government schools should exist. And the majority of people think that government schools should exist.

And so I don't see any logical or ideological difference between four years of an undergraduate school versus 10th grade. So how can this artificial demarcation exist? You have government schools for K through 12 that are free for anybody who lives in that district. You have government-sponsored state universities that are not free.

Why shouldn't they be free too? Now, I personally don't think government schools should exist. That's my own personal ideological position. I believe that it's theft for the government to come in and say, "We're going to take from people over here with taxes, and we're gonna force other people to pay for your children's schooling." So I don't think government schools should exist.

So therefore, I don't think that government-paid colleges should exist. And I also don't think that government-paid preschool or kindergarten or primary or secondary school should exist. But I'm in a very tiny minority of the population. I don't know the percentage, but it's gotta be less than 10% of people who would agree with me.

So I don't see how, in that political environment, given that most people, my guess, at least 80%, if not 90% of people, think that government schools are just fine, I don't see how that logic doesn't automatically, over the next decade or two, get extended to colleges, because there's no ideological difference that I can find between 10th grade versus an undergraduate degree.

And so for that reason, I think by the time that you're in my one-year-olds are 17 or 18, college education will be paid for by the state. You're my, you think about that, but I can't find any reason, if I believed that government schools should exist, I can't find any reason to oppose government-paid colleges.

- Right, okay. All right, good stuff to think about. I appreciate it. - My pleasure, sir. Have a great day. And with that, ladies and gentlemen, we close out today's show. A little bit longer than I intended. I hope you've enjoyed the Q&A. Thank you to the callers. My just request for you, go and take these ideas, think about them, and think about your own personal life.

Analyze your set of circumstances as is appropriate. Any tool, 529 account, Roth IRA, Coverdell Educational Savings Account, any tool can be used in the right set of circumstances. And so I can design, as I constantly do, I can design ideas for you in which this tool is wonderful. I can identify several plans in which 529 accounts are incredible, but you'll only be able to understand what's right for you if you understand the attributes of the tool, you understand your goals, you understand your own thoughts, and then can apply them to your own situation.

So I hope that these ideas have been useful to you. And as I go, I've just hit pause on the recording for a moment and looked up the answer to the question on the Roth IRA return of contribution. And the answer is, for the purposes of financial aid, the Roth IRA is counted as income.

It's not on your taxable, on your tax return, but the FAFSA form, the Free Application for Federal Student Aid, requires you to list untaxed income. And that untaxed income, which is coming in from your Roth IRA that you list on the FAFSA form will count in the expected family contribution formula.

So the answer is that, as described, the 529 account, for the purposes of having a lower expected family contribution, the 529 account is superior to taking distributions from the Roth IRA because the FAFSA will require you to report untaxed income. And in that category, you will report the return of contributions from your Roth IRA, or at least that seems to be what I found based upon research.

Now, I still think that caller should go first to the Roth IRA for the reasons previously stated that I don't think they will need to take distributions from the Roth IRA. And it would seem to me, although I'm not an expert on the FAFSA, it would seem to me that there would be a very simple and easy way of handling this problem so that you don't have untaxed income.

First, obviously, eliminate the need. Send your child to a cheap school. Make sure that your child has good grades. Make sure that your child has lots of other options. As far as for academic scholarships and things that don't rely on the FAFSA, make sure that you've adjusted your finances so you can just pay cash with your income during that time.

But how I would get around this issue with the FAFSA is since Roth IRA assets are not reported on the FAFSA because they don't factor into the EFC, as long as you don't take a distribution from them, I would keep the money in the Roth IRA. Then I would not make a distribution from the account while the child is in college, while if I'm even filling out the FAFSA.

I would take out a loan and use the loan to pay for college. And then if to pay back the loan, I would pay back the loan with the Roth IRA after the child is out of college, after I don't have to fill out the FAFSA anymore. Seems to me the most obvious and simple workaround.

So I still think for that particular listener, the Roth IRA is superior. As we go today, wow, what a great time for me to plug to you my credit card course. How would I take a loan out against my Roth IRA for my child's tuition payments? Well, I would put it on credit cards.

If I had a decent income and a nice big credit score, I would get a nice big fat 0% interest rate credit card. I would take that credit card down to the college accounting department. I would swipe that thing and I would get a 15 month interest free loan on my 0% credit card.

And or I would put it on an Airlines Miles credit card and get myself a free plane ticket because of it or something like that. I would surf those balances around, never paying more than a very small balance transfer fee for a few years while my kid was in college.

And then after my kid was in college, at that point in time, if I didn't pay those credit cards off with just income and extra money that was available, that's when I would take those distributions from the Roth IRA and pay off those credit cards. It's very simple and easy to do.

And as long as you're not paying $100,000 a year tuition payments, it's very, very doable. It would be silly to pay $100,000 a year tuition payments anyway. A reasonable approach to college is a few thousand dollars a year, not hundreds of thousands of dollars a year. So if you'd like to understand how to do that, how to build that strategy up so that when your child is 17 or 18 years old, you can easily do that.

Go to radicalpersonalfinance.com/creditcardcourse, sign up for my credit card course. Radicalpersonalfinance.com/creditcardcourse will get you that information. Hey, guess what? You can even use a credit card and buy my course. It is the best use of a credit card that I know of. Radicalpersonalfinance.com/creditcardcourse. - With Kroger brand products from Ralph's, you can make all your favorite things this holiday season because Kroger brand's proven quality products come at exceptionally low prices.

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