Q&A: Should We Retire in Our 40s With $4 Million and an 80% Stock Portfolio?

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24:44Welcome back. Our next question comes from Olivia. Hi, Paula. My name is Olivia.

24:51Paula Pant:I am a huge fan. Last month, my husband and I got married, and when I went to look for a secondhand wedding dress, I found that there just really weren't many options in my city, and I live in a major southern U.S. city. And so I, out of frustration, decided to start a secondhand wedding dress pop-up. We just had our second event, and it went extremely well. We source our inventory a few different ways. Most of our inventory comes from Facebook Marketplace where I buy these dresses and then I restore them and then I store them in my home. And then the other about 25 % comes from recent brides who will bring in their dresses on consignment to the event and we make about a 40 % cut.

25:44Paula Pant:So at our most recent event, we had about 200 to 300 people attend. There was a 30-person line to get into the event at 10 a.m. We were open for four hours and we made about$5 ,500. We also partnered with a wedding venue, so we got to use the space for free. They would like to continue this partnership and we're planning on hosting more events this fall and the beginning of next year. The same venue is planning on opening another venue in another major city and would love for us to host events there as well. So what I'm trying to get at is that I think this idea has legs. I have paid back all of the inventory that I purchased, racks, mirrors, and I still have about 70 dresses left, which is about eight or$9 ,000 of inventory.

26:37Paula Pant:Why I'm calling is because I currently work a pretty soul-sucking corporate job. I am 30 years old. I've been in the workforce for about eight years and I've just really struggled to find my place in corporate America. I am struggling to balance my corporate job, my civic engagement, and this side hustle. And what I'm wondering is how do I assess when it's appropriate to quit my corporate job? Just for some context, I have more than six months of my salary saved. My husband and I split the mortgage on our house, so I pay about$1 ,500 a months. And I am expected to inherit between$50 ,000 and$100 ,000 in the next few months from a family member.

27:33Joe and I both got so excited, Olivia, when we heard your question. I know I keep saying your question is everyone's dream, but what you've done, what you have built already is, number one, it's the hardest part. Getting started is the hardest part. Number two, there are a lot of people who they have negative self-talk and they convince themselves that it's not possible. I couldn't do it. I'm too busy. I blah, blah, blah, blah, blah, blah. And so they never get to the point that you're at. I just, I can't emphasize enough how much getting to the point where you're already at, getting from zero to where you are right now, that's the hardest step.

28:19So the fact that you've done this tells me that you have fuel in the tank. You've got the potential. You've got what it takes to take this way further.

28:31Paula Pant:And I love the idea and the fact that you found the idea that has legs and you are, you know there's there's actually three different things going on here you have ideas some have legs some don't then you have that laying it out as a business and sometimes people lay that out in effectively and so they kind of killed the the original piece and then the third is there's this there's this idea that it's a great time it's a great place and you love that portion of the industry, you love doing it and you're able to lay out the business correctly, that's the wheelhouse. It's very, very difficult to get to where you are right now.

29:13Yeah, exactly.

29:15Paula Pant:Finding your thing that also pays the bills. Right. Because you found, so what I love about the question, sorry, Olivia, we just keep talking about how much we love your question. You found a need in the market. And I want everyone who's listening to this, to go back and re-listen to the beginning of Olivia's question. Actually, Steve, can we just play the first couple of sentences? Notice how the idea generated because Olivia spotted a need in the market. Last month, my husband and I got married, and when I went to look for a secondhand wedding dress, I found that there just really weren't many options in my city.

29:59Paula Pant:I live in a major Southern U.S. city. And so I, out of frustration, decided to start a secondhand wedding dress pop-up. There it is. Notice what she said. Here's a need in the market. She lives in a major city, so there is a large market. and inside of this large market, there is a need that is not being filled. And so she stepped in to take care of a need that the market had not yet covered. That is exactly how a good business begins. Too many people say, well, I'm really passionate about cupcakes or I'm really passionate about, I don't know, post-it notes or whatever. You know, I'm really passionate about X.

30:49They make it about themselves. Olivia didn't make it about herself. She made it about this gap that exists in the market.

30:59Paula Pant:But in some ways it was about herself because she was frustrated with the fact that there was a gap in the market. She was able to see that there was a gap in the market from her own life, but she's already married. She doesn't need a secondhand wedding dress anymore. She didn't start this by saying, I've always had a passion for wedding dresses. Or I've always had a passion for, you know, I was in the costume department in high school theater and I wanted to work with big fancy gowns. Like she doesn't start by saying any of that. She said, I was searching for something. I noticed I couldn't find it.

31:34I live in a major city with a large population. So if I can't find it, that means all of the rest of the inhabitants of the city also cannot find it. and I'm betting that there is a significant enough population that is also looking for the same thing that I could fill that need.

31:51Paula Pant:And then she proves the concept. Yeah, exactly. So you ready to start answering? Yeah, Olivia, as long as you've got, you said you've got an emergency fund, you've got more than six months of salary saved, you have a very reasonable monthly mortgage, you have some more money coming in, I'm going to assume you can maybe, maybe or maybe not get health insurance from your husband's job. If you can, great. If you can't, that's fine too. Don't let that stop you. I'm also going to assume that you're debt-free or at least free of any high interest debt. You don't have any credit card debt. Maybe you might have a student loan, maybe not.

32:33That's fine if you do. But I'm going to assume that either you're debt-free or your debt is low interest. The conditions are right. The conditions are totally right. Great savings, presumably no or low debt, low cost of living, influx of money coming in, and you've already proven out the concept. I say go for it.

32:58Paula Pant:I don't. What? I think there's a lot more ramp building that still needs to be built. As a guy who's counseled many people on beginning businesses, is. Let's talk about not now when it's an exciting venture for Olivia. We want Olivia to think about six months from now, nine months from now, when it's a grind, because every business at some point is a grind and it's not working the way that you think it's going to work, which is going to happen. And nearly every business that I have ever watched get off the ground, number one, you have to build a lot of projections about where I'm going to be, where am I going to be for the next six months, year, two years, three years.

33:43Paula Pant:But I think you need to begin projecting, how is this going to flow? How is the business going to flow? And the cool thing is, you have a business you work in now. It's not where you want to be, but you have this life preserver that the second you jettison it, it's gone. I want to take advantage of the life preserver time to do all of the little I dots and T crosses just to ensure that this is as badass as Paula and I and you think that it is. So I would build out projections. And then what I would do is I would 3X those projections, meaning it's going to take you three times longer than you think for this to get from point A to point B.

34:28Paula Pant:Almost every single business that I ever counsel took three times as long. It also takes three times the resources to get from point A to point B. And it's not because your projections were wrong. It's because stuff comes out from the blue. You're like, I didn't think about this one expense that now as a business owner, I realize is a piece of running the business. Each one of these expenses is a mosquito bite, But it's hundreds of mosquito bites. It's hundreds of them. And you just, you feel like, what's that phrase? Death by a thousand paper cuts, right? And so it's a lot of paper cuts, but I would 3X the amount of money that it's going to take to run the business.

35:09Paula Pant:So when I hear six month emergency fund, I think phenomenal year and a half. Let's get as close to a year and a half as I can. The second thing is what can I do? Because we want to lower overhead as much as possible. Can your husband, and I'm just going to throw this out there. This could be a yes, could be a no. I just think this would be incredibly helpful. Can your husband pay your part of the mortgage for a while? Can he pay your part of the mortgage so that you have the flexibility to withstand times that don't go the way that you want them to go? But she said the mortgage that they split is$1 ,500.

35:49So her share of that is$750 a month. I have zero doubts in my head that she can come up with$750 a month.

35:59Paula Pant:I think everything's on the table. I think every single thing's on the table. I have seen can't lose businesses that lose. And it's partly because of the fact that we were too optimistic. I want to be way, way, way more pessimistic. I love what Mike said earlier about, I think that my projections are too conservative. This is a time to be incredibly conservative. let's be as conservative as possible so that when you get into a cashflow crunch you've got the ability to withstand that because you see some great businesses that go out of business because they didn't have the ability to do that I would also look at how you set up your business there's a fantastic book and for people that are longtime fans of the show it's not the book you're thinking So relax.

36:48Oh, it's not the E-myth because Joe talks about that every episode.

36:52Paula Pant:It's the E-myth. And in this case, I think the goal is more appropriate, but I'm not even going to reference the goal. There's a book by a guy named Mike Malkowitz called Profit First. Profit First that I think for you, Olivia, is one of the most important reads. Because if you can set up your business in a profit first manner from the very beginning, then you're not going to have to re-engineer that later. And what Mike will tell you and I'll tell you, and I think Paula will tell you is that you find that a point comes along when you realize your business is so awesome that now you've gone from being an employee of a soul sucking job somebody else owns to becoming an employee of a soul sucking job that you own.

37:39Paula Pant:You have to flip that. And if you work from a profit first mentality, you're not going to get in that position. When I was a financial planner and I worked with entrepreneurs, one of the first questions I'd always ask them was, are you working for your business or is your business working for you? And you know exactly what people would say, Paula. Yeah. The other phrasing that I've heard of that is, do you own your business or does your business own you? And these were great entrepreneurs that have been doing it for 20, 30 years. And they're like, yeah, my problem is my business owns me. But, but, okay.

38:15So, cause I disagree with you, Joe. She uses the term we, I noticed. So she has contract help, but she's not talking about hiring full-time employees and signing up to give them workers comp and retirement and health insurance and all of that. You know, once you start doing that, it becomes a much bigger obligation. I noticed she's using the term we, so there are other people who are being brought in, but it's very project-based. It's pop-up based. She's not renting her own place. She's making partnerships with other venues, right? So her overhead in terms of running this business is incredibly low.

38:53And so goal number one that she's trying to solve for is replacing her own salary, employing herself. And if she's employing herself, then it's perfectly fine to own your own job. Oftentimes that step of, you know, this isn't a sustaining business in the sense that I can pull myself out of it. Yes, this is a job that I own. Getting to the point where it's a job that you own is step number one in being a bootstrapped solopreneur or who then turns into a bootstrapped entrepreneur.

39:27Paula Pant:So I would take advantage of this time while she's still employed as much as I possibly can before I jettison the lifeboat. I just don't, I don't see any reason to stick around in the corporate job any longer. I don't see a reason to let the free money train go. I mean, I truly don't. Why am I going to, why am I going to get rid of the fact that I have a consistent paycheck? I have health insurance. I have all of these things and I'm excited about the new venture. I might not be excited about my job right now that I have, but I think there's a huge amount of opportunity here to make a wonderful, well-thought-out business plan versus go jump in the deep end and figure out how to swim once you're there.

40:09Because it costs your most valuable assets, which are your time, your energy, your focus. So you're making best use of that time. It's not free money. It's money that comes at the highest possible cost, the cost of the one asset that you cannot replace, which is your time.

40:28Paula Pant:I, I, I know very few, very few entrepreneurs that would say, just jump now. I would, I don't know what type of business planning she's done, which is my advice. My advice is have a solid business plan for this to work. How long do you think that would take? Are we, are you talking like one month, two months, or are you talking like a year? I'm talking, well, initially when you said how long, I was thinking six months. I was thinking a six month timeframe to build this out, to find out where my help is, to actually, you know, and the administrative stuff that you have to, that, uh, there's so many aspects of being a business owner that are, that I would, love it if I had a steady paycheck coming in from X place and I have the ability to use then my free time around that to be able to make a better plan.

41:36Paula Pant:I don't know. I don't know why that's bad. She's already tested this out. She's already built out the concept. She already has proof of concept. She already has not just a venue in her own city, but venues in other locations as well. I'm not saying don't keep working it. She has inventory. She's done all of that legwork initially. If she kicks the can down the road by another six months, that's just delaying it. As a business owner, urgency is everything. Time is an edge. She needs to get out in front of this and give it her all. I mean, if we're talking about delaying by one month, okay, I don't have any objection to a month, even two months, fine, whatever.

42:19But anything that's longer than two months, that just seems like procrastination at that point. I don't think

42:26Paula Pant:it's procrastination at all. I think it's prudent business planning. It's 100 % prudent business planning. Make sure I know what the hell I'm getting myself into. Talk to some people that are entrepreneurs that have done that. Read Profit First and set up your Profit First system. Make sure that you've got the life preservers in place. You need to replace your HR benefits. Not all of them. Some of them are ones that you don't need, but there's going to be other benefits that you want to have that you want to port out. How am I going to do that? Everything that you've just read Profit First. That takes 10 hours to read a book.

42:57Paula Pant:So you're saying, you're saying get rid of the life preserver and then do all this planning? No, no, no. I look, she's got a six month emergency fund. She's got a low cost of living. I'm assuming that she has no debt or very low, low interest debt. Assuming that the no debt stipulation, then I don't see any reason to delay. There you have it. Yeah. There you have it, Olivia. Yeah. Yeah. There you have it. I'm not changing. Because the moment that she leaves that corporate job, she frees up 40, 50 hours a week, plus not just the time, but also the cognitive bandwidth. Your job takes up the most cognitively precious hours of your day.

43:41And when all of that is free, you can go whole hog into all of this. And when you've got maximum enthusiasm around a business, like when you pour all of that into the business that you're running, you become an unstoppable force. I wouldn't squander that. She's 30. She has a level of energy now that, frankly, most of us are not going to have at the age of 50 or 55, right? Like preserve this chapter in your life when you've got low expenses, low overhead, the energy of a 30-year-old, and you've already tested out the concept and you know there's a market for it. Speed is an edge. I think fear can disguise itself as procrastination.

44:38Paula Pant:I don't think this is procrastination at all. I don't think she wants to procrastinate. I think my advice to take this more prudently, I don't think should be interpreted as slower. I don't think it's slower. I think it's better because of 3000 year old advice from Sun Tzu. The best battle is the one you never fight. And if I know what some of the battles are going to be before I get out there with all my enthusiasm, that's going to be wrecked on the rocks. The second that the BS train starts hitting. and because of the fact that I didn't set up any of these markers ahead of time or any of these, uh, this network ahead of time of other entrepreneurs that maybe have been there before me, I don't even know who to talk to about my situation.

45:25So I don't know.

45:28Paula Pant:I still would take six months. I would run projections. I would have those projections be three X what you think they're going to be. And I don't, I don't consider that being pessimistic either. I consider that being a realist. I consider it pretty badass that I can then have numbers that are unbeatable. I'm not going to beat myself that way. I'm going to get in it with a solid plan that I know works. And then every month when I beat these numbers that are three times worse than what most initial projections are, and I'm kicking their butt because of the fact that I made sure that even at a conservative basis, that I was going to be okay and I'm not going to have to do this differently, I think is a great way to go into business.

46:13All right. Well, Olivia, there you have it. You've heard both sides. You decide.

46:20Paula Pant:And we know, Olivia, which one's right. And this is coming from two people who have both quit our jobs and gone into the extremely volatile and highly unforgiving world of business ownership, small business ownership. bootstrapped small business ownership. Honestly, I would never do anything else. Me neither. Yeah, sometimes the hardest things are the best things. I was writing about this the other day, living in New York City. The winters are brutal. It's expensive. There are high taxes. There are rats everywhere. There are cats in the lunch deli to scare away the rats, like we all live in a big Charles Dickens novel.

47:02In all of those ways, it sucks. and also I would never want to live anywhere else.

47:08Paula Pant:The fact that I get to deal with the problem in the way that I think is best. Yeah. And I don't have to disagree with a boss who gives me some half-baked idea that is just not even meant to impress the customer. It's meant to impress their boss because you can see right through them that all they're looking for is a promotion. Oh God, I don't have to deal with any of that. I can go right to the consumer, make the consumer as happy as I possibly can. Super fun. Direct feedback. Yeah. I think that there's a certain level of agency when you're like, I make the choices and I bear the consequences.

47:48And so the fact that you so directly bear the consequences of every single choice that you make makes every choice that much more real, that much more important. But there's a huge level of agency and autonomy when you're like, all right, this is adulthood. I make the choices and I bear the consequences. And that's what being a grownup is. Joe's laughing at me now.

48:15Paula Pant:Yeah. And also remember, Paula wouldn't take six months to make sure that we weigh any of those ahead of time. I don't think six months is that one month. Fine. Even two months. Fine. I wouldn't go beyond two months. Oh, she went two months. We got her from one month to two months. That's a hundred percent more months. She's coming. And see, and we think like entrepreneurs, Paula, not with a hundred percent more months. All right. Well, thank you, Olivia, for the question. We're going to take one final break to hear from the sponsors who make the show possible. When we return, we're going to hear from an anonymous caller who has a question about tax gain harvesting.

49:00You've heard of tax loss, but what is tax gain? Should she use it? That's up next.

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53:18Welcome back. Our final question today comes from Anonymous.

53:49I sell it now, pay the 15 % capital gains tax, and then repurchase it and continue to hold in order to reduce the cost basis. Additionally, should I, or can I even rebuy it through my solo Roth for a 1K so it grows tax-free? More on asset location in my second question. Side note, I hold very few stocks and almost all of my investments are in low cost index funds since finding your podcast, which was after I purchased that stock. I have used the Efficient Frontier modeling, assuming that I hold the stock in question and I'm rebalancing by purchasing new investments moving forward. My second question is about the best use of the taxable brokerage account, especially that one so far, very lucky stock.

54:30We have two young kids and don't have much saved for their college funds. So I was thinking about letting those taxable investments grow, having them take out student loans for college, and then doing in-kind transfers when they graduate and at a time they might be able to take advantage of the 0 % capital gains tax rate. Does that make sense? And if it does make sense, should I repurchase the stock I mentioned in the first part of my question in my taxable brokerage instead of through my Roth 401k so that I can more easily transfer it to my kids? For context, I'm 40 years old. My partner is 44.

55:06He makes 132k and I'm self-employed and make about 90K. We currently have 410K in our pre-tax accounts, 47K in Roth accounts, and 46K in our taxable brokerages. We also have a 60K emergency fund and 40K in various sinking funds. And I have 47K in student loans that I plan to have paid off in five years. We have a 600K mortgage and a high cost of living area. My partner will have a small pension when he retires and we're planning to work until he's 64 and I'm 60, hopefully retiring with about 2.7 million invested. And so far we are not counting the taxable brokerage as part of our retirement. So we're investing without that being part of it.

55:52I can't thank you enough for all you do. Your podcast has truly changed our lives. And as you can tell from this question, the lives of our kids as well. Thank you so much.

56:01Paula Pant:Thank you, Anonymous, for the question. I can't wait to cover this one, but Paula, we can't cover this one until you have a name. You have a name. So Anonymous, because you have done so well in the stock market, I wanted to name you after someone who also had early success in the stock market. And in the year 1870, We're going back. Oh, yes. In the year 1870, Victoria Woodhull opened a stock brokerage on Wall Street with her sister that ended up doing very well. In honor of a Wall Street stockbroker, a pair of sisters who were Wall Street stockbrokers in 1870, we're going to name you Victoria.

56:51Victoria.

56:52Paula Pant:All right. Initially, I think a lot of people listening might be thinking, why would you take out student loans and wait to gift this to children after college versus just doing it now? And so I think maybe Paula, we should answer that first because there is a simple rule that she's trying to get around using this device and it's called the kiddie tax. They

57:21Paula Pant:or you are between 18 and 24 and you're a student, you're a full-time student, then you are going to be subject to the kiddie tax, which is why she wants to wait until her kids get out of school because then there are no longer kids and then they're not subject to the kiddie tax. Is it 24 or 23? I thought it was 23. It is age 20. I have it right here. It is 23. You know what's funny? I'm thinking 24th birthday is when they're no longer applicable. So yes, it's 23. The deal is, and what the government's trying to do here is very simple. They're trying to get people like Victoria not to do what Victoria was talking about doing.

58:04Paula Pant:Because as an example, states have these things called UTMA or UGMA rules, Uniform Gift to Minors Act or Uniform Transfer to Minors Act. These were enacted, I believe in the 1980s, but the reason is the same, right? People with money were transferring the money to their kid's name so that they could avoid taxes. That's the reason to take student loans and then to gift the money because you can give stocks in kind to your kids. You can do that. Your kid in this case, by the way, is going to have the time that you purchased it as the beginning of your cost basis time. So this would have long-term capital gains treatment.

58:45Yeah, exactly. So gifted stock carries the original basis. So your kids are likely going to be in a lower tax bracket. That's the benefit, but they're still going to have your original cost basis. And you have to wait until, if they're 23 or under, like Joe just said, if they're 23 or under, they're subject to the kiddie tax anyways.

59:10Paula Pant:Which is different than inherited tax. And Olivia, as an example, was talking about getting inheritance. If that inheritance includes stocks, the second that your relative passed away, that becomes whatever the stock was on that day, that becomes your cost basis. So the person that built up the position, you forego a lot of their capital gains exposure. And then if you sell it on the same day they pass away, you'll have none. Now, when somebody is then over the age of 23 and not working, they have zero income coming in. Well, then there would be zero tax ramifications of then selling this stock.

59:54Paula Pant:So that's what she's trying to do. So the answer for us, Paula, is it worth it? Yeah, well, because that assumes that straight out of college, your kid is going to be a low income earner. I don't know if you want to make that assumption. And I don't know if you want to base your plans around that assumption. You don't want to be in a situation where you're like, darn, my kid ended up being really successful straight out of college. Darn, they created this AI company from their college dorm room when they were sophomores and now it's doing super well. And now at 23, they're actually in a higher tax bracket.

1:00:34Paula Pant:Well, and the piece of this plan that I don't like, because I certainly don't like any of the things that you talked about and 100 % agree, is we're also then hanging on to this stock and we're projecting it into the future, which is much easier to do with an index. I could see doing that. But with an individual stock, Paula, they change leadership at the company, the marketplace changes, the overall stock market. I mean, there's so many different things that could happen to an individual company that we don't have to worry about when we just spread the risk among a bunch of different companies that I think projecting that this stock's going to be okay until your child is 24 is also an additional risk that people worried about tax ramifications don't consider enough.

1:01:23Yeah.

1:01:23Paula Pant:So I wouldn't play this game. And I think you're feeling the same. Yeah. I am not a fan of the college, the in-kind transfer plan. Like there are too many holes in it. There are too many things that can go wrong. One of the biggest things that goes wrong, Paula, is that you're going into debt to do it as well. Yeah. Yeah, Exactly. You're leaving assets in an individual stock, which is inherently risky, then taking on a whole bunch of debt just so you can wait for your kid to turn 24 and then assume that your kid is going to be a low income earner at the age of 24. Which is what we all want for our kids.

1:02:02Yeah, yeah. Right.

1:02:04Paula Pant:And I hope my kid doesn't have a job. Yeah. But let's go to the other part of your question, Victoria, which is the part about tax gain harvesting. There are a few problems here as well. What you've described, so you'd be selling the position, realizing the gain. And then in your question, you talked about that would reduce the cost basis. But I think what you actually meant is it would raise the cost basis. So the whole purpose of tax gain harvesting would be to raise the cost basis at a higher rate. And lower the tax liability is what she would get. Yeah, exactly. That only makes sense if you can realize that gain at 0%.

1:02:44You and your husband right now, so okay, in 2026, if you're married filing jointly, you can have up to$98 ,900 in taxable income and pay 0 % on long-term capital gains. but your husband is making$132 ,000. You're making$90 ,000. Together, the two of you are making $222 ,000. Subtract out the standard deduction for joint filers. So that puts you at$190 ,000. That is double the ceiling of what you would need in order to be at 0%. You're not even close, is what I'm trying to illustrate. Unless one of the two of you stopped working, you're not going to get to that 0 % band. So you're going to be paying 15 % on this.

1:03:36So then the question becomes, why pay 15 % right now unless you think that you would be paying a higher rate in the future? Because if you're paying 15 % on this now and then reinvesting it, you necessarily are going to be reinvesting less money unless you were to like, just pay that tax out of pocket and put the same amount in, in which case you're just making additional contributions. And I think that's what she's thinking about, by the way, most of the time when people are

1:04:05Paula Pant:contemplating this, they have the money to pay the tax sitting someplace else and they're just going to sell, you know, 500 shares and then rebuy 500 shares. So functionally then she's talking about making additional contributions into the same stock. In that case, it becomes an asset allocation question. Do you want to be that exposed to a single stock? If she doesn't do that, so if she takes that 15 % haircut right now, then that means that the total amount invested is reduced, and then that has a compounding effect. One way or the other, the only reason to do it is if you believe that that rate that you're going to be paying capital gains taxes at is going to be a lot higher in the future than it is right now because you're not locking in 0 % no matter what.

1:04:52Paula Pant:That's where I always said it was that tax deferral is a great thing. And if this stock doesn't pay a dividend, then it's tax deferred. You're just going to pay more and more money, but the percentage is going to be the same. The percentage is going to not bump up. It's not going to change if she just rides it out. So while it could be and hopefully is more money, right? Right. Everybody's hoping for the stock to keep growing. If it keeps growing, the percentage tax she pays doesn't change. So there's no efficacy, I think, on paying part of the tax today. Yeah. I mean, the one thing that that does is maybe psychologically it makes it easier to look at a stock that's only gained X versus X plus all the gain it used to have, you know, so maybe psychologically, but that's the problem with buying individual stocks is that even when they do well, Paula, you get in these emotional conundrums because the stock did so well.

1:05:51Paula Pant:You know what the management did. You understand the reasons why the marketplace did great things. And you feel a little beholden to the magic that happened, hoping that lightning hits again. I also want to draw attention to the net investment interest tax, the NIT tax. That hits when you are above$250 ,000 modified adjusted gross income if you're a joint filer. As we've already established, between what your husband makes and what you make, you're at$222 ,000. If you then have a gain of almost$25 ,000, that puts you pretty darn close to the$250 ,000. And once you get there, then we're talking about a capital gains tax rate of 18.8%.

1:06:44Paula Pant:What do you think that about the asset location about those selling it off and moving it to a tax deferred account like the solo 401k? To me, it feels very close to the same thing if it doesn't pay a dividend. Yeah. In general, I love assets in a solo Roth 401k. I'll make that blanket statement. Big fan. Yeah, exactly. But to harvest gains, pay taxes on them now, replenish the taxes out of pocket, which means make additional contributions. Because all contributions into a solo Roth 401k have to come in the form of cash. You can't just transfer the stock over. So you'd have to turn it into cash in order to move it into that Roth solo 401k.

1:07:36Again, either you're paying the taxes out of that, in which case you're investing less, or you're paying the taxes out of pocket, in which case you're contributing more. But if you're going to put that money into the same individual stock, you're contributing additional money into a non-diversified asset. I would actually like it better if she, assuming that she's not otherwise going to max out the Solar Roth 401k, I would like it better if she sold enough of the asset to be able to max out the Roth solo 401k, but the new contributions went into an index fund or went into a more diversified broad market rather than an individual stock.

1:08:21Because if we're talking about her making new contributions, which is effectively what paying the tax bill out of pocket is, I want those new contributions going to something more diversified than one individual stock.

1:08:34Paula Pant:And this is the way, Paula, what you just described is the way CFP handles it all the time, which also frustrates people because they get involved in the emotional argument. What happens if the stock keeps going up and the index is going to be less volatile, which means it would go up slower? Like, what if all these great things happen to me? But a CFP will go back to the original piece. This was$500. It was a great win. And don't try to project what you think it's going to do in the future. Ask yourself, what is the use of this new money that I have that will make my lifestyle better? And once you do that, then lock in the lifestyle.

1:09:14Paula Pant:Don't think about locking in the individual stock. Think about locking in the lifestyle and you're going to make much better decisions. So yeah, they come to that same conclusion that you just did. Let's put more money in the solo 401k. The second you said that, like, I don't know about you. I got a little dopamine hit. I got this little, that's cool. Yeah. Yeah. And again, that is assuming that you, based on your budget, would not otherwise be able to max out your solo Roth 401k independent of this. which is another way of saying, if you can keep this stock where it is, if you can not touch it and based on your budget, you could still max out the Roth Solo 401k, do that because then that's the ultimate in more contributions.

1:10:02Paula Pant:It's a great problem to have. Love this problem, Victoria. Yeah. It's the problem that everybody wants. I, you know, oh, I put a few hundred into a stock and it turned into$25 ,000. Like, wow, what a massive, massive gain. Oops. There's also one more thing. If you do decide to give this to a child at 24, even though that was not our guidance, remember that if it goes to a single child, that the maximum amount that you can gift without filing a gift tax return is$19 ,000. So that will change the amount that you can gift over your lifetime without having to pay federal estate taxes for 99.9 % of our afforders listening.

1:10:49Not a big deal.

1:10:50Paula Pant:We're not going to hit these huge, huge numbers that are now where the federal tax is and where it's going to be in the future, most probably. So I would be cognizant of if you gift more than$19 ,000 of stock to a child, there's going to be some IRS forms that you're going to need to fill out. There will be zero tax due today, but it'll just affect the amount that you can give federally tax-free later. You know, Victoria, I'm in a similar boat in that I have an individual stock that's in a taxable brokerage account that I put a relatively small amount of money into and it has grown into a relatively large amount of money over the span of the last decade.

1:11:36My approach has been to leave it alone. Similar to you, I do believe in this particular company and I do want to keep holding onto the stock. But as I was just for myself, as I was thinking through it, the first question that I asked myself is, does this money have any particular purpose or is this just random bonus money? And so if I assign a purpose to every bucket of money that I have, this money does not have a purpose. This money is just random surprise money that has no life goal associated with it.

1:12:16Paula Pant:Back when I was a financial planner, that was always job one. What is the purpose now? Yeah. Because this particular individual stock does not represent any purpose, it does not represent any goal. It's just a random surprise money that I wasn't expecting to exist. Because of all of that, I'm leaving it alone. In the meantime, I also have a Roth solo 401k as well as a backdoor Roth IRA, as well as an HSA. In years when I don't produce enough income to be able to contribute to those directly, I do harvest, not the individual stock, but I do harvest index funds from other taxable brokerage accounts, sell those into cash, and then make those contributions into my retirement accounts.

1:13:06So I am losing liquidity when I do that, but I'm gaining the tax advantage. Well, thank you, Victoria, for the question. Joe, I think we've done it again.

1:13:15Paula Pant:What great questions. And sadly, you were wrong on one of them. We came to blows on that one, on Olivia's question. I think that's the most fiercely we have disagreed on any of these recent episodes. In a long time. Yeah. Yeah. Yeah. It's been a minute. It's fun to spar with you. Which is fun, especially when you're wrong. So it makes it a great time. But I think she knows the lay of the land. She knows why we both feel so vehemently about our positions, which I think is the important part of the answer. Yeah. And actually our positions were only four months apart. Like my position was two months max.

1:13:53Yours was six months.

1:13:54Paula Pant:It started off as we were five months out that we're four. If I kept talking, we could have gotten you to two months. Nah, nah. If I kept talking, you would have pushed up to seven or eight. Oh yeah, Paula, six years. All right. Well, Joe, where can people find you if they'd like to hear more of you being wrong?

1:14:17Paula Pant:Actually, it's funny that you say that because there's an interview we did back in the archives. It's maybe just over a year old now. And it's with a wonderful woman named Julie Wainwright. And if people don't know who she is, she was the CEO of a company called Pets.com, which is the poster child of everything that was wrong in the early 2000s, right? So we talked to her, but what's amazing about her and about the strength of being an entrepreneur and how cool this can be. Is she had a whole second life where she was the founder and former CEO of a company called The Real Real, which is a luxury consignment company.

1:15:02Paula Pant:I've shopped at The Real Real. Doing what Olivia is, not the same thing, but doing something close to what Olivia is doing. So Olivia, for you, just go to Stacking Benjamins and look up Julie Wainwright, Real Real Stacking Benjamins, and you'll find our interview with Julie. and that's some of that guidance that I was talking about earlier. Listen to as many things from entrepreneurs that have been there and ones that have been through some crappy stuff. Julie, as you can imagine, Paula, went through a place after pets.com where she was toxic. Nobody wanted to talk to her. Nobody wanted to be associated with her.

1:15:36Paula Pant:They wanted nothing and she still found a way to succeed, which is pretty cool. Amazing. So all of that is on the Stacking Benjamins podcast. For Victoria's question, we talked about asset location. We have have a free asset location cheat sheet. So it is a simple four-page cheat sheet that shows you what to put in your taxable brokerage accounts, what to put in your tax-exempt accounts, and what to put in your tax-deferred accounts. So what types of assets belong in what types of tax treatment buckets. Simple reference guide. It's completely free. You can download it at affordanything.com slash asset location.

1:16:16Thank you to all of you for tuning in. If you enjoyed today's episode, please share it with friends, family, neighbors, colleagues. Share it with the person at the secondhand consignment store.

1:16:27Paula Pant:We've been done this in a long time. Yeah, it's been a minute. Share it with your stockbroker from the 1800s. I don't know. Share it with the people at the college admissions office. Share it with that family that's slow traveling with their two high school kids. Oh yeah. Share it with the people at the hotel or the Airbnb or the campground where they're staying. Oh yeah. The campground. That's right. Or share it with the people at the bougie hotel that you decided in Bali. Share it with all of those people and more because that is the single most important way that you spread the message of F double I R E.

1:17:07Make sure that you open your favorite podcast playing app, hit the follow button so that you don't miss any amazing upcoming episodes. And remember, affordanything.com slash asset location for our free cheat sheet on what assets to put in what types of tax treatment buckets. Thanks again for tuning in. I'm Paula Pant. I'm Josel Cihai. And we will meet you in the next episode.