The Money Guys Help us Escape Our 401k Tax Trap

16:04Brian Preston:Like once it's finished, you're going to get traditional financing to clear off some of the debt. Only for the outstanding portion, I'm assuming, just swapping. Essentially, that$500 ,000 on the margin, you just swap that for our primary. Exactly. I don't want to be like margin could be scary. We did that once before, and we almost got called out on it, even though I thought we were being very conservative. We weren't conservative enough. And with rates going up, I'd rather be locked into 5.4%.

16:28Mindy Jensen:Yeah, that was 2022 when the market had a really bad year. We had so much space in our margin. So we borrowed and then we watched our margin go down and it gets to here. And I'm like, we should probably get a HELOC on our house just in case we, because we had borrowed to buy the house that was there. And then we tore that down and rebuilt it. But we're getting real close. So we get a HELOC and we take some money out of the HELOC and throw it at the margin to bring it back up. Otherwise it would have gone negative and they would have called us out.

17:03Brian Preston:Yeah, and for those that don't know, if you don't have enough collateral inside the investment account to substantiate the loan, they will do what's called a margin call, where they're going to say, hey, you've got to put some money in here. Well, if you don't have any liquidity anywhere, you either have to sell assets to cover. While they're down. 2022 is not the best time to sell assets, or you've got to come up with capital somewhere. So it is a useful tool, most often for short-term borrowing, but very risky. So I don't love hearing that it's there, but I love hearing that you have a plan for it to go away.

17:32Brian Preston:So it is kind of a short-term bridge right now. And I don't mind sharing when I wrote Millionaire Mission. The home equity lines, they are great on paper too, but sometimes stock markets get beat up at the same time that banks are getting squeezed. Because I didn't keep any cash, and I had access to cash was my brilliant scheme with the home equity line because I had six figures plus in a home equity line. And then, of course, in 2011, I think it was 2011, May 4th of 2011, I got a note from the bank saying, hey, that home equity line that you value so much, because your house has been crushed, we're going to freeze it.

18:13Like no more access. No more access. That checkbook, that debit card, completely gone. And I'm sitting there going, no. I mean, this is my cash. This is all my emergency funds. And I thought I was so smart. And that's why I always, because both things that you're leaning on are what we consider access to cash, not cash. I think it's because you're so disciplined. When worse comes to worse, you can circle the wagons and y 'all can make your spending so small that you feel like you're really not taking that much risk. But the problem is, is that you have to be careful to where you at least have real cash on hand because things can happen.

18:51When it rains, it pours typically. So your stock market can get crushed. The banks can write you a Dear John letter on your home equity line. Y 'all are at the stage of life and success. I want you to maximize, but let's also keep some liquidity just to keep you safe, too.

19:07Brian Preston:Well, it's not about how much you can make at this point anymore. You've kind of already won the game. For sure. You've rounded third heading towards home. Now you've got to make sure you don't trip. You want to make sure you don't start showboating and gloating and end up getting yourself in trouble. It's more about how much you get to keep in your back pocket, not how much you get to add to your front pocket at this point. I really appreciate these comments because Mindy will tell you about this endlessly. But one of the things I struggle with is optimization in all parts of my life, especially money.

19:33Brian Preston:Sure. And that's why we see there's no cash. My cash earns 3%. I think I can probably do a lot better than that with other things. But again, as you just said, we won the game. There's no need to play these games anymore, although I still enjoy them. Well, one of the things people often think about optimization in terms of growth and accumulation, There is also risk optimization. And I would argue that you have not optimized for risk where you are in your current circumstance. Well, I mean, just look at your net worth. Your cash holdings as a percentage of your net worth. Rounding error. Negligible.

20:07I mean, you see that that's a problem. I mean, we're not even, what is that, less than 1 %? Yeah. I mean, we probably ought to have at least a few percent to cash. I mean, just, you know, because. Well, remember, he has all those bonds that are keeping him protected. But we've turned our cash into a rounding error. And that's not really that big of a safety net.

20:27Mindy Jensen:So I am a member of a group online called Long Angle. I don't know if you've heard of them. It's a closed forum for people who have a net worth, a minimum net worth of$3 million or more. And I went in there and I asked them, how much cash do you keep? Because I was looking at these numbers too. I'm like, $70 ,000 seems like a lot of cash. We probably spend between$65 ,000 and$100 ,000 a year, not including kids, school, and not including building a house. $70 ,000 is a whole year's worth of expenses. That's a lot of money to keep in cash. And like he said, it's only making 3 % when we can do so much better in the stock market.

21:04Mindy Jensen:And I asked in the Long Angle group, how much cash are you guys keeping? Because it seems silly to have a percentage of your net worth when that's your net worth. And they were saying around 5 % is what people, and they did an annual poll of their members, and they said around 5 % is what people are keeping in cash on average. And I thought, that's a lot of money in cash. But you're thinking in terms, you're not thinking in terms of your net worth. You're thinking in terms of your spending. And I keep hearing you bring it back to the grounding of, hey, that's a full years of our spending. but where is you have a blind spot to no it's not just the spending it's the$35 ,000 for your daughter's next year college for the next three years there's 70 I mean if you think about 35 ,000 times three we're already have exceeded$100 ,000 just on her education and by the way you got another one coming right down the pipe probably 35 to 40 ,000 dollars a year because you know so So just right there, we've told you that within the next three years, you have well into$100 ,000 plus of need that you'll have to.

22:15We got a house that's being built, that we have$500 ,000 of debt that we have to. And you need to have margin to cover the underwriting period when you're turning this into a loan.

22:28Brian Preston:Let me speak to the optimizers in you. We're going to talk about some tax planning in a moment to help solve this trap that you have suggested. One of the things that you're going to need in order to actually be able to implement that planning is having liquidity, which you don't have right now. So you have to figure out how do we find liquidity to satisfy the necessary mechanism to do some of that tax planning. But we're going to get there. We're going to get there. I do want to say one more statement on cash, though, because I think it is a look. And I was the same way as I've shared is, you know, I was so lean.

22:57I had no cash because I had home equity line. The biggest surprise for me as my wealth has exploded is the superpower of cash when nobody else has cash. Because some of my biggest opportunities that have changed my financial life is when I'm sitting – and this is – when I talk about the financial order of operations, we'll talk about this more. Step eight is when I like people to – and y 'all are successful enough that you're definitely into this phase. you should actually boost up cash, not because it's bad, but because it creates huge opportunities when others are struggling. And I don't want you to be a miser and have all cash, but y 'all are big enough now that that 5%, maybe even a little beyond 5%, that the next time things go ugly, you're going to be like pig and slop.

23:46You're so happy. You really are. I mean, because you're just like, oh my gosh, I can't believe I can get what for that? You know, and that's the most amazing thing in the world.

23:55Brian Preston:Think about how much different 2022 would have felt if you weren't thinking, oh, gosh, we've got to go take money out of our home equity line to go pay on this margin call. What if you're thinking, man, we have cash and capital we could deploy at these unbelievably attractive prices while everything's getting beaten up? The clarity of chaos, too, is because now when you're liquid in chaos, everybody else is scrambling, and you're like, it's a superpower. It really is. And that's something. Now, I don't want people out there hoarding cash because they're waiting for the next. Now, that's timing the market.

24:23But there is something, too, when you're in step eight of the financial order of operations is to be frothier after you've already taken care of a lot of your other financial foundations. Think about Warren Buffett. Why is everybody watching the airport, the FBOs, whenever the market goes down? It's because they want to know what airport, who's flying into Omaha to come to the feet to talk to Uncle Warren for money because they know he's sitting on the cash. I mean, there is something to that when you're talking about the power of cash as a kind of a contra wealth builder in a lot of ways. Yeah, we actually encountered that back in 2011.

25:01We saw, we don't want a 12 ,000 square foot house, but we saw one that had just been built. And they're like, the first person to show up with$400 ,000 gets this thing. And I'm like, we could buy this, hold on to it until all these dark clouds pass and sell it for$2 million. But we didn't have$400 ,000. We didn't have the cash. Nobody else does either. That's why it's a superpower. And we didn't want to be selling. Yeah. The townhouse in Breckenridge,$250 ,000. That thing would be$2 million now. But nope, no one would give us cash.

25:28Brian Preston:Cash gives you opportunity money. It gives you the ability to capitalize on opportunities other people can't capitalize on. And nobody does it. I mean, nobody has cash when we hit these horrible periods in the economy.

25:39Mindy Jensen:So you said that 5 % or maybe even a little bit more sounds good for us. And then you said you don't want people to - I didn't say for you. You guys have, because I was trying to create a teachable concept there, but you guys have some unique things. All of your stuff is highly appreciated. Y 'all have not only done a good job of minimizing taxes, but then even in your after-tax assets, it's all highly appreciated assets. So anything and everything you touch is going to create taxes now. So it's time to pay uncle. We have to figure out how we do this in a strategic way. So I don't want to say, yeah, go to have five, six, seven percent cash.

26:16And then like, well, how are you going to do that without generating a big tax bill? That creates a friction cost that we got to get a little cute and creative with.

26:23Brian Preston:I want to make sure I understand because right now, so we're showing the net worth here. But realistically, we've got a$400 ,000 personal loan to a friend. We've got another$500 ,000 margin loan. So we've got about$900 ,000. Any other debt that we're not aware of? Or is that just that$900 ,000? Our house now is worth about a primary house,$800 ,000. And we owe like$280 ,000 on it. Okay.

26:45Mindy Jensen:At a 2.3 % loan. It's going to break my heart to sell that house. But you're selling that house, right?

26:51Brian Preston:We will sell that house. And then I imagine that the equity from that house is going to pay off the personal loan, and you'll get traditional financing for the margin loan. Is that the idea?

26:59Mindy Jensen:We should be almost clear of debt once the one house sells and we move into the new house. Yes. And once we refi that house.

27:07Brian Preston:Yes. Awesome. All right. So when we look at your account structure, I do notice what seems to be a little bit of redundancy in terms of accounts. like, Carl, you've got this 401k, but you also have this large rollover IRA. Any reason why those two are not consolidated since you retired? The 401k is a self-directed solo 401k. Oh, so you're still participating and adding to that one. Yes. Yeah. And it holds some, we do want to close it eventually, but we have one more private company in there. So we'll have to wait till at least that company goes public or sells to dispose of that account. So the idea is once that's done, potentially you do have, or once you stop working, stop earning, there's some consolidation that could happen between those two accounts potentially.

27:47Brian Preston:Yes. Yep. Are you guys able to fund Roth IRAs every year based on income level? Yeah, we could. We haven't been just because we've been using all our money for this house project. So the past, this year and last year, we did not, but we have done a lot with Roths in the past. One of those Roths is also a self-directed Roth, hence why there are multiple of them on there. So most all Roth IRAs are quote unquote self-directed. You get to choose where you put it. You get to choose the custodian as. But I think you did some unique stuff inside of your Roths, right? What did you do in your Roths?

28:19Mindy Jensen:Well, the regular Roth IRA, the$109 ,000 Roth IRA is, I don't even know what's in there. Well, there's one that says$285 ,000 and one that says$16 ,000. And hers is$109 ,000. Oh, okay. The$109 ,000 is just like regular stocks. The self-directed Roth IRA is a SpaceX holding.

28:39Brian Preston:Okay.

28:40Mindy Jensen:And we were able to get into SpaceX in that account into 2024. Oh, wow. And so when it recently went public -

28:49Brian Preston:It's been an exciting couple of weeks for you guys, right? It has been an exciting couple of weeks.

28:52Mindy Jensen:When it went public, that's when it kind of exploded. Carl was able to get into SpaceX in 2022 through his 401k. That's a traditional 401k. And when the opportunity came up again, I said, is there any way we could put it into a Roth? Because you put your risk in your Roth, right? Right. and I wanted that money to grow tax-free. So we were able to do some financial monkey business to get that into the Roth IRA.

29:19Brian Preston:So when we look at 401k for Carl, a big chunk of that's SpaceX, and it's in a Roth?

29:25Mindy Jensen:No, that's a traditional 401k. That's all pre-tapped. My self-directed Roth IRA is, is that all SpaceX?

29:33Brian Preston:Yes, that one is completely SpaceX. Okay, got it. So there's some reasons why there are multiple accounts that haven't been consolidated, because there were some unique things going on there. Now, with the way that you were able to enter into your SpaceX exposure, are there limitations on your ability to move and consolidate now that it's publicly traded? There are lock-up periods. The first one comes up in August, so we will start receiving our shares there. The last one comes up in December. So between August and December, we will receive all of our shares. But, Bo, as of right now, we cannot do a thing.

30:00They are locked up. They recently clicked. Because I know we had some clients who also bought SpaceX through these. Essentially, they were buying them from employees as they left these private investors to realize they could put together these groups, help buy out the employees. There was some grayness on how long, because I saw some disclosures that had come out post-IPO. Now, they might have clarified this. This has been a week or two since I got. But the first thing that came out from the private company that we were dealing with for a few of our clients was, we think we're going to be able to get you access at these points.

30:33But there is a chance as we're getting clarification that we might be locked down in for a full 366, the first 366 days. Have you all gotten a bunch of communication from these companies on what your windows? Because it was gray initially, but maybe they've clarified that. Yeah, we have. And I think I might know what you're referring to. Certain employees and certain very early investors have more restrictive shares where they have to wait that full 366 days. In our case, we will have access. Okay, so you'll have access there earlier. Okay. Yep.

31:03Brian Preston:Well, and this is probably a decent, once you begin to have access to these shares, what are your thoughts? Because, again, you were kind enough, not only did you share a net worth statement, you shared sort of a breakdown of what you have in your accounts. And when we look at your liquid portfolio right now, it's a touch under$7 million. dollars. And when we look at the things that you actually own in there, we have nearly$4 million of SpaceX stocks and another$850 ,000 of Tesla, almost half a million dollars of Facebook. Google in there, Amazon, there is this impulse space. I'm curious to know what's impulse space.

31:38Mindy Jensen:That's a privately held company right now. Oh, no, this is a really good story. I'm a nerd. Feel free to cut this out. But Thomas Mueller was SpaceX number one, probably the most brilliant rocket scientist of our time. He developed the original engines for SpaceX. Unfortunately, he became an employee and not a co-owner because he was worried that the company wouldn't succeed. So he's only worth like, I don't know,$50 billion instead of whatever he would have been worth. If you would have done the whole thing. But anyway. I think he's going to be okay. Thomas, if you need help with your money, come talk to the money guy.

32:09Mindy Jensen:That's right. We'd love to talk to you. He started it. He left SpaceX. He started a new company, and I'll get real nerdy for just a second. They bring stuff. It's very easy to get stuff to low Earth orbit. Very difficult to get stuff to higher Earth orbit. You need like a triple core rocket. I told you nerd time. So this guy is deploying space tugboats. SpaceX will launch something and get into low Earth orbit, and then his things in space bring it to a higher orbit in a matter of hours instead of the year long it would take. And, yeah, we got in on the same round as Peter Thiel, which is pretty cool.

32:39Awesome. Wow. And this was, yeah, this whole thing was a bet on Thomas Mueller as most of our investments. Well, and you know something about making a bet on people. Because let me give you some. Now, this is, I did some real back of the napkin math on some of this. But your top five holdings are about 86 % of, meaning individual holdings are 86 % of your total liquid assets. So when you said you were an index investor, we were like, we're not. Y 'all are pretty concentrated. And then let me pull your mind. If you think 86 % within your first five holdings, how about the fact that 70 % of your total is all Elon?

33:17I mean, between if you look at SpaceX and Tesla, I mean, you guys are like, you're ride or die with Elon in a lot of cases. Which, you know, it's been kind of a bumpy ride here in the last few years. It has been a bumpy ride. But incredible wealth building is happening. Y 'all have been actually the beneficiary of a lot of this. But it is one of those things of I wanted to get y 'all's temperature on is this – because obviously you have somewhat of an emotional attachment to these investments too because you just – I could hear you telling the stories. I mean this is – you're probably setting a table at Thanksgiving for impulse space at this point because you just told that story.

33:57You're pretty excited about it. What's the actual – what do you want to do with these holdings? Because you've got huge appreciation. We've heard some of these are in Roth accounts. Some of them are in after-tax accounts. Some of them are in 401k. So you've got, you know, it's dealer's choice on account structure. What are your ultimate goals for these individual holdings? I feel we feel stronger about some of them than others, but I would like to slowly get rid of them. I am a big believer in index funds. And where I was going with that was we bought Tesla in 2012. For other people. Face X was, our Facebook was 2012.

34:30Google, I was a computer nerd. So we bought that company at IPO in August, 2004. Yeah. 85 bucks to 15 ,000 if you don't account for splits. Unbelievable, yeah. But yeah, just luck. I didn't run numbers or anything like that. But anyway.

34:46Mindy Jensen:But hold on, hold on. Because I say this all the time. If you were going to invest in individual stocks, you need to be doing a ton of research on that individual stock because you're going to lose. Most people are going to choose something. I mean, he had a loser stock once. Once. Carl's got a pretty good track record. Carl's got a pretty good track record. I would like to say that I suggested Berkshire and Costco. Okay. Thank you very much. They're, you know, at the bottom, but they're still... They're not worth seven figures like Carl's picks are. You know, if you want to keep track with actual numbers, Carl is a little more successful at picking stocks than I am.

35:25Mindy Jensen:But he also, I think he's downplaying, he reads tech news all day long. He reads, I mean, ask him anything about Tesla or SpaceX. He's done a ton of research. And our Tesla stock was from 2012. Right. When some random dude with a funny name was going to make electric cars. Yeah. And back then, electric cars weren't cool. They weren't sexy. They were just like a pain in the butt because there was nowhere to charge it. And they got like 40 miles of range and that was it. And this guy came out with, I don't know if you know this, but sometimes he makes grand declarations. I'm going to change the world.

36:02Mindy Jensen:Does he really? But he said he was going to put full electric cars on the road. Did he say he was going to make them self-driving back then? It wasn't back then. It was a little bit later on. Yeah. And Carl wants the earth to continue to rotate and, you know, let's get off fossil fuels and all of that. Sure, I'll throw some money at that. How much money do we have in Tesla? How much did it cost us to get that Tesla? Can I have a guess? Yes. I bet you put less than$10 ,000 into it. Yeah, I think it was about$2 ,000. It was$2 a share. It's wild. It's wild. And where I was going with this is I discovered index funds in 2014, and that was after we had invested in most of these.

36:43So now when we do get money, almost all of it goes to index funds.

36:47Brian Preston:And that's a question we were going to ask is essentially what's happened is you guys have some winning lottery tickets here, right? You took a big bet. You took a risk. Those risks have obviously paid off up until this point. The question is, what do you do moving forward? Especially as you're thinking about, I'm not going to say de-risking because you're going to perceive that as being suboptimal, optimizing for risk-adjusted nature. Thank you. So when we optimize for risk, I do think probably one of the things, because you guys do have index funds. You have another$1.7 million across various index funds.

37:21Brian Preston:and all of these index funds happen to own a lot of the same companies that we just went through. But this is at least more broadly diversified than your other holding. And so what we'd love to see is as you guys age and as you move into retirement, now that you've kind of got this very healthy portfolio, how do you build a portfolio that doesn't just focus on capital accumulation, but also has some sort of idea around long-term capital preservation? Why take more risk than absolutely necessary? Yeah, I think the one thing we have the luxury of doing is because so much is in the 401k accounts, we could get rid of those holdings, move to bonds or VTI and not have any tax consequence.

38:00So just one thing. But I would like to get at some of the money so we could actually use it sooner than later too or start being tax efficient. I don't want a$2 million RMD in 22 years. Well, what I was nervous you were going to say was that you love having these holdings so much that you didn't want to sell them. Because look, I get it. I mean, especially when you make a$2 ,000 or$3 ,000 investment. And I bet you've done. I mean, we could do that with the Google investment or even the meta with Facebook because you guys hit them right as they came up. And then you just held them. I mean, you permanent portfolio these things until they've created huge success for you.

38:35But what I was worried is you say, I want to really keep these holdings because I really believe in these brands. And we had kind of talked about this beforehand and is that there's nothing that says that you couldn't, if you had said that, liquidate it in the taxable form so we can actually have access. And then you can go move things around in any of the retirement accounts and not pay taxes. But I actually like hearing it's the preferred answer is that, yes, these have created tremendous success, but I'm okay if we start diversifying our capital structure so that we can have access to this money and kind of optimize from a risk standpoint what we've got going on as well.

39:13So you did even better than what I was worried that you were going to be locked in on because we see it all the time. Yeah, thank you for saying that. These companies are near and dear to my heart. You can tell I'm obsessed with some of this tech. But I think going on a nice trip, like we're taking our kids on a trip to Japan and going on a trip to Japan with our children sounds like more fun than owning Tesla or SpaceX.

39:37Brian Preston:I love that. That's what, so the reason why we build the wealth is so we can actually use it to do the things we want to do and have the experiences we care about with the people we care about. And you guys have obviously done that. Now you're at that stage where you get to enjoy some of that stuff. But that doesn't mean you have to walk away from optimization altogether. other. Because you've already said, hey, we've got this problem, right? And fortunately, we have solved. We're able to kind of model out this problem for you. So what we looked at is based on where you guys are now, your retirement is no longer pass fail.

40:08Brian Preston:It's no longer, are we going to have enough to be able to retire? Are we going to be able to be financially independent? I think we've already answered that question in spades. Now it becomes, how do we optimize and make sure that we're making the right decisions early enough that it can have a meaningful impact over the long term. So what you can see on the screen, every year, this is just a projection of, based on the living expenses you share with us, portfolios you shared with us, what we anticipate basically your tax return looking like every year. Each one of these blue bars is like an active tax, your active tax base that you'd be paying tax on.

40:43Brian Preston:Now, we didn't know about what your working life was gonna look like over the next couple of years. We just made some assumptions, Like, okay, if we're earning a decent amount, we said for five years, and that goes away, really all of your income turns into capital income from the portfolio. For a lot of folks, depending on how your portfolio is structured, a lot of people pay 0 % capital gains taxes right in the early years they retire. So your tax bill kind of goes next to nil if your portfolio is structured correctly. And that would work wonderfully. And you guys could retire, and you could live off of your brokerage assets.

41:16Brian Preston:You could begin selling at 0 % cap gains, generating some capital so that you can pay for the things you want to pay for. But eventually that becomes exhausted, and you would have to start pulling off of your retirement assets at some point. But what really gets you guys is right there in your mid-70s. Right there in your mid-70s, because your qualified accounts are so large, you're going to have these huge RMDs that are going to take place. And we actually went and looked at the number in nominal dollars, your RMD based, and we did like a very conservative, I think six and a half percent rate of return, like very, very conservative.

41:52Brian Preston:It's going to be like$850 ,000 year one of your first RMD, I think was 2049. $840 ,000 of income, you'd have to recognize that you may or may not want to recognize. And what that's going to do is going to now jump you into the highest tax bracket. You're going to go through the 24 % bracket, 32 % bracket, and ultimately you're going to even into the 37 % bracket under current tax code. So we said, okay, there's no point in all this tax-deferred savings you guys have done your entire life to try not to pay taxes, to only spend the last 20, 30 years of your life paying way more taxes than you want, right?

42:28Brian Preston:So one of the ways that we think about helping clients figure out how they pay less taxes over their lifetime is what strategies are available to begin minimizing that lifetime tax bill. And for most of our early retirees who retire before a pension kicks in and before Social Security starts, before you have to do RMDs, Roth conversions are a great solution that might be available to you. And we just said, if all we did for you categorically was let's just think about maxing out the 22 % tax bracket. Now, there's an argument to be made we could go up to 24 and max that out. We just said just max out the 22 % bracket.

43:04Brian Preston:What does that look like conceptually? And if we started doing that this year and we did it all the way until you got to age 75 or got to RMD age, what does that change about the plan? Well, now you can see you never actually cross into those 30 plus percent tax brackets. You never actually have that tax bomb take off because you're converting so much of your pre-tax assets to Roth. Well, if you run this through the scenario and you look at what does this mean tactically for you guys, if you were able to implement this and you're able to convert all of those pre-tax assets or a lot of those pre-tax assets, your required minimum distribution in the first full year you had them goes from like a$850 ,000 distribution to like a$300 ,000 distribution.

43:50Brian Preston:It's like a$500 ,000 annual income offset because now you've shifted them to Roth. And what you can see is by doing this, at the end of your plan, when you guys leave this earth, and we just used age 95 as our mortality assumption, it actually adds almost$3 million in present value dollars to what your kids would inherit one day. Because now you've paid tax at lower rates, they've grown tax-free, and your cumulative tax bill drops by over$1.1 million in present value dollars by doing this Roth conversion strategy. So we look at this, it seems like a slam dunk, right? Right? Yeah, that's great.

44:28The legacy factor is huge because your kids, because you know with the new updated beneficiary rules, 10 years is what you get to continue to let the assets grow after your passing. So they inherit Roth assets, and then they can grow for 10 years if they so choose to optimize. I imagine Elf probably instilled a lot of these behaviors in them as well. But it's just a huge legacy win, too, because when they inherit a 401K, now they have these inherited IRAs that they would have to take distributions off of life expectancies as well. Whereas this lets them say, hey, how do we use these assets, but also optimize these assets from a tax planning standpoint?

45:10It's a pretty cool win. And from a selfish standpoint, if we convert to a Roth, and for your audience too, we can use the money after five years, right? The money we move over. Yes, technically you can, but I'm telling you, everybody who wants you to get big Roth assets, you hold them like Gollum. And, you know, it's just so hard to use Roth assets because you just know how powerful that growth is. That's where your tax nerdiness. Maybe it's I just know when we plan it. That's why I'm always amazed when we when we when we do deal with like Coast Fire and others, everybody's like, well, I'll just use my Roth first to bridge me.

45:47I'm like, you think you will, but you're probably not going to want to burn through all those because that's just from a legacy standpoint. Now, look, I know y 'all also have the die with zero type mentality, and we'll talk about that, too, because I think there's some better assets that you can gift, especially with the 0 % capital gains. While you're, you know, assuming your girls have lower taxes, there's some ways you can make gifts maximize their lack of income to give some of these highly appreciated assets that's so much better than just giving, you know, burning through your Roth assets.

46:21Mindy Jensen:Yeah, I would like to leave them as much Roth money as possible and to get it out of the 401k as soon as possible so that it can be in the Roth. The only issue is we, you alluded to this earlier, we have a liquidity problem and we don't have the money to pay the taxes. I mean, we have the money to pay the taxes, but we have to find it somewhere. So doing a Roth conversion at our age, we have to pay those taxes next year if we Roth convert. How do we do that?

46:53Brian Preston:Yeah. So one of the things that we think is important, whenever we do a Roth conversion analysis, we always set out best laid plans. Like, hey, our strategy, our goal is going to be to convert at this bracket, whether it's 22 % or 24%. But what happens in reality, even though we lay out this playbook of what we want to have happen, In practice, the way it actually manifests is that every single year, it's a year-by-year decision based on the unique things that go in this year. Maybe in one year, you sell 10 houses instead of 12 houses. Maybe it's a 2022, we were able to harvest a lot of capital losses, so there's no capital income.

47:25Brian Preston:What we do for our clients, and this is what we get to do for our day jobs, is every year towards the end of the year, on October, November, we'll actually do an analysis of where your income is for that year. and you begin doing tax projections to figure out how much could you convert in reality and what would the associated tax bill pay for and then how do you pay for it? For you guys, we wanted to put together an illustration, just kind of give you an idea of what that tax bill could look like under this scenario, but the numbers would change. And so we just picked a random five-year period.

47:54Brian Preston:I say random. We assume that you worked for five more years and then you retired, right? So from 2031 to 2035, if you did nothing and you had no other income coming in and all of your income was strictly capital income and it was structured in a way that you weren't generating tons of capital gains or tons of dividend income, you're going to have a relatively muted tax bill. It's just not going to be a super large tax burden for you guys. And so if our goal was to then convert at the 22 % bracket, for you guys, that would mean about a$211 ,000 conversion every single year, roughly. Obviously, it changes every year based on your income.

48:29Brian Preston:But the associated tax bill due on that would increase by about$60 ,000, right? So your effective tax rate on that income, because a lot of your income is gonna be capital gains income at 0%, you run through that and then you have 15, you're still not even hitting an effective tax rate of greater than 20%. So it makes tons of sense. What you have to figure out is, when you get to 20, 31, how do you begin paying that tax bill? How do you begin doing that$60 ,000? I'm gonna argue that right now, while you're still earning, if you're a higher income earner and you look at your taxes and there's not a ton of room to convert, I don't know that converting in these years are the years that make the most sense.

49:06Brian Preston:What likely is going to make the most sense is when your earnings drop or in specific down years where you do have low income years. And you begin doing that from now out until age 75 or 73, whatever age your RMDs have to start. Does that make sense? That makes sense. You know how the change in seasons hits and suddenly you just want to declutter the garage,

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51:18Brian Preston:Again, high income, and we get people love Roth. They love Roth. They love Roth. Roth, we always remind them you're likely going to have better opportunities in the future to convert to Roth than these current years if you're a higher tax earner. Now, if you have the thought process that I'm always going to be a high earner or tax rates are going to meaningfully go up within the next one, two, three administrations, then there's an argument even made for that. Maybe you could look at, okay, we're going to earn income at this level and we'll convert up to 24 and we're going to be comfortable with that.

51:47Brian Preston:But if you begin doing that, you have one of two options to satisfy the tax bill. You either have to start saving up cash from your earnings every year to be able to pay the tax bill, or you have to start slowly divesting out of your taxable brokerage assets and begin using those to pay whatever the associated tax bill would be. Also going to be kind of hard to do in a year that you're paying for a bunch of college and in a year that you're building a million dollar house. But to bring it to a simpler form, just to understand is that I think you have to, you guys need to go ahead and start playing the mind game with yourself is, I have to get comfortable that we're going to just have to pay capital gains on some of these after-tax assets because it's going to, I mean, it's the easiest, lowest cost access to capital because it's 15%, you know, on a married couple with y 'all's income.

52:36That's a pretty low bar, if you think from a tax standpoint. You have won a lot of this. You just have to kind of know that's the toll you have to pay to get access to this liquidity. And I think that that's okay because I know y 'all had asked, when we were trading emails, you'd asked about 72T and some other things like that. And those concepts are powerful.

52:58Brian Preston:Did you have a thought process? What were you guys thinking when you brought up 72T?

53:02Mindy Jensen:Just access to the 401k. It's a taxable access, but it's not a penalized access. Right. Because I don't like to pay taxes. I super don't like to pay penalties. Sure. So I don't want to just pull money out of the 401k, But it's a way to generate a little bit of income because we do have that liquidity problem this year. A way to generate income and take money out of the 401k that isn't a Roth conversion. Because the Roth conversion we can't access for five years and we have to pay taxes on that. That's the opposite of helping us with our liquidity problem. But your ordinary income tax rates plus while you're still working, because that's more than likely if you did something like this on Carl's assets because he's retired, you're still working.

53:42it's such a higher barrier, a higher tax rate, whereas these capital gains -

53:47Brian Preston:Ordinate income rates are going to be higher than capital gains rates. Because you're earning money as well, so it's going to run you through the tables, or at least the capital gains. You don't get into the 20 % tax bracket until y 'all's combined income is around$600 ,000. So it would be 15. Now, look, there's the Medicare surcharge and other things. I'm oversimplifying this to a degree, but it is still lowest cost of access to capital. And that's kind of where you have to go through the triage of thought matrix of how am I going to get access to money. That's the easiest area to probably do it.

54:20Brian Preston:Yeah, we talk about – we use the financial order of operations as a mechanism to help you think about how you accumulate. Well, when you begin deaccumulating, you kind of pull money out in the reverse order that you put money in most often. So for most folks, the first money they ever save is the Roth money because they open up a Roth IRA when they're young or whatever. That's probably the last money you want to pull out in deaccumulation. The second money that people start putting in is a 401k. I started maxing out my 401k, getting my employer match. That's probably going to be the second money that you want to pull out in retirement.

54:50Brian Preston:And the last money that most people often put in are the taxable brokerage assets. Once they're at a savings mechanism or have an opportunity to do that, that's the first bucket you want to pull from. And I think that's going to be true for you guys, even though capital gains are present, because capital gains tax rates are going to be lower than whatever your 72T tax rates are going to be. While it does give you access to that, I'm going to argue rather than pulling those assets out early and paying the tax and uncaptivating from this tax incentivized structure, you'd rather use taxable assets, preserve those tax deferred assets that you can then convert to Roth when your income does go lower because you're going to love having those Roth assets later on.

55:29Yeah, that's a good point. And a lot of the stuff I would like to get rid of is in our brokerage account too. So that just makes a lot of sense.

55:36Brian Preston:And it's also not an all or nothing because you guys do not seem like you have anxiety around selling these things. But a lot of folks do. They're like, oh, I can't sell SpaceX now. It's going to do this. Or I can't sell Tesla now. It's going to do this. Whenever there's emotion in a decision, we try to remove emotion as much as we can by adding a system. And for us, the system, even when there's like highly concentrated, highly appreciated positions, is something like a dollar cost divesting strategy. Same way that we would put cash to work. hey, we're going to sell$10 ,000 a quarter, every quarter of this stock, and we're going to do it on an automated basis.

56:10Brian Preston:So that way, whether the stock is going up or down, we're not having to time it to figure out, okay, is now the right time to sell or not the right time to sell? You kind of cover all your bases.

56:20Mindy Jensen:That's interesting that you say it like that. I've never heard dollar cost averaging for the withdrawal as well, but I mean, I talk about the dollar cost averaging into it, like automate it and then you don't have to, like you've made the decision once. That's right. It's the exact same thing. Because people sometimes need to take the emotion out of buying because they're worried that they're buying at the worst time or so forth. This is the exact same thing, just in reverse order. We're taking the emotion out of you guys feeling like when's the best time to sell? Let's do it in a systematic way so now it's not a human.

56:52It's more of an automated process.

56:54Mindy Jensen:Yeah, and we've made the decision to sell one time, and you set it up, and it just happens. That's right. Can you do that? Yeah. Yeah, I think Brian hit on something important a while ago. And to back up a second, we were always like, I had healthy income as a software developer, but we were super cheap and super frugal. So we just minimized our taxes so much. We hardly paid anything because we would max out our self-directed 401k. So my struggle, perhaps my biggest one, and perhaps I need a therapist instead of a CFP is just to get over the pain taxes thing. Exactly. Like I've got a friend who works for Sandisk, and he told me he's got like, he's going to to have a$500 ,000 tax bill.

57:33He's got to write a check to Uncle Sam. And that made it a little bit easier because ours won't be anywhere near that, but it's still a struggle. Like we spent so many years absolutely minimizing that. And now we're going to have to pay up and it's going to be okay.

57:44Brian Preston:Well, I still think you're going to minimize it, right? You're still like, obviously in your highest earning years, if you were trying to do some of this stuff, you might, your capital gains rates might've been 23.8%, right? It would have been there, but you are, you are still paying tax, but you want to pay as little tax as possible in the sense that makes the most sense, right? And you're still going to be able to do that. I'm going to challenge you all from a mindset standpoint is because all the things that have rewarded you in the past, to some degree, you have to rewire or reprogram. You were rewarded for being as minimalistic as possible.

58:17But, and I love that y 'all gave me the notes that y 'all have read the book, Die With Zero. And look, I pick on that because a lot of people, I love the concept, but a lot of people, it makes some assumptions. You have to be high income and you can go grab capital or make capital very easily. And for most Americans, that's just not the case. The ability to turn on and off how much money you make, you guys can. You've already won the game. So I do agree with the Die With Zero for you guys to challenge you is that because you got to think Think about the fact that you have your time, which is diminishing for you guys.

58:54I'm the same age as y 'all, so I understand that.

58:57Brian Preston:I was like, sick burn, bro. I deal with this. Success at this age is unique because you still feel so healthy and so good, but you also know where you are from a chronological. So time is a limited resource. Your energy, how well you can go and do activities and things like that is also, as you found out, as soon as you retire, You're like, holy cow, I don't have time to do work because I'm so busy. And then you've got your wealth. The one that's probably of the three that's the most valuable to you guys is the two that I just mentioned. It's your time and then the energy to go live your best life.

59:34So don't think in terms of maximizing or minimizing the taxes. Maximize life because you've won the game. We still can do it in a strategic way that does it well. But I want you to live your best life. Because I think you'll say on paper you have a die with zero mentality, but when I look at how you're structured, it's more of, hey, what do I keep from paying uncle taxes? And those two don't coexist when you're in the consumption side of your life. I mean, because you are. My favorite clients is because I see it, and I am a therapist in some ways. I'm not licensed, and I'm not trained. It's more of on-the-street training.

1:00:14But it's most people who are really successful, you've been rewarded for being so good with how you allocate capital that when it comes time to actually start, you've been rewarded to build that capital. When it comes time to consume the capital, you lose your mind a little bit because you're just not used to it. You don't know how you feel guilty. You feel weird. And that's what I have to, part of our job is to basically hammer you on why, no, focus on the energy, focus on the time and the diminishing capability you have with that so that you can live your best life.

1:00:48Brian Preston:We get to tell people it's okay to do things that doesn't naturally feel, hey, it's okay to spend money. Hey, it's okay to have a bunch of money in cash. Hey, it's okay to pay taxes when it makes sense to pay taxes, even though that grinds against builders' natural inclination. Well, I mean, y 'all know, because when I was watching, I love personal finance content too. And before we were all doing the podcast and YouTube and stuff, there was Susie Orman out there, you know, on her nightly show. And they would have that segment where people would say, can I do this? And we all loved hearing to go, no!

1:01:20You know, because that's the whole segment was just her killing dreams, you know? And what's funny is that once you do this for a living, you realize my job is actually just the opposite. I think people think a financial planner is going to tell you, no, So we're actually like, please go do this because I'm going to show you statistically why your chance of success is still pegged at 95 plus percent. Let's go do more. You'll just have to free your mind to feel okay with that.

1:01:47Mindy Jensen:That's the problem that we're having. That's the achiever's trap. You've been rewarded for building to consume hurts. And that's why I do like the die with zero mentality for successful people is you have to figure out how you create the balance on that. Yeah. With die with zero, it's more like we want to do experiences with our kids and maybe buy them a house when they're 30. Sure. As opposed to leaving them a giant pile of cash when they're 65. I like 50-year-olds reading that book. I don't like 20 and 30-year-olds reading that book. Because that's the problem is that when you're 20 and 30, you probably more than most Americans anyway.

1:02:29Now, look, I was somewhat miserly in my 20s and 30s. But now I'm looking at my life, I'm like, thank goodness I was kind of miserly because that's where I'm getting the dividends of my money working harder than I do in a lot of aspects. But to tell that to a 20, 30-year-old is probably the wrong message at that stage of life.

1:02:45Brian Preston:And it's even – you know, DiWiziro, one of the things they say is, hey, we want to be able to use the money now. We want to be able to see the money get used now. I want to be able to help our kids. You guys are in a great situation. You have young kids. If you want to start doing some sort of like annual gifting strategy, you can gift up to the annual gift tax limit to each of your daughters. And one of the really efficient things you could do, Brian already alluded to this, is you could gift them appreciated securities. Because whenever you do a gift of an appreciated security, the basis that you have in it carries over.

1:03:14Brian Preston:So you have something that has a very low basis, but a very high price. You gift that. If they were to sell it, they're now going to sell that at their tax rate, not at your tax rate. So if they're not earning a ton of income, if they're not in a high tax bracket, there's a good chance they're going to be able to sell up to that$20 ,000 gift that you give them and not pay any tax on that to be able to liquidate it. Ooh, that's a great tip. Well, especially your college-age daughter who probably can stand on her own more. Because there is some things with kiddie taxes and other things, but for adult children who are more independent and filing their own taxes and stuff, there's some big planning opportunities there.

1:03:53I was just talking to someone this week who has a wealthy relative, and he said, I think this person has multiple kids, three kids. And he said, oh, the kids, I've heard him talk like they're looking forward to this guy's death because then they'll get a lot of money. I don't want anyone to look forward to my death.

1:04:10Brian Preston:I want your kids pulling for it. You want your kids to, man, I hope mom and dad stay around for a while. They sure are nice. I will tell you, there is a curse, though, of success is that you do need to go ahead and start having. And surely y 'all have already been doing it with the girls being the age that they are. I've had to start talking to my daughter about money much because there is something about growing up in a successful family. Now, you guys live a tight lifestyle, but it's pretty obvious that y 'all have a big net worth. thing. You want to start just planting those seeds because you don't want your kids' best life to be while they're under your roof.

1:04:46You still want them to have drive to kind of create. I think there is, look, we both grew up without any money, and I know you both shared. You all come from very humble beginnings as well. So I think we all want to make our kids' lives as easy so they don't have the struggles, but we need to still have enough struggle in there that they get all the fulfillment when you get to go do all the big experiences of life, when you buy your car, your house and stuff. There is something, that hedonic treadmill that I know you've probably talked about that concept before. You always remind people, spread out the good stuff as much as possible.

1:05:23So every time you get that dopamine hit, it's actually as healthy. And that's why you don't start with the Lamborghini or the Mercedes, you know, or even the fancy BMW, you know, or something like that. Or the Roadster. You start with the smaller cars, And then that way as you're going up the train, and it's the same way with vacations. You're hoping your kids – now, I love giving experiences, but you're hoping that they also, as they're going through their own life, have some achievements built in there so they get to live their best version of themselves. We've put some carrots out there. I'm trying to – what's the term?

1:05:56Wag the dog or whatever. I'm like, hey, girls, because we're open with them about money, which neither of our parents were or ever were, which I think – I don't know. I don't agree with that. Anyway, we've been open with money and we've told our girls, hey, you have to make it on your own. We will help you, but you've got to, this help isn't going to come for another decade or two. Like maybe your 30s, but you got to get out there, go get good grades. And then we're rich. You're not. I love it. Our money. I love it. Not your money. Do parental matching though. That's one of the things, probably the best thing I did with my daughter when she was 15 and started babysitting.

1:06:29and then she started working fast food at Chick-fil-A all through high school, was I started priming the pump by doing a dollar-for-dollar match on Roth contributions. And it's been huge. I love it. It's been huge because now, I mean, she's full-time employed out of college, and she's still, like, she's loading up Roth IRAs and doing other things. So the priming of the pump, you know, just like you pour a little gas in the carburetor to get things going, you do the same thing with your kids with parental matching, and it works beautifully because you're modeling that behavior and then they start seeing the power of compounding growth.

1:07:02And it sticks. When you realize your children are hard workers and they understand the value of deferred gratification and investing, man, that is like, it's like parental dividends right there. Heck yeah, it'll take over the world.

1:07:15Mindy Jensen:I will say you have to be very clear with your kids what you're talking about. I had told our youngest just started at Taco Bell like a week ago. Okay. And I told her, yeah, dad and I will match your salary dollar for dollar. And she's like, this is great. And then we were having a conversation a little bit later. I'm like, oh, you think I'm just going to give you double salary? No, no, no. That's not what's happening. You have to put it in your Roth IRA.

1:07:40Brian Preston:Right.

1:07:41Mindy Jensen:Oh.

1:07:41Brian Preston:Oh, I don't get that. I thought I was making double time. She really thought I was just going to give her cash. That's hilarious. But think about the learning experiences on that, because that's deferred learning the concept of putting a little bit away that you just don't get access to, but you get the value of watching it grow and build. So you don't have to work so hard in the future.

1:07:57Mindy Jensen:Yeah. And I understand. I mean, the whole reason I want to do that is she's 16 years old. 60 is a thousand years for her. When she can actually get access to this money, she's like, that's so far away. It is. I hope that you make it to 59 and a half. And I would love for you to have a lot of money in your Roth IRA when you do it. I love that. So that's why we have talked about doing that. Our oldest one actually doesn't have any taxable income right now. So you said something about your daughter was babysitting. Did you do this when she was babysitting too? Yeah. I mean, well, those years, because when you do a neighborhood stuff, you have to file a tax return and report claim that there's not really any taxes due on it, except for self-employment, for Medicare and social security, but you just had to file.

1:08:41So you qualify then for doing the custodial Roth IRAs. Okay. Yeah. It's a great planning thing for anybody who has children who are starting to work, earning money, go ahead and let them know that a portion of that ought to be working for them, going into their army of dollars so that they can get that behavior and that habit. And what I always did, we get the statement. I'll look at it and we look at the change, especially on good months. And I'll be like, you see, you made$300 on that, that what you put in over the, you know, a year ago. And you'd have to work if you're making$10 an hour, that's almost, that's almost, you think about it, that's like two weeks worth of work, part-time work for you.

1:09:18you just made without doing absolutely anything. I mean, and that's, when you start building those connections in the brain, you see the fireworks that are going on. And that's what we all have kind of figured out is that, yes, it's fun to spend money. But what's really cool is when your money can grow so you can spend without having to work.

1:09:36Brian Preston:Any other questions we can answer? Any other things that you guys are curious about that we could speak to?

1:09:39Mindy Jensen:The comment about the long-term capital gains versus 72T income is kind of eye-opening. I know the long-term capital gains tax rates are 0, 15, and 20%, and income tax is more, and it didn't click. I really appreciated that comment. Did you hear that part about selling after-tax stocks? I did. Yeah, capital gains rate is like 98. When does capital gains kick in? Like for a married couple, 98 ,000? Something is around there. Yeah, it's pretty high. Do you have your tax thing? Yeah, I've got it right here. It's the 0 % capital gains married jointly,$96 ,700. This is for 2025, though, probably. Yeah, it's 2020.

1:10:23So we're a year off from an index. They index that stuff. So right under$100 ,000. Right under$100 ,000. Yeah, that's huge. I think people don't appreciate a brokerage account because it's kind of like if you're not a big spender, it's similar to a Roth, but even better because it doesn't have the restrictions as long as you standard that amount. I guess the only other thing we talked about was we'd like to be charitable. We're going to start a donor-advised fund. A lot of those are brilliant. Yeah. We both use those. I mean, I love to nerd out on those things because you feel like it's a win-win.

1:10:53You're giving appreciated assets so the charity gets full access to whatever the market value is. But you get full charitable deduction for it, never pay the capital gains tax on it. So with you guys having huge capital appreciation, you get the huge benefit on that.

1:11:10Brian Preston:And the one thing I would think through is depending on the level at which you want to give, you guys have appreciated holding. So it's going to make sense to use a donor advised fund no matter what. You ought to review how much you think about giving. Some folks, they give an amount every year, but because the standard deduction is so high now, they're not even able to take advantage of the charitable deduction from that. So whenever we review one of our clients' tax returns and we see that going on, we say, hey, instead of you giving to the donor advised fund every single year, let's make a donation every two years.

1:11:40Brian Preston:So if they're given$15 ,000 a year, instead of giving$15 ,000 every year and never taking the deduction because standard deducts so high, we'll give$30 ,000 one year and zero the next year and$30 ,000 one year and zero the next year, allowing them to itemize standard deduct. It allows you to still get the tax deduction, and you can still give the money to your charities on whatever cadence you want to. So they can still go out every single month. Even in that year, you're not contributing. You're basically just bunching those donations. Does that make sense? You're giving throughout the period.

1:12:14So the charities, because they kind of count on your – they know who their givers are, and they start expecting that. So you can still fund it throughout – give distributions throughout that with a donor advised fund. Yeah, that makes a lot of sense. Okay, so we'll do huge gifts and then zero gifts for a couple.

1:12:31Mindy Jensen:Is there any way to get the money out of the 401k into the DAF?

1:12:35Brian Preston:Well, there is. You have to be 70, well, not in the DAF, but when you turn 70 and a half, there is a really, really efficient way that you can start giving. You can do qualified charitable distributions. QCDs. Where you take money out of an IRA or out of a 401k, and rather than it coming to you directly, you can have it go straight to the charity. And if you do that, again, this is after seven and a half, when the money goes to charity, it never shows up on your tax return. So if you give$10 ,000 as a qualified charitable distribution to a charity, it goes from your IRA, from your 401k to the charity, no tax ever.

1:13:08So it doesn't even show up on your tax return. Really, the benefit is, is that that's just less forced income that year. Because, you know, when you get to those required minimum distributions, you know how big that pushes it up. So it lets you meet the, you You get to fund the charity and lower your, not have the taxable income hit your tax return.

1:13:26Brian Preston:So most folks are, who are giving in a tax efficient way, their donor advised fund, donor advised fund, donor advised fund until they hit that age. And then they switch over to qualified charitable distributions.

1:13:37Mindy Jensen:Okay.

1:13:38Brian Preston:You're a little too, y 'all are young. It's nice being called young. You're too young. He calls me old and young in the same episode.

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1:14:02Brian Preston:It declines over time. You've got a 30-year mortgage, a couple of young kids, maybe a spouse mid-career. In 15 years, the mortgage is going to be smaller and the kids are almost launched. So instead of buying one giant 30-year policy you'll overpay for, you stack a few. say a 10-year, a 20-year, and a 30-year layer. So your total coverage steps down as your actual obligations step down. You only pay for what you actually need when you need it. Ethos is a platform that helps you find life insurance 100 % online. You can get a quote in seconds and apply in minutes. There's no medical exam. You just answer a few health questions online.

1:14:32Brian Preston:You can get up to 3 million in coverage. Some policies are as low as$30 a month. That makes building a ladder genuinely fast. Get your free quote at ethos.com slash bpmoney. That's E-T-H-O-S dot com slash bpmoney. Application times may vary and rates may vary.

1:14:48Mindy Jensen:Need a flat fee or hourly financial advisor who actually understands FIRE? Scott and I built a list of FIRE-friendly professionals to help you on your FIRE journey, and we're constantly vetting and adding new pros to the list. Find yours at biggerpocketsmoney.com slash FI Pro. That's biggerpocketsmoney.com slash F-I-P-R-O. So one last question about Roth conversions. Right now, because I'm 53 and he's 52, if we Roth convert, we have to pay the taxes. I thought I heard something about at age 59 and a half, you can Roth convert and then you're not, you can pay the taxes from what you converted? Can I make that up?

1:15:27Brian Preston:You can still, I mean, you can still - the tax from what you converted. No, you can still convert to Roth right now, same as if you were after 59 and a half. What happens after 59 and a half is now your Roth assets come into play if you needed to take distributions from them. You could actually begin using Roth assets if you needed to. Brian calls it your golem precious, you don't ever want to use it. Where we see clients practically do it is in years where you're doing tax planning, something comes up, oh, we had to replace the car. I need to pull out$40 ,000, but man, I really don't want to trigger any more capital gains or I don't want to make a distribution from IRA.

1:16:02Brian Preston:I'll use Roth dollars to do that so that I can still keep in the same tax strata that I'm trying to stay in. And the reason people talk about Roth as the bridge pre-59.5 is because you can always get access to your basis. I mean, your contributions can come out tax free. So that's why everybody's usually talking. 59.5, you know, the key dates, 401ks, if you're still employed, is 55 for if the plan is written right. and then for all IRA and other retirement and so forth, it's 59 and a half for access penalty free.

1:16:33Mindy Jensen:Talk to me about that 55, because we have a self-directed 401k, which is where his SpaceX is. Right. If it's written right and we can get it at 55, that's like three years for him and two years for me. It's kind of squishy though, because don't you have to like close it and be disconnected from the company, in which case you have to close it. Yeah, you're basically, you have had separation from the company at that point, but it's back to, for you guys specifically, It's back to tax rates. You know, you're paying ordinary income tax rates when you pull out that money versus still capital gains.

1:17:04So you could create that as a penalty-free access point. But from an optimization, I don't know if it will be the ideal choice for you guys.

1:17:12Brian Preston:So at 55, if you were separated, you could access your 401K so long as you were employed in the year that you turned 55 and then you stopped. So long as Carl's actively participating until that point, turns 55, and then retires, then he could access it. Much more efficient way, much cleaner way than trying to do 72T distributions because it's not a thing that's fixed in time. You can do it ad hoc. But like you said, you're still paying ordinary income tax rates, which are going to be less attractive than your capital gains rates.

1:17:43Mindy Jensen:Okay. Well, I think we now have a lot of things to talk about. Yeah. One closing thing. We were talking this, we talk about money all the time, including on the walk here. But one thing I think I asked you about yesterday or the day before, I said, do you feel wealthy? What was your answer? No. Yeah. But I think part of the reason we don't feel wealthy is the reason we're here. We've got this, but we're too afraid to. Like the monkey, like grabbing the food, the monkey trap or whatever. You don't want to put your hand in the cookie jar. But it would feel good to actually be able to use some of this stuff.

1:18:13I would say, you know, we harped on it a little bit, but we didn't actually give you the action point on it. I do think y 'all need to boost your cash just because of the college. You got things you can't get away from with the college tuition coming up. Y 'all probably should boost that cash up just so the volatility of – because you'll have to make the tuition payments anyway. The volatility of some of the things that are coming, it's a good time with markets as good as frothy. Frothy is not the right word because I've just been on a train of saying frothy.

1:18:41Brian Preston:The markets are up. They're up right now. So it's a good time so you don't have regrets just in case it turned into a rainy day. You know, it'd be nice to have a little more liquidity. Yeah, I'll put a few little homework items for you guys if you're interested. Absolutely. Homework, item number one, talk about building your cash up. I wrote down the number$500 ,000 only because that's 5 % of$10 million, right? That's not prescriptive. But as you guys think about like an appropriate cash goal to have, as you think about some of this stuff. They about threw up in their mouth. Yeah, as you think about how you're earning and what you're doing with real estate commissions or what you're doing with those sorts of things, rather than going and deploying those dollars, I might consider thinking about building up your cash holdings to the extent that you can.

1:19:26Brian Preston:In doing that, if you do decide to put together some sort of like reverse dollar cost averaging or dollar cost divesting strategy, I would think through your overall allocation. You guys are 100 % equity, 0 % anything else. So perhaps, is there some way to maybe mix in, you know what, we're talking about optimization. Maybe it's not bonds. Maybe it's like municipal bonds, right? That's like a sexy way to say bond without just saying bond, right? So there's some opportunities there. It's less about rate of return, more about risk mitigation. But review your allocation. I do think you guys are at the stage where every single year around October, November, you ought to be doing an end of the year tax projection.

1:20:02Brian Preston:Hey, what's everything we earned this year? What's it all look like? What are all the dividends that have come in, all the capital gains that have come in? How much room do we have in whatever bracket we're in? If we're already in the 24, how much room? Because even if you're doing small Roth conversions, oh, we can only convert$15 ,000, that's still 15 ,000 that you were able to convert in that tax bracket. So it's worth doing the exercise every year to see where you fall. And then I said, talk with your kids about money, which you're already doing. But if you are trying to figure out how can they begin using some of these dollars now or begin having access to these dollars at some point in the near future, are there efficient ways that we could begin doing that even today without them having to wait until we leave this planet.

1:20:41Yeah, and I'll put an exclamation point on that one because we work with a lot of successful families, and that's y 'all are at the tail end of the influence you have on these girls. Please have those conversations now because, look, we have conversations all the time with wealthy families. They're like, I screwed up. I didn't talk about money. I didn't talk about money early enough. So now they have these misunderstandings about money that somebody else placed in their heads. Y 'all have been very successful with how you've allocated your capital. It would behoove you to please pay that forward into your daughters as well, because y 'all understand how money works.

1:21:16Please put it in their head, because if you don't, somebody else will, and it might not be the ideal way to be. Because then when you get spouses and other things, it gets very inefficient. And so this is your moment in time to make good things happen. I laugh because we had that conversation on the way here too, like with the whole prenup thing for, we specify that our kid must have a prenup so they don't have to, but that's all. Yeah. If you talk to our kids, they would say, mom and dad will never stop talking about money. We talk about, I haven't, I haven't pitched you guys, but when you start getting into this stuff, this is the perfect reason why you should have a financial planner is because do you realize how often I'm the bad guy when we talk about prenups and other things is because we're, instead of you, because you have to, you have to, eat Thanksgiving and Christmas with these people.

1:22:03So it's nice if you have a big, bad boogeyman. I don't really want to do this.

1:22:09Brian Preston:Brian said I have to. I've had some adult marriages that we are brought in to kind of, because it's an uncomfortable thing, but we're also, it's a legal protection that needs to be, and we're all about to become one. I mean, we are, if you listen to any of our content, I love joint accounts, but I also think that if you come into marriage with assets, you also have to be smart and realistic on protecting that stuff as well. Man, I've never wanted a CFP more than I do right now. But that's the thing. I think most people don't need a financial planner while you're building, but once you get to close to seven figures, you'll realize no matter how simple you've tried to create your life, it gets complex with success.

1:22:51It really does. And that's when we're there to kind of help with the therapy side of it, as well as the allocation side of it, as well as to be, you know, kind of the guy under the bed, you know, to do the bad stuff that nobody wants to do. I mean, we're kind of the fixer in a lot of those situations as well. I can picture it now. Talk to Uncle Brian about this. That's right. There you go. Talk to Uncle Paul. There you go. It's a true thing. And that's why, you know, y 'all can tell we do this same type of content on Making a Millionaire is because we want people to see behind the curtain because there's so much.

1:23:23I think most people think financial planners are just asset allocators. And that's so – the world has become so commoditized on the investing with index funds and so forth is that if that's what you think a financial planner is, then you're probably missing the boat. So we were like, what better way than to kind of sit down with real couples and let them know, hey, this is actually what a financial planner does for families and help them know how to work with money. It's awesome. Tell me about your book. I saw the rocket. New York Times bestselling book.

1:23:54Mindy Jensen:Yeah, retake that. Tell me about your New York Times bestselling book. That's the thing. I mean, look, I think my high school teachers would be just as shocked to find out that I've written a book. If you saw my SAT scores, I am much more math-minded. But it is. The two books that changed my life when I came out of college was Wealthy Barber and Millionaire Next Door. Because I was a very motivated 22-year-old when I got out of college, but I didn't know how money worked at all. because nobody in my family had ever dealt with it. And I've kind of walked through my journey with how we developed the financial order of operations, put a lot of life stories in there.

1:24:31And I think anybody, if you go look at the Amazon reviews, we hit the mark on it being extremely motivating and helping people know exactly what to do with their next dollar. So we have a very close friend and we've met through the show now because I had to meet him after this guy was buying hundreds of books every year that he gives out to students at Clemson. So we have lots of people who are buying this to give out to graduates and so forth. And so I feel mission accomplished on helping people understand how money works. Super cool. One final comment. I was listening to you all earlier this week, and I heard you mention The Millionaire Next Door.

1:25:03And that was probably the most profound thing I ever read because growing up, you might remember this, you don't, but there was a show called Lifestyles of the Rich and Famous. Oh, yeah. Robin Leach. Robin Leach. Robin Leach. I can't do an accent, but look at this helicopter. and yachts. I'm like, wow, when I was eight, I'm like, whoa, that's how rich people live. That's what rich people do. And then I read that book. I'm like, whoa, I had it all wrong. They're all driving a Ford F-150s according to that book. I'm like, I know Uncle blah, blah, blah, and Uncle blah, blah, blah. They are millionaires, and the people who look like millionaires probably are not.

1:25:34That's right. Well, that's what's funny is we work with all these millionaires, these thousands of millionaires, is that I've asked that question of many of them. Do you feel rich? Most people say no. I mean, because you don't. I mean, because it's back to the understanding that there's a difference between access to capital versus access to cash. And most wealthy people, they don't have cash. Y 'all are the perfect example. You're worth$10 million and have less than 1 % in cash. You know, that's the difference. You know, you've heard that Morgan Housel quote is that most people say they want a million dollars.

1:26:10They really don't want a million dollars. They want to be able to spend a million dollars. And there's a big difference between having capital and wealth versus having just money that you can consume. And that's the big mindset difference we try to help people with. That's huge. Thank you.

1:26:24Mindy Jensen:How do you feel about having$500 ,000 in cash? And what does in cash mean? Because he is never going to have just$500 ,000. $500 ,000 in cash on a$10 million portfolio. Put the context on it.

1:26:34Brian Preston:So high-yield savings account or high-yield money market fund. Like right now, where my cash is, if you hold over$100 ,000 in cash, it's like 3.47%. So it's like 3.5 % yield on that. If you want to get real sophisticated, you can look at treasuries and do some sort of ladder. I mean, you can make it complicated if you want. No, no, don't tell him he can make it complicated. Did you see this? I know he's going to optimize. This is clean up. I know he's going to push my phone. But just readily available liquid cash paying somewhere between 3.5 % to 4 % right now. And it's just kind of sitting there for when you need to pay for things or write checks or when opportunities present themselves.

1:27:12Brian Preston:And it's kind of one of those things like your portfolio is not going to start growing. So even as you use that 500, maybe you have to use 100 of it for tuition, whatever. As you're selling securities over here, you replenish it, right? So it kind of is like this revolving door. We go down a little bit and then come back up and go down a little bit and come back up. And that's okay. That's a life cycle of what your total portfolio allocation should look like.

1:27:32Mindy Jensen:So how does that feel? It feels good now that I talk to Uncle Brian and Uncle Bo. I'm sorry. You're younger than me, so it's a bit awkward. Oh, that's all right. Weird family dynamics. Some people start young. My aunt is younger than my oldest cousin. Okay. Yeah, you're from the South. There's some drama. Tell me you're from the South. Tell me you're from the South. No, there's just a lot of people. Guys, this has been a blast. There's a lot of people. I know this is a bit going for your show too, but we've had a great time creating this content. I really appreciate the time that you took to make all these fun slides and to look at our situation.

1:28:06Mindy Jensen:I mean, obviously, we know that we probably have a little too much money in Elon-controlled companies or a lot too much money in Elon-controlled companies. And the$70 ,000, when I saw this slide, I was like, wow, we really only have$70 ,000 in cash. I mean, that sounds so snotty to say, oh, we only have$70 ,000. But compared to our net worth, that's probably not enough compared to our upcoming known expenses. You have a surrounding error. Seven years of college at least, the next seven years. And I think it's actually less than that because I paid a bill this week. While you're building a house, by the way, which if anybody's ever built a house, it's like your builder is like, yeah, I can do that, but it's going to cost you.

1:28:51Back when I built my last house, it was probably like$3 ,000 to$5 ,000. Now with inflation, it's probably, yeah, for$10 ,000,$15 ,000. So you can make that disappear with four upgrades probably. One of the workers pulled up in a new pickup truck this week. I'm like, wow, that's better than any of our cars. And probably from the last bill I paid. Probably fine. They're great. Finance for the next seven years. If you're listening, you guys do great work, so I'm not throwing you under the table. But yeah, enjoy the pickup truck. The orthodontist also drives a really nice car. We don't drive a nice car.

1:29:24I mean, they're okay. You have a nice car? 35 ,000. It's a Tesla Model Y. Of course it's a Tesla. I figured it was a Tesla.

1:29:31Brian Preston:You didn't have to say that. We all knew. We all knew. It drives itself. I don't drive it. Thanks so much for having us on, though. Thank you. This has been great.

1:29:40Mindy Jensen:Yeah, this was a lot of fun. I really appreciate you guys giving us all this information. And now we have more conversations to have. Good thing we have a flight home to start to discuss. Plus, we're in town this whole weekend, so we're going to talk about it all the time. I can hear my daughters watching this saying, oh, my God, please tell them not to talk to us more about money. Well, yeah, I'm going to do just like I remember when my parents gave me the birds and the bees. They gave me a book instead of actually having to talk. I'm going to give y 'all, before y 'all leave, I'll give you two copies of the book to give to your girls.

1:30:11Oh, that would be awesome. Thank you. That uncomfortable talk can be helped with Uncle Brian's book. Can you please sign them, too? Yes. That's great. Oh, we're going to the Gibson guitar store. I can buy a guitar now. I can buy like a nice Les Paul.

1:30:24Mindy Jensen:Oh, I don't think they said that at all. They alluded to it. $500 ,000. We already have three guitars at home. How many can you play at one time? I don't know. One. We'll find out. That wraps up this episode of the Bigger Pockets Money podcast. I am Mindy Jensen. He's Carl Jensen. They are Bo Hansen and Brian Preston, The Money Guy Show. Check them out on their YouTube channel at The Money Guy Show. And I'm saying see you later, alligator. Finding a financial professional who truly understands financial independence isn't easy. That's why Scott and I created the FI Friendly Professionals List.

1:31:00Mindy Jensen:This is a curated network of CXPs and tax professionals who understand the FI are mindset, early retirement, and wealth building. We're adding more vetted experts all the time. Find someone who speaks your FI language at biggerpocketsmoney.com slash FI Pro. That's biggerpocketsmoney.com slash F-I-P-R-O.