447 | Mailbag: Breaking up with your Advisor, I Bonds, 4% Rule, Accounts for Kids, Roth IRAs | Sean Mullaney

25:34But for most folks where the income is going to be roughly the same every year, it's probably not something you want to do. Yeah. I'm also curious, and I suspect Andy is as well about the current interest rate. I think when many of us, and I know you're not a huge fan of these, but when many of us invested in them in, let's say, 2021, 2022, the rates were pretty significant. They were somewhere in the 8, 9 plus percent range. And at last count, it was 4.3%. So you're now at a point where some online banks, Wealthfront and CIT Bank, they're giving you just in their traditional account basically higher than that at current moment.

26:16So you might have people say, hey, look, these iBonds, they're not really working for me anymore. I want to get out. Now you're in a position where, okay, if it's 4.3 % and like we said, there's that three month interest penalty. Now, presumably you'd have to, I'm not a hundred percent sure. I think it went down in May to that 4.3%. I know May is one of the times where they redo the interest. Yeah, Brett, I'm actually looking at a US Treasury website here and it says series I savings bonds, 4.3 % is the interest rate and it's for bonds issued May 1, 2023 to October 31, 2023. So that 4.3%, I can send you the URL for this particular website.

26:59It's a Treasury website that appears to be the correct rate. So that'll get reset presumably on November 1st. Gotcha. Okay. So then, right, as we're recording this at the end of July, you would have been subject to that 4.3 for essentially May, June, and July. So you're getting real close to the point where, okay, 4.3 % is what would have been applied to the last, the three months prior. So then, okay, do you want to sell these at this point? And then obviously, you know, very specifically what that penalty is going to be. Do you want to roll the dice and see what it's going to move to in November, and maybe it's significantly lower.

27:39And then your penalty, if you would sell it after November, December, January of 24, sometime in, let's say, February, I would be a little more conservative and probably wait until March. Maybe if the interest rate is lower, then that amount that you would have been clawed back as a penalty would be significantly smaller. So there are some considerations here, I guess, Sean, at the margins. But at the end of day, I don't know that I'd necessarily do all these gyrations over what is probably not going to amount to all that much money if, if, if I really wanted my money out of there to move it to somewhere else.

28:13Yeah, look, I'm not here to give investment advice to anyone in the audience, but I'll say this. I think about someone looking for financial independence, right? In most cases, that person is going to want a financial asset portfolio of at least a million dollars, right? Your mileage may vary. The number might be a lot higher. The number might be a lot lower. But let's just say they want a million dollars and you're only able to put$10 ,000 into these things every year. So I step back and I say, well, am I going to get all that interested or excited on something that can only be, say, 1 % of my portfolio and then have some bells and whistles and whatever you want to say about an FDIC online savings account, it's pretty flexible and you have a whole host of institutions and websites you can use.

29:01So I sort of like that flexibility vis-a-vis say an I-bond, which like you're saying, Brad, maybe just isn't as flexible as some of these other arrangements. Yeah. All right. So I think we covered that pretty thoroughly. Why don't we move on? So we have another question that came in from Lisa and And Lisa said, I just heard on one of the podcasts, the formula for financial independence is to take your expenses and multiply by 25. And that's how much you should have. And that's my sidebar is that's the very rough rule of thumb of the 4 % rule. And Lisa went on to say, my question is, where does it take into account what your age or life expectancy is?

29:38Let's say I'm 25 when I'm hitting that versus 65. That makes a significant difference. She's saying, what am I missing? So, all right, Sean, what is she missing, if anything? How would you answer that question of FI, life expectancy versus when you get to that point of financial independence, et cetera? There's a couple of intertwining ideas here, certainly. Well, and your correspondent is absolutely right to be questioning whether the 4 % rule just blanket applies for all ages. And I would say, no, it does not. It's a great initial cut. Now, I would also say there aren't going to be too many 25-year-olds who are ready for financial independence outside of an inheritance, right?

30:17So it's probably not going to be an issue there. So the 4 % rule comes from, I believe it's a Trinity study. I've posted on my blog on this. Basically, it comes from testing that was done in the 1990s around a financial asset portfolio surviving for 30 years. And would it be depleted before the end of the 30 years? And the authors or back then they said, well, if you had a 4 % withdrawal rate, then you had a high likelihood that it would not be depleted within 30 years. Now, if you're 25 years old or even 35 years old, 30 years probably isn't good enough, right? Your life expectancy is almost certainly more than 30 years.

30:58Anything can happen, but anything can happen both directions, right? So I do think, Brad, you started this off with the right cut, which is, look, it's a general rule of thumb. Meaning if we look at everyone who's listening to the Choose a Five podcast this Monday afternoon, the average retirement of that audience might be something like 30 years, right? There are going to be people in that audience who might be in their 70s and they probably don't have 30 more years, right? There are going to be some people in that audience in their 20s. And even if they retire today, it's going to be more than 30 years.

31:32And there are going to be people in their 50s and 60s and 70s where 30 years is a good approximation. So the 4 % rule is just an approximation. And you have to look at, well, how much longer do you have to have, say, downside events? And yeah, if you're 85 years old, would I be constrained by 4 %? Absolutely not. But if I was, say, retiring and I'm 55 years old, I say, well, that might be a good initial cut and I might want to be a little more conservative or maybe a little more aggressive. Now, in theory, most folks invest for return more than 4%. Most people would not be happy with a 4 % annual return.

32:11So in theory, the 4 % rule is setting up a perpetual money-making machine. I invest my portfolio. I'm going for 5%, 6%, 7 % returns. If I only spent 4%, as long as I'm alive, I'm just going to be growing the pie. But we know that's just the theory. And we know that the stock market and even the bond market have declines. And so that's why there's at least some conservatism there by baking in 4%. Yep. Wholeheartedly agree. And I know Carson from early retirement now has talked about this in depth, both here on the show and in his safe withdrawal rate series. So I would definitely say everybody should check that out if you're interested in the real intricacies of this, because there is a lot of nuance, but like you're alluding to, Sean.

32:54It's okay. This is a 4 % rule of thumb. And yeah, there's always different considerations. Like I know I probably personally, I'm a little more conservative when it comes to my money. And if the time comes when I have to start withdrawing, right, I'm earning$0 of income at that point, I probably would shoot for something like what Carson has said is almost like a metaphysical certainty of success. And I'm paraphrasing him. He's not saying those exact backwards, but like 3.25%. And that's not even including Social Security, which I think almost certainly will exist in some significant manner when it comes time for me to get Social Security at that point.

33:33And also, frankly, I'm paying a significant amount every month for health insurance premiums. And I won't be eventually when I'm on Medicare. So all of these things, like I'm assuming essentially in my own world for the most conservative manner possible, and therefore I think there's a really high probability that my money, my nest egg will outlive me at that point. But I'm not diving into every Monte Carlo simulation and trying to figure out the exact, I am using the knowledge that I've gleaned from my own learning and certainly from many of my guests. And I'm pretty confident with that. But like we said, the main goal of, I think of the 4 % rule for the five community is a North star.

34:18And I think that's what's so beautiful about it is it takes this concept, which is nebulous, nebulous at best, or purposely confusing at worst, which is you hear often like, Oh, you're never going to be able to retire. You need 10,$20 million. Think about healthcare, all these horror stories and actually turning it into something that's very specific. Okay. I know what my life costs. I can control that. I multiply that by 25 to get my FI number. And that is my North Star guiding light. You can get into the nuance after that. But as a real quick back of the envelope item, I think that's pretty darn good, Sean.

34:56I agree. I 100 % agree that, yes, we should not be saying, you know what, I can only retire when I have$5 million. Well, why do you believe that? And then let's talk about how much could you take from a portfolio. And then the other thing too, Brad, is consumption, right? Sometimes when we think about failure in the 4 % rule, Michael Kitts has made this point on the BiggerPockets podcast years ago, you're not just going to march off the cliff. Meaning if for whatever reason the financial assets are not doing so well, you are going to make some adjustments to your spending, many of which frankly are not that impactful from a lived experience perspective.

35:29And you're probably not going to march right off the cliff and just have financial failure. Agreed wholeheartedly. All right. Well, that was a fantastic question from Lisa. Sean, let's move on. So this was in our Facebook group. So our Chooseify Facebook group, I don't think I mentioned this on the podcast, but recently passed a major milestone of 100 ,000 members. We're up to almost 102 ,000 members now, which is just remarkable. It is just the most significant community of people pursuing financial independence in the world. And yeah, it's really amazing what goes on in there. So chooseify.com slash Facebook.

36:01We'll redirect to get you there pretty quick. And Janelle asked this question. She said, my children would like to open a Fidelity index fund account for themselves. They are both under 16 years old. What is the best account to start them with? All right. So Sean, I know you don't love best because that's by necessity giving advice. We're not going to answer best, but we'll say, okay, like we talked about before, there are many places to invest. Fidelity, Schwab, Vanguard are the three that come to mind for me. But again, we're kind of agnostic with that. But somebody wants to open an investing account for their kids.

36:34What do they have to consider? What should they do? How would they go about this? Yeah. So the first thing I would think about is mom and dad's own financial security. And where's this money coming from? Right. If it's coming from the grandparents, it's coming from the grandparents. That is what it is. But if it's mom and dad and they haven't yet reached financial independence, I'd actually reevaluate. Right. Because the best thing you could do for your kids financially is solidify your own finances and get yourself to financial independence. So that's item one. For a 16-year-old, sort of an interesting issue there.

37:05There are different options, right? There's UGMA and UTMA. So these are uniform transfers to minors accounts, uniform gifts to minors accounts. You could set those up as taxable brokerage accounts with the particular financial institution. And my understanding is you generally name a guardian on those, right? So the parent is going to be so-called guardian of those accounts. The other thing you could consider, there's no age minimum on a Roth IRA. So maybe the kid works at summer camp or McDonald's or at the mall and they're getting a W-2. And one exercise you could do with your child is, they're 16 years old, they worked at summer camp.

37:45In January, they get a W-2 from that, right? And it says$1 ,800,$2 ,100, whatever it is. You could point out how these rules work. you'd say, hey, junior, you've got 2 ,100 on this W-2. It says you earned$2 ,100. That means we can contribute up to that amount to a Roth IRA in your name. That's absolutely legal. And that sets up tax-free growth for them. And it also shows them the process of retirement saving. So it says, oh, okay, I had an earned income. That translates into this ability to do a Roth IRA, which then translates into tax-free growth. So that would be another option. And Brad, I know you're the dad of two young daughters.

38:25I mean, I think you'd have some very interesting insights on this as well. Yeah, well, I definitely do. And I've kind of built some financial lessons into it, which is actually the fun part. I think for my kids, it's how I consider why I'm teaching them about finances. It's not necessarily to make them wealthy tomorrow. That's not the issue. It's to give them the fundamental building blocks of how to build a financial life. And I think what I've done is, well, we do different things in terms of their allowance, which we have separated into savings, giving, and then spending. And I think spending is important.

39:03And we let them run free with that. But the savings, we essentially make it so they save 50 % of their allowance. And then I actually go through and I sit down with them and I show them, all right, this is in your bank account. We're going to transfer it. They happen to have accounts at Vanguard. We're going to transfer it to Vanguard. We do have a UTMA account for them. And Sean, I do want to ask you some specific nuance because I'm sure somebody is going to have this question of UTMA versus UGMA because I suspect most people, myself included, don't really know that readily off the top of our heads.

39:35So then I show them the money and it transfers and it takes a couple of days. And then we go and log into Vanguard and purchase whatever it may be, VTSAX or VTI. Or my older daughter is now a rollercoaster enthusiast. So she's actually, and I don't necessarily advocate this, but she's been buying Cedar Fair stock, which is her favorite company that owns 11 different amusement parks. So it's fun because she's building lessons into it. We're hopefully going to go to the shareholders meeting and all this thing. So I know this probably wasn't exactly where you're expecting me to go, Sean, but I think that's the fun part of this is you can build lessons into this.

40:11And yeah, every time they get a gift, again, we go through the same process. It gets transferred over, then it gets purchased and they get a sense of, okay, how long does this take? I log in with them, let's say once a year or so to show them the gains that they've earned or potential losses, right? They're unrealized, of course, but I think there's a lot you can do here. So yeah, we have a bank account for them and then this UTMA. But I will be quiet now and let you run with, hey, UTMA versus UGMA. Yeah. So if I were setting up one of those, I would reach out to the relevant financial institution and see how they want to do it, right?

40:45So there are some different nuances between UGMA and UTMA. They're not huge. So I'll give you like one little nickel dime one. Apparently, the states of Vermont and South Carolina do not have one of them. I'm just looking that back up. So apparently Vermont and South Carolina, look, talk to a lawyer in those two states, but apparently they don't allow UTMA. So you'd have to do a UGMA in those states. Now, my understanding is both UGMA accounts and UTMA, and the difference between the T and the G is G is gift and T is transfer. Apparently the big difference is the custody of physical assets, not financial assets.

41:26Both can have financial assets. So what I would do is I'd probably reach out to your relevant financial institution and say, hey, which one do you do? They may only do one or the other. And it's not the sort of thing that would be a deal breaker for me. So if you call XYZ financial institution, hey, we only do UTMAs, as long as you're not in, I guess, Vermont or South Carolina, that's fine, right? I wouldn't be splitting hairs over that. Yeah, that's very helpful. And then just last note on this is you mentioned the Roth IRA. And we have an article, I'll put this in the show notes on choose a buy.com called make your kid a millionaire Roth IRA for kids.

42:05And I know that's a bit of a sensational title. But but I think this can be a really valuable investment vehicle, especially if you can start getting money in there for your kids to compound that whatever it is 1314 15 years old. And I forget the exact number you mentioned in your example for maybe it was$2 ,100 or something. But it's important to note that let's say they did earn. They have earned income in a calendar year of that amount. We'll say my memory is right and we'll say it's$2 ,100. And you want to make a contribution to the Roth IRA. I know this is a subtle distinction, but it's important.

42:37It doesn't have to be those dollars. That's right. Yeah. Money is fungible. Money is fungible. They can spend that money and you could make, if you wanted to give them a gift or show them again for a financial lesson, hey, I'm going to essentially match 100 % or you can do any kind of thing. You could just put in the$2 ,100. But they have the space then because again, they have $2 ,100 of earned income in that calendar year. They can put$2 ,100 into that Roth IRA for that tax year essentially. Yeah. And it would actually be the W-2, whatever you want to say about it, a 16-year-old, 17-year-old, 18-year-old could learn some lessons about personal finance.

43:18They could learn about FICA tax withholding. What the heck is that? And how earned income is reported to you and then how that can support a Roth IRA contribution. So I think it can be a good learning opportunity. And yeah,$2 ,100 going tax-free is not going to be paradigm shifting, right, as they say. But yeah, every little bit counts. And yeah, let that grow 60, 70 years. that could be some real money. Yeah, that could be paradigm shifting there. So, all right, this is great. I think we covered that. Let's, since we've been talking about Roth IRAs, we're going to round out the mailbag here with two different issues with Roth IRAs.

43:54So we're going to start with Jordan, who actually is from the website, The Wealth Letters and real good guy. He sent me this DM on Twitter. He said, I'm wondering if one of your newsletters or podcasts, if you could do a deep dive, if there are times where it makes sense to do Roth IRA conversions before one is retired? I know Roth IRA conversions are usually reserved for when one hits retirement, but if one is already in the middle of a tax bracket, for example, would it make sense to do conversions to reach the top of said bracket? Now, Sean, that's obviously a very specific question, but I guess just more broadly is Roth IRA conversions for people who have more than zero dollars of taxable income, let's say, right?

44:35So they have a normal W-2. Yeah. So the first thing I think about is a concept from a frequent guest of the podcast, Jillian Johns, the mini retirement. So let's just say you're working a W-2 job and you say, you know what, I'm going to take a year off and that begins February 1st. Okay. So you have a month in January where you get that W-2 income, maybe it's 6 ,500, 7 ,500. Well, that's for a contribution. You could do a contribution and a conversion, right? So in those years where maybe you're not fully retired, but you're taking a sabbatical and you have six months, nine months, 11 months where you're essentially not getting a W-2, that could be a time for a Roth conversion, essentially doing an opportunistic Roth conversion.

45:18Some people take nonprofit or government jobs for a short time. That could be a time to do a Roth conversion depending on your circumstances. But the correspondent is really onto something. Generally speaking, especially for those who are very attuned to personal finance, they tend to be at their highest marginal tax brackets during their working years, not their retirement years. That's particularly true later in a career. So if you're doing that Roth conversion, you're doing it at the last, the marginal bracket for both federal and state purposes. So that argues against doing the Roth conversion because in the FI community, we have a reasonable hope.

45:55It's a reasonable hope. It is not a guarantee. But our reasonable hope is that when we retire, we will be in lower tax brackets, both from a marginal perspective and even an effective perspective, i.e. just averaging everything together. We have a reasonable hope that if we get retired somewhat early by conventional standards, we're going to have years where we are going to be in relatively low marginal tax brackets. And that's when the Roth conversion is going to make the most sense. Yep. Agreed wholeheartedly. And so, right. That is probably the traditional FI advice is, yeah, since you can control what you can control.

46:32And if you're at true FI where you're not earning any earned income, then you have a significant amount more space, let's say, at those lowest tax brackets. But at the end of the day, this is your personal decision, right? Right. So we can't know. You said reasonable hope, right? We can't know what future marginal rates are going to be, et cetera. Wherever you are, like Jordan said, okay, I'm in the middle of a tax bracket. Okay. Well, that makes sense. Then if you've judged that you are okay paying that tax, because that is a taxable event, this Roth IRA conversion for that amount. And that makes sense to you based on what you know about the world and what you know about your personal situation.

47:08Okay. Then do it. That's reasonable. Yeah. And let me just add two points to that. One, no one is going to be on their deathbed saying, boy, I converted too early and I didn't optimize. No one is going to have that experience, right? Maybe you convert too early, you don't optimize. It's not the worst thing. The second thing to consider is it's not really the approach I usually take, but I think it is worth mentioning. And it's a valid point, I believe, which is this, pay expenses when we know we can afford to pay them, right? So your correspondent might be saying, you know, look, this is a good year, say, and I'm in the middle of a tax bracket and I know I can afford to pay the tax.

47:49Why not take on to your younger, healthier self an expense that you know you can afford, even if it's not optimized, rather than potentially kicking that can down the road to an older, potentially less healthy self that is not gonna have the ability to generate additional income in the way that you have it today. So there is an argument to be made to pay expenses when we know we can pay them. Yeah, all right, that was great, Sean. I think we thoroughly covered that. So we do have one other aspect of the Roth IRA to close out the mailbag here. And also, I'm glad you mentioned Jillian Johnsrud because I'm actually chatting with her tomorrow and that episode is gonna come out in the next couple of weeks.

48:29So everybody stay tuned. Jillian hasn't been on for a while, so that should be absolutely wonderful. And I guess the last thing here, and no, I don't have a particular question because I think we've both seen this a number of times, which actually made you go out and write an article that is going to be published imminently. I'm not sure if by the time this episode comes out, but there are two different five year, I guess, rules, let's say when it relates to Roth IRAs. And I think there's a lot of confusion when it comes to these two different five years. Can you just illuminate us basically on what these are, how they work, et cetera?

49:06Yeah. So by the way, for the listeners, you can go to my fitaxguy.com blog and the post will be up by the time that certainly the episode drops. So the thesis of my blog post is this, don't worry about those five-year clocks. So sometimes they're referred to as the five-year clock. Sometimes they're referred to as the five-year rules. You use the nomenclature you're comfortable with. People get a little bent out of shape. And I will say this, I've recently seen some content creation in the financial media space that has gotten them wrong. So look, we all make mistakes, right? These things are confusing, but I will say one, they are rarely applicable, right?

49:45So just remember that the way the rules work, the odds that you would trip one of these clocks are low, not non-existent, but low. So let's go over the two five-year rules. The first five-year rule is a rule about Roth IRA earnings. It says you have to have owned any Roth IRA for at least five years before you could take a tax-free withdrawal of earnings inside a Roth IRA. Okay. Let's think about that for a second. Well, one, most people contributing to a Roth IRA aren't even going to want to touch that Roth IRA in terms of distributions out for way more than five years. Two, that rule tends to have no effect.

50:20Here's the reason why. The rules say you can only get earnings tax-free if you're both 59 and a half or older and you meet this five-year clock. So I go through some examples where I say, look, so-and-so is 25 years old. They take out at 28 years old. Their result is the exact same if they're 25 years old, contribute and take out at 35 years old. The 59 and a half-year rule tends to be the rule. This five-year rule tends to be just sort of this useless add-on. It has no impact because you're not 59 and a half anyway. Then third, contributions come out before earnings come out. So quick example for you, Brad, I'm under 50 years old and make a$6 ,500 Roth IRA contribution.

50:59It's the only contribution I ever make. Two years from now, I take out say 3 ,000 of the 6 ,500 in growth. It's all a return of contributions, right? That's the ordering rule. So that rule tends to... The only time it bites is if you're over 59 and a half, ironically, and even that's a rare fact pattern. So that rule is almost superfluous, even though people get all bent out of shape over it. Yeah, they certainly do get bent out of shape. And just one quick note, which you kind of alluded to in there is Roth IRA contributions can be withdrawn tax and penalty free at any age, at any time, for any reason.

51:38So that's the critical, critical piece. So that's further, there, even though you said it's superfluous and yada, yada, yada. In most cases, most people aren't going to make withdrawals from these things anyway. And if they are, it's going to be up to those contributions. So this is moot on so many levels in all likelihood. Yeah. And not only can Roth contributions come out anytime, any reason, tax and penalty free, they come out first, the ordering rule, right? That's what's really protecting us here. Plus the issue of this 59 and a half thing, which punishes you if you ever did access earnings.

52:10It doesn't matter if you meet the five-year rule. If you're under 59, there's two very rare exceptions. My blog post goes through them, but those are very rare exceptions. So pretty much the 59 and a half rule is the rule that sort of governs this one. Got it. All right. So fitaxguy.com, the article will be on there, but there's the other important five-year clock. Yeah. And this clock does have more effect. Even this clock though has a very minimal effect, but it has more effect. It's a more important rule. This rule says, if and only if you're under age 59 and a half, you take a distribution from a Roth IRA that is attributable to a previously taxable Roth conversion.

52:51Within five years of having made that conversion, you have to pay the 10 % penalty. It's not an income tax, right? So you don't pay income tax on the withdrawal of that conversion. You pay the 10 % penalty if and only if two things are true. You're under age 59 and a half, and it's been less than five years since that conversion. So this rule matters, but those ordering rules we alluded to, they save you here most of the time. Why? Because regular annual contributions come out first before you'd ever access any of these taxable conversions. And not only that, taxable conversions come out second and they come out FIFO.

53:28That's a terrible accounting term. Sorry to have introduced it to the audience. First in, first out. So say you've done Roth conversions in each year from say 2010 through 2020. If you ran out of withdrawal space from your old annual contributions, you would start withdrawing your old conversion starting in 2010. That conversion comes out first. Then the 2011 conversion comes out, the 2012. So the oldest conversions come out first, making it that much less likely you would access a younger than five-year-old conversion. But if you do before age 59 and a half, you will pay the 10 % early withdrawal penalty.

54:07Okay. That'll make sense. And so the Roth IRA conversion ladder is something that we've talked about on the podcast a couple of times. It's outside of the scope of what we're doing today, but for anybody interested, go back way into the archives. We'll have a link in the show notes for both of these, but it's episode 17 R and 163 R. We used to do these roundup episodes that were appended with R. So 17R, 163R. We talked through a couple different case studies. That's really important. And Sean, my final question actually is about that 59 and a half and the five-year, the implication of that. So let's say you made a Roth IRA conversion when you were 57.

54:48Yes. Right now, theoretically, under normal circumstances, if you were much younger, you wouldn't be able to access that until you were five years later, So 62, but 59 and a half comes in the intervening time. Ordering rules, what happens? And Brad, am I assuming that this is the only contribution of any type that anybody's ever made to a Roth IRA? So they start at 57. Sure, sure. Yep. Just to make it easy, streamline it. Yep. Let's say it's the 57th birthday. So it's sort of an interesting fact pattern. I'm glad you raised that. That's a really good fact pattern. So for the next two and a half years, a withdrawal of the contribution itself, which would come out first, that conversion itself is subject to the 10 % early withdrawal penalty.

55:29So that's one problem they have. That's the second five-year rule. So they have a two and a half year handcuff on the withdrawal of the conversion itself, right? So that's one thing they're subject to. They're subject to something else. If in the next five years, so through age 62, through the 60, we'd have to look at the tax years when it happens to the tax year. So it's not actually the 62nd birthday, but basically for the next five years, they're also subject to the first five-year rule on the earnings only. So if they withdraw all the contributions, you have to assess that against the 2.5 years on the early withdrawal penalty.

56:07But if they get past that, they could maybe now withdraw all the conversion amount. If they dip into earnings prior to the passing of the fifth tax year, then they're going to to be subject on the earnings only to income tax, not the penalty, unless they're before 59 and a half, then they're subject to the penalty as well. But they would be subject to the income tax through the end of the fifth taxable year, even though that takes them beyond 59 and a half. 59 and a half matters for a qualified distribution. People think about with the early draw penalty, it has this little nuance here just on the earnings piece, where yeah, you could be over 59 and a half and still pay an income tax on a distribution from a Roth IRA because you don't meet the five-year holding period.

56:51That's the first rule. Again, though, Brad, you came up with a very unique fact pattern to trigger us where we have to worry about these rules. Most people start contributing in their 20s and 30s and 40s, build up runway in terms of old contributions, and pretty much never have to worry about these rules. Yep. Wholeheartedly agree. Of course, my fact pattern muddled it a little bit here at the end, But you gave a lovely, crisp answer to that. And there's some nuance, but the nuance is important. So if for the person out there who that's relevant to, they just got their answer, which is great. So, Sean, this has been phenomenal.

57:25I think we covered everything we set out to cover in the mailbag. And I'd certainly love to do multiple of these in the future with you if you're up for it. And yeah, thanks for being here. Brad, thanks so much. We'd love to come back anytime. Awesome. So, Sean, obviously, we said fitaxguy.com. and we have this amazing Roth IRA article. Anywhere else you want to direct people to? Yeah, you can follow me on Twitter, LinkedIn, and my financial planning firm website is millenniefinancial.com. Awesome. All right, Sean, until next time, thanks again. Thank you, Brad. Thank you for listening to today's show and for being part of the Chooseify community.

57:59If you haven't already, the best ways to get involved are first, subscribe to the podcast. So you're listening to this on a podcast player, just hit subscribe, and then subscribe to my weekly newsletter. I actually sit down every Monday and write this by hand, and I send it out Tuesday morning. So just head over to choosefi.com slash subscribe, and it's really, really easy to get on the newsletter list right there, and I would greatly appreciate it. It's the best way to get in touch with me. You can actually just hit reply to any of those emails, and it comes directly to my inbox. So that's the way that I keep a pulse of the community and how we keep this the ultimate crowdsourced personal finance show.

58:38And finally, if you're looking to join an in real life community, we have choose a buy local groups in 300 plus cities all around the world. So head to choose a buy.com slash local, and you'll find a list of all of those cities in 20 plus countries all across the world. and if you're just getting started with FI or you have a family member or a friend who you think would be interested, two easy ways. Choose a FI episode 100 is kind of our welcome to the FI community and even though it's a couple years old at this point, it still stands up and it's a really great just starting point to get an understanding of what is financial independence?

59:14What are we doing here? Why are we looking to live a more intentional life where we save money and use it as a springboard to live a better life? And then Choose a Vi created a Financial Independence 101 course that's entirely free. Just head to choosefi.com slash fi101. And again, thanks for listening.