Has the Stock Market Hit the Top? | Ask Money Guy

20:32Brian Preston:It's likely going to happen along your journey in the FU, but it's not like it's a specific step. But I do like the guidance that if you don't have your deductibles covered, homeownership might not be the thing that you need to be thinking about. If you have tons of high interest debt and credit card debt and stuff working against you, you might not be ready for homeownership. But once you get into step four, once you begin building up that emergency fund, I do think that's an indicator that maybe now you are at the place where you can start entertaining it. Now, does that mean that you have to do all step four for the home?

21:04Brian Preston:Well, you'll have to decide that based on your goals. But I do think that's an indicator of at least where you can start entertaining. And Brian already said this. If you go to moneyguide.com slash resources, we have tons of tools out there. We have home buying checklist. We have home buying calculator. We have a hub where you can learn about everything home. Make sure that you check that out if you've not done that. And kudos to you guys for making a pretty exciting life decision to buy your first home. Well, and Kenzie shared that they're, because we followed up and they said they're 31 and 33.

21:34And I think it's interesting. When you go, Kenzie, out to moneyguy.com slash resource, we have a home buying checklist. One of the key things I always remind people, a housing decision because of how expensive the transaction, all the attorneys and the fees and all the recording and so forth, you need to be in this house for five to seven years and really lean probably closer to seven where the price points are on housing right now. but don't skip out on that step because I know it's a very emotional thing to want to buy your first home. I just want to make sure that the emotions line up with the analytics of what you truly can afford.

22:08That's why we've tried to give you great resources so you can go through the hubs, the checklist and everything that we've created on moneyguy.com so that you can live your best life. Yeah, definitely check out moneyguy.com slash resources. So many home buying tools and articles and information for you to check out there as you continue thinking through this exciting decision. And Kenzie, if you would like a MoneyGuy Tumblr, since we answered your question on the show today, just email winner at moneyguy.com and we'd love to send you one. Next question is from Megoforan. I think it's Megan with an O4 in it.

22:42It says, I'm leaving to a new job, but also have a new side gig. Is there ever a reason to put my old 401k into the new employer plan over a solo 401k that I control?

22:57Brian Preston:yeah i'm leaving a new job but also have a new side because there ever reason to put my old 401k into the new plan over a solo 401k that i mean there's a lot in there let me start at the beginning megan um might not even be able to open i guess because they have a side gig you could do a solo that's what you're saying hey i've got i've got these two options i got a side gig i got a solo but i've also got a new job and i've got a new 401k there's a lot how do i define the best place to put them. So let's start at the beginning. I want you to go to moneyguide.com slash resources. And we have a resource for you that says, what do I do with an old 401k?

23:29Brian Preston:What do I do with an old employer? It's like a decision matrix too. Yeah. There's really four things that you can do, but there's not exactly four. There's really three because this fourth one, which is cash it out and spend the money is never a good option. So you only have three things. You can leave it where it is. You can roll it into a new employer-sponsored plan, or you could roll it into an IRA rollover. Well, you've already said, hey, I'm going to roll my old 401k into a new 401k, either my new job 401k or a solo 401k that I have. Well, what are the benefits of each? Well, one of the benefits of a solo 401k is you get to pick the custodian that you hold it in.

24:06Brian Preston:You get to choose the investment options that you invest in, and you get to control costs that are borne by the plan. So those are all three net positives. Assuming you're someone who knows how to pick a good custodian and knows how to pick decent investments or use target retirement and plan, and assuming, and this third one is unique, one of the reasons why you may choose to not roll the old 401k into your solo is that solo 401ks are beautiful because all you got to do is fill out an account application at a major custodian, open them up, no reporting, none of that stuff. Until the assets inside the solo 401k cross over$250 ,000.

24:47Brian Preston:Once you have more than$250 ,000 in the solo 401k, now you're on the hook to file a 5 ,500 every single year. There's no tax due, no tax associated, but it is a filing that you have to make. And if you don't make it, the penalties and the ramifications are intense. You do not want to get that nasty IRS letter. So if you're not someone who's super organized and knows how to put a reminder to fill out the tax form and send it in, it could be justifiable to roll the old 401k into your new employer 401k, assuming it has good low cost options, it's not super expensive, and it's one less thing for you to have to think about.

25:26You know, as we're sitting here talking about this, Bo, I just had a realization. I love solo 401ks, but in a lot of ways, because of the way the government has designed these things, they feel a little bit like 0 % financing at furniture stores. And here's what I mean by that.

25:42Brian Preston:I want to know how this analogy comes. Here's what I mean by that. It's because the government has done a really powerful thing by they let us set up this super powerful tool of 401ks with no reporting, because that's the problem is all the reporting requirements, all the compliance and those things. And they're saying, hey, we're going to let you get out of all of that stuff so you can use this powerful tool. But right as it reaches kind of critical mass and starts growing upon itself, we're going to set an uh-oh with this annual filing requirement. That's not hard, but it's definitely something that will slip your mind.

26:15And we've seen a lot of people that set up these plans so they can do backdoor Roth conversions and other things. and then we tell them, hey, you realize the penalty is substantial if you don't file these 5500s. And you realize it's almost like a little bit of a mini gotcha that was set up, and that ought to be addressed. The government ought to kind of look at this because it's been many years that these solo 401ks were set up, and I'm sure in the beginning they were like, well, nobody can put in$250 ,000. But you know what happens with compounding interest and consistent contributions? It turns into$250 ,000 really quick.

26:49Or rollovers, yeah. And bringing in rollovers. I wish the government would address that in the long term so we're not creating behavioral gotchas on such positive tools for people to build wealth in the long term.

27:03Brian Preston:Another thing, and this is just super annoying since we're on a soapbox, I'm going to go here. Filing the 5 ,500 has gotten a little bit more complicated. Now, you know, used to, you could fill out the form, mail it in. I've had like a number of clients that they did that, filled out the form, signed it, mailed it in. IRS never received it. They got the nasty IRS letter. Fortunately, we have the documentation to be able to say, no, no, no, this was done. Here's the form, whatever. They now want you to go into their eFAST2 filing system and set up a username and set up an account so that you can do it that way to file Solos.

27:33Brian Preston:It's just getting a little more onerous. That's the right word, right? A little more difficult, a little more arduous from a logistics standpoint. So just know what you're getting into if you're someone who's going to have over$250 ,000 in that Solo 401k. The only thing that I felt like we didn't give enough emphasis to is that she's saying without a doubt she's going to roll it out of her old employer plan. I'd want to know more about that because if your current employer has a great 401k, say you left a big company or a company that was just really smartly set up, and it's index funds, it's low cost, it's one of the bigger providers.

28:10Brian Preston:Maybe a brokerage link option or a PCRA. Why would you move it? So don't skip out on the resource we have at moneyguy.com slash resources because you might not want to move it if you're in a really good plan because guess what happens once that account was over$500 ,000, so you take away their ability. They can't just automatically distribute. They can't kick you out. Then now all of a sudden they're paying the ongoing costs and they're doing everything. And yes, if you still set up a solo 401k for that side gig money, you're going to have many, many years before you run in to trip the whole 5500.

28:43gotcha that's sitting out there. So don't just assume you have to go to the new plan. A lot of people, I think sometimes they sleep on that. And that's why that decision matrix we've set up for you can be so powerful.

28:54Brian Preston:One other thing for you to keep in mind, if you do have a solo 401k, but you also have a day job 401k, remember you only get one bite at the salary deferral apple. You can only go up to$24 ,500 across all of your 401k plan. So if you happen to be maxing out your day job, not your side gig 401k, you can't go do 24-5 and the solo. The only thing you can fund to the solo would be profit sharing based on the amount of income that you show in the side gig. So make sure that you don't run a foul and double dip on those salary deferrals. Meg is quickly realizing this is when your awesome financial life starts off so simple, but all of a sudden things like this start happening and your life gets a lot more complex.

29:39and I love because this is just like another Tuesday. I mean, I love kind of going through these things. But if you're in this situation, yes, you can go download the resource, but this is large sums of money. And that's why I don't know how old, did Meg say how old she was? She did not. I bet she graduated in 04. If she was in her 40s or 50s, these accounts can be large at that point. And we've done this hundreds, thousands of times if you take the firm as a whole. If it gets too complex to you, we'll leave the porch light on for you.

30:12Brian Preston:You see, here's what I was thinking, Ruby. She could have been born in 04. But if she was born in 04, that would make her 22 years old. Likely, she's already got a side gig. She's already on to her second job, had multiple 401Ks. It seems aggressive. So that's what I'm like. 04 is probably not her birth year, but I bet it's her high school graduation year. That would mean high school or high school. I would think high school. When we make usernames, we usually use our high school graduation date. So that makes them 37 years old probably. She's about 40, somewhere around there. 37 to 38 years old probably.

30:46Brian Preston:Somewhere around there. Oh, man. Look at us. I felt like we just did the Tom Cruise and the firm scene where we just guessed the salary without knowing anything. Yeah, we truly don't know. What's so funny is I looked around and no one gets that reference. But we do really appreciate the question. I bet our audience does. There's a lot of people like me in the audience. Our audience does. They get it. We have some people here who have seen it. You represent the Young Bucks. I represent the Xers. Hold on. I represent the Young Bucks? I get to be the Young Buck representative? Okay. Reby does. Okay.

31:15Brian Preston:Well, there. Wow. Okay. Thanks. I wasn't expecting me to be that person either. Well, Megan04, however you want to say it. We really did appreciate your question. Just email winner at moneyguy.com if you would like a Money Guy Tumblr. John W. is up next. I'm 37 with 100k invested and a 230k income. I save about 35 % trying to catch up. Every time my pay goes up, it seems like my milestone goals run away faster than I can save. How should I combat this? Oh, we've got something for you. Yeah, I figured you would. Here's what I want to, so, all right, 37 years old, you have$100 ,000 invested. It does seem like potentially you're a little bit behind, right?

32:03Brian Preston:We say that by the time you hit 30, you want to have one time your annual income. By the time you hit 40... What if his income was 85 ,000 last year? Well, it's interesting that it went from 85 to 230. I was going there. I was getting there. I was on a journey, right? You know what you did? You just jumped onto the path. And I'm like, I was trying to do a tour guided thing and you jumped out and you swerved around it and kept going. So here we go. By the time you get to 40, we want you to have three times your annual income saved up and invested. What's unclear at this point is what your income trajectory has been like.

32:36Brian Preston:Because we have a lot of folks, a lot of clients, a lot of audience members where their income has big jumps year over year. Maybe you're someone who had$85 ,000 income last year and now you're making$230 ,000. In order to rightly assess what your savings rate has been, it's okay if you want to smooth the last couple years, maybe the last three years, maybe the last five years to come with like an average income to kind of assess where you are. But if your lifestyle is also increasing at the pace that your income is increasing, then you should feel a little bit of pain, a little bit of pressure that your savings also should try to catch up because the bigger your lifestyle gets, the more your money is going to have to replace when you get of financial independence.

33:20Brian Preston:So I think it's okay for you to feel that pressure to catch up as you have higher income. But the great thing about higher income is it gives you the ability to be able to get those 35, 40, 45 % savings rates. Yeah. I mean, what I like of making it prescriptive is use the last three years of income. That's going to kind of smooth out how your trajectory is going with your income. And I did an example. And that was, I took$80 ,000,$85 ,000. and then I did your 230. And if you'd have done that, I think it came up to be right around 131 ,000. So you're not that far behind. No, but you are because you're closer to 40 than you are to 30.

34:02So I think you're still going to find out, John, is that you should feel the pressure, but the solution to your problem of rapidly rising income is that you can smooth it out with a three-year average, but that's still going to spot check you into saying, yeah, I'm still behind. and that's a good thing that you are so upwardly mobile with your income is because I'm hoping that that motivates you a bigger portion of that. I mean, we're about to record a show. I know the show we're recording after this live stream. We talk about people who get a later start. You have to go beyond 25%. I mean, it's just the reality of the situation is because, John, with a salary of$230 ,000 and having$100 ,000 saved up, there's a gap somewhere between 20 to 37 that you know you weren't doing what you were supposed to.

34:48So it makes sense from a behavioral standpoint is that we have to do corrective actions now.

34:53Brian Preston:Yeah, I think a really cool thing to do to go check out is go check out our deliverable moneyguy.com slash resources. How much should you save? And you can go look at, we don't have the age 37 on there, but you can kind of look at 35 and 40 and see based on those savings rates, and this is assuming that you were starting at zero, how much of your income would you be able to replace based on those savings rates? It's just a great thing to go check out. It's okay, yeah, maybe I need to – and here's what's great about being 37. Do you realize if you do a lot of really hard work, a lot of really hard saving from 37 to 47, it would not be difficult to go from being behind to actually being ahead of the curve because you still have so much power behind your dollars.

35:37Brian Preston:$37 is not old. Your dollars still have a lot of juice in there. So if you can get serious about it, you can make up for lost time. That was good stuff. John W., thank you for the question. You did have a lot to offer, and I hope that that helps you think through that. If you would like a MoneyGuy Tumblr, just email winner at moneyguy.com. Next one is another Foo question for you. We're good at Foo. I know. Oh, I know. Tyler M. says you advise people to follow the financial order of operations. But what happens when someone like myself doesn't have access to a 401k or an HSA or any other benefits at work?

36:20Nonprofit life, he says. What do you think? Now, usually not-for-profits have 403Bs. I will let Bo give some details. But, Tyler, there might be some lobbying you can do at your employer to consider adding, you know, 4-3B, 457s, or even 401k.

36:39Brian Preston:It depends on how well-funded the nonprofit is. Some are super lean, and they don't have personnel to be able to do the logistics. Like, HR can't handle the additional responsibility. Or even just setting one up, because they're really low-cost providers where you can implement a 4-3B plan at an annual cost of somewhere between$1 ,500 to$2 ,000 a year. So it's not incredibly expensive. So if there's a staff that could benefit, I agree, you could go lobby to have that in there. But let's assume that's not the case. A lot of people think, okay, well, I don't have an HSA and I don't have a 401k. I guess I just can't build the financial independence.

37:11Brian Preston:No, that's not the case at all. What you do is you continue to work through the food. Will you hold the thing up for me? You continue to work through the steps. I've got so much going on over here. Do I have access to an employer-sponsored retirement plan? If the answer is no, I don't need to worry about employer match, I can go right through two. Okay, I've got no high interest debt. I can check that off. I go to emergency reserves, step four. I got a fully funded emergency. Great, check that off. I go to five. All right, I don't have an HSA. I don't have a high deductible plan. Okay, I can't do that.

37:37Brian Preston:But you know what you can do? I can do Roth. I can do up to$7 ,500 this year into a Roth. If I'm married, my spouse can also do$7 ,500 into a Roth. Okay, I get through that. Then I go to employer sponsor plan. Okay, I don't have one of those. Okay, no big deal. the next place that I'm likely going to start saving once I've maxed out those Roth IRAs is just a regular after-tax brokerage account. There's nothing wrong with that. It might not be an HSA or might not be a 401k, but you can still do some very exciting saving in there. And there are tax benefits or just slightly different tax benefits than what you get with a 401k.

38:16Yeah. I mean, the capital gains is still taxed at a lower rate. The dividends are tax at a lower rate. And look, it has all the benefits of that. You still get to use this money. Now there's just no early withdrawal penalty. There's no annual contribution limit. There's a lot going for the after-tax brokerage account. It's just that we usually, we lean on the Roth, we lean on the employer plan because we like free money. We like tax-free growth and we like all the other tax favorite things. But that doesn't mean that you're left high and dry with no option. There's still a lot of opportunity to let your money work harder than you can with your back, your brain, and your hands.

38:52Your army of dollars is still powerful even in a taxable brokerage account. Love that. Tyler M., if you would like a MoneyGuy Tumblr, just email winner at moneyguy.com. Thanks for asking your question on the show today.

39:03Brian Preston:Can I tell you something that's going to make you so proud? Yeah. Somebody asked a question because they saw you pull out your calculator and smoke started rising up as you were knocking it out. And I guess you stuck your tongue out and someone was like, does Brian, man, is he like Michael Jordan? Whenever he's in the moment, games on the tongue, cranking the numbers. And I was like, what a dynamite comparison. I don't realize, because even our most recent Making a Millionaire that dropped yesterday, I guess, and I've been told by my wife, I've been told by friends, I chew on my tongue a lot. Really?

39:36Yeah, I mean, I just, my tongue, I don't, who knows what's going on there, but it's,

39:42Brian Preston:I just assumed it was like MJ going for the dog. He obviously has the same. I love the comparison. It's good to know other high-performing people have issues where they're doing behaviors that they have no clue that they're doing, especially in front of the public eye. Less than ideal to know. I mean, I guess there's worse ticks that I could have. I didn't think it was a tick. I thought it was a point of problem. I'm sitting here thinking, man, can I manufacture sticking out my tongue when I'm getting a spreadsheet or something? Yeah, so I don't know what to say. You know, I'll tell you, the Preston household, because here's a little secret about my household.

40:16I guess we just have tongue issues because my younger brother, everybody remembers Gene Simmons from Kiss could make his tongue stick way out. And the reason, if you don't know why Gene Simmons can do that, is that that little piece of skin that holds your tongue down, some people don't have that. My younger brother didn't have that either. Really? It was crazy. So I guess the whole Preston household just has tongue issues growing up. We've covered a lot. Did you have that on your bingo card? No. Was that on there? My poor brother. Unfortunately, I don't think he watches our show.

40:53Brian Preston:Oh, that's hilarious. If his coworkers, they went, hey, let me see you do the tongue trick. Do the thing. That's hilarious. Oh, man. All right, one another question? I wonder, you know, here's what I'd want to know. Did Gene Simmons not have that thing or did he have it cut? Surely he was born that way, right? Like you wouldn't have an elective. I don't know. Have you ever been to a Kiss concert? You won't believe this. I have not. I have. Have you really? Yeah, I've been to a Kiss concert. I've been to, by the way, and before I went to the Kiss concert, I went to, because I realized Kiss is a little bit older.

41:26Uh-huh. I went to, back when I was in college at UGA, at Georgia Theater, probably every three months the Kiss cover band Strutter would come around. I didn't miss a show. I bet I saw six shows in college.

41:40Brian Preston:Hold up, but have you actually gone to a real Kiss concert? Yeah, I've actually been to a real Kiss concert. They came back around, and it was really, it's kind of crazy, because you got Gene Simmons with the blood and all the other stuff coming out, and then two songs later, they got a bunch of soldiers up on stage, and they're like, thank you for your service, and being all super patriotic, and it was just, it was a great concert, but it was just so odd, some of the things that were going, it was a spectacle, and then all of a sudden it was like, okay, now let's fire up and play God Bless America.

42:11Who sings all the songs that they roll out all the time at all the fireworks show? Who sings all the songs? If you go to Lee Greenwood, it was almost like we went from a Kiss concert to a Lee Greenwood concert all in the same show.

42:31Brian Preston:Back then, did you paint up for the Kiss concert? Did you do the whole face paint and all that stuff? No, no. But another little side nugget about Kiss. my first this is how if you want to know because i was just we had somebody come through and do a studio tour and i found out they were from panama city okay and i had i had the confession that i actually got to go to panama city both my junior and senior year of high school not how insane is that i grew up feral and um another proof that i grew up feral is the fact that my first album ever and i had the 33 was the kiss dynasty album is that right and i remember my my buddy dusty because we turned our 33s into tapes back in the day.

43:10That's how you traded. And he gave me Prince Purple Rain, which, by the way, and I gave him Kiss Dynasty. And his parents called my parents because they were like, you realize that's devil music that you've got your son. And meanwhile, I fast forward as an adult now looking back on the Purple Rain. There's some dirty, dirty tracks on that Prince album. But somehow Prince was okay, but Kiss was bad. back in my childhood. He's been thinking about this.

43:39Brian Preston:This has been ruminating. Oh, that's amazing. Anybody my age, y 'all were like, yeah. That's just so, because the rumor was, that's what's so funny also about Kiss now being like super patriotic. There's a lot of people just nodding at their computer screen right now. It's because, you know, when I was, and by the way, the Dynasty album, not their best work. That was their disco album, if you didn't know. So it was kind of interesting. Everything you said was like some, you know, set in the 80s coming of age movie story. No, that was, I grew up through all these things that you watch on Stranger Things and stuff.

44:16That was my childhood. And I was feral. I mean, you know, parents, you leave in the morning and then you don't come home until dark. And literally, my buddy Michael, I think his mom had a bell on the back porch because you could hear it around the neighborhood. Like a cowbell? It was time to come home because we'd be somewhere in the neighborhood and they had to get dinner or whatever else. I grew up in all those. We drank out of the garden hose because at Michael's house, Michael and Linda's house, you couldn't go. I only saw the inside of their house. I grew up with these people from the time I was five years old until I graduated high school.

44:53I only saw the inside of their house three times when they invited me over for dinner.

44:58Brian Preston:Because you couldn't go in the house. We couldn't go in the house during the day. that was legit back in the day you were not allowed to go in the house it must have been so easy to be a parent back in the 70s and 80s I mean you just get the heck out don't call your friends until 10am that was the other rule and then as soon as 10am you call your friends you say hey we're going to go meet up and then you go and you disappear for the entire day literally at least 3-4 times a week my house gets trashed from like all the kids coming over the no kids in the house rule sounds wonderful. I don't think that's going to fly.

45:34Brian Preston:The problem is the technology. Now you can see where your kids are at all times. It's got to feel different than when my parents, when I went down to Panama City in my junior year, I don't have a cell phone. I didn't have a cell phone back then. You literally are gone until you're coming back. That's wild. You just call and check in? Go to payphone and check in with them? Yeah. Back then, if y 'all remember, there was 1-800 numbers you could call, and for every 30-second ad you'd listen to on the, I can't remember the website or the thing you'd call. You'd call this 1-800 number. You'd listen to ads.

46:07For every 30 seconds you'd listen to, they'd give you two minutes of talk time. Really? So I even had a hack. This is how I knew I was good with money. I had a way that I could do pay phones for free back then because I'd listen to ads for a few minutes, get talk time, and then call and do what I needed to do.

46:21Brian Preston:Is that the, do you remember that commercial? The super was like, hey, has Bob had a baby, it's a boy. You know what I'm talking about where they did that and he tried to get it out. You know the one I'm talking about. So all the other millennials in the room are shaking their head. Do you remember that commercial? No. Okay. Well. You just aged out. I guess you should have been there. And all of our audience. That way, we have to be careful because our key audience is somewhere between 26 to 45. That's probably 80 % of our audience. I'm telling stories now that are aging out of that. So I do need to be careful of that.

46:49So I apologize for any of you who are like, that's not Boomer, by the way. That's Gen X. I don't want you guys getting the wrong idea. So don't say any okay Boomer lines. but I don't know as a millennial myself I enjoy them so it's all good Feral though I've asked my mom about that I was like because I would not let my and by the way those Panama City thank God spring break's not down here anymore because you know they've kind of outlawed and I was down in Miami last year.

47:17Brian Preston:Spring break's not in Panama City anymore? No they don't allow the kids to run amok down there like that and Miami doesn't either when I was down in Miami last year my wife for some reason decided hey let's go to Miami for spring break with the family and um there's police presence was everywhere because i guess that they had a problem and so i guess now all the the the kids and this is this would have kept me out this would have raised the barrier to entry i guess they're all in mexico oh because i was broke as a joke i could not have traveled international back then basically one step up from finding a buddy who was driving down there i'm like can i ride with you and then you know and then you're the rest you're just kind of winging it.

47:51Wow. Good times. Yeah, no place to stay.

47:57Brian Preston:I did Panama City my freshman year of college. Okay. See, that's still quasi-feral. It wasn't great. Here's the other question. Did you have a hotel room when you left? Oh, no. Someone else did. We just saw it was a bunch of us just stayed in a hotel room. Someone had one, but I was just, hey, you want to ride? I would go without a hotel room. We would just figure it out. Oh, okay. But someone would get a hotel room eventually, right? You'd find one of your buddies. Somebody would have, you would find somebody to hang out with that had a hotel room and then you'd stack as many people as you could.

48:30That's what we would do.

48:30Brian Preston:It was like nine people. And now you think about myself. Now I'm so bougie. Whenever we do guy trips, I'm like, I need a bedroom. I need my own bathroom. Meanwhile, back then, it was just like, lean over there. Oh, that's hilarious. That's what happens to you. That's why when you're in your 20s enjoy that you can handle anything because you'll get older one day and not be able to handle anything. If I stay up until 1130, it wrecks me now. It used to not be the case. We have some comments. A few like this. One says, Brian really is the GOAT. LEGEND in all caps. LEGEND. That's what you just got.

49:07I'm just glad cell phones didn't exist back then because I just think it was just I don't know. It was a much simpler time. It was much simpler. You didn't have phones. You just went and did. Yeah, there is something nice about that. So good, so good, so good. Spring styles are at Nordstrom Rack stores now, and they're up to 60 % off. Stock up and save on Rag & Bone, Madewell, Vince, All Saints, and more of your favorites.

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50:20Brian Preston:Want to do some more personal finance questions? Oh, that's what we do here. That's right. Yeah, we could do that. Answers from the legend himself.

50:31Coco4oToro798 has a question. It says, hey, MoneyGuy team, what if I fund too much in my kid's 529? I know I can move 30K to Roth IRA later on, but what if it's 100K? and the kid doesn't want to go to college and I have no extra kids to transfer it to. Thank you. I feel like this is everything that could possibly go wrong with a 529. What happens in that case?

50:54Brian Preston:One quick point of clarification. It's not$30 ,000 that you can do to a Roth. The way the legislation is actually$35 ,000. Another thing that's just worth clarifying is a lot of people think, oh, if I have$30 ,000 left over, then I can just put it right into a Roth. It doesn't work that way either. You can only put up to the annual limit. So if you have$35 ,000 left over in a Roth IRA, it's going to take you almost, not quite, five years, four years to get all of that money put into the Roth. It's not like it's something. It's not a double dip. Yeah, when you do that, you are now, I'm going to say robbing.

51:31Brian Preston:I don't mean that. But you're taking away your kid's ability to fund their Roth IRA. But that's not what you're asking. All that was for free. But here's another key thing that I think people, because kids not going to college, that's not the end of the world. No, I don't think it's a requirement anymore. You can use 529 money for trade schools, for a lot of professional certifications. There's all kind of ways that you can actually use 529. Now, I would tell you, go cut off that reoccurring contribution, ASAP, because we don't, I think you definitely are in the overfunded category at this point.

52:05but I think you're going to find that you're going to be able to spend money on them for bettering their life. And then even you can take into account the$35 ,000, but then that doesn't mean you can't. At this point, because you can pull the money out and only thing you're going to pay tax and penalty on is what it made. That's right. Not on your contributions, but only on what it's made. But before you do that, I want you to go deep into your own thought process and go, hey, have I ever wanted to go back to school for something? Or do I have some other relative that I want to support for going back to school?

52:39And maybe even your child, if they don't want to go to college, maybe their child or your future grandchild might want to do something. There's opportunities sitting out there.

52:47Brian Preston:That's exactly what I was going to say. You can change the beneficiaries on 529 accounts, or perhaps that might be something that if it's not for this generation, you could potentially leave dollars in there and change the beneficiary to a future grandchild or another family member might be a way to use that. Well, assume that none of that's on the table. All of that, yeah, it stinks to have to pay taxes on the earnings, and it definitely stinks to have to pay the penalty on the earnings, but it's still$100 ,000 of kind of like found money that you were planning on spending on something, but now you're not spending it on something.

53:19Brian Preston:So it's not the worst thing in the world. So I would think through, okay, I would compartmentalize, okay, I know I've got$35 ,000 that can go into Roth. I'm going to chisel that there. Maybe I want to leave this much behind for a grandchild or for another family member. And then, yeah, for the rest, I'll distribute that and I'll kind of take my licks and I'll go about it that way. I think a lot of people, what I'm finding is, I think a lot of people are finding themselves in a situation, I know at least with clients that I work with, Brian, just because they were so diligent saving. They started early on and started saving aggressively early on.

53:53Brian Preston:Market performed really well. I think for like true blue financial mutants, I'm seeing a lot of folks with overfunded 529s. I think this is going to be more and more of a thing that people are going to have to likely navigate. And I'll give you the other side of it because, you know, my daughter, I just paid her final semester tuition. She's in her senior year of college. And I look back with fondness on the fact that I always did in her 529. I was trying to – because when I started out, it was$2 ,000 a year to get the maximum Georgia state tax deduction. And that's pretty much all I did, you know, in that 529.

54:29And then I think my mom, when my daughter was born, she put in a little bit at Christmas time, and she might put$1 ,000 or$2 ,000 when she was born. And then what's interesting is I paid for three years of college with just doing that$2 ,000 a year. And then I paid my mom's 529 for my daughter paid for one semester, which I thought was almost to the dollar. I mean, I think it was within$15 to$20. I couldn't believe how you think about it from a Providence or cool little thing. Like, hey, Grandma covered this semester. Grandma covered half of a year of your college with just doing little tiny behaviors.

55:11These things are super powerful, guys. Now, it's back to, and this is the point I'm trying to make, you don't have to forego your own financial success for your kids. A little goes a long way when you start the behavior as soon as they're born is because you think about 18 to 20 years of compounding growth is pretty magical what a little can turn into. So don't sleep on that. But you don't have to go crazy with it. That's why I see people who are dumping$10 ,000,$15 ,000 a year in these accounts for many, many years. Now, if that's maybe all you want to put in as soon as the baby's born and you're in a really good situation, that's probably going to really set you up for a long time.

55:52But if you're funding every year these large sums without a Y, you might find that you got a lot in these accounts.

55:59Brian Preston:The only other thing I would throw out since you had asked about the, you had said 30 ,000, but it's actually 35 ,000. There are some unique things that have to be true in order for people to do that. And one of those things is the 529 has to have been in existence for 15 years. And I think the contributions have to be at least five years old. Am I remembering that right? There's something like that. But most folks, right, like if you open this 529 later or you did some sort of super funding thing or you're thinking about, ooh, is this like a strategy that I should do? I don't think it's a Roth strategy.

56:30Brian Preston:I think that the Roth is like a fail-safe, uh-oh, I overfunded. That gives me something I could do. I don't think there's a planning opportunity for overfunding 529s.

56:42Well, Coco4otoro798, there you go. Thank you for your question. and if you would like a Money Guy Tumblr, email winner at moneyguy.com.

56:49Brian Preston:Can I give a PSA real quick? You may. Here's the only reason I say it because the name was Coco Foro Toro and that made me think of El Toro Loco. Do you know what El Toro Loco is? No. Probably don't. It stands for the crazy bull. It was the name of one of the monster trucks this weekend that I took my family to and it was awesome. Well played. Take it, you know my little boy is about to be three here in like a week or so, taking my boy to Monster Trucks. Did you put air? Oh yeah, I did the air protection. When I was a kid, we were fumes and wide open ears. Now I got air protection for the whole family.

57:26Brian Preston:It was awesome. And I just want to say, it was a wonderful amazing event and I'm so glad I did it. This show is not sponsored by Monster Jam. We're not getting anything for this. But it was fantastic. It's fantastic. And so I just... How cool would it be if you... Because how many trucks are in there? Because there's a ton of them. There's a ton of trucks. There were eight at this thing, right? And they have like three different... And they could do aerial acrobatics and all kind of other stuff. When I was a kid, monster trucks, they just crushed cars. It was like, you know monster trucks do backflips now?

58:01Brian Preston:Yeah, they do crazy stuff. Those suckers can do a... You ever seen a monster truck do a backflip? Long accelerating returns is not missed out on monster trucks. It was wild. You know it's wild too. So I took my son. I have two daughters, too. I don't know if this is on purpose, but they also, like when I was a kid, the Masha trucks were like the tractor and the grave digger and Bigfoot and all this stuff. Now they had like a unicorn and glitter sparkle. It was awesome. My girls had a great time. I had a great time. My wife had a great time. You took the whole family. I took the whole crew. It was great.

58:40Brian Preston:It was awesome. Do you have a picture from that? I'd like to know. Were cowboy boots worn? No, we should have. It was so cold. Nashville's going through a thing right now that we were all bundled up. Winter weather? No, it's a thing. This is not normal. This isn't great. We should have done cowboy boots. That would have been awesome. By the way, if you're a Munster truck driver and you've actually listened to the Money Guy show, reach out to us. We'd love to know who you are. That would be awesome to know. That would be awesome. You never know. We have literally millions of people. When I see the numbers.

59:14I just wasn't sure what the action item was, but I think they just want to know you. They just want to say hi. Well, no, but it blows because, look, we feel like, I think y 'all can see it when you come do the studio tour. We just feel like normal folks, you know, but then when cool things happen and you're like, okay, maybe somebody has seen this. Yep. Love it. All right. Want to do one more? Yeah, let's do one more.

59:33Brian Preston:Can it be about monster trucks? Because I feel like I'm kind of in that zone now. It's not about monster trucks, but you could try to incorporate monster trucks into your answer. That's on you. That's a fun challenge. Z Treg says, I'm 29 with a savings rate of 32 % in step seven. It does have to do with vehicles, though. So there you go, Bo. The next part of the question says, I need to purchase a car this year. Should I use half of my emergency fund to pay cash, or is it better to finance? Oh, Bo. This is going to be one of those classic, it depends answers. It depends. So I'm going to let you kind of fill in the meat, put the meat on the bone.

1:00:09So what I want you to do, Z-Trix, is you have to figure out what all options exist for you.

1:00:16Brian Preston:So there is an option. I mean, the year that you're saving 32 % and you're in step seven is awesome. That means that I'm going to assume you're ahead of the curve, unless this is the first year you've done that. I'd want to know, okay, what's your financial base look like? What kind of assets do you have working for you? obviously in step seven that suggests you have a fully funded emergency fund. I'd want to know, okay, if we were to go take half of the emergency fund and pay cash, how long will it take for you to build that back up? So I want to just kind of do some triaging around what kind of impact would paying cash be.

1:00:48Brian Preston:But I also would want to know, okay, is financing an option? What kind of vehicle am I buying? It's not uncommon. If you go buy a new vehicle from a dealership, that might have incentives that, hey, we've been listening to the money guys, and we know that they really like helping people make wise automobile decisions. So we have special financing right now that if you do 23.8, we will give you 0.9 % over the next three years. And you may decide, okay, I'm a little bit behind on my savings. I really want my money to be working for me. I don't want to take a pause and rebuild that emergency fund.

1:01:21Brian Preston:I'm going to take advantage of the 0.9 % financing. I'm going to do that over 36 months so that I can get my dollars working. You may very well arrive at that conclusion, and I would be okay with that. Now, having said all the mathematical stuff, at the end of the day, I don't like car payments. And I love paying cash for cars, but there is an opportunity cost when you do it, and it's worth acknowledging that that exists. Well, and that's why I want to bring it back to what car are you buying? Because here's the thing, and I'd be curious to get your take on this, Beau, because I had coworkers.

1:01:54Remember, I come from a public accounting background, so these are naturally people who are decent with money because they're already CPAs. And I'll never forget that I want to encourage ZTRAG to undershoot what you can afford, meaning that you probably can afford at this level of income to have this type of savings rate, the BMW, or something even nicer.

1:02:18Brian Preston:Sure. Shoot for the Honda or Toyota. I know you're like right now, you're thinking, hey, but ego-wise, it feels so much better. And that's what, because I had a friend, and he's turned out okay, but he considered himself a car person. He was always buying the BMWs. And then here I was always buying like the Mazdas and those type of things. And I'm so glad I undershot the car I could afford back in my 20s because it sets it up to where you can build that financial base in the army of dollars that much easier. And then save the nice cars post 45. because then the wealth multiplier, the impact is just so small compared to when you're in your early 20s.

1:02:58I mean, because cars depreciate like rocks. They only make you feel good for a little bit. I even read a post. Where did I read that post? It was a guy who was a co-worker talking to another co-worker that they had their eye on this really nice car. They were making$14 an hour, and finally the line manager said, hey, I was you, but let me tell you what's not going to impress those girls that you think are going to be impressed by you driving that car is you buy that nice car and then you're driving home to your parents' house. It's not going to be as cool as you think. So you're probably putting your resources in the wrong thing.

1:03:36You might want to focus on getting all the other financial stuff because the vehicle is probably one of the last places that should be an indicator of your success. I used to think about the fact, and, you know, I think it's okay to show up on a Honda Accord or a Toyota Camry for many years to come and then, you know, surprise everybody in your late 40s when you go buy the fancy car because you're in step eight, and why not at that point because you can't take it with you.

1:04:06Brian Preston:I'm going to share a little bit of a – this is a little personal story of mine, but I recognize that there's biases riddled all throughout, so don't read this as prescription. I'm just sharing something of mine. A couple cars ago, my wife and I, we got a luxury car, right? You know the one. It was that white one. It was real pretty. It was subsidized. And every time we bought it and we paid cash for it, but every time that we drove, I was like, God, just it smarted. It bothered me. And I was like, oh, this – because I knew the opportunity cost and what those dollars could have done. I never found a ton of utility in that automobile.

1:04:40Brian Preston:My wife, tons of utility, so you've got to measure that. But then fast forward, a couple of years ago, I was going to buy a truck and I was looking at like really, really nice trucks. You know, the one I was looking at specifically, but it was super, super expensive. And I was like, man, I could do this. And we were in a position where I could buy it. I was like, man, I don't want to have that same regret. Like I'm driving this thing around. And I ended up buying a much more reasonable, much more affordable, uh, automobile. And I love it every time I drive it. So I think you have to be true to yourself, Z-Tregs to understand, okay, if I go buy the nicer car and I do that at a young age, like 29, am I going to constantly kick myself over the opportunity cost and what those dollars could have been, or might I be in a better spot if I go with a more conservative, more reliable, more, I don't want to say base level, but like the not luxury automobile and set your future self up to where you get to make those decisions and it doesn't matter.

1:05:37Yeah, I think vehicles are just a mess. I mean, y 'all know I have a hatred. hatred's not that's too strong I don't hate anything I have a dislike I have a dislike with my wife's taste in vehicles and and I'll we had to buy no we leased which gosh just those words coming out of my mouth just makes me sick to my stomach still not used to it I think it's interesting that I was looking at this dealership we were at and I saw this couple who's probably your age Bo and they had two kids that were probably in the 5 to 7 range and they're climbing all over this vehicle and they're looking at the same vehicle my wife's looking at and I'm like Lord I hope they funded their 401k because at their age in that mid-30s range buying this luxury SUV so the wife can look so good is a disaster unless they are way overfunded and way ahead of the curve which I don't think they are I don't think most people So the marketing arm of vehicles has done such a good job of people thinking that you will be loved and adored and desired more by the vehicle you drive.

1:06:53And that might make you feel that way at the dealership, but give it a month or two and you'll quickly just realize, nope, you're just left with the monthly payment. And then the fast depreciation that these things create.

1:07:05Brian Preston:chicken nuggets under the seat of a luxury car are just as gross as they are under the seat of an accord but timing matters wasteful purchases have a time and place in your life there will be but it is time and a place don't force those decisions lots of good things to think about there Ztreggs thank you for the question email winner at moneyguy.com if you would like a money guy tumblr thank you to everyone who asked a question today joined us, had fun with us, laughed with us in the chat. Remember that even though we won't be back live until next Tuesday at 10 a.m. Central, be sure to subscribe so you see all the other content that we release and be sure to go to moneyguy.com slash resources to take advantage of all the free stuff we offer that will give you a deeper dive into all the things we talk about on the show.

1:07:55Guys, it's been an absolute blast. I'm your host, Brian, joined by Bo Reby and the rest of the Money Guy crew. Money Guy, out.

1:08:01Brian Preston:The Money Guy Show is hosted by Brian Presson and Bo Hanson. Brian and Bo are partners with Abound Wealth Management. Abound Wealth Management is a registered investment advisory firm regulated by the Securities and Exchange Commission in accordance and compliance with the securities laws and regulations. Abound Wealth Management does not render or offer to render personalized investment or tax advice through The Money Guy Show. The information provided is for informational purposes only, may not be suitable for all investors, and does not constitute financial, tax, investment, or legal advice.

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