Q&A: Cashing Out The College Fund, Discretionary 401(k) Match, & Shopping Financial Advisors

0:01Experience a membership that backs your business journey with American Express Business Platinum. When you pay with membership rewards points for all or part of an eligible flight booked with a qualifying airline through Amex Travel, you can get 35 % of those points back, up to 1 million points back per calendar year. American Express Business Platinum. There's nothing like it. Terms apply. Learn more at americanexpress.com slash business dash platinum. At Capella University, learning online doesn't mean learning alone. You'll get support from people who care about your success, like your enrollment specialist who gets to know you and the goals you'd like to achieve.

0:42You'll also get a designated academic coach who's with you throughout your entire program. Plus, career coaches are available to help you navigate your professional goals. A different future is closer than you think with Capella University. Learn more at capella.edu.

1:27here. Yeah, we love these episodes. We love filming them. And it's just so cool to see the depth of the questions, but also the variety of the questions because personal finance is personal and everyone has different blind spots, different pain points. So these episodes are the best. And so if you're following along right now on this episode, share with a friend, everyone has issues and just make sure you get them involved in these episodes because they're so fun and so informative. And as a quick reminder, before we jump into the episode, if you want to invest into SpaceX, XAI, and Perplexity, as well as Beast Industries and Graza and Acorns and a bunch of other companies alongside Robert and I, and you're an accredited investor, which is probably a lot of you considering your incomes and your net worth, you are invited to invest alongside of us.

2:18There's a link in the show notes below. You can go to Republic's website. We'll have it all linked out right there to learn more about the opportunity. But essentially what we've done is we've made it easy for our podcast listeners to invest alongside Robert and myself into these awesome late stage companies like SpaceX, XAI, and Perplexity, as well as some of the more earlier stage growth names like Graza, Beast Industries, Katy Perry's DeSoy. There's a bunch of other names inside of what's called the Cashmere Fund. It's kind of a cool 50-50 split there. Awesome, awesome illustrations and breakdown in the show notes below.

2:51Be sure to click it, read all the disclosures, read all about the opportunity. I mean, this is an investment, right? So investments can go down. So just make sure that all that's understood, but it's pretty exciting, Robert. Yeah, definitely very, very cool to see us be able to put together this multi-asset portfolio and make it really affordable for people. So if you're accredited, the minimum investment is$7 ,500 to be able to invest in some of these really incredible companies that we all hear about every day. So I'm really excited about this one. I think it's the coolest one we've ever done because there is a buffet of incredible companies all wrapped up into one SPV, making it a really incredible opportunity for everyone.

3:30And we only have$10 million of allocation. We've already raised several hundred thousand from obviously you guys and Robert and myself. We've already invested our$7 ,500. So if you want to participate, feel free to do that. I'm not saying that we'll run out of allocation, but it's I don't know. Right. You do it or you don't. Don't get left behind if you're interested in something like that. So again, link in the show notes below. Go check out that. And Robert, speaking of investing, you got to make sure people understand this reality that if you are not investing toward your financial future, you won't be able to retire.

4:01You'll still work that nine to five job unless you have a nest egg that's growing for you over a long period of time, allowing you to then take some of that portfolio income and supplement your monthly lifestyle. Yeah, and the easiest way anyone can begin investing towards their future is on public.com. They make it incredibly simple to build a multi-asset portfolio, including ETFs, stocks, bonds, crypto options, and more. They also offer access to industry-leading yields of up to 3.8 % APY for that emergency fund. And for a limited time, you can earn a 1 % match on all of your IRA deposits, IRA transfers, and 401k rollovers, which is$1 ,000 of free money for every$100 ,000 you rollover into their platform.

4:45So if you've got an old 401k on some random broker that you don't use anymore, roll it over, get it on public, get your free match. You can fund your account in five minutes or less by heading to public.com front slash rich habits to claim your 1 % match today. paid for by public investing. Full disclosures in the podcast description. All right, Robert, let's now jump to our first question coming from Jim G. Jim says, guys, thanks for taking my question. I'm a 50-year-old small business owner from New Hampshire seeking an exit strategy for my business and retirement in about 10 years. As doing so, I am a finance podcast junkie, which is how I landed on your show, and I believe you guys are the best to do it, so thanks for all you do.

5:27We have a high school senior who is no longer wanting to go to college. He says he'd like to work for the family business and maybe one day take it over. We've saved up almost$100 ,000 in a 529 plan for him. We'd like to use that money and invest it in the stock market on his behalf to help him build his base. As of right now, he has about$15 ,000 in a Roth IRA, which has been fully funded every year. Started that a couple years ago. When he comes to work for the company full-time, he will put 10 % of his income into the Roth 401k. Company match, all the good stuff. So we'll plan to leave about$7 ,500 in the 529 plan for maybe a small business or local community college course he wants to take at night while working full time.

6:06But after paying taxes at my son's rate and that 10 % penalty on the gains, he'll be left with about$85 ,000 to invest. After listening to your suggestions and doing some research myself, we plan to put 60 % of that into VTI, 30 % into QQQ, and 10 % into Bitcoin. What are your thoughts on the allocation and if you would do the same thing if you were in our shoes? So, Robert, I'll take this one off. So just to make sure we're on the same page, right? The 529 plan is a college savings account that essentially you can deposit money into, have normally some sort of tax write-off when you deposit money into it.

6:41That money then gets invested and then grows for you over time. And once it grows, you're now able to spend those investment profits on tuition, books, trade school, anything related to education, right? So it's a way for you to have some nice tax advantages for the contributions and spend those investment profits on education. So like literally no tax. It's like positive from a tax perspective here. But what you're saying is, hey, we got$100K in here and we don't want to spend it on education, which means that's fine. You are now able to take that money out, but you do have to pay a penalty on the gains.

7:18So let's walk through that, Robert. You can withdraw your contributions completely tax-free, penalty-free. everything's fine from that perspective. So Jim, make sure you're doing that if you decide to do this withdrawal. And just remember that you're only paying taxes and penalties on that gain that's being made. So if you do plan to do that, one, I would somehow try and strategically take the money out when my son is having a low, you know, taxable income year, maybe he's not making that much yet with the family business. So you know, this will count toward his taxes, making him, you know, a lower tax bracket.

7:52So just be cognizant of what those tax brackets look like and try and spread it out over a period of time to make most sense to you guys. What's really interesting about the 529 plan is you are able to change the beneficiary of the plan pretty much at any time. And that then allows that new beneficiary to enjoy those investment profits and be spent how they want. So like even our friend Jim here, if he wants to be the beneficiary and have some of this money paid toward him to learn how to paint or something fun for his own retirement, right? He could do that. Or maybe you got some nieces and nephews, or maybe you want to do something for the grandchildren that haven't been born yet, right?

8:30There's a lot of different ways that if you wanted to just take out the contributions, tax-free and penalty-free and invest that rock and roll. But if you want to keep those profits in the account, so then that money can now be, you know, given to someone else if it's a grandchild that's not around yet, or maybe a niece or a nephew or brother or sister, or even you, Jim, or maybe your wife. There's a lot of different ways where you can do this where taxes and penalties aren't a part of the equation and you're still enjoying a lot of the money. I love that breakdown. And I'm really on the fence on this.

9:01Part of me wants to say, Jim, just take out the contributions, invest those. I love the ideas of what you want to invest in and the waiting. And then part of me says it's 10%. Take it all out, get it invested because you're going to outperform probably with these investments and be able to make that 10 % back pretty quickly. So I'm kind of on the fence on this, but I think either way works. But I'm leaning towards agreeing with you, Austin, that maybe they just take out the contributions, get those invested, leave the gains in there so there's no penalties. There's none of that. It just keeps growing and growing because down the road, there might be another solution of where this money goes by switching out the beneficiary or something like that.

9:44So I think it's a great position to be in. I would probably take out the contributions and reinvest them and leave the rest and avoid the penalty. But either way, I think is fine. Yeah, I think that's a cool way to help Jim's son here build his base more quickly, right? Take out those contributions, penalty and tax-free. Ensure that Jim's son is now investing those tens of thousands of dollars, right? And then you're rocking and rolling toward building your base. Jim, your son will be a net worth millionaire by the end of his career, I'm sure. And you're doing a really cool thing as a father. So love the breakdown.

10:16And it seems like you guys are in a pretty cool situation. And yes, the allocation of 60, 30, 10, perfect. Rock and roll. So our next question comes from an anonymous listener. They say, hey, Austin and Robert, thanks for what you do. I would like to remain anonymous. No problem. Happy to do that. My employer offers a discretionary match. So they choose to contribute to my 401k or not. And only if I'm investing into their company stock. Would you still follow the order of operations in that case of match beats Roth beats taxable? I'm worried I might leave money on the table if I'm throwing all my eggs into the company's basket here, but I'm already maxing out my Roth each year.

10:51I'm 45 years old. My combined retirement accounts is just over about$100 ,000 and this new 401k only has$3 ,000 in it because I just started. I do have my family's emergency fund fully funded, no high interest debt, just started renting out our old home, which is about$150 ,000 of equity, and bought a new house at about$320 ,000. I've been a listener since 2023. You guys have changed my life. I now help other women in my town get financially fit based on things I've learned from your show. Let's freaking go anonymous listener. But with that being said, I do need some advice. So Robert, how would you help our anonymous listener here, who by the way, is just a rock star helping out other women in their town get financially fit?

11:29How cool is that first and foremost? That's pretty cool. I would start by really doing a deep dive into the company. We don't know the company's name, unfortunately, but I would look at the last three to five years of performance with that company's stock. And I would also forward look to think ahead. Where is the trajectory of this company right now? Is it looking up? Is it stagnant? Do they have something new releasing that could really propel the stock upwards in the future? And then go from there because you don't want to be in a situation where you are leaving money on the table, especially because you said you feel like you've been behind a little bit on where you're at for retirement.

12:05So I would really look at the performance of the company and then decide based on its past performance, future performance, proposed performance, and then go from there as to whether or not you should put that money in. Because if they're not doing the match and you don't know when they're going to and how much, it's a little bit tricky to put your money and your faith in the company if they're not going to do the same for you. So that's how I would approach it first and foremost, because at your age, you still have a long window to invest and build wealth. And we want to make sure that is optimized as best as possible.

12:39And it starts by understanding, is this a good deal to do this stock investment? So here's my take. I think if our anonymous listener is telling me, hey guys, I love the idea of match beats Roth beats taxable, which for those of you that might be new, means that that's the sort of priority of investing dollars, right? You invest up to the match in your 401k to get the free money, no matter if you have autonomy over that investment or not. And then you max out the Roth IRA of$7 ,000 or maybe$8 ,000 a year, depending on your age. You then go back to that 401k and invest up to the maximum there, depending on if you have autonomy, right?

13:15You can choose your investments. Of course, you want to get more money invested. But if you can't choose your investments, no autonomy, then you put your money in the bridge account because investments that you get to choose, aka the ETFs and index funds that we talk about on the show, normally outperform these target date funds and sleepy mutual funds that some of these 401ks are invested in. Well, most of these 401ks are invested in, so it's okay to do it over there. That's sort of the breakdown explanation. Now, if this anonymous listener is saying that they can invest in the 401k, but the money is only matched in company stock, that to me is fine.

13:50Because even if the stock goes down a ton, like, cool, it's still a match. assuming that the money that this person is able to invest into their 401k, they can choose how it's invested. Now, they're saying my employer offers a discretionary match so they can choose to contribute to my 401k or not in only if I'm investing into the company stock. So what if you don't invest in the company stock, right? What if you don't want to invest in the company stock? Do you still get a potential match? If the answer to that is no, I would say that's probably still fine assuming you can choose what you are investing into but if you're telling me there's no match and there's no autonomy right so you get put in some sleepy mutual funds and target date funds that are underperforming and you get no match of free money along the way then what's the purpose of investing in this anyway right that means rock and roll to the roth ira max that out as much as you possibly can every single year and then everything goes into your bridge account where you have full autonomy over those investments like that's how i would play that game because like what's the alternative oh you're telling me not to invest my 401k well let's say you did invest in your 401k you are now invested into things that are dramatically underperforming right so the opportunity cost on that money invested over here is detrimental even compared to some of the different ways that you could invest freely in a bridge account right the markets do 10 12 percent on an annualized basis maybe the funds they got you in are doing two or three percent like i don't care about taxes at that point let me get the other 10 over here that compounds dramatically.

15:22So anonymous listener, I love what you're doing. I appreciate you sharing our show and helping other women in your town get financially fit. If I were in your shoes, that's what I would do. Those are the questions I would ask and the considerations I would have. Yeah. My only click back on this is it's kind of crazy. If you think about it, I wish we knew the name of this company so we could look up their market cap because what if it's a midsize company with three, four, 500 employees, and they're basically forcing them to invest in the company's stock so then they can give them their match. That seems crazy to me.

15:54I don't like that at all, and it seems like a red flag. So I like your breakdown, though, and good luck. It does seem kind of weird. I agree. But I will say, I did work for a company out of college that was publicly traded, and they had a match. They let us invest in anything we want, but they matched our investment in company stock, which I think was probably advantageous for them because like they had a lot of stock on their balance sheet. And so they can just like match it like that way, which also was cool because the stock 10 X while I was working there, not saying anything to do with me, but during that period of time, it is a really big turnaround story.

16:28So the stock went from like 30 bucks to 300 bucks. And it was, it was a great time to be, you know, to have that in your 401k. And I know that I remember in one of our like town halls, the CEO talked about how they were millionaires made in that three to five year period of time because of the company match and the stock that they had in their 401k. So it was pretty cool to see that, but I don't think that's what's going on here. So our next question comes from Matt C. Matt says, Hi Austin and Robert. I'm in my late 30s and have a net worth approaching 1 million along with owning a profitable side business.

16:57I've been using a financial advisor for quite some time, but after listening to you too, it's pretty clear to me that my interests probably aren't their top priority. After a portfolio review, he has me invested in products that have high expense ratios and high fees. I'm curious about the process of moving financial advisors to someone else. I know I'm looking for a fiduciary, which my current advisor already is, but will the new advisor just assume ownership of my existing accounts from my current advisor? About half my net worth is with this current investor, so I'm looking to get sage advice on how to proceed.

17:27Thank you so much, Matt. Robert, I'll let you kick this one off. Matt, I love this question. and being in your late 30s, I wish more people kept an eye on things and asked this question of themselves and in the podcast because I think it's so important when you get an advisor that is putting you in these high fee things and they're kind of setting it and forgetting it, it really puts you in harm's way because assuming let's say you're 38 years old and you've got 25 more years of investing, if you didn't have your eye on the prize and you left four or five, 6 % on the table every year because of either underperformance or these high fees, that could add up to million dollars in your lifetime of lost opportunity.

18:08So I love what you're doing here. I think you definitely need to look elsewhere. My family, Crow Capital, is a fiduciary as well, but we do quarterly reports and monthly emails to every client because we want them to know exactly where they stand with their money. If you'd like me to set up a free call, you let me know, but otherwise, go find somebody else. I always say it this way. If you're going to get eye surgery or heart surgery, you're not going to just go to the first person and stick with them if you don't know exactly what the situation is. You're going to get multiple opinions. You should do that with your money as well.

18:44Go meet with other people. Ask them about past performance. What has their average performance been for their clients over the last three years? Ask what their fee structures are and really deep dive it so you know, are they putting you in target date funds and mutual funds so they don't have to do any work? or are they actively managing your money to grow it as best that they can? Because remember, a lot of financial advisors want to protect your money. They don't necessarily want to grow it. And that's why they're happy telling you that you got 6 % or 7 % a year rather than 12 % or 15 % because they don't want to get fired.

19:18So I hope that helps. Matt, this is a great question and a great breakdown from Robert. I think y 'all could be calling me crazy here, but I genuinely believe, Matt, at about half a million dollars with this financial advisor, right? You said you're approaching a million net worth and half your net worth is with this advisor, so call it half a million. I genuinely believe you are smart enough to manage this money by yourself. If you wanted to, you can obviously roll it over into public, get some sort of a match, whatever, but here's what I would do if I were in your shoes. I would say, okay, cool.

19:49One, do I like the current strategy they have me in? which means maybe like you've got some bonds, you've got some international, you got some S &P, some NASDAQ, some like, are you diversified? Like, like, if you like the strategy you're in, right, but you don't like the products themselves, all you have to do is clearly outline the portfolio weightings into each sort of sector of the portfolio, right? So how much of my money as a percentage of total invested is in international? How much of my money as a percentage of total invested is in bonds or in the S &P or in the NASDAQ, whatever it might be here, and then say, okay, cool.

20:26Hey, thanks for the help. I genuinely don't enjoy this relationship. I don't like the products you have me in. I'm paying way too much. I'm going to now transfer this money over into either a taxable brokerage account, which maybe you're already in a taxable brokerage account, and you can just do that easily. Or maybe it's in some sort of IRA, and you can just do that easily. But transfer this over. Once it's transferred over, all you do is now find the low-cost ETF equivalents of the exact same thing you were invested into, assuming that you liked the strategy and then rock and roll that way.

20:56Congrats. You're now saving a ton on the expense ratios and fees that you're paying to this advisor and you're managing the money yourself, which means if you want to rebalance or make a change, like you can do that on your own. Now, the downsides are not a lot of people have the stomach for managing half a million dollars. They see their portfolios go down by 50K because the markets go crazy because a Trump China trade deal fell through or whatever. And now they're like, oh my gosh, I'm down like$50 ,000. I need to sell everything. So there's like pros and cons to all this. But Matt, you got a million dollars to your name.

21:30You're a smart guy, obviously. If I were in your shoes, I'd highly consider what it would look like to be in a situation where I'm managing this money on my own. And to your point, let's say maybe you didn't like the strategy they had you in. There's a lot of research you can do along the way that's going to help you maybe build a strategy of your own. Go listen to our recent episode with Bilal Little talking about ETFs and how he thinks diversification should work. But there's a ton of different ways you can build a portfolio strategy that matches your risk tolerance. I think what is the problem here, though, are the fees and expense ratios.

22:00If you want to solve for that specifically, just manage the money on your own using low-cost ETFs. And one last thing for any of you considering this same situation, understand this. Migrating your money from one advisor to another is a simple DocuSign. You'll get a packet of documents, You'll look through it. You have that introductory call like I alluded to. Hey, what has your performance been? What are your fees? How do they match up? And really understand that, but it's that simple. They're gonna send you a document when you say, yes, I'm ready to move my money. You look it over, make sure everything is what was stated, and you sign it, your money gets transferred, you give them access to it, and you're good to go.

22:41Each company, just like Crow Capital, is gonna have their own app so you can look at everything in real time every single day, but it's not difficult. So never stay with an advisor you're not happy with just because you have fear of moving. It's very simple. So our next question comes from a anonymous listener. Our listener says, good morning to you both. I'm kindly requesting to remain anonymous. I have a bit of a dilemma on my hands right now. I'm currently renting my grandmother's house that is fully paid off. Unfortunately, she passed away and my mother is going to be putting the house up for sale around May.

23:13I don't know the exact price for what they plan to list it at, but it should be between$700 ,000 and$750 ,000 as that is what Zillow is suggesting. My question is, how can I be able to buy this house at such a young age with so little money? I'm 26 years old. I have$21 ,000 in my brokerage account. I make$85 ,000 to$90 ,000 a year. Should I even bother with this offer or should I just move out, rent for a few years, save up more money, and then buy a different house when I have more cash on hand? Please let me know what you think is the best decision. If I do buy the house. My plan was to live upstairs and rent out the bottom half to help pay the mortgage.

23:49Thanks so much. Keep up all the awesome work. Robert, this is a cool question. What's your take here? My take is do not buy this house. You don't have your base built. Even though you're making really good money and that is awesome for your age, you just are not in a situation. You're going to be house broke almost immediately because I know it sounds affordable and you can make it happen. But at the end of the day, get your base built. I'd like to see you have a hundred thousand, $200 ,000 saved and invested rent for a couple more years than buy a house that's affordable for your budget. You have to understand that a lot of people will buy a house up to what will be loaned to them.

24:27And that's a terrible idea. Just because they'll give you the credit doesn't mean you should use it. So I think it's a bad idea. I wouldn't even consider buying this house at your age at that price point. And based on what you're making, because you're just going to put yourself in harm's way and prevent yourself from being able to continue investing in building your financial future. Couldn't agree more. I think our anonymous listeners should move out when the time comes. I think they need to go rent something modest, maybe get some roommates, maybe some housemates, right? Something that's affordable to you.