Q&A: Paying Off $300K in Student Loans, Roth IRA vs. Roth 401(k), & Kiddie Taxes

19:53Robert Croak:I can't seem to make any progress reducing this debt. I make a decent amount of money,$190 ,000 a year between my salary and my$40 ,000 bonus. And my wife works part-time making$25 ,000 a year. Total, we make$215 ,000 a year. We don't drive fancy cars. We don't waste our money. Our kids play sports, which is very expensive, but that's about it. Any advice you guys can share is greatly appreciated. Robert, I'll let you kick this one off.

20:21Austin Hankwitz:Martin, Martin, Martin, I'm going to start with being nice. You're not behind because the average 45 to 55 year old male in the U.S. right now has$115 ,000 saved and invested for retirement. So you're ahead of the curve, but you're a high earner at 53 years old. And why on earth are you carrying all this credit card debt? That doesn't make any sense whatsoever. You should not be giving out these loans. You should not be having credit card debt. You need to pay those off before you do anything else. I would stop doing all other spending, stop giving loans, stop helping others. You need to help yourself because you should never at your salary, over$200 ,000 in income per year, carrying credit card debt.

21:09Austin Hankwitz:It makes no sense. So right now I would sit down, get a pen and a paper out. I would maybe check out our honest budget, which there's a link in the show notes. And I would figure out what you're doing wrong, what your debt to income ratio is and get these debts paid off, the high interest debts first and foremost. And I don't mind you transferring them to a zero interest credit card as long as you're going to get them paid off before that term is up, because I don't want you to transfer it over. Ignore it. Keep spending like you're spending and then find yourself in 18 or 24 months still carrying that balance.

21:43Austin Hankwitz:You got to get that fixed.

21:44Robert Croak:Yeah. So I'll start with the good news, just like you did, Robert. Martin, you guys are going to be fine in retirement. You have$725 ,000 invested. You have half a million dollars in your home. You guys are millionaires, right? Your net worth is like$1.2,$1.3 million, depending on what the markets are doing on any given day here. You know, even if you toss out some of this debt, right? I mean, you're really talking about 1.15, 1.2. Like you guys are millionaires, 100 % millionaires here, but we're carrying credit card debt. So let's, again, let's start here with the retirement stuff. You're 53 and 51.

22:17Robert Croak:So let's just say 52, right? Just to make sure we're between two ages here. If you take this$725 ,000 that is in the current employer's 401k, previous employer's 401k, which you need to roll over into your traditional IRA so you can have control of it, right? Go do that. $70 ,000 in this brokerage, if you take all this money and you let it grow at 8 % for the next, I don't know, 15 years to about 67 years old, you guys are going to have two and a half million dollars adjusted for inflation. Okay, so it's two and a half million in your retirement accounts. You guys are you guys are going to be fine.

22:52Robert Croak:And by that time too, I'm sure your home's going to appreciate a ton more too. You're gonna it's gonna be awesome. So no, you are not behind. I understand you might feel behind go listen to last week's episode of the show. We talked about why you feel behind financially. It's a lot of the online stuff, but you guys aren't behind at all Martin. So give yourself a pat on the back for how much wealth you have built throughout your lives. To Robert's point, I've got a feeling here between the$175 ,000 you guys earn between your wife's part-time job and your salary and the$40 ,000 bonus and the kids' sports and the college this and the car loan that.

23:26Robert Croak:And like, I got a feeling that you all are doing exactly what a lot of Americans do. And that's flying by the seat of your pants and drifting through life and let life happen to you. You need to flip that on its head. You need to happen to life. You need to say, okay, honey, we are going to just have complete control and clarity over our money. We know exactly what our net worth is. We know exactly how much money hits our bank account on what day. We know exactly how much money leaves our bank account on what day because we know the scheduled payments we have. You know, you guys aren't credit card people, so maybe we cut up the credit cards and stop using that and start going back to a debit card here.

24:06Robert Croak:But we understand how much we're spending on a monthly basis. We know exactly how much this kid's sporting event is. This expense is not going to surprise us. We have this much in an emergency fund. And what's not in an emergency fund is in a sinking fund. We have clarity into what the future can look like. You all are the perfect example of a high-earning American family, right? You're trying to out-earn your stupidity. Not to call you stupid, but I tried it. Everyone tries it. You try to out-earn your stupidity. It's like you can't just be so willy nilly with your money and think, oh, I make 200 ,000 a year, it'll figure itself out.

24:41Robert Croak:I make great money, I'll be fine. Like I still to this day, as someone who earns multiples of what you earn every year, I look at every dollar that comes in and out of my bank account, because I want to know what I'm spending my money on. Am I spending too much in a specific category? Did I forecast this correctly? And I'm sure Robert does something similar as well, right? Looking at the different categories and everything of that nature. So please, Martin, do us a favor, go start an honest budget, sit down category by category to understand your fixed expenses and your variable expenses. And then once you understand your fixed expenses completely, which is these expenses come out of my bank account every single month because I need to pay the mortgage, I need to get groceries, I need to pay for transportation, insurance premiums, things like that.

25:27Robert Croak:And then you say, all right, sweet, where are my variable expenses? Can I begin to cut back if I need to? And that is the underlying foundation of any person who's good with money is they have clarity into what they're earning and where it's going. And then once you have that clarity, Martin, you're not going to feel behind. You're going to say, well, I'm investing$3 ,000 a month or my kid, you know, they were able to get this scholarship or, you know, whatever's going on. And the other thing I want to just quickly touch on here, you have$30 ,000 of credit card debt and 70 ,000 in a taxable brokerage account, sell those stocks, sell the stocks that you might be at a loss on or the lowest profit.

26:06Robert Croak:So you have a very little tax hit, sell the stocks, pay off the credit card debt, stop using credit cards. You guys aren't credit card people. Like I don't care about the 0 % whatever, like you can't out invest high interest debt. And that's cute and fun that you want to do this 24 month thing. Like, could it work? Sure. But you've already proven to me that you're not disciplined enough to just stay within a budget making over 200 ,000 a year. I pay this off in the next 24 months. Like just, just, just get rid of it. And then if you want to bump up and put money back into this brokerage account, like be my guest, you make a ton of money, but you guys just need to do a better job of tracking what's coming in and what's going out, writing it down every single expense, every single one, because in the moment it's like, oh yeah, we've got a thousand dollars budgeted for dining out with the kids this month.

26:54Robert Croak:And then like you go and you look, you spent$1 ,800, right? Or we've got sports stuff budgeted at$700. And then you realize that little Johnny needs a new baseball bat or Rebecca needs a new volleyball net or whatever it is. And that's going to be another, now you're, you know,$700 or$800 turns into$1 ,200. And like, it's not that you are doing a bad job. It's just, you got to find those, those leaky holes, those little ankle biters.

27:17Austin Hankwitz:I love when you go on rants like this because you get so emotionally into it and it's amazing. So here's what I took away. Wealthy people forecast, broke people react. And Martin is definitely not broke, but they're definitely not forecasting. That's what I heard. Also, willy-nilly, 100%. If you have this much money and you have this much income, you should not be carrying credit card debt, 100%. You gotta get rid of it. I love your idea, Austin. Sell it from the brokerage account. Take the tax benefits you can get from that. if you have any from the lowest profits or the losses, pay the credit cards off, cut them up.

27:55Austin Hankwitz:You're not credit card people. And I think that was all of the really, really good takeaways, but that was awesome.

28:01Robert Croak:Yeah. No, I'm rooting for Martin. Martin and his wife, they're doing so well. I mean, they're millionaires. They're millionaires in their 50s. Like that's the goal, right? They just need to now get really intentional with how they are spending and allocating their income every single month.

28:16Austin Hankwitz:Yeah, I remember when I first became a multimillionaire and I had a few million bucks and I was like, man, this is so cool. I can be the hero for everyone. So I started helping everyone in my family and helping people that I was close to and employees and all that. Then I realized, especially now with modern technology and medicine, we're going to live a lot longer. So people that get a million,$2 million in their retirement accounts, that's not going to be enough in 10 or 20 years because we're no longer going to be getting sick earlier on and dying off earlier. So I just want people to really think long term, still help people and still take care of your family, but do it with a plan and not just willy nilly.

28:57Robert Croak:So our next question comes from Tom H. Tom says, hey, guys, I love the show. If I'm going to budget$7 ,000 a year to invest into some sort of Roth retirement vehicle, does it matter if I choose the Roth IRA or can I just choose my employer's Roth 401k? As you guys know, I'm eligible for both, but it seems to me that routing it through my employer is just simpler. It just comes right out of my paycheck. I don't have to worry about any intricacies. End of the day is one fundamentally better than the other. It's a really hard question to answer. One comes with a really cool perk nine times out of 10, which is a match, right?

29:37Robert Croak:The Roth 401k, if you work at a cool company, which I'd imagine a lot of you all do, you get that 3 % match, 4 % match, 5 % match, whatever it is at your specific company, which means if you are contributing 3 % of your annual salary, let's just pretend your annual salary is$100 ,000 here for round numbers. That means over the course of 26 pay periods, assuming you get paid every other Friday, You are now contributing$3 ,000 to this Roth 401k and your employer is matching that 3 ,000 contribution with their own money, making you now have 100 % instant return on your investment in year one. That's awesome.

30:15Robert Croak:That's a really cool, better than the other type vibe, right? Now, on the flip side, what's not so cool about that sometimes is you could be limited as to how this money is invested. For example, maybe like my old employer, we used Bank of America for our like 401k stuff. I had to choose between like conservative, moderate or aggressive. Like, what is that? Right? Like I and I looked at it. It's like, oh, congrats. You're in a bunch of small cap stocks. I'm like, I don't want that. Like, go put me in the S &P 500. Right? It's like, I don't want these. It's like, oh, well, do you want to go be moderate and put you in half bonds?

30:50Robert Croak:It's like, I don't want bonds either. I just want to be in the S &P. So like with these Roth 401k or any 401k retirement things that are offered at your employer, depending on who their kind of broker agent is in that situation, you could have some very not that great options to invest. But again, you're getting that 100 % match. Now you compare that to the Roth IRA, where it's no match, I guess, unless you use like a public.com. I think they match like 1 % of your contributions. I think Robinhood does a match too. Like there's a couple things out there that do some cool matches like that. So you can get 70 bucks or 100 bucks or whatever, a free money against that.

31:22Robert Croak:but it's not like that much. But you just contribute your$7 ,000 or this year in 2026, $7 ,500. And then you have complete autonomy into what it's invested into. You can put it into VU and VTI and you're off to the races or QQQ and DIA, right? The Dow Jones and you're off to the races, right? You can choose how the money is invested and you're not paying the fees. You're not doing the bonds. You're not in these small caps. You have full autonomy. So if I were in your shoes, and we say this all the time, match beats Roth beats taxable. I would contribute up to the match. And then anything above that, and that you still have leftover of the$7 ,000, I would then ensure that it gets invested in my own Roth IRA.

32:06Robert Croak:And I think that should max out your total because you said you're going to budget about$7 ,000 for this. So you should be good to do that. But up to the match, get the free money, and then everything above the match goes into your personal Roth IRA. And then you invest it in a low cost index funds, and you close your eyes for 20 years and congratulations, you built wealth.

32:23Austin Hankwitz:Before we jump into our next question, I do want to take a moment, Austin, to talk about generated assets. You all know we love public.com and a couple months back, they created generated assets where you can go in and you can put together your own plan, your own ETF, your own vibe for exactly what you want to invest in. And it'll even back test it against the S &P 500. And it's really, really cool. We did a bunch of them in the Rich Habits Network that are doing really well, but you can have a blast. You could go in and tell it, hey, give me the top companies in tech that are female led. Or you could say, hey, I only want CEOs that work out or whatever you want to do and let the AI do the work.

33:05Austin Hankwitz:So make sure you check out public.com's Generated Assets. It is a very cool tool. One of my favorite tools they've ever come out with. And we are really enjoying using it in the Rich Habits Network and for all the people in the community.

33:17Robert Croak:Yeah. Generated assets is awesome. I mean, literally anything you can think of, they just figure it out. It's like, I'm just going to come up with one on the spot right now. And I don't know how this is going to back test, but it's like, I would be curious to know, Robert, what companies invest in companies that attend conferences, right? Like Money 2020 or CES, like there are companies out there that are always attending like these big conferences. The JP Morgan Healthcare Conference is a big one in healthcare, right? I don't know, like invest in companies whose management teams, the C-suite executives are speaking at these conferences.

33:49Robert Croak:Like maybe that's a cool thing. Maybe that's something to invest in. Like maybe that's some alpha or invest in companies you mentioned work out. What invest in companies where the CEO has publicly run marathons before? People have, who knows, right? That's what's so fun though about generated assets is they do all the work for you. They back test it against the S &P. They tell you, Hey, this is a historically speaking, a winning strategy or historically speaking, the strategy sucks. Then you can make your own decision if it's going to be better in the future or not. But that's what's cool about generated assets.

34:17Robert Croak:You've got complete control. It's sort of an ETF with your own conviction, your own theme. So go to public.com slash rich habits, open up a account on public and play around with their new generated assets product. So our next question comes from Chad M. Chad says, Hi, Robert and Austin. My name's Chad, and I'm a longtime listener on Spotify. Thanks for all the great content. You guys are the podcast that got me off the sidelines and got me to finally start taking notes and taking action. So thank you. Let's go, Chad. That's awesome, man. Chad says, my question is this. I'm a pilot for a major US airline and my wife is a nurse practitioner.

34:51Robert Croak:Together, we have a combined income that exceeds the income limits for the Roth IRA contributions. We've been looking at doing a backdoor Roth IRA conversion. Would you do this before maxing out the 401k for me and the 403b for my wife? Or would you max those out, then contribute what's left over on the backdoor Roth. Same thing from last question, match beats Roth beats taxable. So up to the match for both you guys, max out the Roth IRA. And then assuming you have autonomy over your investments in this 401k and 403b, go back to that retirement account, max it out how you like, make sure it's invested into things that you get excited about that align with the low cost index funds and ETFs that we talk about here.

35:35Robert Croak:Make sure it's aligned with your risk tolerance and your age and things like that. You mentioned you're 40 here. Your wife is 35. So aggressive, right? You've got 20, 25, 30 years of investing ahead of you both. So that's the playbook. You also went on to say you have a$1 million net worth,$290 ,000 of combined income,$600 ,000 already invested across your 401k, 403b, and Roth IRAs from previous years, taxable brokerage, and one investment property that you're planning to sell. you say that your income could increase significantly in the next two years and your wife's will increase moderately yeah chad same deal my friend match beats roth beats taxable but then like here's the deal and robert maybe you can talk about this you get to a point where you're 52 your wife is 47 and you guys are like wait a second we've got three million dollars in these retirement accounts and i'm not 59 and a half yet you're nowhere near 59 and a half yet this kind of sucks.

36:30Robert Croak:Like, you know, we have enough money to retire. We're multi, multi, multi, multi millionaires, but we can't touch any of this money. And yeah, you can pull it out or you can do, you know, I'm seeing some like a hardship distribution or a rule of 55. There's a couple of things out there that can make some nuances as you get a little bit older, but like you want to have the bridge account. So Robert, explain what the bridge account is and talk about why it's so important that high earners have this sort of accounts as they get older.

36:55Austin Hankwitz:Yeah, I mean, you crushed it. And exactly that is where my brain was going is I want to see them build up this taxable brokerage. We call it the bridge account. And the reason it's so important is a lot of people end up in this situation where they wake up one day, they're 47, 52, 53. They've got millions of dollars, but they're still broke because it's all tied up in these retirement accounts. We like to see the bridge account grow right along with them along the way. Because let's say at that 52 years old, he has$3,$4 million, but in the bridge account is a million or a million five. Then they can still retire early, no penalties, no concerns.

37:37Austin Hankwitz:Let the 403B, the 401K, and the Roth keep rocking and rolling. but they have this money in the bridge account to do whatever they want to do without having to go dip into retirement savings. So that's why it's so important because you have total autonomy, let it grow along the way, and you can rock and roll and retire whenever you want because too many people don't think about that. And we had the question earlier where it says it's just easier. We don't want everything to be easy. We want everything to be planned out. So if you guys want to retire early and have a blast, build a garden or travel the world, you can do that because you thought ahead and built up the bridge account right along with everything else.

38:17Robert Croak:And Robert, let me just take this one step further. Okay, guys, I've got a million bucks in this bridge account or 600 grand in this bridge account. So what? I still have to pay taxes. It's a taxable brokerage account. No, no, no, no, no. If you are married filing jointly here in 2025, you can experience all in$96 ,700 of income, portfolio income, assuming you're not like making money elsewhere, like you guys are truly retired. The only money you have is coming from this portfolio. $96 ,700 of portfolio income at a 0 % long-term capital gain rate, right? So like you literally go make essentially$100 ,000 off your portfolio and you don't pay any taxes on it.

39:02Robert Croak:Now that's also like assuming you're not earning money elsewhere, right? This is like all in how much money did the household earn? We all just earned the portfolio income. Now if you have like you're still doing the captain thing, now it's taxed at a difference. So like just make sure you work with the CPA. But if you are truly retiring early and you have no income coming from anywhere but your portfolio income, you can essentially tap into$97 ,000 a year and pay no taxes on that, which is awesome. Assuming it's a long-term capital gain. So our last question comes from AD. AD says, hi guys, I'm a new listener.

39:30Robert Croak:I've been enjoying your podcast. I'd like to please stay anonymous. I think AD is pretty anonymous. Yeah, you're anonymous. AD, no one knows what an AD is. You're good at AD. AD says, I'm 43. I'm a single mom and I have two questions. My child who is 10 receives$300 a month and come late March, she will have 23 ,000 saved in a CD earning three and a half percent. It's in a three month short term bond treasury bill. I also have a UTMA account open where I'm saving monthly funds until the CD matures, and then I will reinvest all of those funds into the UTMA account. Should I keep this method going until she's 18?

40:10Robert Croak:I really don't want to commit to a 529. Is there a better alternative to my current method? So Robert, here's the summary, right? AD, our anonymous listener, has roughly$23 ,000 saved for her 10-year-old, plus she's putting in$300 a month. This three-month CD that you're doing is earning that three and a half percent, which on the surface sounds pretty good, but it's much too conservative for an eight-year time horizon. You mentioned 18 years old is when you want to unlock this money for your child, the whole UTMA thing. So over the long term, right, 10 years, inflation is going to erode that purchasing power.

40:48Robert Croak:And the constant manual reinvesting creates unnecessary friction as well. So if I were in your shoes, I would shift away from the CDs and instead invest this money into a broad market index fund like the S &P or VTI or something of that nature and allow your child the opportunity to have compound growth with this money between 10 and 18 years old. Now, something that a lot of people don't talk about, Robert, and I think maybe it's a good opportunity to talk about this right now ourselves, is the kiddie tax. So why don't you break down the kiddie tax rules for 2026?

41:25Austin Hankwitz:Yeah, a lot of people don't know about this, and I want to just spell it out real quick. The first$1 ,350 of unearned income, like dividends or realized capital gains, is entirely tax-free. However, the next$1 ,350 is taxed at the child's tax rate, which is typically 10%, and any unearned income above of$2 ,700 is taxed at the parent's marginal rate. So this is very important for people to understand because if you're saving this much money for your kids, you also have to understand the tax implications and how they work. And a lot of people are unaware of this. So make sure you're talking to your CPA or whoever gives you the help on these matters to make sure you don't miss this.

42:11Robert Croak:But my whole gripe with this is why not the 529? I'm a big 529 guy. I like a good 529. I think it gives you some cool flexibility for college plus trade school. And you can roll it into the Roth IRA at 18, all the fun stuff that comes with that. So maybe to our anonymous listener, I would encourage you to want to think about that 529 one more time. All right, Robert, that is another Q &A episode of the Rich Habits Podcast in the books. Everybody, if you enjoyed the show, please consider leaving us a five-star review either on Spotify, Apple Podcasts, iHeart Podcasts, or wherever you get your podcast.

42:47Robert Croak:If you're watching on YouTube, please give us a thumbs up and subscribe to our Spotify. We've got like a quarter million of you that are subscribed to our Spotify. We're so grateful. So many of you come back every single week. It's unbelievable. So thank you so much. We are so, so grateful. And be sure to come back tomorrow for our Friday episode of the Rich Habits Radar, where we break down the biggest headlines impacting you and your money every Friday morning.

43:14Austin Hankwitz:And don't forget about the newsletter. It's free. It's awesome. I think it's one of the best newsletters in the country. We cover a lot of really, really cool stuff there. You can check it out in the show notes. There's a link and it's just awesome. It's just a quick read for you guys every week to keep you in the know.

43:31Robert Croak:Thanks everyone. And we'll see you tomorrow.

43:56We'll see you next time.