Q&A: Retiring in Your 40s, Keeping $30K in Cash, and Late Roth IRA Contributions

0:00Hey everyone and welcome back to the Rich Habits podcast question and answer edition. This episode is going to be just a little bit shorter than normal because Robert is under the weather. He unfortunately has a sore throat, but we'll tackle that one question at a time. Now, before we jump into this episode, let's take a moment to hear from our title sponsor, Public.com. You might know Public.com as the all-in-one investing platform, and now they've launched options trading. And with it, they're doing something no other brokerage has ever done before. Public is sharing 50 % of their options trading revenue directly with you, the customer.

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1:13And as always, options are not suitable for all investors and do carry significant risk. If you want to read the full disclosure, it's going to be in the podcast description below. And this is for U.S. members only. So with that being said, let's jump into our first question from Kaylee. Kaylee says, Hi, my name is Kaylee and I love your podcast. I just turned 18 and I need some financial guidance. I have$30 ,000 in cash sitting in my bedroom and I only have$500 in a Charles Schwab account that's invested into Tesla at the moment. I make a couple hundred dollars per month walking dogs while spending little to nothing every month because I live with my parents.

1:49I don't know where to start. You all talk about the Roth IRA and I want to do that, But I also know I should be thinking about more than just a Roth IRA. Do you have any advice for me? Robert, want to kick this one off? I love it. Kayla, great question. And first and foremost, don't give out your address on the internet to anyone because that's pretty scary. You have that much cash sitting. And I appreciate everyone bearing with me as I have this Barry White late night talk show host voice this week, but it's been a rough few days. But anyway, Kaylee, in my opinion, you're spot on. Get the Roth IRA going.

2:22Let's get that maxed out. Get some of that 30K put into it. I would make sure you have that basket of funds like we always discuss, the BOO, the QQQ, the BTI. Get some of that mixed bag of ETFs and index funds that we talk about. I would start there first. Secondarily, I would look at opening a public.com account. There is a link in the show notes for that type of account, and I would get some of that money put into cryptocurrency. with your age, you can certainly entertain the risk, but I think it is a very good idea to have some of your money into cryptocurrency right now and also look at Publix brand new high yield cash account that's paying over 5 % right now.

3:02So that's where I'd start getting that money working for you. And I'd love to hear Austin's thoughts of how you could diversify even further. I'm right there with you, Robert, right? Make sure you're doing the Roth IRA,$7 ,000 over there in the index funds we talk about. Make sure you're diversifying probably 2, 5, 7 % of that total amount into a cryptocurrency. Think Bitcoin, Ethereum, things like that. And then also have the rest of that sitting in a high yield cash account slash high yield savings account. Public pays 5.1%. Some of the competitors pay around 3 or 4%, but who wants that? And the last thing I'd give you some advice for on here, Kaylee, is thinking about college.

3:37I don't want you to go into some crazy amount of student loan debt to follow some passion, right? I want you to really sit down. You're a very smart girl. You've got$30 ,000. Obviously, that's incredible, right? You must be smart to have that type of money at your age. Think about what you want to study. Figure out exactly how much it's going to cost you to earn that degree. Figure out exactly what your salary expectation will be post-college and how long it's going to take you to pay off that debt and maybe use some of this$30 ,000 to pay off some of that debt while you're in college, right? That's also a really, really good idea.

4:12But Kaylee, what a wonderful question and we're wishing you the best of luck. And again, don't share your address on the internet. Now, our next question comes from Blaine. Blaine says, I love the podcast. I listen to it every day driving to work. Now, I had a quick question regarding a Roth IRA. I've not maxed out my contributions yet for 2023. Is there a certain amount I can contribute to last year or is it all now having to be contributed toward 2024. How should I approach this? Robert, do you want to take a stab at this one first? Yes, great question, Blaine. And definitely you still have time, very little time, but you have till April 15th of 2024 to finish out whatever contributions you want to make to the 2023 Roth IRA.

4:52And then you can continue forth on 2024. So really good question. And for everyone listening, if you have extra money right now, definitely look at this because you want to try and get that Roth maxed out if you can. Yeah. So there's actually something else you should consider as well here, Blaine, which is the contribution limits between 23 and 24 have changed, right? So let's pretend that you contributed$4 ,000 to your Roth IRA in 2023. Well, that's a$2 ,500 delta between 4 ,000 and 6 ,500, which is the limit that you can contribute in 2023. So you have until you file your taxes or April 15, whatever comes first then, to contribute that$2 ,500 delta retroactively toward 2023's Roth IRA.

5:36And in the same concept, you now have until April-ish of 2025 to max out your$7 ,000 of contribution limit in 2024's Roth IRA, right? So just like you can retroactively do it now in 2024 back to 2023, you'll have the same opportunity to do that in 2025 thinking back to 2024. Regardless, we just want to congratulate you on being so savvy with your money. And we're really, really excited to know that you're trying to max out your Roth IRA every single year. I love it. That was a mouthful, but you covered every aspect of it. And great question. So before we jump into our next question, I just want to remind everyone that public is officially the cheapest way to trade options.

6:16That's because they're doing something no other brokerage has done before. They're sharing 50 % of their options revenue directly with you, the customer. Whenever you trade options on public, you get something back minimizing your transaction costs. So go to public.com and activate options trading before March 31st to lock in your lifetime rebate. That's public.com, the cheapest way to trade options. Now our next question comes from Jack. Jack says, hi Austin and Robert. My name's Jack. I'm 18 years old and I'm a high school senior. My goal is to reach financial independence around my 30s or 40s, if not earlier.

6:52So here's my question. Should I be maxing out my retirement accounts or investing into regular brokerage accounts and real estate, allowing me to access the money sooner? Wow, what an awesome question by Jack. And this is actually me at 18 years old. So I really wanted to answer this one, right? So here's the deal, right? Jack is wanting to reach financial independence. Well, what does financial independence mean? So essentially how I like to define financial independence is my investments are generating enough of profits for me every single month in passive income to completely offset my living expenses.

7:30So let's say, for example, you're spending$4 ,500 per month to pay your rent, your groceries, your utilities, your fun, your travel, transportation, insurance, stuff like that, while you have some real estate and investments that are paying you$4 ,500 a month after taxes. So at this point, your investments are generating for you enough income that offsets your monthly expenses, allowing you to live life autonomously. So Jack, here's my answer. As someone who's also, I'm 27, right? I'm also trying to become financially independent. I'm building a $2 million dividend growth portfolio from scratch.

8:06I'm aiming for 35 to 45 years old whenever that totally transpires there. But I'm approaching that in two separate ways here, Jack, and I want to encourage you to do the same. I max out my Roth IRA every single year. I also try to contribute to a solo 401k every single year as well. Because Robert, I mean, you're in your late 50s, you now have the opportunity very soon to access some of your retirement accounts. I bet it feels good knowing that you've got a lot of money waiting for you in retirement because of the right decisions you made in your 20s, 30s and 40s. And so I want to have that same feeling.

8:39I want to make sure that I'm looking out for future Austin while also trying to optimize for near-term Austin, right? And what that means is I am putting a lot of money into these normal online brokerage accounts like public.com. In real estate, I am investing into the covered call ETFs that we talk about like SPYI and QQQI. I am selling covered calls against my Tesla stock to generate income. I am buying dividend stocks. I am doing the real estate stuff. I'm doing these things that generate passive income for me today while also not ignoring the long-term future Austin that is going to want to have a good retirement account waiting for him in about 30 years.

9:15Jack, I love this. And Austin, you just coined a new rich habits term that we're going to carry out in the coming years. Future Austin and near-term Austin. And I think this is a really, really critical point. And I love what you just said because so many people look at the near-term lifestyle that they want to live without considering the future lifestyle they want to live. And actually it's backwards because when you're young and you're hungry, and if you're thinking of future lifestyle, future wealth building, and all of that, you put yourself in such a better position because when you're young and hungry and you're not married, you don't have kids, or maybe you're getting married and just having kids or whatever it may be.

9:58If you have your eye on the prize for the future of that family of yours and yourself, you're going to be so better off because you're making decisions now that greatly affect your future. And this is so critical for people. I deal with clients all the time that simply just don't think of the future. They're thinking one year ahead or two year ahead, and they're not thinking of five years, 10 years, or 20 years ahead. And it's so important to understand that, that you can't just keep kicking the can down the road and expect to be able to have financial freedom at some point. So this is a great one.

10:31We're going to have to integrate this into our rich habits terms that we talk about over and over. And I really enjoyed that. Yeah, it was great. Jack, really excited for you, man. I mean, you are 18 years old, you're a high school senior, you're crushing it for your age. And I give you the same advice that I gave Kaylee, which was when you go to college, make sure you're going for a good reason, right? You do not want to leave college$250 ,000 in student loan debt with a degree that says you know how to do underwater basket weaving or left-handed puppetry, right? So just be mindful of that, especially if you want to reach financial independence in your 30s and 40s.

11:03Now, our last question of this shorter abbreviated episode, which thank you all so much for giving us the flexibility to do that, right? We can't control illness and things like that. So, Robert, thanks so much again for hanging out with us on this week's episode. But our last question comes from Bradley. Bradley says, I love the show. I listen daily. And I'm going to ask you all for some quick advice. I'm 43 years old and I have$80 ,000 in company stock as part of my compensation. I work at Amazon. Amazon stock doesn't pay a dividend. Now, I earn this stock through RSUs, which are restricted stock units, as part of my compensation, and they have all vested.

11:37Would you guys recommend cashing it out and then investing all that money into VOO or SPYI? I'm not sure how I'm going to get taxed on this stock. Should I leave it? What do you guys recommend? So Bradley, a couple of things here. RSUs are taxed as ordinary income at the time of vesting based on the fair market value of the shares on that date, right? So employees are responsible for paying income tax and employment tax on the value of those vested rsus while any subsequent capital gains right amazon stock has gone up the last year from selling those shares are now also taxed as capital gains you're going to get kind of taxed twice here when you think about it but what i want you to think about as well bradley is and we've kind of answered a question similar to this which is really important but i don't care the company if you are getting eighty thousand dollars as part of your compensation and you now because they're vested have to pay taxes on that$80 ,000 of compensation, I encourage you to one, consult a tax professional and understand your tax liability if you do sell them, but two, really think about selling them as part of your larger annual compensation here and then thinking to yourself, okay, now that I have this post-tax$80 ,000, call it maybe 50 or 60 grand, what can I do with this money to best help me move forward in my financial journey?

12:48Maybe you have some high interest credit card debt you're trying to pay off. Maybe you've got some high interest student loans or personal loans, or maybe you have a HELOC that's at 12, 13, 18 % that you're trying to pay down, or maybe you have the opportunity to now max out a Roth IRA with this additional capital, or invest into a business, or maybe buy some real estate, right? So I don't want you to feel pigeonholed into keeping this$80 ,000 of Amazon stock because, wow, it's Amazon, I should keep the stock. Sure, I own Amazon stock, I have a lot of it, but I also am conscious of my everyday spending.

13:19I'm conscious of where I am in my financial journey and what goals I have, to Robert's point, near-term and long-term Austin. And where does this now$80 ,000 of compensation fit into near-term and long-term Bradley? Yeah, I love the question. And Austin, I think you nailed it. You have to look at, do you believe in Amazon for the future? Do you feel that the stock is going to continue to grow? Should you pull some off the top rather than all of it to get your Roth IRA maxed out? Get a more diversified portfolio by maybe adding some of that into cryptocurrency or some of the other diversified assets that we discuss having in your portfolio.

13:54So I think those are all things you need to consider. Congrats on having the 80K, but just really look at what you think is best for you for the long term from a tax perspective and then also for growing your portfolios overall and having a diversified plan moving forward. So that's the way I'd look at it, Bradley. Great question. Sorry about the voice today, everyone. It has been very difficult for us in the past 48 hours as we've tried to film this episode. And unfortunately, my voice has not improved, but we got through it and we did an abbreviated episode. But I appreciate you guys' patience and I'll be back to normal hopefully in the next 48 hours.

14:31Thanks everyone for tuning in to this abbreviated episode of the Rich Habits Podcast. Robert, I hope you feel better, my man. Everyone, don't forget, leave us a five-star review if you enjoyed the episode. Ask us a question on Instagram at richhabitspodcast on the public app as well. We're always over there very active or send us an email at richhabitspodcast at gmail.com. Thanks, everyone, and have a great rest of your week.