Which Accounts Should I Draw From In Retirement? (Rapid Fire Q&A)

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2:44What's up, everybody? And welcome to the Personal Finance Podcast. I'm your host, Andrew, founder of MasterMoney.co. And today on the Personal Finance Podcast, we're going to be doing a rapid fire money Q &A. So if you guys have any questions, make sure you join the MasterMoney newsletter by going to MasterMoney.co slash newsletter. And don't forget to follow us on Spotify, Apple Podcasts, YouTube, or whatever your favorite podcast player is. And if you want to hop up the show, consider leaving a five star rating and review on Apple Podcasts, Spotify, or your favorite podcast player. Now, today we're going to be diving into 15 questions rapid fire.

3:20You guys have so many great questions that are coming in, and I want to make sure we answer as many of these as possible in this episode. So this is going to be an action-packed episode, but we're going to be answering these rapid fire questions. So solo Roth 401k, should I max out the Roth employee side before employer side? Number two is how long can I leave my 401k infidelity before needing to roll it over to the new employer's plan? Number three is if I haven't maxed out my Roth IRA, would it still make sense to open a brokerage account? Number four is I have maxed out my Roth IRA for the past three years?

3:49Should I contribute more to my 457B? Number five is how can I pay off$117 ,000 of high interest student loan debt and stay motivated? Number six is should I start a Roth IRA for my grandkids now or start them in an index fund? They're five. Number seven is I'm 19 with$20 ,000 plus invested. Should I start building credit? Number eight is I have two investments, mutual fund high fee, ETF low fee, both high return. Should I stop the mutual fund investments. We have those eight questions plus seven more coming that I am really excited to answer for you guys here. So this again is an action packed episode and one that we are going to be diving into these questions and we're going to do it rapid fire.

4:29So get ready. If that's something you're into, let's get into it. All right. So the first question is, should I max out my Roth employee side before the employer pre-tax side or should I split it up into two. And they're talking about the solo Roth 401k. So with a solo 401k, you can actually play two roles, employee and employer. So on the employee side, you can actually put$23 ,500 in 2025 and$30 ,500 if you're over the age of 50. So you can choose Roth or pre-tax Roth, which makes perfect sense if you expect your future tax rate to be higher today. So when we are making decisions when it comes to Roth or pre-tax, we want to look at our current situation.

5:09Number one, this is always a great question to ask your CPA. Your CPA can look at your specific financial situation. They can look at your tax deductions. They can look at your business deductions and give you a pretty clear picture as to which one you should choose. Now, if you don't have a CPA, there's a couple of questions that you can ask yourself. So number one is, do you plan on your taxes being higher in the future? If you do, then a Roth may be a really good option for you because a Roth means that money goes in and it's already been taxed. Then the money grows tax-free and you can pull the money out tax-free.

5:39So that tax-free growth is going to be a massive benefit for a lot of people. But if you're a really high earner, then what you want to do is get a tax deduction in that specific given year, which is why if your CPA does look at this, they can tell you, okay, we need a deduction in this given year. And so I want you to do the pre-tax over the Roth, because this is going to help you within that tax situation. Now on the employer side, you can contribute up to 25 % of net business income. So I do this every single year as I will look at my business income and I will contribute 25 % of that net business income.

6:10And this side is always pre-tax, not Roth. So if you want to do that, you need to do that in the pre-tax. You cannot do that on the Roth side. So my specific order usually goes is to max out the Roth employee side first. And then if you want that free tax, free growth, then you can add the employer pre-tax for the tax deduction. But it's not really split unless you want that tax diversification. So I always go Roth first, and then I go pre-tax later on if I can, unless I'm in a given year where I really need that tax deduction, which some years we do. And if you do need that tax deduction, then you can take a look at that.

6:42But I like the Roth for the tax-free growth. I am really, really bullish on that tax-free growth because when you run the numbers, you do the math, you look at the compound interest, it is a really, really big number. And so I love the Roth side first. Number two is how long can I leave my 401k infidelity before needing to roll it over to a new employer's plan? Now, there's no given deadline for this question. So there's no deadline out there that you have to roll it over at any given time. You can leave it in your old 401k indefinitely as long as the account balance is above$5 ,000. So that's the number one key is as long as that balance is above five grand.

7:14But employers may force you to move it. So it comes down to what the employer's rule specifically is. Now, some people will leave it in that plan if the plan is pretty good, if you like those investments or there's low cost options. But if not, then they will roll it over into a rollover IRA. So this is what I did. When I left my job, I took my 401k and I rolled it over into a rollover IRA at Vanguard. Now, why did I do this? I did this for a couple of different reasons. One is I wanted the flexibility and the ability to control my investments completely. So I wanted to be able to choose my investments in this account.

7:50And so in order to do that, I need to roll it over into a rollover IRA at a location where I like the investments. I love Vanguard Investments. Most of my portfolio has Vanguard funds in it. I truly believe in the company long term. I think Vanguard is absolutely fantastic. And so I rolled mine into a rollover IRA at Vanguard. Why? Because I wanted to get myself into some VTSAX over there and get some total stock market index funds. So that's what I did. I rolled it over into Vanguard and I've been there for years now. But if you like the investment options where you currently are, there's nothing wrong with leaving it there short term if you want to.

8:24I just like to have the control and I like to have the flexibility. So for most people, I recommend you looking into a rollover IRA because that way you could do some other cool things with it. Now, sure, some of the caveats that will come into play is some of the 401k rules that you can utilize and access your 401k early may not come into play if you plan on retiring at some point soon. So maybe you wanted to use the rule of 55, for example. And if you wanted to go ahead and do that and start to withdraw some of that money around the age of 55, if you retire early, then we want to make sure that we have plans in place and look at some of those rules and parameters surrounding that.

8:58But if you're someone who is young and you don't plan on doing some of that stuff anytime soon, then having a rollover IRA could be a great option. All right, the next one. If I haven't maxed out my Roth IRA, would it still make sense to open a brokerage account. So generally, maxing tax advantage accounts first, like your Roth IRA, or your 401k, or your HSA, are typically what we tell most people to do, is I want you to take advantage of some of those tax deductions. I want you to take advantage of some of that tax-free growth, depending on what type of account that it is. And so the Roth IRA has that tax-free growth.

9:31Boy, oh boy, do I love that tax-free growth. If you've been listening to this podcast any given time whatsoever, you know I love the Roth IRA because I love the tax-free growth, which is really, really hard to beat, to be honest. But if you need some extra flexibility, so for example, if you think you may want to retire early and you think you may retire in your 40s or your 50s, a lot of people listen to this podcast, they want to retire early. That's a big reason why they listen to this podcast. And so if that's the case for you, then having that taxable brokerage account to give you that additional bucket where you can pull from if you decide to retire early is a really, really good idea.

10:03And taxable brokerage accounts give you flexibility. There's no rules or parameters around when you can pull money out of those accounts. And the only difference between some of these tax advantage accounts is that you are going to have to pay taxes on the gains. So anytime you look at a taxable brokerage account, there's a long-term capital gains and there's short-term capital gains. Long-term capital gains is what most people listening to this show pay because most people are long-term investors who listen to this show. So any investment that you hold for longer than a year means that you pay long-term capital gains tax on that money.

10:35And so when that happens, it is a much lower rate than would be your income tax. And so it is still a tax advantage situation, even though it is an investment and you are paying taxes when you draw down on that money. So let's say, for example, you have$100 ,000 in your brokerage account and it is grown from$50 ,000 to$100 ,000. Well, that additional$50 ,000 of growth is what would be taxed. It wouldn't be taxed on the entire amount. Just that additional$50 ,000 is what would be taxed. So if you need that extra flexibility, there's nothing wrong with that whatsoever. It is not an either or situation.

11:07It is all about your priorities. If you want to open that taxable brokerage account, and I highly encourage most people to have one open at least so that they can take advantage of a third tax bucket. So you got your pre-tax, you got your post-tax, and you have the taxable bucket. And all three of those are going to help you in retirement. And they all have their pros and their cons. The pros to having that taxable bucket is the additional flexibility, especially if you want to retire early. I've maxed out my Roth IRA for the past three years. Should I contribute more to my 457B? Yes, if you have the extra room to save, it is definitely in your best interest to look at a 457B.

11:40A 457B is one of the best plans available, especially if it is a governmental 457B and it is not subject to early withdrawal penalties. So you can contribute up to$23 ,500 in 2025, plus catch up if it's eligible. And after maxing out your IRA, funding that 457B is usually an excellent next bet. Now, if you get a match with that 457B, always get that match first. You definitely want to make sure that you at least contribute up to that employer match. So if they match up to 6%, you want to make sure that you also do that first, even before you are maxing out that IRA. Now, I don't know if this is a Roth IRA or a traditional IRA.

12:16We want to look at that too, depending on what it is. Then we want to look at that 457B, get some money in there as well because of those tax advantages. Again, everyone listening today, you want to take advantage of as many tax advantage accounts as you can because that is going to help you tremendously in the long run, save you hundreds of thousands, if not millions of dollars in retirement because you are taking advantage of that. And so really, if you can get more dollars into this 457B, that is a really, really good idea. Number five is how can I pay off$117 ,000 of high interest student loan debt and stay motivated?

12:48So really good question. And motivation is a big thing that a lot of people try to find when they are paying off debt. What it really comes down to is discipline. So your motivation is going to be fleeting. And I want you to stay motivated. I'm going to give you some tips on how to stay motivated here in a second. But motivation is fleeting. Your discipline is what is going to rule over everything else. Now, one thing I will say is because you have this high interest student loan debt, I would first figure out how much money can I throw at this high interest debt. So the way that our methodology works is we have something called the 136 method, meaning I want you to save up at least one month of expenses in a high yield savings account.

13:22And then beyond that, I want you to start paying off high interest debt and attacking it like it is a pants on fire emergency because it is. And so if you have this high interest debt, depending on what the interest rate is, we want to make sure that we are going after this and getting rid of it as fast as we possibly can. And so at this point in time, I want you to figure out how much extra dollars each and every single month can you throw at this high interest debt? And I want you to automate it. automation removes willpower from the equation, meaning you don't have to anymore worry about, am I going to make this extra payment or not?

13:52Instead, try to either make extra payments towards that debt so that you can get it paid down and gamify the entire situation. Okay. So first, automate your payments towards it. And if you can make it a double payment, if you can make it even more than that, that is even better. But automate your payments towards that high interest debt. And then let's start to track the progress. How do we track the progress? One of two ways, my favorite way though, is to track your net worth. And so what I would start to do is you can download something like personal capital. I'll link it up down below. Personal capital is a free tool that allows you to track your net worth.

14:23And when you use personal capital in the way that it should be used, you're going to start to see every single month, my net worth is going to be improving. Why? Because I'm paying down this debt more and more and more. And so utilizing your net worth as the scoreboard to look at this every month and you say, okay, I just made a$2 ,000 payment towards my debt. Guess what? My net worth improved by$2 ,000. Now, you may be looking at this and saying, my net worth is negative right now because I have$117 ,000 of high interest student loan debt I need to get rid of. But that is going to be one thing that you can do is stay motivated by looking at the scoreboard, which is your net worth.

15:00Number two, I am the type of person that needs to continuously learn and educate myself on specific things, especially when I have a specific goal. So let me give you an example. I have been spending a lot of time as of late in fitness and money have a lot of correlations, but I have been spending a lot of time as of late improving my health. A lot of time, a lot of energy. I do two workouts every single day. I work out six to seven days a week. I make sure my eating is right. I have changed a lot of things in my life. And a lot of this is because I did a lot of blood work and went through function health, and I found some things that I did not like within my blood work.

15:35And so I wanted to make a couple of adjustments, which I am doing, in order to ensure that I am a much healthier person. But in order for me to stay motivated, because I'm disciplined and I will do it every single day, but in order for me to stay motivated, meaning I'm going to push as hard as I possibly can, I try to consume content that is going to help me further that goal. So, for example, maybe I'm following some fitness people on social media. Maybe I'm reading a book about longevity. So I read Peter Atiyah's book. That book changed my life. Maybe I am consuming more things and educating myself more on advanced strategies when it comes to health and longevity.

16:10Those are the types of things that will keep you motivated long term and keep you consistent. So when it comes to paying down debt, I would highly recommend, hey, continue listening to podcasts just like this. Continue following people on social media who keep you motivated. Continue watching YouTube videos. Continue doing all these different things that are going to tremendously help you stay motivated. Now, your motivation, I just want you to understand this is fleeting. It's going to go away. It's not going to be around forever. And so you really have to rely on your systems and your discipline to get through the hard times.

16:38Four or five months down the line, you're not going to feel like doing this anymore. You're like, why do I keep throwing money at this debt? It doesn't get any better. Okay. So these are all the things that I would highly recommend is to keep yourself motivated. But number two is let's get our strategy down because this is high interest debt currently. Can we refinance this to a lower interest rate? Can we refinance this where all of a sudden can turn into a low interest debt? If you have a 9 % interest rate on your student loans, or if you have a 12 % interest rate on your student loans, refinancing down as interest rates are starting to go down at the current time I'm recording this, refinancing them into better loan rates is gonna be a really, really good idea for most people.

17:13And so taking those steps and looking to refinance and finding ways to lower that rate can really, really help you long-term. So it's between strategy and motivation, those are two steps I want you to do. So I want you to go look at refinance rates now if you can, number one. And then number two is I want you to find ways to motivate yourself, one, by tracking your net worth, but two, consuming content that is gonna keep you in motion as you go forward. But just realizing that motivation's gonna go away, It's fleeting. It's not going to be around forever. And your discipline and your systems, those two things, which your system should be automation, are going to help you tremendously.

17:45Now, that's partially, by the way, why we created Master Money Academy, because there's a lot of people in Master Money Academy, which is so cool to see on our founding wealth builders, our beta group here. It is so cool to see they are motivating each other. They are working through their progress together. And every single week, we share wins on Fridays, and everybody's sharing their wins and we're cheering each other on. It is so cool to be in there. So just another reason why we love Master Money Academy. All right. Number six is, should I start a Roth IRA for my grandkids now or start them in an index fund?

18:15They're five. Great question. So with a Roth IRA, they have to have earned income in order to open a Roth IRA. So unless they're doing some baby modeling or they have some money coming in, you have to have earned income and that's all you can contribute for them in a Roth IRA. But secondarily, I want to kind of talk about the difference in this question here. So you said, should I start with a Roth IRA for my grandkids now or start them into that index fund? So the Roth IRA is the account. This is what holds your money. And the index fund is the investment that you invest in inside of the Roth IRA.

18:43So there are two separate things. So really, you just think about it in this way, shape or form is the account is the Roth. Then the money that you put into the Roth needs to be invested somewhere. And where it gets invested is something like an index fund, an ETF, a dividend stock, whatever you want to invest in. But the index fund is the investment. That is where you are investing your money. So they're two separate things. Now, secondarily, what I do with my kids is mine are in a taxable brokerage account, and I invest money for them there. And the reason for this is you can do a UGMA or you can do a UTMA.

19:10But what I didn't like about UGMAs or UTMAs is that when they turned age 18 or 21, depending on what state that you're in, you have to give them money. And I don't want to give them money by a certain age, because when I was 18 years old, I would have blown all of that money on the dumbest things in the world. And so instead, I like to control the money until I feel like they are ready to get those dollars if I give it to them at all. That's the other side of that coin. And so overall, I have this money earmarked. They are the beneficiaries if something were to ever happen to me. And so it's in my name.

19:40They are the beneficiaries. And then I invest in index funds and ETFs in that tax with brokerage account. I keep mine at Fidelity. If people always ask that question, Fidelity or Vanguard are two places I recommend for sure. And really, that's one of the best places to look at that. Now, also, if you want to save for college, that's another question, obviously. separate. But a 529 plan is the way I do that. And that is another great way to look at it. So hope that answers your question on there. But really, you can't invest for kids until they actually have earned income. So once they start to have that income, maybe from mowing lawns, they can do other things like that.

20:09Then you could start to have a custodial Roth IRA. All right. The next one is I'm 19 with$20 ,000 plus invested. Should I start building credit? Absolutely. You should start building credit as early as you possibly can. So credit isn't about debt and building credit isn't one of those things that you should not do. It's all about building a strong financial profile. So you can open a beginner-friendly credit card. One is like the Chime Secure Credit Builder. One of our sponsors of this show is a great option to look at. Discover has one. There's a bunch of them out there. But a secured credit card works in a similar way as a debit card.

20:43Say, for example, you think you'll spend$250 per month on that card. where you put$250 towards the secured credit card in your own cash and you put it up and then you can spend that$250 like you're utilizing a debit card. And what happens here though is that the difference between a secured card and a debit card is that you are helping your credit score. So it gets reported to credit bureaus and you are improving your credit score by utilizing that secured card. So it's secured by the cash that you put up, okay? So that's why they call it a secured card. There are also beginner-friendly credit cards.

21:13I don't recommend those for beginners. That's how a lot of people get into issues because they think, ooh, this is free money. I'm just gonna start swiping my card left and right. I'm gonna go to Target. Ooh, I can get those things. Free money, swipe. Ooh, I'm going down to the local restaurant. Free money, swipe. And then all of a sudden, they get themselves into credit card debt. So instead, I would rather you use a secured card up front until you can trust yourself with purchases, even if you're a responsible adult. I always recommend people do that first. And then use it for small purchases and then pay it off every month.

21:40So that's how you can start to build up your credit really quickly. And this builds your score. So later you can get rates on mortgages, auto loans, and business credit. So building credit is a multi-million dollar decision. You can improve how much you're paying and the rates that you're paying on certain things by six figures just by improving your credit score over your lifetime. Let's say, for example, you get a 30-year mortgage, and that mortgage rate is all of a sudden a 2 % difference because your credit score is poor. Well, that is going to be something that is going to cost you hundreds of thousands of dollars over your lifetime if you're not careful.