On episode 224 of Ask The Compound, Ben Carlson, Ritholtz Wealth CFO Bill Sweet and Duncan Hill discuss: whether it’s time to …
Transcript
Welcome. This is Ask the Compound, the show where you ask and we answer. Let's say you have 100% of your portfolio invested in stocks. When do you start diversifying into more conservative investments leading up to retirement? And then how do you start withdrawing money from your portfolio? The 4% rule, how do you think about taxes? We cover all these questions and more about retirement planning and a lot more on the show today. Let's do it. Our email here is ask the compound show@gmail.com live chat. Ask away. Uh Dave already said, "Ben, how are book sales going?" Uh we're great for people who listen to this show because we're g I gave away I'm going to put them in the mail tomorrow. Sorry people. The holiday got me back last week. Books are going out today. If you asked a question, got it on. We're going to reach out for your address. They're >> as your business manager. I am just saying you are giving away books to like prime audience that would have bought them. But you know that's just neither here nor there I guess. But >> hey these people better be using word of mouth. Give them to your kids, grandkids, friends, neighbors. I have faith in our compound community. >> Speaking of Dan, throw up uh throw up the book charts. Look at uh look at this. You're number one on uh on Amazon stock market investing. >> All right. Me Jim Kramer. >> I mean look at that. Ben Graham number five. You're number one. All right. I just barely beat out trading in the zone. All right. Our books are exactly the same. I have a whole chapter why day trading is impossible. That's kind of funny. >> I do think it's funny. I I started your book and you you might have incepted this into my brain. So, sorry if you already said this on a show, but I think it's funny that you you quote in one chapter Dolly Parton, Winston Churchill, and Eminem. >> The three of them in one. I don't think that's ever been done before. >> Yeah. Right in the introduction. Diversification. Dolly Parton. My favorite quote of the book. >> Yeah, it's cool. >> Right. If you want the rainbows, you got to deal with the rain. On today's show, we have questions straight from our compound audience in the inbox about when to sell big energy winners, how to rebalance risk heading into retirement, does the Jeff Bezos plan tax plan make sense, how do taxes impact the 4% rule, how to withdraw money from a Roth IRA, and finally, how to save for the next generation while enjoying today. But first, today's show is sponsored by Betterment. What growth strategy are leading RAS using that most firms don't? Segmentation. Some clients needs are sophisticated and require deep ongoing planning. Some clients needs are simple, like those in the wealth accumulation stage, the smartest firms. No, planning shouldn't look the same for every client, but the experience should always be exceptional. Now, it can be with Betterment Advisor Solutions. It's a platform built for segmenting your book and streamlining those smaller and simpler accounts. The onboarding experience is automated and paperless. The portfolio management is streamlined and tax efficient. The client experience is consistent and modern. And the impact isn't just felt by your clients. It's felt across your entire practice. Imagine a back office that's humming. A team that's thriving in a service model ready to scale betterment advisor solutions. Your biggest regret will be not doing it sooner. All right, we got a lot to Before we get into it, we have we did a poll from last week. I don't know how you do these. I don't know where they show up, where people vote on them. >> They're they're on YouTube. So, go to our YouTube homepage and uh you'll see the community tab and we do polls on there. >> Okay. So, you did one based on a question last week. Would you leave your job you love to work for one you hate for three times the salary? And it was basically split 50/50. So, remember last week we had a guy ask, "Hey, I love my job, but if I leave and go to the family business, I'm going to triple my income." >> And and to be clear, he didn't even say he would hate it. He just said that he had his dream job. So, I made the poll actually even more more binary and I was still shocked by the results. >> How so? That more people would leave or or which one were you shocked by because it's 5050? >> It just makes me think that a lot of people have not had a horrible job before and maybe take for granted have a good job that they they love. True. Because if you really have had a bad job before, I don't think you are taking taking the the >> This sounds like it could be the plot of a movie like The Ghost of Christmas, past, present, and future. Right. >> Right. >> I'm going to I'm going to show you the other shoe. Here's a job you actually hate. How do you like it now? >> Yeah. >> Right. I guess they kind of did that with Good Fortune. That is a horror movie. Oh well. All right. First question. Let's do it. We got a lot. >> We should make that movie. Okay. Up first. Say we got a question from Nathan. I bought Exxon, Shell, and Devon Energy in my brokerage account back when oil was $0 a barrel. I'm sitting on some solid gains and feel like I need to rebalance my portfolio and lock in some gains. I wouldn't even mind sitting in some dry powder for a pullback. I feel like we're one news announcement away from oil dropping like a lead balloon. What's the best way to determine a jump off point amid geopolitical uncertainty? Will oil go higher if China starts buying from US companies? Am I chasing another 10 to 15% upside before a larger draw down? I'm 38 with a four and sixy old. I max out my simple IRA yearly and have a 529 for kids. I've always been a long-term buy and hold investor putting patience over trends, but I'm feeling burned out with the AI market and logging into my account every day. >> First of all, nice not to brag. That's a pretty good investment. That was that was great. Um, let's do a chart on show. This is this is from April of 2020. This is Exxon and Devon. So we're both we're up 400% or so over 325%. So really really good >> chart off. I still remember when oil prices went negative. It was towards the end of April 2020. People were losing their minds. That was like this wasn't supposed to happen, >> right? It was such a crazy market environment. That was also a really contrarian trade because at the time the trailing 10-year return for the S&P 500 was 200%. Okay. The trailing 10-year return for XLE, the energy ETF, was negative 15%. So energy stocks were sitting a loss decade. I think it was even like a loss at the lows in March 2020. It was a loss 15-year period for energy stocks. Like they went nowhere. Let's you chart on. This is since April of 2020, XLE is outperforming the S&P by almost 100%. Like 280% for the XLE, 180% for the S&P. So this chart off, please. In a decade that seems to be almost driven exclusively by momentum trades, it's nice to see a contrarian trade that actually worked, right? because it doesn't seem to be happening very often. So, >> and and for people that are watching this that are like, "What in the world are you talking about?" This is just because there was so much supply, people had to do something with the oil which cost money. So, that's how it technically went negative. Is that is that correct? >> Yeah. Yes. It Yeah. >> It's not just like in in theory. It's not like buying paper like you actually had to take delivery of the oil and do something with it, which storing it costs a lot of money. So, that's how negative. >> Yes. People weren't like buying barrels of that was a joke. buy a bar of oil and have it sit in my backyard and just wait. >> I mean, you could have, I guess. >> Yeah, there's cost to storage and all that stuff. Um, but anyway, I'd say first off, whatever you do, do not make your investment decisions based on geopolitics. I think that's the biggest lesson that people can take away from this year. Don't try to time geopolitical uncertainty. Just think about all the oil analysts who predict $200 barrel oil and said it was imminent. Throw up my headlines here. I pulled a bunch of them. People, they I don't know why it's always 200. Maybe just people love the, you know, round numbers. It's always 200 just like 55 is the early retirement age. These people are very plugged into the situation of the straight up horses. Um, by the way, and they know way more about it than any of us oil noobs do. And guess what? It's still hard to predict. Take it off. Uh, now look at the price of oil. Okay, it got as high as like 120 a barrel. Now it's back 93. So, um, our guy, I can't remember the name of the guy, Nathan, he's worried about oil falling. It already did fall. It spiked then it fell. I mean it could fall more obviously. Throw my next one. This is same predictions in 2022 when the Ukraine war started. $200 oil. $200 oil. $200 oil. Like everyone says this, right? Predicting the future is hard. Obviously, um the energy analysts have no idea what's going to happen to the oil price. Neither do I. Neither do you. Okay. I I guess my biggest piece of advice from this, the way that this question was worded is you need to simplify your portfolio. You have two young kids at home. You shouldn't be burned out from checking your portfolio so often. Like one of the main reasons I stopped my discretionary stock picking strategy is because I was constantly checking on them. Like 5% of my portfolio was taking 95% of my wavelength of my brain. Like it was too much brain damage. I was constantly looking at it. >> Sounds like fun to me. >> Some people do like that. It So now I I just I have it that portion of my portfolio. It's automated. I'm not having to think about it. It's rules based. I don't check my account nearly as much. Um, guess what's not going to help this situation and make you relax more trying to time the market because that's just going to invite more brain damage. Um, because you're constantly going to be worried about when to get back in, right? >> Yeah. I was about to say that what you're talking about, I actually enjoy watching the market, you know, every day. Uh, but I would be very stressed about when to allocate a big pile of cash back in. >> I mean, the good news is he already won. So, whenever, you know, whenever he sells, it's going to be fine. Um, I would say my advice would be diversify out of the energy holdings. If you can do it in a taxefficient way, uh, then just pick an asset allocation you can stick with regardless of what's happening with AI or oil prices or geopolitical headlines or any of the other crazy stuff that goes on around us, right? How do you do that? Listen to last week's episode about the perfect portfolio. We talked about this a little bit, but I think just once you have an asset allocation that you're okay with, you don't need to rack your brain every time there's an investment decision that needs to be made. What should you sell? Well, you sell whatever is overweight. What should you buy? Well, you buy whatever's underweight. Well, if you have new money to invest, right? You s sold these stocks. What do you invest in? Your asset allocation tells you the proportions to invest in. Go with your stated asset allocation. That's what makes it so great. You don't have to worry about timing things. You just put it in your balanced portfolio and stop worrying about it and go play with your four and your six-year-old. You already won. Kudos. Move on. >> Yeah, that's good advice. How much is not giving you so much brain damage? >> How much of this is uh self-preservation by oil companies though because they saw that having it even go to $100 a barrel really has accelerated you know EV adoption and people getting you know heat pumps and all kinds of things to try to >> Wait, are we getting into tin foil hat area here or what are we going to >> No, I'm saying theory of this. >> No, no. I'm just saying logic. I'm saying, you know, the higher you make oil prices go, the more people are incentivized to get off of oil. >> Well, you're right. Billy Bob and Land Man said, "Listen, the perfect price of oil is like $70 a barrel, >> right? >> We don't want it to be super high because that, you're right, it it hurts demand." >> I saw a chart of EV sales since this happened and it's like straight up, you know? So, yeah, hitting $100 already had a big impact. 200 would be astronomical. >> I I mean, listen, I actually have some sympathy for the oil analysts because if you would have given me the setup of everything that happened this year, I would have said, "Yeah, oil is going to be $150, $175 a barrel or something. be very high. I mean, it's already up 60%, but it it is surprising. Dave in the chat says, "A written investment policy statement would help." Yes, Dave. Correct. All right, next question. All right, up next, we got a question from Colin. Why wouldn't someone just invest 100% in stocks from the beginning of their career until about 5 to 10 years before retirement, then switch to 100% cash and stop contributing to retirement accounts? It seems like maximizing time in the market early on would give the portfolio the best chance to compound while the final working years could be used to build up cash reserves before retirement. I'd also be curious what the data shows comparing this strategy to to more traditional retirement allocation approaches. >> So people always ask me, Ben, why do you write about market timing so much? It's because people want to time the market. They just >> so bad. So bad. >> Two questions in a row, right? Everyone just Okay, I know it's hard. I know it won't work for most people, but what about me? I think this >> it is it's you just did it. It's the Tobias meme. >> Yes. This sounds good in theory. You grow your money for a few decades. You compound it and then you get an off-ramp into cash and you protect your capital for retirement. I'm sorry to say there's some serious holes in this strategy. Okay. Sequence of return risk for sure. Like what happens if you sell all your stocks at just the worst time, right? If you go to cash right before like right before a huge boom or right after a lost decade. like maybe you get some good luck and you get off you get out of stocks after a good boom like we've had now. But I think the biggest risk here is some combination of longevity and inflation. So the New York Times had this story on longevity a few weeks ago. They said for people who have already reached age 65, the average life expectancy is is now more than 86. A 65-year-old married couple, there's a 64% chance that at least one partner will live beyond 90. So, you have to have your assets grow for two, three decades, maybe sometimes longer for certain people. Uh, I have something in my book about this. I say that a 3% inflation rate cuts the value of a dollar in half in 23 years. A 4% annual inflation rate cuts your money in half in 17 years. You still need to grow your money in retirement. You need to be more balanced about it, but you still need to grow it in some way. So, you can't just give up on your portfolio because you're worried about nominal losses. That's why a more traditional retirement plan involves a more balanced portfolio. So just just for fun, I ran the numbers on holding your money in cash, which is T bills. That's the investment equivalent of cash. For 10, 20, and 30 years against the rate of inflation. So how often did cash lose out to inflation over the past 100 years or so? Duncan, what do you guess over 10ear period? How often did inflation beat cash over 10ear total returns? >> Um 48% of the time. >> Yeah. Pretty 50/50. It was a coin flip. >> Okay. half the time over 20 and 30 year time frames cash did okay actually like it beat twothirds of the time. Um but that's not that's not a great outcome if you're if you're barely beating inflation or losing to inflation. And actually you don't have to go that back that far to see inflation beating cash over the past. >> Now when you say cash is that just cash cash or is that cash earning some kind of yield? >> Yeah, T bills CDs money market high yield savings account cash equivalent something like that. I use T bills here, but that's those other things will be close to T- bill, right? >> So, not literally dollars under a bed. >> Yeah. No, if it's dollars under a mattress, then it's way worse even. >> Yeah. Yeah. >> It's then it loses out to inflation over every period. >> So, if you look at the last 10, 20, and 30 years through the end of 2025, inflation beat T bills by 11%, 17%, and 7% respectively. So, in the last 30 years, you lost to inflation by sitting in T bills. So, a lot of it depends on inflation and interest rate levels obviously, but that's a dangerous game to play. I I think I prefer more balance. It obviously dep like some people have so much money they could put it in cash and it's not going to matter, but you have to be in like the top 0.1% for that. Okay. This person didn't say that. I'm guessing you probably still need some growth in your portfolio. >> Yeah. I think a lot of people see retirement as a finish line. It's like, oh, we hit it, so now now we can go to cash. But yeah. >> Yeah. You you still got inflation to deal with. That's it's could be scary. >> All right, next question. >> Okay, up next we got one from Brian. I caught the Jeff Bezos interview on CNBC last week. He wants the bottom 50% to pay no income taxes because the amount they contribute is already so low. I need Bill's take on this. Are his numbers correct? Would this actually work? I know this is a rabbit hole type question, but it kind of makes sense to me. >> Let's bring in Mr. Roth himself. for rub the genie battle and he appears. Whoa, look at that. >> Wow, >> gentlemen, I need 10,000 SPS sunscreen to shield me from that populist nonsense. >> Oh my god. >> Okay, >> there you go. >> I'm glad we called you in, Bill, because I there was a lot of discussion online about this. Uh, you know, this guy is a genius. No, he's an idiot. Um, I just want to know based on so here's what he says, and I've pulled this from Twitter. Um, he says the important important point is zeroing out tax in the bottom half. The best way to put money in someone's pocket is not to take it out in the first place. The bottom half is only 3% of total tax revenue, but it's very very meaningful to that person. Zeroed out. This is a great way to like shield billionaires from getting taxed. Like, hey, listen, don't tax us. Pull taxes away from other people. And I Bill, you always say this. Taxes have nowhere to go but up. But guess what we keep doing? Trying to find ways to decrease taxes. >> Yeah, Ben, this sounds really nice. No tax on the bottom 50%. No tax on social security. No tax on tips. No tax on auto interest. No tax on working parents, teachers, police, firefighters. No tax boomer. Stop paying property taxes. Why >> tax cryptocurrency? No tax on capital gains. No tax on Benjamins, Duncan, Daniel Parz. No tax on anyone under 65. When this is all done, Ben, we're going to have one gentleman in New York City named Handsome John Grayson who's going to be responsible for shoulding the entire $4 trillion federal budget. The least disruptive tax bend is one that is broad and shallow. And so I do think that people deserve a handout. I would like to give a helping hand to the bottom 50% to the bottom 10%. But I do think that this idea that like we need to narrow the tax base is going to be really really destructive. It will win people political office. I will not take that away from them. But the problem is it it creates this incentive for people not to participate in the American experiment. Right. >> Yeah. You're creating teams. >> Yeah. That's I was going to say I think Bezos has been reading about the French Revolution. I think he's >> and and that did not end well. Right. So, like at at a very minimum, uh I I think the the the argument I would make for folks is look, the taxes are patriotic. You should be proud to pay your fair share. I understand that there's a incentive to point your finger and say that other guy should be paying more tax and I I'm a hardworking American and I get that. But again, this experiment is ours for 250 years. And I think having some sort of minimum tax, a fair share is a good instinct. And I I would I would argue that is the more patriotic flavor of populism. >> I I agree with that. Let's let's look into the numbers though before we get into like the the outcome. So like the bottom 50% is what level of income? >> Yeah, let's take a look. So can we chart on brought a chart for this? So if you take a look, Ben, the bottom 50% is receiving about 10% of the share of adjusted gross income. This is uh tax year data from 2020, a couple years old, but the theme doesn't change too much. And they're paying roughly 2 to 3% of total income taxes paid. And you can play this populist game if you want, but the reality is the US tax code is very very very progressive, meaning that the higher amounts of income, you can take a look, do shoulder more and more and more percentage of the tax. And I think that's generally a good thing. I understand Bezos's point, right? Somebody that is earning roughly 100 the median household income this year, Ben, making about $88,000, they're paying about $5,000, $6,000 of income tax, right? So that's not nothing. But again, in terms of like what you're getting in costbenefit analysis, you're getting the patriotism, you're getting the best. >> I was thinking the bottom 50% already pays little to no tax as it is. >> Yeah. And furthermore, it is very regressive. In fact, the bottom, if you kind of do the EITC math, there's a lot of benefits from refundable child tax credits, from the earned income tax credit, that do help working families out, particularly that are in the lower end of the tax curve. Is our tax system perfect? It is not. It's nowhere nowhere close. I just do think it's pretty good, and there is a danger of narrowing the tax base. that throw that chart, the same chart back up again. >> So, this is the one that the the one that people always point to is that like the top 5% pay what 60% of the taxes or something >> roughly. >> So, this is the one that always gets people all riled up about taxing the rich more. The rich people say, "No, no, we're already paying most of the taxes." >> Yeah. And and I don't I don't think there's a right or wrong answer to this, but it depends on where we go. Can we flip to the next chart because there were two more I just wanted to go over. The other point I would make, Ben, is that income tax rates have gone down in the last six or seven years relative to where they were. And if we take the chart back even further on the left side on the yellow is where we were in 2017, you can take a look and find out where we are. Taxes have decreased up the and down the tax spectrum. But depending on where you are in the tax range, taxes have decreased. And again, this doesn't include the most recent round that came out in 2025, which you know, the tax on tips and no tax on social security. So there are a lot more changes, too. Uh, next chart for me. The other just thing to look at is I I think there's this expectation, well, if we tax the rich more, we're going to get more out of it. And I don't think that's necessarily true. There there's been a disconnect, Ben, since 1997 on federal spending versus receipts. And these two things haven't been correlated for nearly 30 years. It has been a very long time where the revenues coming into the federal government have not matched the expenditures going out. So, I I wonder like what what is this for? And I think again it's a political pandering and I just don't I don't think it's good for the country. >> All they need to do is open up some museums and libraries and people will be happy. Just do the Rockefeller. >> Yeah. Andrew Carnegie. >> Yes. That's all they need to do. >> I think there is some truth to to the fact that people feel more connected to, you know, the country if they're actually seeing their dollars, you know, be put to work. And I think a lot of people complain about how tax dollars are used and and say like, why are there potholes on my street? That kind of thing. But I could see us finding some happy medium where, you know, okay, so we we give tax breaks back to the lower, you know, earners based on if they want to volunteer in their local community or something, right? Something that like helps people feel like they're connected and a part of the country and a part of their community. Yeah, because I I do I I hear the argument that and I think there is some value to that that yeah, if if you make people to where they're no longer contributing at all, that could have some kind of psychological thing where like, oh, I'm not I'm not really a part of this. I'm not a part of this, you know, country or >> Well said. >> Last time you last time on the show, we talked about value added tax. This time we talked about the bottom 50%. My biggest takeaway is we're never like solving quote unquote the tax system. We're never fixing it. >> It's never never going to happen. It's it's always going to make little sense. >> Yeah. And what's really weird again to advocate that I think the US tax system is relatively fair from this standpoint. It is very progressive like we like we outlined. The more income you make, the higher tax you pay. I mean up to folks in California, New York City above 50% if you're including your states, right? So that that quote unquote is a good thing. The social security, the FICA system, I think works really really well, Ben, because ultimately that's a flat tax that everybody pays who's working. And it is very regressive, meaning that if you end up at the lower end of the income curve, really all you need are 40 credits to qualify for Medicare and then you get health insurance for life at age 65. And then it does pay more to the bottom end of the income curve, the social security system. Those two in combination to me make a ton of sense. And I I think there's a lot of reasons why the US has beat Europe, has beat China, has beat the Far East. I think we have a a really really good system. And I I think Ben, stuff like this to me, it throws sand in the gears. I don't think it's the country. >> Social Security is such a good system. If we tried to create it today, it wouldn't happen. >> Yeah, that's right. Political >> good ideas like this don't get passed today. >> That's right. >> What's the highest income tax that this country's ever had? >> Highest? I mean, like 90 plus 90% coming out of World War II, >> but no one actually paid it. >> Right. That was the issue, right? And the junk in the US is much much much much wealthier today than it really has ever been in our 250 year history. And therefore, people are are paying more, which is why the sting kind of hurts so much. But I think that what we're seeing is a lot of folks that are, let's say, 65 or older, those are the folks who are voting. And guess what they're voting for, right? They're voting for tax base to themselves, which which Yeah. Which makes a lot of sense. So if you don't like any of this stuff, hey, go out and vote. I mean, that's >> it's funny. Everyone hates the boomers, but millennials will do the exact same thing when they're older. Same thing. >> We'll see. We'll see. Time will tell. >> Next question. >> All right. Up next, we got one on the 4% rule. Is the 4% rule good to follow for both pre-tax accounts and post tax accounts? If not, what would be the most reasonable approach? So, we get a lot of retirement withdrawal strategy questions here in asset compound for good reason. Like saving and building up a portfolio is relatively straightforward. Taking money out of a portfolio is a little more complicated. Actually, a lot more complicated. So, Bill, I'm, you know, we don't even have to get into the 4% rule of it. Just how do you think about withdrawing from a portfolio from a tax perspective? Now, I will say part of this is kind of easy for the RMD piece, right? Because that you're forced, you know, what you have to take out. >> Yeah. >> Right. Uh, so that piece is kind of easy. How do you think about taxes in terms of withdrawing money? Like are there certain accounts that you think it makes sense to take from earlier or later or like how do you think about this from a perfect world? >> Yeah, Ben, I like the 4% rule because it works. Uh you can't outspend your your assets in most scenarios at 4%, right? So that's a pretty good rule of thumb. And Ben, I would take the opposite point that like a lot of our clients at at Rholtz like are spending they run out of time faster than they run out of money. And that that's something but I think the 4% rule makes a lot of sense. The way I would order it for most folks, Ben, I would four four kind of orders of operation. Number one, I would sit down towards the end of the year, add up all of your income, right? So, you had social security, you have a pension, just add all that stuff up because you, if you're working part-time, you would need to know what that number is and then add in your dividends and interest and taxable income, right, from non-qualified accounts and take a look at that number. And then at that point, I would look at my traditional IRA and I would fill up low tax brackets. The 10% bracket is is very, very low. 12% is very, very low. Standard deduction this year for married couples is in excess of $30,000. So, if you're not taking advantage of those quote unquote free or low tax rates, that's the place to attack. >> So, how much how much could you take out of your IRA and still have pretty low tax rates? >> That's a good question. I think somewhere in the neighborhood depend again depends on your social security, depends on your pension, but somewhere in the neighborhood of like $80,000 in total, assuming you're married, right? So, cut all these numbers in half if you're not. And then, Ben, what I would argue one thing. So, before you So, it is kind of funny. People worry about taxes in retirement, but like there's ways to do it for a really low tax rate. >> Oh, yeah. Definitely. Because keep in mind your social security income, your pension income, your traditional IR distributions, that's not FICA taxable. So you're not paying employment taxes on those. So really, you just you do have to just worry about income tax. Back to the Bezos point. So yeah, I think 12% bracket and that kicks in around $118,000 for a married couple, right? So I think you can safely quote unquote distribute amounts there. And the next thing to look at, Ben, would just lump on Roth distributions on top of that. And if you really want to like war game this correctly, you're looking at the end of the year. You're doing this in November, December. You're distributing the cash and sticking it into a non-qualified account and you're doing that towards the end of the year when you have some certainty as far as what happened throughout the year. Add in RMDs on top of that too and you get a really really low tax rate. >> The bill guide to retirement withdrawal strategies. >> There you go. There you go. I am not writing a book because nobody would buy it. That's why that's why we keep them coming compound. >> All right. I like it. But again, this is a question we get a lot of people like, "Oh my gosh, I have to start taking money out." Uh it's scary. It's a good problem to have though. I'd argue that. Yeah. Can't take it with you. Yeah. Go spend it. >> To your point. Yeah. If you're paying the taxes, you won the game, right? >> Exactly. >> We We triggered poor Chris in the comments. He said he tax bill and so yeah, he's >> he's not having it. He's not >> Chris's a hardworking American. He deserves a tax break. Chris, >> people are usually very calm about taxes, right? >> It's true. Yeah. >> We we always say, Bill, like people hate paying taxes more than they like making money. >> It's true. You know who I think deserves a tax break? Ask the compound commenters in our YouTube. There you go. God bless. Great Americans. All of them. >> That's how you sell books, Bill. Another question. >> Okay. Up next, we got one from Ethan. My wife and I, both 36, have $1.25 million in retirement accounts, about twothird Roth, uh, onethird pre-tax, and we want the option to retire early. We recently learned that pulling Roth earnings before 59 and a half triggers taxes even when we can avoid the 10% penalty. We're considering routing all contributions above our 6% company match into a taxable brokerage account for flexibility. Are we crazy? >> 36 years old and they already have over a million dollars. That's in retirement. That's crazy. Yes. >> Yeah. Congrats, Ethan. My brother's name is Ethan. Very very strong name. Shouts to Ethan. Sweet. >> I like it. Uh flexibility for early retirees. Another big trend here in the compound. Yeah, right. That we get this question all the time. So, it's funny. All of these early retirement questions are definitely bull market questions. You do not get questions about early retirement during a bare market. That doesn't happen. No one was asking this in like 2010. Hey, how do I retire at? No, you don't get those questions. >> When I came out of college, I I don't think that this was a thing anyone ever thought about. >> No. Work to 95. Exactly. >> Right. So, they're asking about your favorite account, the Roth. Uh and they they listen, they just learned about that the earnings, right? You can't take You can though take out the contributions, right? So maybe they're actually going to be okay if if they obviously have a lot of contributions unless they just had some crazy stock pick in their Roth IAS, right? >> Yeah. This is a great place to be because you're looking at time value of money. This is a long time horizon. I I wanted to just hit pause really quick though and reset because you're exactly right. Earnings, if you take a non-qualified distribution before age 59 and a half, you would pay tax on the earnings. But Ben, to your point, there's a couple things that happen first. Can we chart on and let's just talk through this really quickly. If you're taking a non-qualified distribution, a non-qualified distribution early, you would end up do taking your earnings first. And that's from a Roth IRA, not a 401k. Got to got to get the dollars into a Roth IRA, which is easy to roll over and you're able to reclaim that basis Ben uh really at any time. And that's what makes it so powerful. So, yes, Ethan, you would have to leave your earnings alone. >> Bill, do you have a backup napkin for your chart? >> I I don't I don't I don't, but I can I can do make Mark Zuckerberg can and we can do it that way. >> Okay. So, so I don't think it's crazy and I think it's a great idea to to begin to to fund up that third bucket, Ben, which you have a traditional asset which is about a third of Ethan's assets and Mrs. Ethan twothirds in Roth. And there's nothing wrong, Ben, I don't think at all, in funding that other bucket because what that would allow you to do realize capital gains, right, in the future at a at a really low tax rate, back to our previous discussion, anything in in the 12% tax bracket below, you're getting 0% taxes on capital gains. That's awesome. And there'd be no reason at this point not to think about that. If you're planning on retiring, let's say in your 40s, why not do that ahead of time and fill that bucket now? >> See, I thought you were going to say keep doing the Roth, but you're saying the flexibility actually helps by having that divers tax diversification. >> I wanted to answer Ethan's question, which was am I crazy? And my answer would be no. However, to to take your point, I I would also advocate there's nothing wrong with just shoving dollars into a Roth because again, you can get them back at any time before 59 and a half. So, if you think about a world where you're just putting the money, let's say you you're able to save over the next 5 years, $50,000, $10,000 a year. If that's in a Roth, you just pull that money out taxfree and you can you can live on it. If the money is in a non-quit account, you can also get it, but then you're paying capital gains. I don't think it's a wrong answer, but I I think both are perfectly fine. >> All right. Either way, they're they're in a great position. the the 10% penalty they reference that's if you take out the money before 59 and a half you get a 10% >> penalty >> before 59 and a half but it's really important to understand that only attached to the earnings right so ordering rules you're getting your basis back taxree any any dollars you put into the Roth at any time you can get that back and then any earnings are going to be ordinary income plus a 10% penalty until you hit 59 and a half another quick planning point very very important actually to mention if you're only funding retirement accounts at work a Roth 401k that is not a Roth Roth IRA, there is another 5-year clock that starts the minute that you fund any Roth IRA. And it's just a onetime thing you have to do. There's no reason in your 20s or your 30s per Ethan if you do not have a Roth IRA already open. Just put $100, $1,000 in there and get that clock running so you can get qualified distributions later. >> And we've mentioned this before, but the biggest thing to think about when early retirement that no one thinks about is we talked about the longevity piece earlier. What are you going to do? >> Yeah. >> What are you gonna do? Right. Everyone wants to retire early, but I don't think a lot of people spend enough time thinking, "What am I going to do to stay intellectually stimulated, to stay social, to stay active?" You can't just say, "I'm going to travel." That's the thing everyone tell everyone says, "I'm just going to travel." Uh, you actually have to have a plan of what you're going to do with your life. What's what's an average Thursday going to look like for you? >> Yeah, good point. >> Yeah. If I could go back then, one of the things I would think about is maybe we had kids kind of late in life, but there's no more brain damage than I have in my my life than my than my two children. like they definitely uh hurt my head and it would be awesome. >> See that skunk streak on my my gray? My kids, why are you going gray? Because you kids >> on here. Yeah, my hair's falling out. So, it would be great to to to take a step back, right, to to maybe take a lower stress, lower octane job, right, during those years when you you can do really meaningful stuff with your children. I think it's a wonderful thing to think about and the opportunity that Ethan and Mrs. Ethan have worked for. If they don't have kids, it would be an awesome thing to think about maybe in your late 30s, early 40s, right? starting the clock then people are having kids later in life. Why why not join the club? >> All right, great segue into the last question because this is about kids. >> Let's do it. >> Okay, last but not least, we got one from Mike. As a fellow CFP with a three and sevenyear-old, my brain is hardwired to mathematically optimize every single dollar. Hearing Bill Sweet rave about aggressively frontloading 529 plans on a recent show got me thinking about taking it a step further into a dynasty 529 strategy to fund multiple generations. But your writing on the 18 Summers philosophy always rings in my head. How do you draw the behavioral line between maximizing a multigenerational tax shelter and the pragmatic reality of using that cash right now to make memories while the kids are actually young? At what point does optimizing for the future start stealing from the present? >> Very good question. Very uh very well written. And then and then they give you some book praise. Congrats on the launch of the book. I already bought a copy, but winning a signed version would be even sweeter to pass down to my daughter to read one day. She already enjoys doing her Greenlight app on the weekend, so maybe this can take her knowledge a step further one day. What's >> starting starting his kids young? Uh it must be like a Kindle for kids or something. I don't know. >> I was thinking the Matthew McConnA book. >> Yeah. All right, Mike, send us your address and your daughter's name and I'll sign the book towards her. We'll definitely send it out. Um, it's funny. I asked my kids if they would ever want to read my book. And I got a Ew, no, boring, Dad. God, what? That's That's Thanks, guys. Um, so my 18 summers thing is that you really don't have a lot of time to spend with your kids. Someone said this when our kids were like four years old, like, "Hey, we have like 14 summers left with our kids and they're gone forever." I think the stat is a ballpark figure. you spend 90% of your time with kids before they reach age 18 and then like the 10 rest 10% of them them after 18 is >> I'm picturing that chart from Sahil Bloom's book where it just yeah it decreases. >> So and that that like definitely rings true to me. I would like to help my kids as much as I can financially speaking someday like maybe with their first house down payment try to ensure they don't come out of school with like student loans or something. Um but I'm not thinking about dynastic wealth and inheritance at this stage of life. I would rather leave more memories than money. That's the way I'm thinking. I I talked about it on the show before. I bought a lake house for this exact reason. And it's funny. I have a guy who lives who's two houses down from me on the lake and his kids are older, like out of the house, graduated college in the working world. And we were talking about like why he decided to buy. And he said, "I bought this house honestly so the kids would have a come place to come visit me." And he's like, "I would I I talked to him about it and I said, you can either have an inheritance later or a place to come make memories." And we all decided was the thing to do. So, I'm I'm really big on that. What do you do if they pick my other option? Mayor, it's >> awkward. >> Hey, the son of a CFP. Yeah. >> Write them out of the will. I don't know. Uh, so I guess let's first start with like how this dynastic wealth would work and then we'll talk about like should you do it? So like what is he talking about here about aggressively frontloading these 529 plans? So I guess that would be putting way more money in here than they're going to need and then turning an a Roth IRA eventually. Is that the idea? >> That's one option. Ben, I read it a little differently. What what I was thinking was look, if you just aggressively fund 529s, I'm in the state of New York. I get a tax deduction for doing so and you just you on purpose you keep adding dollars even when they're in college, even when the kids are after college because there's no limit to annual contributions to 529s. And as you the account owner, you can change a beneficiary at any time. >> Wait, I never thought of this. So you can keep putting money into 529 even after they graduate from school. >> That's correct. >> Never thought about that. >> Yeah. >> And there's no limit. >> There's no limit to the annual contribution. There are limits per plan document at the state level on what the total balance can be, right? So you can't just keep shoving dollars forever. But the idea is you build up this bucket and it's like thinking multigenerationally, right? So we talk a lot about taxfree compounding in Roth. Think about taxfree compounding with a 529. If you if you seed a 529 with $10,000 today, fast forward 30 years, it's going to be worth 90 $80,000. Fast forward another 30 years from there, now we're talking, you know, very high six figures. And the idea is you just do this. Think of multigenerationally and think about seating it that way. Couple of things to think about. You can change a beneficiary at any time, but there are some really funky estate tax questions that come in. I have not been able to get a clear answer from a tax attorney. What happens when you make that contribution and then change a beneficiary to the next generation? It's not clear that there's an answer. You could probably file a gift tax return, but I have no idea what that means. Second point is you need to add a successor beneficiary or successor account owner, excuse me, to your 529 because if something happens to you along the way, usually that's your spouse. But if you're thinking about a 60-year time horizon, you would want somebody else to understand the intent. Why did you do this? What happened? Just in case something happens along the way. But again, Ben, the idea would be really to to to leverage the tax-free compounding multigenerationally. Get 50 60 decades of compounding. Very very powerful concept. The reason for this is because you can't open a Wroth in a kid's name unless they have earned income. >> That's correct. Yeah. So, a 529 gets you around that and then you can convert that to 529 later or excuse me, Roth later. There is an interesting angle. We talked about Trump accounts maybe six episodes ago and so that's a new take on this. But I I Mike, I I like this idea. I don't know, Ben. I think you're just a much better guide on how to balance the two, right? I And I don't I don't I guess for me, Ben, what is holding me back from giving my kids a good life? It's not money. It's really time. Like I I don't I find I don't have really enough time in my life to spend during these early years with them on the weekends riding bikes and we do all this stuff, but I just I don't know. I feel like I fall short and it's not the money. I think to your point about legacy, I have no desire to leave them any money. And I think that's the benefit of an education. And it's like, hey, you've got this law degree, you've got a a doctorate degree, go get your ass, go get yourself a job if you want some money. That's on you, right? >> John Carlo is asking uh does it matter who opens a 529, parent or grandparent, etc. Uh for financial aid calculations, >> for financial aid, it gets very very strange, but very generally the 529 uh is the parents asset. It's not considered the child's asset. For grandparents, it does get really complicated for financial aid purposes. So, I don't actually know the answer top of my head. I believe something like 50% counts towards EFC, but I'm not sure. I don't know what needs to be disclosed or not because I don't think it's the child's asset for UFC purposes. >> And my whole thing about the optimizing for the future versus stealing from the present, which Duncan said very well written, >> is like I I always want to have a balance. And the same thing with time management, Bill. There's times when I'm working when I feel like, oh gosh, I should be doing something more with my family. And there's times with my family where I think like, oh my gosh, I should be working more. And it's the same thing with money. Like when you're saving a lot of money, you go, man, I could be spending that now. And when you're spending a lot of money, you go, I could be saving this. I think you want to constantly go back and forth between those two. You know, you want to ping pong back and forth between having those feelings. I think that's when you know you have balance. When you're constantly feeling one or the other, >> that's a good point. >> You're never going to you're never going to get it perfect. You're That's a good point. No one has it No one has it figured out perfectly. You want to like go back and forth a little bit. >> You only know in hindsight. I I try to Joey Fishman, our friend and colleague in uh Bend, Oregon. He has this thing about regret minimization with clients. Like his go his job is to sit him down and say, "What are you going to regret more?" like not having the money saved for college and needing to borrow and paying interest on the back end or to your point Ben, we did this wonderful vacation and we have a lifetime of memories attached to it. Clearly the answer is both, but I think you can get some truth uh in Veno Veritas. Sit somebody down, have a conversation about that and have them describe what they would regret more. >> Yeah. As much as I hate going to Disney, sorry Disney people, uh taking my kids there is going to be they're going to be talking about that for the rest of their lives as opposed to when they're 60 getting money from us. What's what's going to be more meaningful for their lives? Yeah, probably the trick. >> Yeah. And I hate to get too sappy on you gentlemen here, but uh you don't get the time back. Like that's the thing that I'm kind of realizing. I'm I'm at that stage where I see the I see the parent pushing the kid in the in the little baby stroller and I I get whis I get a little misty eye. A little smoke getus in my eyes when I think about that time that >> that bill is called a midlife crisis. Welcome, my son. >> I'm there. Uh yeah, shave my head, get a convertible. Uh change my name to Duncan. I'm doing >> it. Also, it reminds me of my favorite John Linen quote. The life is what happens while you're busy making other plans. It's true. I like it. >> That's good. That's good. So, but no, Ben, I I really like the idea of Dynasty 529. Uh I think the few things are going to compound through the generations like like a quality education. I think that's a great way to set your kids up for success and grandchildren. >> Yeah, there's some optionality there. I like it. >> Exactly. >> Okay. Uh thanks to Bill for helping us figure out the tax code. I think we've got it all figured out now. Nothing else to do. >> Always a good time. >> Ask the compound showgmail.com. Everyone who sent a question in today is going to get a signed book by me. We're going to do it one more time next week. So, send us your address. We're going to reach out. Uh, thanks everyone in the live chat as always. Thanks to Duncan and the team behind the scenes and the production staff. And we'll see you next week. >> See you everyone.
Should the Bottom 50% Pay Taxes?
Summary
On episode 224 of Ask The Compound, Ben Carlson, Ritholtz Wealth CFO Bill Sweet and Duncan Hill discuss: whether it’s time to …Transcript
Welcome. This is Ask the Compound, the show where you ask and we answer. Let's say you have 100% of your portfolio invested in stocks. When do you start diversifying into more conservative investments leading up to retirement? And then how do you start withdrawing money from your portfolio? The 4% rule, how do you think about taxes? We cover all these questions and more about retirement planning and a lot more on the show today. Let's do it. Our email here is ask the compound show@gmail.com live chat. Ask away. Uh Dave already said, "Ben, how are book sales going?" Uh we're great for people who listen to this show because we're g I gave away I'm going to put them in the mail tomorrow. Sorry people. The holiday got me back last week. Books are going out today. If you asked a question, got it on. We're going to reach out for your address. They're >> as your business manager. I am just saying you are giving away books to like prime audience that would have bought them. But you know that's just neither here nor there I guess. But >> hey these people better be using word of mouth. Give them to your kids, grandkids, friends, neighbors. I have faith in our compound community. >> Speaking of Dan, throw up uh throw up the book charts. Look at uh look at this. You're number one on uh on Amazon stock market investing. >> All right. Me Jim Kramer. >> I mean look at that. Ben Graham number five. You're number one. All right. I just barely beat out trading in the zone. All right. Our books are exactly the same. I have a whole chapter why day trading is impossible. That's kind of funny. >> I do think it's funny. I I started your book and you you might have incepted this into my brain. So, sorry if you already said this on a show, but I think it's funny that you you quote in one chapter Dolly Parton, Winston Churchill, and Eminem. >> The three of them in one. I don't think that's ever been done before. >> Yeah. Right in the introduction. Diversification. Dolly Parton. My favorite quote of the book. >> Yeah, it's cool. >> Right. If you want the rainbows, you got to deal with the rain. On today's show, we have questions straight from our compound audience in the inbox about when to sell big energy winners, how to rebalance risk heading into retirement, does the Jeff Bezos plan tax plan make sense, how do taxes impact the 4% rule, how to withdraw money from a Roth IRA, and finally, how to save for the next generation while enjoying today. But first, today's show is sponsored by Betterment. What growth strategy are leading RAS using that most firms don't? Segmentation. Some clients needs are sophisticated and require deep ongoing planning. Some clients needs are simple, like those in the wealth accumulation stage, the smartest firms. No, planning shouldn't look the same for every client, but the experience should always be exceptional. Now, it can be with Betterment Advisor Solutions. It's a platform built for segmenting your book and streamlining those smaller and simpler accounts. The onboarding experience is automated and paperless. The portfolio management is streamlined and tax efficient. The client experience is consistent and modern. And the impact isn't just felt by your clients. It's felt across your entire practice. Imagine a back office that's humming. A team that's thriving in a service model ready to scale betterment advisor solutions. Your biggest regret will be not doing it sooner. All right, we got a lot to Before we get into it, we have we did a poll from last week. I don't know how you do these. I don't know where they show up, where people vote on them. >> They're they're on YouTube. So, go to our YouTube homepage and uh you'll see the community tab and we do polls on there. >> Okay. So, you did one based on a question last week. Would you leave your job you love to work for one you hate for three times the salary? And it was basically split 50/50. So, remember last week we had a guy ask, "Hey, I love my job, but if I leave and go to the family business, I'm going to triple my income." >> And and to be clear, he didn't even say he would hate it. He just said that he had his dream job. So, I made the poll actually even more more binary and I was still shocked by the results. >> How so? That more people would leave or or which one were you shocked by because it's 5050? >> It just makes me think that a lot of people have not had a horrible job before and maybe take for granted have a good job that they they love. True. Because if you really have had a bad job before, I don't think you are taking taking the the >> This sounds like it could be the plot of a movie like The Ghost of Christmas, past, present, and future. Right. >> Right. >> I'm going to I'm going to show you the other shoe. Here's a job you actually hate. How do you like it now? >> Yeah. >> Right. I guess they kind of did that with Good Fortune. That is a horror movie. Oh well. All right. First question. Let's do it. We got a lot. >> We should make that movie. Okay. Up first. Say we got a question from Nathan. I bought Exxon, Shell, and Devon Energy in my brokerage account back when oil was $0 a barrel. I'm sitting on some solid gains and feel like I need to rebalance my portfolio and lock in some gains. I wouldn't even mind sitting in some dry powder for a pullback. I feel like we're one news announcement away from oil dropping like a lead balloon. What's the best way to determine a jump off point amid geopolitical uncertainty? Will oil go higher if China starts buying from US companies? Am I chasing another 10 to 15% upside before a larger draw down? I'm 38 with a four and sixy old. I max out my simple IRA yearly and have a 529 for kids. I've always been a long-term buy and hold investor putting patience over trends, but I'm feeling burned out with the AI market and logging into my account every day. >> First of all, nice not to brag. That's a pretty good investment. That was that was great. Um, let's do a chart on show. This is this is from April of 2020. This is Exxon and Devon. So we're both we're up 400% or so over 325%. So really really good >> chart off. I still remember when oil prices went negative. It was towards the end of April 2020. People were losing their minds. That was like this wasn't supposed to happen, >> right? It was such a crazy market environment. That was also a really contrarian trade because at the time the trailing 10-year return for the S&P 500 was 200%. Okay. The trailing 10-year return for XLE, the energy ETF, was negative 15%. So energy stocks were sitting a loss decade. I think it was even like a loss at the lows in March 2020. It was a loss 15-year period for energy stocks. Like they went nowhere. Let's you chart on. This is since April of 2020, XLE is outperforming the S&P by almost 100%. Like 280% for the XLE, 180% for the S&P. So this chart off, please. In a decade that seems to be almost driven exclusively by momentum trades, it's nice to see a contrarian trade that actually worked, right? because it doesn't seem to be happening very often. So, >> and and for people that are watching this that are like, "What in the world are you talking about?" This is just because there was so much supply, people had to do something with the oil which cost money. So, that's how it technically went negative. Is that is that correct? >> Yeah. Yes. It Yeah. >> It's not just like in in theory. It's not like buying paper like you actually had to take delivery of the oil and do something with it, which storing it costs a lot of money. So, that's how negative. >> Yes. People weren't like buying barrels of that was a joke. buy a bar of oil and have it sit in my backyard and just wait. >> I mean, you could have, I guess. >> Yeah, there's cost to storage and all that stuff. Um, but anyway, I'd say first off, whatever you do, do not make your investment decisions based on geopolitics. I think that's the biggest lesson that people can take away from this year. Don't try to time geopolitical uncertainty. Just think about all the oil analysts who predict $200 barrel oil and said it was imminent. Throw up my headlines here. I pulled a bunch of them. People, they I don't know why it's always 200. Maybe just people love the, you know, round numbers. It's always 200 just like 55 is the early retirement age. These people are very plugged into the situation of the straight up horses. Um, by the way, and they know way more about it than any of us oil noobs do. And guess what? It's still hard to predict. Take it off. Uh, now look at the price of oil. Okay, it got as high as like 120 a barrel. Now it's back 93. So, um, our guy, I can't remember the name of the guy, Nathan, he's worried about oil falling. It already did fall. It spiked then it fell. I mean it could fall more obviously. Throw my next one. This is same predictions in 2022 when the Ukraine war started. $200 oil. $200 oil. $200 oil. Like everyone says this, right? Predicting the future is hard. Obviously, um the energy analysts have no idea what's going to happen to the oil price. Neither do I. Neither do you. Okay. I I guess my biggest piece of advice from this, the way that this question was worded is you need to simplify your portfolio. You have two young kids at home. You shouldn't be burned out from checking your portfolio so often. Like one of the main reasons I stopped my discretionary stock picking strategy is because I was constantly checking on them. Like 5% of my portfolio was taking 95% of my wavelength of my brain. Like it was too much brain damage. I was constantly looking at it. >> Sounds like fun to me. >> Some people do like that. It So now I I just I have it that portion of my portfolio. It's automated. I'm not having to think about it. It's rules based. I don't check my account nearly as much. Um, guess what's not going to help this situation and make you relax more trying to time the market because that's just going to invite more brain damage. Um, because you're constantly going to be worried about when to get back in, right? >> Yeah. I was about to say that what you're talking about, I actually enjoy watching the market, you know, every day. Uh, but I would be very stressed about when to allocate a big pile of cash back in. >> I mean, the good news is he already won. So, whenever, you know, whenever he sells, it's going to be fine. Um, I would say my advice would be diversify out of the energy holdings. If you can do it in a taxefficient way, uh, then just pick an asset allocation you can stick with regardless of what's happening with AI or oil prices or geopolitical headlines or any of the other crazy stuff that goes on around us, right? How do you do that? Listen to last week's episode about the perfect portfolio. We talked about this a little bit, but I think just once you have an asset allocation that you're okay with, you don't need to rack your brain every time there's an investment decision that needs to be made. What should you sell? Well, you sell whatever is overweight. What should you buy? Well, you buy whatever's underweight. Well, if you have new money to invest, right? You s sold these stocks. What do you invest in? Your asset allocation tells you the proportions to invest in. Go with your stated asset allocation. That's what makes it so great. You don't have to worry about timing things. You just put it in your balanced portfolio and stop worrying about it and go play with your four and your six-year-old. You already won. Kudos. Move on. >> Yeah, that's good advice. How much is not giving you so much brain damage? >> How much of this is uh self-preservation by oil companies though because they saw that having it even go to $100 a barrel really has accelerated you know EV adoption and people getting you know heat pumps and all kinds of things to try to >> Wait, are we getting into tin foil hat area here or what are we going to >> No, I'm saying theory of this. >> No, no. I'm just saying logic. I'm saying, you know, the higher you make oil prices go, the more people are incentivized to get off of oil. >> Well, you're right. Billy Bob and Land Man said, "Listen, the perfect price of oil is like $70 a barrel, >> right? >> We don't want it to be super high because that, you're right, it it hurts demand." >> I saw a chart of EV sales since this happened and it's like straight up, you know? So, yeah, hitting $100 already had a big impact. 200 would be astronomical. >> I I mean, listen, I actually have some sympathy for the oil analysts because if you would have given me the setup of everything that happened this year, I would have said, "Yeah, oil is going to be $150, $175 a barrel or something. be very high. I mean, it's already up 60%, but it it is surprising. Dave in the chat says, "A written investment policy statement would help." Yes, Dave. Correct. All right, next question. All right, up next, we got a question from Colin. Why wouldn't someone just invest 100% in stocks from the beginning of their career until about 5 to 10 years before retirement, then switch to 100% cash and stop contributing to retirement accounts? It seems like maximizing time in the market early on would give the portfolio the best chance to compound while the final working years could be used to build up cash reserves before retirement. I'd also be curious what the data shows comparing this strategy to to more traditional retirement allocation approaches. >> So people always ask me, Ben, why do you write about market timing so much? It's because people want to time the market. They just >> so bad. So bad. >> Two questions in a row, right? Everyone just Okay, I know it's hard. I know it won't work for most people, but what about me? I think this >> it is it's you just did it. It's the Tobias meme. >> Yes. This sounds good in theory. You grow your money for a few decades. You compound it and then you get an off-ramp into cash and you protect your capital for retirement. I'm sorry to say there's some serious holes in this strategy. Okay. Sequence of return risk for sure. Like what happens if you sell all your stocks at just the worst time, right? If you go to cash right before like right before a huge boom or right after a lost decade. like maybe you get some good luck and you get off you get out of stocks after a good boom like we've had now. But I think the biggest risk here is some combination of longevity and inflation. So the New York Times had this story on longevity a few weeks ago. They said for people who have already reached age 65, the average life expectancy is is now more than 86. A 65-year-old married couple, there's a 64% chance that at least one partner will live beyond 90. So, you have to have your assets grow for two, three decades, maybe sometimes longer for certain people. Uh, I have something in my book about this. I say that a 3% inflation rate cuts the value of a dollar in half in 23 years. A 4% annual inflation rate cuts your money in half in 17 years. You still need to grow your money in retirement. You need to be more balanced about it, but you still need to grow it in some way. So, you can't just give up on your portfolio because you're worried about nominal losses. That's why a more traditional retirement plan involves a more balanced portfolio. So just just for fun, I ran the numbers on holding your money in cash, which is T bills. That's the investment equivalent of cash. For 10, 20, and 30 years against the rate of inflation. So how often did cash lose out to inflation over the past 100 years or so? Duncan, what do you guess over 10ear period? How often did inflation beat cash over 10ear total returns? >> Um 48% of the time. >> Yeah. Pretty 50/50. It was a coin flip. >> Okay. half the time over 20 and 30 year time frames cash did okay actually like it beat twothirds of the time. Um but that's not that's not a great outcome if you're if you're barely beating inflation or losing to inflation. And actually you don't have to go that back that far to see inflation beating cash over the past. >> Now when you say cash is that just cash cash or is that cash earning some kind of yield? >> Yeah, T bills CDs money market high yield savings account cash equivalent something like that. I use T bills here, but that's those other things will be close to T- bill, right? >> So, not literally dollars under a bed. >> Yeah. No, if it's dollars under a mattress, then it's way worse even. >> Yeah. Yeah. >> It's then it loses out to inflation over every period. >> So, if you look at the last 10, 20, and 30 years through the end of 2025, inflation beat T bills by 11%, 17%, and 7% respectively. So, in the last 30 years, you lost to inflation by sitting in T bills. So, a lot of it depends on inflation and interest rate levels obviously, but that's a dangerous game to play. I I think I prefer more balance. It obviously dep like some people have so much money they could put it in cash and it's not going to matter, but you have to be in like the top 0.1% for that. Okay. This person didn't say that. I'm guessing you probably still need some growth in your portfolio. >> Yeah. I think a lot of people see retirement as a finish line. It's like, oh, we hit it, so now now we can go to cash. But yeah. >> Yeah. You you still got inflation to deal with. That's it's could be scary. >> All right, next question. >> Okay, up next we got one from Brian. I caught the Jeff Bezos interview on CNBC last week. He wants the bottom 50% to pay no income taxes because the amount they contribute is already so low. I need Bill's take on this. Are his numbers correct? Would this actually work? I know this is a rabbit hole type question, but it kind of makes sense to me. >> Let's bring in Mr. Roth himself. for rub the genie battle and he appears. Whoa, look at that. >> Wow, >> gentlemen, I need 10,000 SPS sunscreen to shield me from that populist nonsense. >> Oh my god. >> Okay, >> there you go. >> I'm glad we called you in, Bill, because I there was a lot of discussion online about this. Uh, you know, this guy is a genius. No, he's an idiot. Um, I just want to know based on so here's what he says, and I've pulled this from Twitter. Um, he says the important important point is zeroing out tax in the bottom half. The best way to put money in someone's pocket is not to take it out in the first place. The bottom half is only 3% of total tax revenue, but it's very very meaningful to that person. Zeroed out. This is a great way to like shield billionaires from getting taxed. Like, hey, listen, don't tax us. Pull taxes away from other people. And I Bill, you always say this. Taxes have nowhere to go but up. But guess what we keep doing? Trying to find ways to decrease taxes. >> Yeah, Ben, this sounds really nice. No tax on the bottom 50%. No tax on social security. No tax on tips. No tax on auto interest. No tax on working parents, teachers, police, firefighters. No tax boomer. Stop paying property taxes. Why >> tax cryptocurrency? No tax on capital gains. No tax on Benjamins, Duncan, Daniel Parz. No tax on anyone under 65. When this is all done, Ben, we're going to have one gentleman in New York City named Handsome John Grayson who's going to be responsible for shoulding the entire $4 trillion federal budget. The least disruptive tax bend is one that is broad and shallow. And so I do think that people deserve a handout. I would like to give a helping hand to the bottom 50% to the bottom 10%. But I do think that this idea that like we need to narrow the tax base is going to be really really destructive. It will win people political office. I will not take that away from them. But the problem is it it creates this incentive for people not to participate in the American experiment. Right. >> Yeah. You're creating teams. >> Yeah. That's I was going to say I think Bezos has been reading about the French Revolution. I think he's >> and and that did not end well. Right. So, like at at a very minimum, uh I I think the the the argument I would make for folks is look, the taxes are patriotic. You should be proud to pay your fair share. I understand that there's a incentive to point your finger and say that other guy should be paying more tax and I I'm a hardworking American and I get that. But again, this experiment is ours for 250 years. And I think having some sort of minimum tax, a fair share is a good instinct. And I I would I would argue that is the more patriotic flavor of populism. >> I I agree with that. Let's let's look into the numbers though before we get into like the the outcome. So like the bottom 50% is what level of income? >> Yeah, let's take a look. So can we chart on brought a chart for this? So if you take a look, Ben, the bottom 50% is receiving about 10% of the share of adjusted gross income. This is uh tax year data from 2020, a couple years old, but the theme doesn't change too much. And they're paying roughly 2 to 3% of total income taxes paid. And you can play this populist game if you want, but the reality is the US tax code is very very very progressive, meaning that the higher amounts of income, you can take a look, do shoulder more and more and more percentage of the tax. And I think that's generally a good thing. I understand Bezos's point, right? Somebody that is earning roughly 100 the median household income this year, Ben, making about $88,000, they're paying about $5,000, $6,000 of income tax, right? So that's not nothing. But again, in terms of like what you're getting in costbenefit analysis, you're getting the patriotism, you're getting the best. >> I was thinking the bottom 50% already pays little to no tax as it is. >> Yeah. And furthermore, it is very regressive. In fact, the bottom, if you kind of do the EITC math, there's a lot of benefits from refundable child tax credits, from the earned income tax credit, that do help working families out, particularly that are in the lower end of the tax curve. Is our tax system perfect? It is not. It's nowhere nowhere close. I just do think it's pretty good, and there is a danger of narrowing the tax base. that throw that chart, the same chart back up again. >> So, this is the one that the the one that people always point to is that like the top 5% pay what 60% of the taxes or something >> roughly. >> So, this is the one that always gets people all riled up about taxing the rich more. The rich people say, "No, no, we're already paying most of the taxes." >> Yeah. And and I don't I don't think there's a right or wrong answer to this, but it depends on where we go. Can we flip to the next chart because there were two more I just wanted to go over. The other point I would make, Ben, is that income tax rates have gone down in the last six or seven years relative to where they were. And if we take the chart back even further on the left side on the yellow is where we were in 2017, you can take a look and find out where we are. Taxes have decreased up the and down the tax spectrum. But depending on where you are in the tax range, taxes have decreased. And again, this doesn't include the most recent round that came out in 2025, which you know, the tax on tips and no tax on social security. So there are a lot more changes, too. Uh, next chart for me. The other just thing to look at is I I think there's this expectation, well, if we tax the rich more, we're going to get more out of it. And I don't think that's necessarily true. There there's been a disconnect, Ben, since 1997 on federal spending versus receipts. And these two things haven't been correlated for nearly 30 years. It has been a very long time where the revenues coming into the federal government have not matched the expenditures going out. So, I I wonder like what what is this for? And I think again it's a political pandering and I just don't I don't think it's good for the country. >> All they need to do is open up some museums and libraries and people will be happy. Just do the Rockefeller. >> Yeah. Andrew Carnegie. >> Yes. That's all they need to do. >> I think there is some truth to to the fact that people feel more connected to, you know, the country if they're actually seeing their dollars, you know, be put to work. And I think a lot of people complain about how tax dollars are used and and say like, why are there potholes on my street? That kind of thing. But I could see us finding some happy medium where, you know, okay, so we we give tax breaks back to the lower, you know, earners based on if they want to volunteer in their local community or something, right? Something that like helps people feel like they're connected and a part of the country and a part of their community. Yeah, because I I do I I hear the argument that and I think there is some value to that that yeah, if if you make people to where they're no longer contributing at all, that could have some kind of psychological thing where like, oh, I'm not I'm not really a part of this. I'm not a part of this, you know, country or >> Well said. >> Last time you last time on the show, we talked about value added tax. This time we talked about the bottom 50%. My biggest takeaway is we're never like solving quote unquote the tax system. We're never fixing it. >> It's never never going to happen. It's it's always going to make little sense. >> Yeah. And what's really weird again to advocate that I think the US tax system is relatively fair from this standpoint. It is very progressive like we like we outlined. The more income you make, the higher tax you pay. I mean up to folks in California, New York City above 50% if you're including your states, right? So that that quote unquote is a good thing. The social security, the FICA system, I think works really really well, Ben, because ultimately that's a flat tax that everybody pays who's working. And it is very regressive, meaning that if you end up at the lower end of the income curve, really all you need are 40 credits to qualify for Medicare and then you get health insurance for life at age 65. And then it does pay more to the bottom end of the income curve, the social security system. Those two in combination to me make a ton of sense. And I I think there's a lot of reasons why the US has beat Europe, has beat China, has beat the Far East. I think we have a a really really good system. And I I think Ben, stuff like this to me, it throws sand in the gears. I don't think it's the country. >> Social Security is such a good system. If we tried to create it today, it wouldn't happen. >> Yeah, that's right. Political >> good ideas like this don't get passed today. >> That's right. >> What's the highest income tax that this country's ever had? >> Highest? I mean, like 90 plus 90% coming out of World War II, >> but no one actually paid it. >> Right. That was the issue, right? And the junk in the US is much much much much wealthier today than it really has ever been in our 250 year history. And therefore, people are are paying more, which is why the sting kind of hurts so much. But I think that what we're seeing is a lot of folks that are, let's say, 65 or older, those are the folks who are voting. And guess what they're voting for, right? They're voting for tax base to themselves, which which Yeah. Which makes a lot of sense. So if you don't like any of this stuff, hey, go out and vote. I mean, that's >> it's funny. Everyone hates the boomers, but millennials will do the exact same thing when they're older. Same thing. >> We'll see. We'll see. Time will tell. >> Next question. >> All right. Up next, we got one on the 4% rule. Is the 4% rule good to follow for both pre-tax accounts and post tax accounts? If not, what would be the most reasonable approach? So, we get a lot of retirement withdrawal strategy questions here in asset compound for good reason. Like saving and building up a portfolio is relatively straightforward. Taking money out of a portfolio is a little more complicated. Actually, a lot more complicated. So, Bill, I'm, you know, we don't even have to get into the 4% rule of it. Just how do you think about withdrawing from a portfolio from a tax perspective? Now, I will say part of this is kind of easy for the RMD piece, right? Because that you're forced, you know, what you have to take out. >> Yeah. >> Right. Uh, so that piece is kind of easy. How do you think about taxes in terms of withdrawing money? Like are there certain accounts that you think it makes sense to take from earlier or later or like how do you think about this from a perfect world? >> Yeah, Ben, I like the 4% rule because it works. Uh you can't outspend your your assets in most scenarios at 4%, right? So that's a pretty good rule of thumb. And Ben, I would take the opposite point that like a lot of our clients at at Rholtz like are spending they run out of time faster than they run out of money. And that that's something but I think the 4% rule makes a lot of sense. The way I would order it for most folks, Ben, I would four four kind of orders of operation. Number one, I would sit down towards the end of the year, add up all of your income, right? So, you had social security, you have a pension, just add all that stuff up because you, if you're working part-time, you would need to know what that number is and then add in your dividends and interest and taxable income, right, from non-qualified accounts and take a look at that number. And then at that point, I would look at my traditional IRA and I would fill up low tax brackets. The 10% bracket is is very, very low. 12% is very, very low. Standard deduction this year for married couples is in excess of $30,000. So, if you're not taking advantage of those quote unquote free or low tax rates, that's the place to attack. >> So, how much how much could you take out of your IRA and still have pretty low tax rates? >> That's a good question. I think somewhere in the neighborhood depend again depends on your social security, depends on your pension, but somewhere in the neighborhood of like $80,000 in total, assuming you're married, right? So, cut all these numbers in half if you're not. And then, Ben, what I would argue one thing. So, before you So, it is kind of funny. People worry about taxes in retirement, but like there's ways to do it for a really low tax rate. >> Oh, yeah. Definitely. Because keep in mind your social security income, your pension income, your traditional IR distributions, that's not FICA taxable. So you're not paying employment taxes on those. So really, you just you do have to just worry about income tax. Back to the Bezos point. So yeah, I think 12% bracket and that kicks in around $118,000 for a married couple, right? So I think you can safely quote unquote distribute amounts there. And the next thing to look at, Ben, would just lump on Roth distributions on top of that. And if you really want to like war game this correctly, you're looking at the end of the year. You're doing this in November, December. You're distributing the cash and sticking it into a non-qualified account and you're doing that towards the end of the year when you have some certainty as far as what happened throughout the year. Add in RMDs on top of that too and you get a really really low tax rate. >> The bill guide to retirement withdrawal strategies. >> There you go. There you go. I am not writing a book because nobody would buy it. That's why that's why we keep them coming compound. >> All right. I like it. But again, this is a question we get a lot of people like, "Oh my gosh, I have to start taking money out." Uh it's scary. It's a good problem to have though. I'd argue that. Yeah. Can't take it with you. Yeah. Go spend it. >> To your point. Yeah. If you're paying the taxes, you won the game, right? >> Exactly. >> We We triggered poor Chris in the comments. He said he tax bill and so yeah, he's >> he's not having it. He's not >> Chris's a hardworking American. He deserves a tax break. Chris, >> people are usually very calm about taxes, right? >> It's true. Yeah. >> We we always say, Bill, like people hate paying taxes more than they like making money. >> It's true. You know who I think deserves a tax break? Ask the compound commenters in our YouTube. There you go. God bless. Great Americans. All of them. >> That's how you sell books, Bill. Another question. >> Okay. Up next, we got one from Ethan. My wife and I, both 36, have $1.25 million in retirement accounts, about twothird Roth, uh, onethird pre-tax, and we want the option to retire early. We recently learned that pulling Roth earnings before 59 and a half triggers taxes even when we can avoid the 10% penalty. We're considering routing all contributions above our 6% company match into a taxable brokerage account for flexibility. Are we crazy? >> 36 years old and they already have over a million dollars. That's in retirement. That's crazy. Yes. >> Yeah. Congrats, Ethan. My brother's name is Ethan. Very very strong name. Shouts to Ethan. Sweet. >> I like it. Uh flexibility for early retirees. Another big trend here in the compound. Yeah, right. That we get this question all the time. So, it's funny. All of these early retirement questions are definitely bull market questions. You do not get questions about early retirement during a bare market. That doesn't happen. No one was asking this in like 2010. Hey, how do I retire at? No, you don't get those questions. >> When I came out of college, I I don't think that this was a thing anyone ever thought about. >> No. Work to 95. Exactly. >> Right. So, they're asking about your favorite account, the Roth. Uh and they they listen, they just learned about that the earnings, right? You can't take You can though take out the contributions, right? So maybe they're actually going to be okay if if they obviously have a lot of contributions unless they just had some crazy stock pick in their Roth IAS, right? >> Yeah. This is a great place to be because you're looking at time value of money. This is a long time horizon. I I wanted to just hit pause really quick though and reset because you're exactly right. Earnings, if you take a non-qualified distribution before age 59 and a half, you would pay tax on the earnings. But Ben, to your point, there's a couple things that happen first. Can we chart on and let's just talk through this really quickly. If you're taking a non-qualified distribution, a non-qualified distribution early, you would end up do taking your earnings first. And that's from a Roth IRA, not a 401k. Got to got to get the dollars into a Roth IRA, which is easy to roll over and you're able to reclaim that basis Ben uh really at any time. And that's what makes it so powerful. So, yes, Ethan, you would have to leave your earnings alone. >> Bill, do you have a backup napkin for your chart? >> I I don't I don't I don't, but I can I can do make Mark Zuckerberg can and we can do it that way. >> Okay. So, so I don't think it's crazy and I think it's a great idea to to begin to to fund up that third bucket, Ben, which you have a traditional asset which is about a third of Ethan's assets and Mrs. Ethan twothirds in Roth. And there's nothing wrong, Ben, I don't think at all, in funding that other bucket because what that would allow you to do realize capital gains, right, in the future at a at a really low tax rate, back to our previous discussion, anything in in the 12% tax bracket below, you're getting 0% taxes on capital gains. That's awesome. And there'd be no reason at this point not to think about that. If you're planning on retiring, let's say in your 40s, why not do that ahead of time and fill that bucket now? >> See, I thought you were going to say keep doing the Roth, but you're saying the flexibility actually helps by having that divers tax diversification. >> I wanted to answer Ethan's question, which was am I crazy? And my answer would be no. However, to to take your point, I I would also advocate there's nothing wrong with just shoving dollars into a Roth because again, you can get them back at any time before 59 and a half. So, if you think about a world where you're just putting the money, let's say you you're able to save over the next 5 years, $50,000, $10,000 a year. If that's in a Roth, you just pull that money out taxfree and you can you can live on it. If the money is in a non-quit account, you can also get it, but then you're paying capital gains. I don't think it's a wrong answer, but I I think both are perfectly fine. >> All right. Either way, they're they're in a great position. the the 10% penalty they reference that's if you take out the money before 59 and a half you get a 10% >> penalty >> before 59 and a half but it's really important to understand that only attached to the earnings right so ordering rules you're getting your basis back taxree any any dollars you put into the Roth at any time you can get that back and then any earnings are going to be ordinary income plus a 10% penalty until you hit 59 and a half another quick planning point very very important actually to mention if you're only funding retirement accounts at work a Roth 401k that is not a Roth Roth IRA, there is another 5-year clock that starts the minute that you fund any Roth IRA. And it's just a onetime thing you have to do. There's no reason in your 20s or your 30s per Ethan if you do not have a Roth IRA already open. Just put $100, $1,000 in there and get that clock running so you can get qualified distributions later. >> And we've mentioned this before, but the biggest thing to think about when early retirement that no one thinks about is we talked about the longevity piece earlier. What are you going to do? >> Yeah. >> What are you gonna do? Right. Everyone wants to retire early, but I don't think a lot of people spend enough time thinking, "What am I going to do to stay intellectually stimulated, to stay social, to stay active?" You can't just say, "I'm going to travel." That's the thing everyone tell everyone says, "I'm just going to travel." Uh, you actually have to have a plan of what you're going to do with your life. What's what's an average Thursday going to look like for you? >> Yeah, good point. >> Yeah. If I could go back then, one of the things I would think about is maybe we had kids kind of late in life, but there's no more brain damage than I have in my my life than my than my two children. like they definitely uh hurt my head and it would be awesome. >> See that skunk streak on my my gray? My kids, why are you going gray? Because you kids >> on here. Yeah, my hair's falling out. So, it would be great to to to take a step back, right, to to maybe take a lower stress, lower octane job, right, during those years when you you can do really meaningful stuff with your children. I think it's a wonderful thing to think about and the opportunity that Ethan and Mrs. Ethan have worked for. If they don't have kids, it would be an awesome thing to think about maybe in your late 30s, early 40s, right? starting the clock then people are having kids later in life. Why why not join the club? >> All right, great segue into the last question because this is about kids. >> Let's do it. >> Okay, last but not least, we got one from Mike. As a fellow CFP with a three and sevenyear-old, my brain is hardwired to mathematically optimize every single dollar. Hearing Bill Sweet rave about aggressively frontloading 529 plans on a recent show got me thinking about taking it a step further into a dynasty 529 strategy to fund multiple generations. But your writing on the 18 Summers philosophy always rings in my head. How do you draw the behavioral line between maximizing a multigenerational tax shelter and the pragmatic reality of using that cash right now to make memories while the kids are actually young? At what point does optimizing for the future start stealing from the present? >> Very good question. Very uh very well written. And then and then they give you some book praise. Congrats on the launch of the book. I already bought a copy, but winning a signed version would be even sweeter to pass down to my daughter to read one day. She already enjoys doing her Greenlight app on the weekend, so maybe this can take her knowledge a step further one day. What's >> starting starting his kids young? Uh it must be like a Kindle for kids or something. I don't know. >> I was thinking the Matthew McConnA book. >> Yeah. All right, Mike, send us your address and your daughter's name and I'll sign the book towards her. We'll definitely send it out. Um, it's funny. I asked my kids if they would ever want to read my book. And I got a Ew, no, boring, Dad. God, what? That's That's Thanks, guys. Um, so my 18 summers thing is that you really don't have a lot of time to spend with your kids. Someone said this when our kids were like four years old, like, "Hey, we have like 14 summers left with our kids and they're gone forever." I think the stat is a ballpark figure. you spend 90% of your time with kids before they reach age 18 and then like the 10 rest 10% of them them after 18 is >> I'm picturing that chart from Sahil Bloom's book where it just yeah it decreases. >> So and that that like definitely rings true to me. I would like to help my kids as much as I can financially speaking someday like maybe with their first house down payment try to ensure they don't come out of school with like student loans or something. Um but I'm not thinking about dynastic wealth and inheritance at this stage of life. I would rather leave more memories than money. That's the way I'm thinking. I I talked about it on the show before. I bought a lake house for this exact reason. And it's funny. I have a guy who lives who's two houses down from me on the lake and his kids are older, like out of the house, graduated college in the working world. And we were talking about like why he decided to buy. And he said, "I bought this house honestly so the kids would have a come place to come visit me." And he's like, "I would I I talked to him about it and I said, you can either have an inheritance later or a place to come make memories." And we all decided was the thing to do. So, I'm I'm really big on that. What do you do if they pick my other option? Mayor, it's >> awkward. >> Hey, the son of a CFP. Yeah. >> Write them out of the will. I don't know. Uh, so I guess let's first start with like how this dynastic wealth would work and then we'll talk about like should you do it? So like what is he talking about here about aggressively frontloading these 529 plans? So I guess that would be putting way more money in here than they're going to need and then turning an a Roth IRA eventually. Is that the idea? >> That's one option. Ben, I read it a little differently. What what I was thinking was look, if you just aggressively fund 529s, I'm in the state of New York. I get a tax deduction for doing so and you just you on purpose you keep adding dollars even when they're in college, even when the kids are after college because there's no limit to annual contributions to 529s. And as you the account owner, you can change a beneficiary at any time. >> Wait, I never thought of this. So you can keep putting money into 529 even after they graduate from school. >> That's correct. >> Never thought about that. >> Yeah. >> And there's no limit. >> There's no limit to the annual contribution. There are limits per plan document at the state level on what the total balance can be, right? So you can't just keep shoving dollars forever. But the idea is you build up this bucket and it's like thinking multigenerationally, right? So we talk a lot about taxfree compounding in Roth. Think about taxfree compounding with a 529. If you if you seed a 529 with $10,000 today, fast forward 30 years, it's going to be worth 90 $80,000. Fast forward another 30 years from there, now we're talking, you know, very high six figures. And the idea is you just do this. Think of multigenerationally and think about seating it that way. Couple of things to think about. You can change a beneficiary at any time, but there are some really funky estate tax questions that come in. I have not been able to get a clear answer from a tax attorney. What happens when you make that contribution and then change a beneficiary to the next generation? It's not clear that there's an answer. You could probably file a gift tax return, but I have no idea what that means. Second point is you need to add a successor beneficiary or successor account owner, excuse me, to your 529 because if something happens to you along the way, usually that's your spouse. But if you're thinking about a 60-year time horizon, you would want somebody else to understand the intent. Why did you do this? What happened? Just in case something happens along the way. But again, Ben, the idea would be really to to to leverage the tax-free compounding multigenerationally. Get 50 60 decades of compounding. Very very powerful concept. The reason for this is because you can't open a Wroth in a kid's name unless they have earned income. >> That's correct. Yeah. So, a 529 gets you around that and then you can convert that to 529 later or excuse me, Roth later. There is an interesting angle. We talked about Trump accounts maybe six episodes ago and so that's a new take on this. But I I Mike, I I like this idea. I don't know, Ben. I think you're just a much better guide on how to balance the two, right? I And I don't I don't I guess for me, Ben, what is holding me back from giving my kids a good life? It's not money. It's really time. Like I I don't I find I don't have really enough time in my life to spend during these early years with them on the weekends riding bikes and we do all this stuff, but I just I don't know. I feel like I fall short and it's not the money. I think to your point about legacy, I have no desire to leave them any money. And I think that's the benefit of an education. And it's like, hey, you've got this law degree, you've got a a doctorate degree, go get your ass, go get yourself a job if you want some money. That's on you, right? >> John Carlo is asking uh does it matter who opens a 529, parent or grandparent, etc. Uh for financial aid calculations, >> for financial aid, it gets very very strange, but very generally the 529 uh is the parents asset. It's not considered the child's asset. For grandparents, it does get really complicated for financial aid purposes. So, I don't actually know the answer top of my head. I believe something like 50% counts towards EFC, but I'm not sure. I don't know what needs to be disclosed or not because I don't think it's the child's asset for UFC purposes. >> And my whole thing about the optimizing for the future versus stealing from the present, which Duncan said very well written, >> is like I I always want to have a balance. And the same thing with time management, Bill. There's times when I'm working when I feel like, oh gosh, I should be doing something more with my family. And there's times with my family where I think like, oh my gosh, I should be working more. And it's the same thing with money. Like when you're saving a lot of money, you go, man, I could be spending that now. And when you're spending a lot of money, you go, I could be saving this. I think you want to constantly go back and forth between those two. You know, you want to ping pong back and forth between having those feelings. I think that's when you know you have balance. When you're constantly feeling one or the other, >> that's a good point. >> You're never going to you're never going to get it perfect. You're That's a good point. No one has it No one has it figured out perfectly. You want to like go back and forth a little bit. >> You only know in hindsight. I I try to Joey Fishman, our friend and colleague in uh Bend, Oregon. He has this thing about regret minimization with clients. Like his go his job is to sit him down and say, "What are you going to regret more?" like not having the money saved for college and needing to borrow and paying interest on the back end or to your point Ben, we did this wonderful vacation and we have a lifetime of memories attached to it. Clearly the answer is both, but I think you can get some truth uh in Veno Veritas. Sit somebody down, have a conversation about that and have them describe what they would regret more. >> Yeah. As much as I hate going to Disney, sorry Disney people, uh taking my kids there is going to be they're going to be talking about that for the rest of their lives as opposed to when they're 60 getting money from us. What's what's going to be more meaningful for their lives? Yeah, probably the trick. >> Yeah. And I hate to get too sappy on you gentlemen here, but uh you don't get the time back. Like that's the thing that I'm kind of realizing. I'm I'm at that stage where I see the I see the parent pushing the kid in the in the little baby stroller and I I get whis I get a little misty eye. A little smoke getus in my eyes when I think about that time that >> that bill is called a midlife crisis. Welcome, my son. >> I'm there. Uh yeah, shave my head, get a convertible. Uh change my name to Duncan. I'm doing >> it. Also, it reminds me of my favorite John Linen quote. The life is what happens while you're busy making other plans. It's true. I like it. >> That's good. That's good. So, but no, Ben, I I really like the idea of Dynasty 529. Uh I think the few things are going to compound through the generations like like a quality education. I think that's a great way to set your kids up for success and grandchildren. >> Yeah, there's some optionality there. I like it. >> Exactly. >> Okay. Uh thanks to Bill for helping us figure out the tax code. I think we've got it all figured out now. Nothing else to do. >> Always a good time. >> Ask the compound showgmail.com. Everyone who sent a question in today is going to get a signed book by me. We're going to do it one more time next week. So, send us your address. We're going to reach out. Uh, thanks everyone in the live chat as always. Thanks to Duncan and the team behind the scenes and the production staff. And we'll see you next week. >> See you everyone.