Q&A: The Hidden Tax Drain in Your Investment Strategy

Summary

Afford Anything Podcast Summary: "Q&A: The Hidden Tax Drain in Your Investment Strategy"

Hosted by Paula Pant and Joe Salce | Released on February 25, 2025

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Introduction

In this insightful episode of Afford Anything, Paula Pant and Joe Salce delve into pressing financial questions from their audience, focusing primarily on tax implications within investment strategies. The episode, titled "Q&A: The Hidden Tax Drain in Your Investment Strategy", addresses topics ranging from international relocation taxes to optimizing taxable brokerage accounts and evaluating employee stock ownership plans (ESOPs) versus traditional 401(k) plans.

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1. Rebalancing Taxable Brokerage Accounts

Question from Michael
Timestamp: [02:02]

Michael’s Query: Michael asks about the tax considerations of rebalancing his taxable brokerage accounts annually, specifically fearing the realization of capital gains and the associated tax burdens. He currently rebalances on his birthday by selling assets and wonders if there's a more tax-efficient method.

Paula Pant’s Response: At [03:22], Paula commends Michael's proactive approach and offers three key strategies:

1. Holding Period: Ensure assets are held for over a year to qualify for long-term capital gains rates, suggesting leaving an extra day beyond the anniversary for safety.
2. Rebalancing with New Contributions: Instead of selling assets, use new money to adjust the asset allocation, thereby avoiding triggering capital gains.
3. Asset Location: Strategically place tax-efficient investments in taxable accounts to minimize tax liabilities.

Joe Salce’s Insights: At [04:30], Joe emphasizes avoiding overly tax-efficient strategies that might compromise investment safety. He advocates for rebalancing by purchasing rather than selling, aligning with a growth-focused strategy, and praises Michael’s method of using new contributions to maintain asset allocation.

Notable Quotes:

• Paula: “[03:22]... rebalance by virtue of purchasing more assets rather than selling out of positions in order to avoid the tax hit.”
• Joe: “[04:39]... people put safe assets into tax shelters because they don't want the dividend payout.”

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2. Comparing 401(k) Plans to ESOPs

Question from Sam
Timestamp: [12:09]

Sam’s Query: Sam is evaluating a job offer from a company that lacks a traditional 401(k) but offers an ESOP, which has consistently contributed up to 13.5% over the past six years. In contrast, his current employer matches 5% into his 401(k). Sam seeks advice on the pros and cons of accepting the ESOP over a traditional 401(k).

Paula Pant’s Response: At [15:44], Paula congratulates Sam and highlights the importance of assessing total compensation beyond salary. She cautions against the concentration risk of holding substantial employer stock through an ESOP, which ties both income and investments to a single company's performance. Paula advises:

• Maximizing contributions to traditional or Roth IRAs.
• Recognizing the tax implications of ESOPs and the importance of diversifying investments to avoid overexposure to employer stock.

Joe Salce’s Insights: At [16:13], Joe suggests splitting direct deposits to allocate funds automatically into IRA and brokerage accounts, enhancing investment diversification. He stresses the limited contribution limits of IRAs and recommends using High-Yield Savings Accounts (HSAs) as supplementary retirement vehicles if eligible.

Notable Quotes:

• Paula: “[15:44]... concentration of risk because not only does your entire paycheck come from this one particular company, but now a big portion of your portfolio does as well.”
• Joe: “[16:51]... consider the taxable brokerage account because with its flexibility, it compensates for the tax liabilities.”

Further Discussion: Paula and Joe debate the comparative benefits of ESOPs versus 401(k)s, ultimately advising caution with ESOPs due to the inherent risks of concentrated investments. They encourage Sam to weigh the stability and growth potential of the ESOP against the diversified security of a traditional 401(k).

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3. International Relocation and Tax Implications

Question from Carlos
Timestamp: [39:30]

Carlos’s Query: Carlos, a U.S. green card holder planning to retire early in Brazil—which lacks a tax treaty with the U.S.—seeks advice on taxation and withdrawal strategies for his traditional 401(k) and Roth IRA accounts.

Paula Pant’s Response: At [42:14], Paula explains that as a U.S. permanent resident, Carlos is subject to U.S. taxes on his worldwide income, regardless of his residence in Brazil. Key points include:

• Tax Obligations: Continued U.S. tax responsibilities even after relocating.
• Withdrawal Considerations: Distributions from traditional retirement accounts will face U.S. withholding taxes.
• Financial Logistics: Importance of setting up a Brazilian bank account in advance to handle currency exchanges and comply with foreign asset reporting requirements.

She emphasizes the necessity of consulting with a tax advisor specializing in international taxation to navigate the complexities of dual-country tax obligations.

Joe Salce’s Insights: At [45:10], Joe reinforces the importance of finding specialized tax advisors by advising Carlos to "ask who, not how." He highlights the challenges of finding expertise in international tax law and the value of networking to secure knowledgeable professionals.

Notable Quotes:

• Paula: “[42:14]... the US taxes its permanent residents across the globe even after you move abroad.”
• Joe: “[45:37]... surround yourself with the right who’s to solve your problems efficiently.”

Further Discussion: Paula and Joe delve into the intricacies of international taxation, emphasizing the importance of specialized advice and the potential challenges of currency fluctuations and country-specific financial regulations. They reiterate the complexity of managing retirement funds internationally and the critical need for expert guidance.

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Key Takeaways and Insights

• Strategic Rebalancing: Utilize new contributions to adjust asset allocations in taxable accounts, minimizing tax liabilities by avoiding selling assets.

• Diversification vs. Concentration Risk: ESOPs can offer substantial employer contributions but pose significant risks due to overreliance on a single company's performance. Balancing ESOPs with diversified retirement accounts is crucial.

• International Taxation: U.S. green card holders moving abroad must navigate continued tax obligations and should seek specialized tax advice to manage withdrawals and comply with foreign reporting requirements.

• Total Compensation Evaluation: Beyond salary, assessing benefits such as retirement plans, healthcare, and other perks is essential for making informed career decisions.

• Seeking Expertise: Emphasizing the importance of connecting with the right experts (“ask who, not how”) ensures tailored and effective financial strategies, especially in complex areas like international taxation.

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Conclusion

In this episode, Paula Pant and Joe Salce provide comprehensive answers to listener questions, blending practical financial strategies with deep insights into tax optimization. By addressing issues such as taxable account rebalancing, evaluating retirement plans, and managing international tax obligations, the hosts equip listeners with the knowledge to make informed financial decisions. Their emphasis on diversification, strategic planning, and seeking specialized advice underscores the podcast's core message: "You can afford anything, but not everything."

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Stay Connected: For more financial insights and to join the community, visit affordanything.com.

Transcript

[Paula Pant]

Joe, have you ever thought about living in another country?

[Joe Salce]

Not for an extended period of time. Our goal is, though, when Cheryl, who loves what she does right now, decides that she doesn't want to do it anymore, pick up and move from the heater that is northeast Texas during the summer, and maybe just live in Portugal for a few months or every year live someplace different. Just for two or three months at a time, though.

[Paula Pant]

Ah, well, you'd probably still keep your residency in Texas then, which means there wouldn't be tax implications to deal with, thank goodness. Well, you're not going to dodge that complexity just yet because we're going to answer a question from a caller who is moving to Brazil and is wondering what some of the tax considerations are. We're also going to hear from a caller who rebalances his portfolio every year on his birthday and is wondering what the tax considerations are when rebalancing that taxable brokerage portion, as well as just kind of what the strategy around it is. And we're going to answer a question about 401ks versus employee stock plans.

[Joe Salce]

Wow. All that today.

[Paula Pant]

All of it's a big day. Joe, buckle up. Welcome to the Afford Anything podcast, the show that understands you can afford anything, but not everything. Every choice carries a trade off, and that applies not just to your money, but to your time, focus, energy, and attention. This show covers five pillars. Financial psychology, increasing your income, investing, real estate, and entrepreneurship. It's double I fire. I'm your host, Paula Pant. I trained in economic reporting at Columbia. Every other episode, I answer questions from you and I do so with my buddy, the former financial planner, Joe Salce. Hi. What's up, Joe?

[Joe Salce]

Wow, sounds like we're giving people a Brazilian reasons to listen today.

[Paula Pant]

Oh, Steve, can we get a want want?

[Joe Salce]

Come on. That was not want want. That was good.

[Paula Pant]

We don't want to lose our audience before the show has even started. So we're just going to dive right in with this first question, which comes from Michael.

[Michael]

Hey, Paula, I had an interesting question. I don't think I've seen anyone cover elsewhere. So part of my financial plan is to rebalance my accounts yearly. I do this on my birthday. Lack of a better time to do it. But one of the things I've been thinking about is how to do that about my taxable brokerage accounts. So in those, if I sell some of these assets to rebalance, I will be realizing capital gains and that has tax implications while I'm working. The main purpose of my taxable account is I have Extra money. And I have nowhere else really to put it and nothing I plan to spend it on in the immediate future. So it's just sitting there compounding until I need the money for something. So is there any advice out there for rebalancing a taxable account yearly? What I've currently been doing is I take some portion of new money that I'm adding to this account and I use it to kind of help try and bring things closer to my idealized asset allocation. Again, I don't know if there's a better way. I've never really seen anyone really talking about rebalancing those accounts while you're still working. But I figured you might have some good advice that you could provide on how to go about that. Thank you for taking the time to listen, Michael.

[Paula Pant]

Happy birthday. It sounds like you know how to party. I'm joking. That's exactly the type of thing this community does. That's what I love about afforders. We find the celebration in taking care of our financial health.

[Joe Salce]

Absolutely.

[Paula Pant]

To answer your question, the two things that I would recommend doing in terms of the assets that are in your taxable brokerage account, one is make sure that they're there for a solid year. Heck, if you really want to be on the safe side and not risk it, go every year birthday plus one day, and then the next year birthday plus two days. Just make sure that you're going to get taxed at the long term capital gains rate and not the short term capital gains rate. So maybe leave a safety margin of an extra day just to be on the safe side. I don't know if that's strictly speaking necessary. I would just do that out of an abundance of paranoia. So that's the one thing I would do. The other thing I would do is exactly what you suggested, which is rebalance by virtue of purchasing more assets rather than selling out of positions in order to avoid the tax hit. Oh, and the third thing of course, is asset location. So when it comes to the asset allocation of your entire portfolio, locate the most tax efficient investments into your taxable brokerage account. Those are the three things.

[Joe Salce]

Sure. And the only thing that disturbs me when people do that, Paula, is that.

[Paula Pant]

Often the money timeout that disturbs you.

[Joe Salce]

Disturbs me.

[Paula Pant]

Wow.

[Joe Salce]

I get very disturbed, Paula.

[Paula Pant]

Geez.

[Joe Salce]

Very, very disturbed.

[Paula Pant]

All right, sorry.

[Joe Salce]

Sorry to cut you off about that recommendation.

[Paula Pant]

How's dramatic disturbs you?

[Joe Salce]

The only thing that I see people do when they try to be.

[Paula Pant]

No, no, no, stay with disturbs. That's great.

[Joe Salce]

When People try to be overly tax efficient. It is often the assets that are the safest that also create the biggest tax consternation. So I will see people put safe assets into tax shelters because they don't want the dividend payout. And then it comes time to spend money and the money that is very tax efficient, it's because it's a growth fund that doesn't pay a dividend, which can be the most dangerous place to take money from. To some degree. I just have to realize that I'm going to lose some tax efficiency. There's going to be some tax friction when I have money outside of my ira. I think what's cool is this is a good opportunity to look at your allocation and ask does this work for me more often on the outside? I think I mentioned before with the efficient frontier, maybe looking at the drift every five years. But I think that because of the fact that you want to avoid taxes as much as possible on your non IRA money, just looking at what's working and what isn't before I begin to fill in is the thing that I would do. But besides that, I love his strategy. I like the idea of not selling anything if possible and instead deciding what I buy and how I buy.

[Paula Pant]

Yeah.

[Joe Salce]

In fact, you and I a few weeks ago were with our mutual friend Nick Maggi, who wrote a great book called Just Keep Buying and I asked him this question about which way do you like to get back to your allocation? He said whenever possible I like to just fill in the. The balances.

[Paula Pant]

Yeah.

[Joe Salce]

So that then I don't have to sell a thing. So.

[Paula Pant]

Exactly.

[Joe Salce]

I'm 100% on board with this strategy and I don't know of a better one.

[Paula Pant]

Yeah, same. That's exactly how I rebalance when I go to make contributions. I just take a look at that drift. In fact, I don't even get too specific about it. I just sort of eyeball the drift and I can usually see, all right, I need more of that asset class. And then I just buy into it.

[Joe Salce]

If something's down though, and I'm looking at whether I'm going to do some tax loss harvesting or if I'm going to stay with it. It's in those moments especially that I'm like, is, does this asset class suit me at all still? Is this still the place that I need to be? Because if I'm going to sell it for tax reasons, then I want to make sure before I buy it back and avoid wash sale rules by staying out of it more than 30 days. I'm going to clarify much more quickly whether this position even serves me in the first place.

[Paula Pant]

Joe, do you think my birthday plus one day is excessively paranoid?

[Joe Salce]

I don't. I think that's just fine.

[Paula Pant]

Oh, thank you. It doesn't disturb you?

[Joe Salce]

It does not disturb me. I don't get overly disturbed. It's a day after Paula's birthday.

[Paula Pant]

Yes.

[Joe Salce]

And I am disturbed.

[Paula Pant]

I mean, heck, if you keep doing that over the span of 30 years, you're going to end up like a month past your birthday and then who.

[Joe Salce]

Knows what madness happens.

[Paula Pant]

Yeah, but Michael, I think you are absolutely on point. You're doing exactly what both Joe and I would do. So kudos to you. Well, up next, we're going to address a question from a caller named Sam who's wondering about how to compare a 401k to an employee stock ownership plan. That's coming up next. Small business owners State Farm is there with small business insurance to fit your specific needs. Whether you're starting a new venture or growing an existing one, State Farm helps you choose the right coverage to protect what matters most. Working with a local State Farm agent helps you understand your coverage options, offering local support to help you achieve your goals. Focus on turning your passion into a thriving business, knowing your insurance can change as your business grows. State Farm here to help you succeed with your business like a good neighbor. State Farm is there. This is a message from sponsor Intuit TurboTax Taxes was dealing with piles of paperwork and frustrating forms and then waiting and wondering and worrying if you were going to get any money back. Now taxes is easily uploading your forms to a TurboTax expert who's matched to your unique tax situation. An expert who's backed by the latest technology which cross checks millions of Data points for 100% accuracy. While they work on your taxes, you get real time updates on their progress and you get the most money back guaranteed. All while you go about your day. No stressing, no worrying, no waiting. Now this is taxes intuit turbotax get an expert now on turbotax.com only available with TurboTax live full service real time updates only in iOS mobile app. See guarantee [e-mail] guarantees. You know, at work when something is really slow and it's time consuming, it feels like that whole ratio of frustration to payoff is just warped. Like when we began producing YouTube videos, we didn't have a smooth process, we didn't have a revision process, we didn't have a schedule. We didn't have A timetable. We didn't have a tech stack for it and it took us about a year before we really felt like we had a system down. That's often true anytime that you're doing something new, anytime you're doing something for the first time. Well, creating a trust in a will is a very slow and time consuming process and it's for most people it's not something that you do every day unless that's your job. Trust and will makes creating your will easy and time efficient, which means you can focus on other important tasks and you can get 10% [e-mail] Paula so their website is incredibly user friendly. If you're trying to figure out should you set up a trust or should you write a will, there's clear, easy to understand information about that. If you are navigating probate, which is a really intimidating process, they can help. They take this process that can be really overwhelming and they make it simple and straightforward and you've got the peace of mind of knowing that trust and will is designed by attorneys but you can customize it in whichever way you want. They have a really simple step by step process, guides you from start to finish. You can have all your documents in one place with bank level encryption and there's live customer support. They have an overall rating of excellent and thousands of five star reviews on trustpilot. And they're used by hundreds of thousands of families. Uncomplicate the process with trust and Will. Protect what matters most in [e-mail] Paula and get 10% off plus free shipping. That's 10% off and free [e-mail] Paula Trust and will is an online estate planning service and is not a law firm. See trustandwill.com for details. Our next question comes from Sam.

[Sam]

Hi Paula and Joe. I have a question about a potential job opportunity. I got an offer from a company that doesn't have a 401k plan, but they do have an employee stock ownership plan. While they said they can't guarantee any contributions into the esop, for the past six years they've been contributing the maximum annual amount, which they say is 13.5%. At my current company, I get a match of 5% into my 401k. So this seems like it would be an increase. I wanted to ask what my thought process should be. What are the potential pros and cons of an ESOP? The company has been around for about 75 years and they've been doing really well. Especially in the past decade. There's huge growth potential there. But I understand that there's some risk involved in this contribution only going into the company stock. So any guidance would be appreciated. Thanks for your help. Love the podcast.

[Paula Pant]

Sam first of all, congratulations on your new job offer. That's incredible. And I hope that you negotiated for your pay package. I'm kind of into that. And, and as we all know, when you switch jobs, switching employment tends to be the best opportunity to get a big bump in salary. So I hope that this new job offer comes with that big bump in salary and that bump in benefits. But speaking of a bump in benefits, that's exactly what you're calling about. How do you compare the Trad 401K that you currently have with a 5% match, which is an amazing match to this ESOP? It sounds as though the company that you may be moving to is doing very well with 13 and a half percent for the each year for the last six years making that max. However, as you mentioned in your question, the major red flag when it comes to ESOPs is that you're getting an offer of a stock, specifically the stock of the employer who you also rely on for a paycheck. And so there's a concentration of risk because not only does your entire paycheck come from this one particular company, but now a big portion of your portfolio does as well. You can of course invest money into a traditional or Roth ira. You can invest money into taxable brokerage accounts, but people who have stock based compensation often tend to have an over concentration of their employer stock. And when that goes well, it goes very well and when it goes badly, it tends to go very badly. So you want to shed a lot of the realized employer stock that you have as quickly as possible. A few notes here. One is that because your new employer, assuming that you take this job because your new employer is going to be funding this esop, you yourself are not going to be making those contributions which then frees up the money that you have for making those trad IRA or Roth IRA contributions. So I don't know how much money, if any, you're contributing now to IRA accounts that are outside of your current employer. But if you accept this job, when you make that move, be sure that since you're not going to be making contributions from your paycheck, be sure that you move that money into a non employer sponsored IRA account.

[Joe Salce]

A way to get that done fairly easily, if you your employer likes it, is often you can take your direct deposit Paula and Split it up among different places. And so if you can split your direct deposit, you can even eliminate yourself and hopefully have part of it go directly to an account that is inside of a plan so that you don't even touch it. And it feels very much like your 401k if at the employer level they'll let you do that.

[Paula Pant]

The drawback though, when we talk about these non employer IRA accounts is the contribution limit.

[Joe Salce]

Very small. Yeah, it's frustrating.

[Paula Pant]

Yeah, exactly. I don't know, Sam, if you have HSA eligibility, if you do, you can use your HSA as a, essentially a de facto supplemental retirement account by virtue of contributing money into an HSA and then committing to never touching that money until you reach retirement age.

[Joe Salce]

Yeah. Really just call it your Roth ira. But yeah, tax free going in, tax free coming out retirement fund.

[Paula Pant]

Yeah, exactly. You can use an HSA as a, functionally a substitute retirement account. That being said, not everybody has HSA eligibility and also, particularly if you expect to have any health expenses, if you have the option to get much better health insurance plan that is low deductible rather than high deductible, heck, that's even better. I would never advise somebody to take a high deductible plan just for the sake of having HSA eligibility, especially if they think they're going to have health expenses.

[Joe Salce]

I love the fact though, Paula, that she's looking at total compensation. And I think this is missed a lot of the time. Most people when they look at a job offer, they're just looking at what is the gross pay, not what's the total package that I'm getting. So for her to consider this, I think really helps all the afforders when they're looking at different job opportunities. Go, okay, what benefits do I get and how did that compare with the benefits that I have now? What's the cost of that? Because Sam's going to need to bring that to the table herself if she tries to match it. And in some ways, especially in this way, if she's going to contribute more than an IRA allows, it's going to be the same answer that we just gave to Michael, which is there's going to be some friction, some tax friction, because to save the same amount, she's going to have to put it into a non IRA brokerage account, which I would do over and over again. She's going to have salespeople that are going to tell her that an annuity gets around all that. Don't do it.

[Paula Pant]

No, don't do it.

[Joe Salce]

Don't do it. Not a great place to go. Although people will tell her, you know what you got to do. I think on my end, I think you nailed it, Paula. I think she can't because that employee stock ownership plan is not guaranteed. I don't think you can count it. Oh, well, just because past if she's tried to do an apples to apples comparison, you want to do your plan around, can I make this work without them making the contribution? So if it's not contractual, if it's not a part of her total compensation package, they just go, hey, the last several years in a row we made it and our stock's done really well. So here you go. I think when it appears it's a happy thing that way, I think if she counts it at all that they've done this in the past and then they don't do it. I think she's looking for a world of hurt. But I love your advice around this is an apple in an orange. Loading up on employee stock isn't something that you're going to want to do anyway. So as you once you decide what percentage of your portfolio you want in employee stock, then anything beyond that, you're going to have to sell. And then it goes in this taxable brokerage account. Again, with friction. Not the end of the world.

[Paula Pant]

Right.

[Joe Salce]

I think it's a fantastic place to accumulate money because that money's so flexible. There's going to be a lot of moving parts.

[Paula Pant]

Yeah. And if I can speak in defense of the taxable brokerage account, many people don't like those accounts because of course they are taxable. They aren't tax advantaged in the way that other retirement accounts are. But what you are, quote, unquote, buying with that tax bill is flexibility.

[Joe Salce]

It's great. 100%. Love it. I'm totally with you. There have been so many times that I've recommended to people that they get just a brokerage account. I don't know. But what about taxes? Let's worry about having more money. Let's worry about having money in the right place when we need it much more than worrying about just optimizing for a future that may or may not happen.

[Paula Pant]

Right.

[Joe Salce]

So I think that as she looks at this opportunity and she's looking at total compensation, not only these, obviously. Look at the, the amount that they put toward healthcare benefits that will change from company to company, just how good and well rounded the benefits package is in general.

[Paula Pant]

Yeah. You know, and I don't know the size, Sam, of the company that you're moving to. But particularly larger companies can sometimes have everything ranging from commuter benefits to Costco membership.

[Joe Salce]

I've seen.

[Paula Pant]

Right, yeah, exactly. Class pass, right?

[Joe Salce]

Yeah.

[Paula Pant]

Companies will sometimes offer class pass gym memberships. Yeah, precisely. So there are, particularly for large companies, just this massive range of benefits. Of course, what you trade off is you don't have, in terms of the day to day work experience at a larger company. You often don't have the same level of autonomy or nimbleness that you do at a smaller company. You don't tend to have as much decision making authority. Everything is very procedural. Often your best efforts can sometimes get stymied in bureaucracy. And so there's that company culture element as well that you need to counterbalance against these benefits. So we teach our students, in your next phrase, I should say we are still in beta. So what we have taught our beta students as we're developing this course out, we have them create a spreadsheet where we assign a weighted value to every single one of these factors. And so if there is a non monetary factor, for example, the perceived degree of autonomy that you believe that you will have at work, you know how much autonomy that you have at work at your current job, you have, I'm guessing, an impression of the level of autonomy that you believe that you will have at work at your new job. If you were to accept it, you then assign a numerical ranking of importance and then you assign a second number to it, which is the scoring that it has. So you basically you give it two numbers, you give it an importance level ranking, so you give it a weight and then you give it a score, and then you do that with every single non monetary factor. And you put these all on a spreadsheet and it's a way of quantifying the unquantifiable. And I think that when you're considering whether or not to accept a job offer, that is as important as calculating the monetary value of your total compensation package. Because what we know from the research is that the three factors that predict job satisfaction are autonomy, mastery and purpose. And so to the extent that you can wait for those weight, meaning in a spreadsheet, to the extent that you can assign some type of a weighting to how much autonomy, mastery and purpose you believe that you will experience within your new role the better of a decision you can make, what we also know from the literature is that the single biggest predictor of whether or not you like your job is your relationship with the person to whom you directly report your direct supervisor. That is the single biggest predictor of job satisfaction, which makes sense. You have to interface with that person on a daily basis. If you think that they are belittling or dismissive, then you're not going to enjoy any job. Whenever you're considering a new job offer, you're working with this asymmetric set of information because you know the circumstances at your current role and what you have educated guesses about the circumstances at your new role. But you are making these very imperfect educated guesses about particularly factors like those interpersonal dynamics. Yeah, fit exactly.

[Joe Salce]

In fact, it's funny, we spoke with a couple of experts in this area, Paula, we spoke with Ashley Goodall about this specifically on Stacking Benjamin's Paula and he and Marcus Buckingham had done a wonderful piece in the Harvard Business Review that even in a big company, Ashley said there's no such thing as culture at a company. You know what culture is? The four people you work with on a daily basis. And if those four people stink, you're going to think that no matter how big the company is or how small the company is, you're going to think the entire company stinks because of those four people. Which is why in Harvard Business Review and on our show they talked about if you are a senior manager, you need to teach your lower level managers about culture and about fit and about making people feel warm and welcome and needed. Because you're totally going to think the pot of people that are around you are either fantastic and so goes the company, the way you think about the people around you. And I think that's a great point that you. It's almost impossible to know that going in unless you're able to talk to the people, the hiring people know exactly where you're going to fit. And you're able to talk to some of those people ahead of time to get a feel personality wise how much you'd like them. And still it's going to be imperfect. I'm thinking about when we first came to Texarkana. We had a nice dinner with the people that Cheryl was going to be working with here in town because we moved here for her job initially about 15 years ago. And I remember one of the people at that table that I thought was kind of weird ended up being the nicest person and one of Cheryl's best friends and one of the people I thought was really, really cool ended up being this person that we, we still to this day do not love. Just do, do not love. So some of these first impression feelings can even give you the wrong sense so to your point, it is tough.

[Paula Pant]

Right. And some people are a little bit awkward in new or unfamiliar situations. Yeah. I've known plenty of people who don't give great first impressions, but as you get to know them, they open up.

[Joe Salce]

That's this woman that we thought was really weird.

[Paula Pant]

Yeah.

[Joe Salce]

She's just like that when you first meet her. And she still is quirky, but her quirkiness is why you love her. She's hilarious and she's so warm and friendly.

[Paula Pant]

Right.

[Joe Salce]

Kind of weird in the best possible way.

[Paula Pant]

Right. And then, by contrast, you've got other people who have the mask. Right. And they wear the mask well until one day the mask slips.

[Joe Salce]

Right.

[Paula Pant]

Yikes. Yeah.

[Joe Salce]

And it slips mostly for people that are around them every stinking day.

[Paula Pant]

Yeah, exactly. And those are your close colleagues, and that's your direct supervisor.

[Joe Salce]

It is funny, Paula, because I think what you're building here is this bridge between you and I talk about in financial planning, but bridging it to your next rage, which is this. This risk premium.

[Paula Pant]

Right. Yeah.

[Joe Salce]

This job can't be the same. It has to pay a bunch more because of the risk that you're taking that this might not be a fit.

[Paula Pant]

Well, it depends on what her perspective is on her current job. Is her current job untenable or is her current job satisfactory? But she's thinking about making a switch anyway. Because if the current job is untenable and toxic and she needs to move no matter what, even if that means running off with the circus to Antarctica.

[Joe Salce]

Circus in Antarctica?

[Paula Pant]

Yeah, exactly.

[Joe Salce]

All those penguin acts.

[Paula Pant]

Precisely. They're already dressed up in their tuxedos.

[Joe Salce]

That still fills me full of dread, though. I know where you're going with that. I just think getting off a burning onto another burning boat is not a great solution.

[Paula Pant]

Is this the second thing, this episode that has filled you with dread?

[Joe Salce]

Yes, I have concerns, but I think about then your next employer. If you've just think about. You're a hiring manager, Paula, and you're sitting across from somebody who just left a company 3, 4, 6 months ago, and they're looking to make another move again right away. I'm not thinking about the surroundings. I think that this person looks a little bit toxic to me as a hiring manager, so I may at least try to fill in as many blanks as I possibly can. If it's a circus in Antarctica, I'm probably not going for that very reason.

[Paula Pant]

That's true. And that is why you do need that risk premium for the asymmetric information, because the Cost of making the wrong move, moving to a company that you immediately dislike and then having to switch out of that company quickly and looking like a flight risk on your resume. There's a great degree of cost there.

[Joe Salce]

I love your usage of flight risk. He's going to escape from this job. Al, watch the back door. We have a runner. I had those days when I was working for American Express that I would have loved to be fleeing across the back parking lot. We have a runner. Go get him. Just. I've been in one too many corporate meetings of flight risk.

[Paula Pant]

I thought that was standard terminology. Am I the only one who says that?

[Joe Salce]

Not when it comes to corporate employment. Although every person here that works for, quote, the man knows exactly what you're talking about. Because I have been on that train. As I just mentioned, it's like we're seeking bail. We do think they might be a flight risk from this job.

[Paula Pant]

We have strayed far from comparing 401ks to ESOPs.

[Joe Salce]

Yeah, but I think we did that early. I think this is important stuff, though, when you're value. I think the process of evaluating opportunities is something I think we do very poorly. I truly think if we looked at the total compensation package and did a better job of negotiating on that compensation package, we not only would be happier, but studies show that you're happier than at work.

[Paula Pant]

Right.

[Joe Salce]

Because the number one reason people don't get their work done, studies show, is because they're worried about their financial picture. And if I can show up at the job and not worry about my financial picture, it's in my boss's best interest and my best interest at the same, because everything's taken care of at home. So guess what? I can help the company move ahead. Which is what every boss in the world wants.

[Paula Pant]

Right, Exactly.

[Joe Salce]

Which is why we shouldn't be afraid to take your negotiating class and to ask for the raise. No, seriously. You see, these people, especially studies that show that women don't want to rock the boat, right? And I know plenty of men that don't want to rock the boat either. But every study shows it's a lot of women. Like, I shouldn't ask. It's not the right time. I shouldn't do that. It's not the answer.

[Paula Pant]

Thank you, Joe. Thank you for the plug. But in all seriousness, that is, of all of these subjects that I could have decided to build a course around, there's a lot of thinking that goes into. All right, what subject matter am I going to really deep dive into and pour a lot of focus on.

[Joe Salce]

You'd just willy nilly choose one, right?

[Paula Pant]

Exactly. Because there's so much time and effort and energy that goes into the development and the iteration, the revision, the refinement of something like this. And so making that upfront decision about. All right, what subject matter is it going to be? Is it going to be investing? Are we going to be talking about asset allocation and index fund selection? Is it going to be money mindset? And we talk about behavioral finance? And I think both of those, those are two of many topics that we cover here on the podcast that are incredibly important topics. But as we interviewed our audience, as we found out what people's pain points were, and as we really thought through what are the most practical and applicable ways that we can make an immediate difference in somebody's life now, it kept coming back to how do I make more money? And how do I find work that I love? And this topic, getting a raise, which tends to often, not always, but often, your biggest raises happen when you change jobs. That is the Venn diagram intersection of those two desires. Find work that you love and make good money doing it.

[Joe Salce]

I don't mean to keep plugging your course, but can I put in another oh, reason why you need to do this right now?

[Paula Pant]

Why, thank you, Joe. I'm flattered.

[Joe Salce]

Well, I don't. But here's the deal. I mean, no offense, Paula. My goal isn't to have more people come to your course. What my goal is to help people get what they need when they need it. And here's the thing I was thinking about today as we record this, all this tariff stuff is beginning, right? And we've had the president himself come on and say it may get worse for your pocketbook, right? Forget all the promises, forget the lower price of eggs, all that nonsense. Tariffs always have and always will increase the price of goods. Inflation is going up. I said this during the stimulus packages, during the pandemic, and I'll say it again now. You need a raise just to keep up. You don't need a raise to make more money. Even if you think you know what I'm, I'm fairly compensated. If the tariff train works the way it usually does and these end up being extended tariffs, you will need more money just to keep pace. I wouldn't leave it to my boss to take care of my personal financial situation. Don't get me wrong. Every study I've seen shows most bosses want you to get a raise. They think that you may deserve it, but they have other priorities. They have things they're thinking about when it comes to the company, it's your job to take care of you. So maybe, Paula, this is another accidental plug for your course, but this is the year you're going to need a raise if this tariff train continues.

[Paula Pant]

Right. Not to mention the fact that we're coming on the heels of the worst inflation since the 1970s and 80s. The worst inflation 40 years.

[Joe Salce]

Yeah. If you didn't get a raise during that time frame, then you're behind. You're behind because the money you were making three years ago is not the same money. It doesn't spend nearly as far as it did three years ago.

[Paula Pant]

Right. But Sam, in direct answer to your question, as you're thinking through the value of the ESOP plan to take whatever money you are currently contributing towards your 401k and instead put that money towards an IRA, non employer sponsored, traditional or Roth IRA. Do that if you take this new job because the benefit of the ESOP is that there's no contribution from you. All of that comes from your employer. And so that frees up the money that you're currently putting into a 401k to put into an IRA instead. And if you do that and you hit the limit and there's still more to contribute, then it goes taxable. And so then, yeah, you lose that tax advantage, which sucks. But the question on a spreadsheet is precisely how much in dollars and cents does that suck and how does that math out against the other elements of the benefits that you'll get? And I agree with what Joe said, plan on that ESOP not even being there and that then when it is there, it's icing.

[Joe Salce]

And tactically, if possible, and a lot of people don't take advantage of this benefit. If you are allowed to split your direct deposit into different places, make your saving automatic direct from the employer into the accounts that you set up. In this case, it'd probably be a traditional IRA and a non IRA brokerage account.

[Paula Pant]

So thank you, Sam, for the question and best of luck with whatever you decide whether or not to take this job. Next we'll hear from Carlos, who is moving to Brazil and is wondering what financial ramifications, particularly what tax ramifications are going to come from that move. He's up next. What does a future hold for business? If you ask nine experts, you're going to get 10 different answers. Are we going into a bull market or a bear market? We can't predict the Future, but over 40,000 businesses have future proofed their business with netsuite by Oracle. The number one cloud ERP bringing accounting, financial management, inventory and HR into one unified business management suite. So you have the visibility and control that you need to make quick decisions with real time insights and forecasting so that you're closing the books in days rather than weeks. If we needed something this robust inside of afford anything, this is what we would use. Because if your company is earning millions or even hundreds of millions, NetSuite helps you respond to immediate challenges and and to seize your biggest opportunities. Speaking of opportunity, download the CFO's Guide to AI and Machine Learning at netsuite.com Paula this guide is free to you at netsuite.com Paula netsuite.com Paula P A U L A.

[Joe Salce]

How high is the interest rate for the new Laurel Road High Yield Savings account?

[Paula Pant]

This high.

[Joe Salce]

The air is really really thin up here. The Laurel Road Very High Yield Savings Account Variable Annual Percentage Yield APY is.

[Paula Pant]

Subject to change at any time. No minimum balance required.

[Joe Salce]

Fees may reduce earnings on the account. For full terms and conditions, see LaurelRoad.com Savings Laurel Road is a brand of KeyBank Member FDIC this is a mini.

[Paula Pant]

Meditation guided by Bombus. Repeat after me. I'm comfy comf. I'm cozy. Cozy. I have zero blisters on my toes blisters. And that's because I wear Bombus the softest socks, underwear and T shirts that give back. One purchased equals one donated. Now go to bombus.com listen and use code listen for 20% off your first purchase. That's B O M b-s.com listen and use code Listen at checkout.

[Joe Salce]

Foreign.

[Paula Pant]

Comes from Carlos.

[Carlos]

Hi Paul and Joe. Just wanted to say how much I like the show. It makes my long commutes here in Atlanta a little more bearable. Keep up the awesome work. Just one point of feedback. I don't completely agree on your take about trad versus Rot for the simple reason that in the real world you almost never can make the same contributions post tax as pre tax. Of course, post tax contributions bite on. Your paycheck is much larger and you feel that. Also, I'd like to hear your thoughts on a case like mine. I've been in the US for the past 10 years now, earning a solid income with the green card. I've been maxing out my traditional 401k Roth IRA and contributing as much as I can to a brokerage account. But in about five years I plan to early retire in my home country of Brazil, which doesn't have a tax treaty with the U.S. what should I expect in terms of taxation and count withdrawals when I move there? Thanks again for all you do, Carlos.

[Joe Salce]

Carlos, thank you for the kind words about the show and we're glad to be with you on your long commute. I want to say something about the traditional versus Roth IRA point that Carlos made, that in the real world you feel the difference between the two and certainly you do. This is why this is personal. And I think some people, Paula, might have taken us the wrong way. And we pointed this out the last time I was here, our bias is toward the Roth. If there is a reason why, and for you, Carlos, it sounds like because your budget is tight to the point that paying the tax today versus paying the tax tomorrow makes it so you cannot make the same contribution, then certainly you need to weigh that into the equation. That is you pushing back against your bias. So if your bias is the same as mine, you go, well, my bias is to the Roth. And then you go, oh, wait a minute, if I do the Roth, I can't do as much into the account. And if you can't, then certainly that's going to change what you decide to do on the end. So I believe, Paul, a lot of people took what is our bias and said that it's this hard, fast rule. There very rarely is a hard, fast rule in personal finance. Very rarely, like don't max out your credit cards. There's a high fat, hard, fast rule.

[Paula Pant]

Right.

[Joe Salce]

But besides that, there are very few. So I just want to caution people again on that. But Carlos, clearly for you, and if the traditional ends up working out better because you can make a larger contribution, then you need to weigh that.

[Paula Pant]

Think of it as opt out versus opt in.

[Joe Salce]

Yeah.

[Paula Pant]

Essentially our position, myself and Joe, we independently both came to the same conclusion, which is that the default answer that we would have is to go with a Roth account unless there is a compelling reason to do something else. And so you can think of it almost the difference between opt out versus opt in. We're not opting into the Roth account. We're challenging you to opt out of the Roth account, setting the Roth as the default unless there's a reason to opt out of it, in which case opt out of it if there's a reason to do so.

[Joe Salce]

And that's really my contribution to this because, Paula, international taxation is nothing I know a thing about. But you've done some research.

[Paula Pant]

I am not an international tax expert, nor do I play one on tv, but I can tell you that the US Is one of the few countries that taxes both its citizens and its permanent residents on worldwide income, regardless of where they live. And so, Carlos, you are a green card holder, which means you're a permanent resident of the U.S. which means, congratulations, you're going to be paying taxes even when you live in Brazil, because the US Taxes its permanent residents across the globe even after you move abroad. So a few things that you're going to have to do, I mean, and absolutely consult a tax expert who has expertise in this field because this is neither mine nor Joe's expertise, but you will have to report and pay taxes on any US Source income. You're going to have to think about the timing of your account withdrawals. Remember that any distributions that you take from traditional retirement accounts are going to be subject to US Withholding. I would recommend if you don't have a bank account in Brazil yet, you it's your home country, so likely you already have one. But just in case you don't, make sure that you set up a bank account in Brazil before you move there just for the sake of ease. That's not a tax thing. That's just a logistical ease type of a thing. It's just easier to get one set up in advance since you are making money in US Dollars, but you're planning on spending it in Brazilian real. Plan for potential currency exchange consequences, figure out how you're going to plan for Brazil's foreign asset reporting requirements. And most of all, since you are a US Permanent resident, know that you're going to be paying US Taxes even after you move abroad. But the number one thing I would say is find a tax advisor who has an expertise in this area. Because neither Joe nor I are tax experts generally. And we are.

[Joe Salce]

Nor specifically.

[Paula Pant]

Yeah, specifically. I mean, we're not tax experts generally. And then you get into the specificity of taxes for US Permanent residents who are living overseas. That's a specific area of taxes that even some CPAs you know might not work with. So given the degree of specificity of your question, you're going to want to find an expert who specializes in that arena.

[Joe Salce]

I think this goes back, Paula, to some great advice that I got from fantastic mentors, which is surround yourself with great who's. And a lot of people might not be familiar with that phrase, but a lot of people ask how, how do I do things? How do I do this? And then we get lost in YouTube hell, right? Or we ask strangers on Facebook who may or may not have any idea what the heck they're talking about yet we Take their word for it. But knowing people that know the right people, filling your circle with the right who's. That's what that that means ask who, not how. So ask who, Always ask who, don't ask how. Who knows the answer to this question in the way that it fits me. So if Carlos says I need tax help and he doesn't specify Brazil, I may give him the name of a tax person who is fantastic. But then I end up wasting his time because of the fact that they don't know anything about international tax law or specifically a better who for him is somebody that knows Brazil.

[Paula Pant]

Right.

[Joe Salce]

That's the person he's looking for. And it's funny because when we ask ask who, not how, not only is it a much quicker path to the right answer, it also is just generally a quicker path. Often when we ask who knows this? I go, oh, wait a minute, Paula knows this. And I'll jump on my phone and I'll text Paula, Paula, who knows da da da da da. And almost every time, because I know who to ask who. Paula goes, oh, you should ask so and so. And then it gives me the right answer and an answer that more often applies directly to me.

[Paula Pant]

Right.

[Joe Salce]

So thinking critically about surrounding yourself with those right people versus just getting the question asking YouTube or whatever, I think is a much better way to solve your problems.

[Paula Pant]

Yeah. I've been interviewing CPAs actually for myself and for my own business. And I had a phone call, this is about a month ago, with a CPA who told me that he specializes in working with online businesses which afford anything, of course, is an online company, but he specifically specializes in working with online e commerce businesses which have to manage physical inventory. And he doesn't have a whole lot of experience working with a company like mine which sells digitized products and services. So he was very upfront about saying, yes, I work with a lot of digital businesses, but I actually don't really work with your kind of digital business. I don't tend to work with digital education and media businesses. I work with digital e commerce businesses. And those are different.

[Joe Salce]

That is. It's funny, even though that's not the right who for you.

[Paula Pant]

Right.

[Joe Salce]

It still is a great who to have. Because think about the number of people that would just go, yeah, I can do that. Yeah, I got that. The fact that he had the temerity to say, not something that I can do or that I choose to do makes him even more valuable.

[Paula Pant]

Right.

[Joe Salce]

I think to me, somebody whose opinion I would ask.

[Paula Pant]

Right. Well, and to me it also underscores the value of specificity. It's not enough to simply talk to a tax expert. You want a tax expert who specifically works with US Permanent residents who reside in Brazil. Because, Carlos, that is your specific situation. You are a U.S. permanent resident. You said Brazil is your home country, so likely you are, I'm assuming, a Brazilian citizen with a US Permanent residency who will be residing in Brazil. There's a certain tax situation that applies to that category. And you want to work with a tax expert who has expertise in that domain. Because here's the thing, when you start working with someone with financial advisors who have country specific expertise, part of their job is to keep tabs on changing regulations within that country, which are often in a state of flux. And so occasionally, and this doesn't apply to Brazil anymore, but this is a broader statement, occasionally there will be countries that put restrictions on the amount of currency that you can remove from that country. You sometimes see people sneaking their assets out of a country in the form of tangible goods like Rolexes because they can't overtly make actual currency transfers. Right. There are, depending on what country you're talking about and what type of government it has in place, there can be limitations on even the movement of money. And so that's why country specific expertise is so critical when it comes to choosing who your financial advisors will be. Because finance as a field is so nation specific.

[Joe Salce]

Yeah. It is interesting that you'll look at some investments from an American, US Specific point of view, and that same investment is given different currency fluctuation, can perform wildly differently on top of different tax treatments, et cetera.

[Paula Pant]

Right.

[Joe Salce]

That said, Paula, I have a who you should talk to about your taxes.

[Paula Pant]

Oh, thank you, Joe. Ask who, not how. When you put that who out there, as I just did, people who have the who will. Will volunteer it. Sahil Bloom says a closed mouth doesn't get fed. So if you have questions, if you're looking for that who, tell everyone in your circle, hey, I'm. I'm searching for that who.

[Joe Salce]

I like the Abraham Lincoln quote, though, which is better to keep your mouth closed and have people think you're a moron than to open your mouth and prove it. Something to that extent. I don't think that's exactly the way that Lincoln said it.

[Paula Pant]

I think there are some people who have strong opinions about topics about which they know very little.

[Joe Salce]

Oh, I definitely do. And do we want to spend some time on those?

[Paula Pant]

And it is for those topics when you don't have a whole lot of information. Those are the best topics on which to keep your mouth shut and to to listen. You know, to be there to listen rather than opine on subjects about which you know nothing. So Carlos, I hope that answers your question. And best of luck finding that. Who well, Jo, we have done it again. Thank you for joining us today. Where can people find you if they'd like to hear more of you?

[Joe Salce]

Well, if you're a student at UC Santa Barbara, you saw me last week performing great financial wisdom in front of students there and I had a wonderful time. UC Santa Barbara, I will be at Economy speaking. So if you're at the Economy conference, I'm going to be talking, Paula, about what the happiest retirees know at Economy and I just found that out just a couple weeks ago. So if you want me to speak to your group, it's just go to josalceha.com j o e S A U.

[Paula Pant]

L s e h y.com Ah, beautiful performing, Joe. I've never heard anyone call it performing.

[Joe Salce]

You've never seen me on stage then Paula. It's always performing.

[Paula Pant]

Well, thank you Joe and thanks to all of you for being part of the afforder community. We've talked in today's episode about our course you Next raise which is currently in beta. We will soon be opening up spots for the second round of beta. Our first round of beta. We ran that beta tester round last fall. We got a lot of feedback from the students. We learned a ton. We made a lot of changes, we built out the course even more. We made a lot of iterations, a lot of improvements. We improved the video, we improved the delivery system, we improved the process for peer to peer practice. And now that we have implemented all of that feedback into the course, we are ready to roll the course out to our second round of beta testers. I should add that the benefit to being a beta tester is not only do you get to help shape the course, but also you lock it in for life at a substantially reduced cost. If you want to be part of this founders team that helps give the feedback that shapes the course and turns it into what it is and you want to get it at the lowest price that it will ever be from this point forward. If you want to lock in that low, low cost, stay tuned because we're going to make the announcement in three weeks, so keep that filed in the back of your brain. In the meantime, join our newsletter affordanything.com newsletter so you can keep up with all of our announcements. And as always, please Share this podcast with your friends, your family, your neighbors, your co workers. Share this with the people in your life. Thank you so much for tuning in. I'm Paula Pant.

[Joe Salce]

I'm Joe Salsihai and we will meet.

[Paula Pant]

You in the next episode.