Ask HTM - Is Direct Indexing Worth It, Sticky Cosigning Situations, & Kiddos With Credit Or Debit #949

Summary

Podcast Summary: How to Money – Episode #949 Release Date: February 24, 2025

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Hosts: Joel and Matt
Podcast: How to Money by iHeartPodcasts

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Best friends Joel and Matt delve into essential personal finance topics in this episode of How to Money. They address listener questions on direct indexing, the challenges of co-signing loans within families, and the best methods for empowering children with financial tools. Through engaging discussions, practical advice, and personal anecdotes, Joel and Matt provide valuable insights to help listeners navigate their financial journeys.

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1. Sticky Cosigning Situations

Listener: Merv Best from [Timestamp: 07:05]

Merv reaches out with a concerning situation where he co-signed a student loan for his great niece, who has since stopped making payments. Consequently, his bank, Navy Federal Credit Union, is withdrawing payments from his account without his permission. Merv seeks guidance on the legality of this action and how to encourage his great niece to honor the loan.

Joel’s Response: [07:51] Joel empathizes with Merv's frustration, highlighting the emotional and financial strain co-signing can impose on relationships. He advises viewing financial transactions with family as potential gifts rather than loans to avoid such pitfalls.

Key Insights:

• Legal Implications: Co-signing a loan makes you legally responsible for the debt. If the primary borrower defaults, the lender can pursue you for repayment, including through mechanisms like the right to offset, where funds are withdrawn directly from your account.

• Relationship Strain: Mixing money with family can lead to significant relational damage, comparable to "a double whammy" (08:23), affecting both financial stability and personal bonds.

Matt’s Advice: [12:32] Matt recommends a heartfelt, in-person conversation with the niece to discuss the impact of her non-payment on both Merv’s finances and their relationship. He suggests emphasizing the potential negative effects on her credit score and the importance of maintaining both financial responsibility and familial ties.

Notable Quote: Joel: "When you co-sign a loan, you've created a legal obligation for that debt, even if you never saw a dime of that money." [11:05]

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2. Empowering Kids with Financial Tools

Listener: Chad from [Timestamp: 41:39]

Chad seeks advice on enabling his 11-year-old son to make purchases using an Apple Watch with cellular capabilities. He is torn between using physical cash or setting up a digital payment method, such as making his son an authorized user on a Chase credit card with a limited limit.

Matt’s Perspective: [42:15] Matt shares his preference for using physical cash, recounting his 11-year-old daughter’s experiences. He points out that cash can limit potential financial exposure, whereas digital methods might introduce complexities like device costs and service plans.

Joel’s Suggestions: [44:08] Joel recommends Capital One’s free teen accounts paired with a debit card. This allows parents to oversee funds while granting kids the ability to manage their spending responsibly. He cautions against giving children access to adult credit cards to prevent financial mishaps.

Key Takeaways:

• Physical Cash vs. Digital Payments: While cash offers simplicity and limited risk, digital payments provide convenience but require careful oversight.

• Authorized Users: Making a child an authorized user can help build their credit without the risks associated with direct access to adult credit lines.

Notable Quote: Matt: "Mo money, more problems... That is true because now you've got something that you've got to provide service for." [43:31]

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3. Is Direct Indexing Worth It?

Listener: Greg from Lynwood, Washington [Timestamp: 28:29]

Greg evaluates a direct indexing strategy offered by his Fidelity advisor, which involves opening a Separately Managed Account (SMA) with a 0.4% fee. He compares it to holding an ETF fund, analyzing potential tax benefits through tax loss harvesting versus the higher fees.

Joel’s Analysis: [30:09] Joel appreciates Greg’s analytical approach, acknowledging the nuanced benefits direct indexing can offer, especially for tax optimization through strategies like tax loss harvesting.

Matt’s Recommendations: [32:46] Matt explains tax loss harvesting—selling investments at a loss to offset gains—and its benefits, particularly for high-income earners like Greg. He suggests considering alternatives such as Betterment’s robo-advisor services, which offer tax loss harvesting at a significantly lower fee (0.25%) compared to Fidelity's SMA.

Key Insights:

• Tax Efficiency vs. Fees: While direct indexing can enhance tax efficiency, the associated fees may offset potential gains unless managed through cost-effective platforms.

• Alternative Solutions: Platforms like Betterment provide automated tax loss harvesting at lower costs, offering a balanced approach for investors seeking tax optimization without hefty fees.

Notable Quote: Joel: "Tax loss harvesting is more effective for higher income earners. So... the stakes are higher and that a tax loss harvesting strategy could have, I would say, a not insignificant impact on his tax situation." [32:45]

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4. Prioritizing HSAs Over IRAs

Listener: Megan from [Timestamp: 47:22]

Megan asks whether she should prioritize investing in a Health Savings Account (HSA) over an Individual Retirement Account (IRA) given limited funds.

Joel’s Recommendation: [48:09] Joel asserts that HSAs often take precedence due to their unmatched tax advantages. He describes HSAs as having a "triple tax advantage," making them superior to IRAs when optimizing for tax efficiency.

Matt’s Counterpoint: [49:15] Matt highlights that while HSAs offer superior tax benefits, they require more diligent management and organization over time. In contrast, Roth IRAs are more "set and forget" accounts, suitable for those seeking simplicity.

Key Takeaways:

• Tax Advantages: HSAs provide tax-free contributions, growth, and withdrawals for qualified medical expenses, making them exceptionally beneficial for long-term financial health.

• Flexibility: Both HSAs and Roth IRAs offer flexible withdrawal rules, but HSAs double as a retirement tool after age 65 without penalties for non-medical withdrawals.

• Management Effort: HSAs demand more active management to fully leverage their benefits, whereas IRAs offer a more passive investment approach.

Notable Quote: Joel: "If you are optimizing for the absolute best rate... the HSA, you literally can't beat that." [48:05]

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5. Personal Stories and Anecdotes

Joel’s Family Situation: [03:40] Joel shares a heartfelt story about his mother battling skin cancer and the financial strain of hospital stays. He discovered the American Cancer Society’s Hope Lodge, a resource for affordable lodging during cancer treatment, emphasizing the importance of seeking support and utilizing available resources.

Notable Quote: Joel: "Don't assume that you have to go it alone." [04:00]

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6. Beer Tasting Segment

Throughout the episode, Joel and Matt incorporate a lighthearted segment where they taste Prairie Artisan Ales’ Tiny S's, a sweet, fruited sour ale. They discuss its unique flavor profile, comparing it to childhood candies and highlighting its novelty nature.

Notable Quote: Matt: "It's like Skittles sweet, 100%. It's like, as I drink it, I can kind of crunch my teeth together and I can almost feel the sugar." [52:31]

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7. Employers’ 401(k) Plans with No Match

Listener: Vicki from Ohio [Timestamp: 19:23]

Vicki is frustrated with her employer’s 401(k) plan, which offers no matching contributions and is managed through an insurance company with high fees and restrictive terms. She seeks advice on managing her retirement investments given these limitations.

Joel’s Guidance: [20:05] Joel commends Vicki for maximizing her HSA and recommends ignoring the subpar 401(k). He suggests utilizing low-cost brokerage firms like Vanguard, Fidelity, or Schwab for better investment options and fees.

Matt’s Advice: [25:40] Matt encourages Vicki to consider alternatives such as petitioning her employer to switch to a more cost-effective 401(k) provider. If unsuccessful, he advises maintaining her separate brokerage account and contributing to a Roth IRA for additional tax-advantaged growth.

Key Takeaways:

• Avoid High-Fee 401(k)s: Without matching contributions, high-fee 401(k) plans can significantly erode investment returns over time.

• Alternative Investments: Utilizing Roth IRAs and low-cost brokerage accounts can provide better investment flexibility and cost efficiency.

• Advocating for Change: Employees can influence their employers to adopt more favorable retirement plan options by presenting cost-saving alternatives.

Notable Quote: Joel: "If you have to choose, prioritize the HSA first." [48:09]

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Conclusion

In this episode of How to Money, Joel and Matt tackle complex personal finance issues with empathy and expertise. From the risks of co-signing loans and empowering children financially to optimizing investment strategies and navigating flawed employer benefits, the hosts provide actionable advice tailored to diverse financial scenarios. Their blend of personal stories, practical tips, and thoughtful analysis makes this episode a valuable resource for anyone looking to enhance their financial well-being.

Call to Action: Have a money question? Submit it through the Voice Memo app and email it to [e-mail]. The hosts look forward to addressing your queries in future episodes.

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Resources Mentioned:

• howtomoney.com
• Betterment (Robo Advisor)
• Capital One’s Teen Accounts
• American Cancer Society’s Hope Lodge

Notable Quotes Recap:

• Joel: "When you co-sign a loan, you've created a legal obligation for that debt, even if you never saw a dime of that money." [11:05]
• Matt: "Mo money, more problems... That is true because now you've got something that you've got to provide service for." [43:31]
• Joel: "If you are optimizing for the absolute best rate... the HSA, you literally can't beat that." [48:05]
• Matt: "It's like Skittles sweet, 100%. It's like, as I drink it, I can kind of crunch my teeth together and I can almost feel the sugar." [52:31]

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Stay tuned for future episodes where Joel and Matt continue to demystify personal finance, making it accessible and actionable for everyone.

Transcript

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[Joel]

Right now, Oracle can cut your current cloud bill in half if you move to OCI. Minimum financial commitment and other terms apply. Offer ends March 31st. See if your company qualifies for this special [e-mail] strategic that's oracle.com, this episode is brought to you by Navy Federal Credit Union. At Navy Federal, it's been their mission to help members of the military, veterans and their families reach their financial goals. There are a lot of great flexible savings and investing options like certificates with sky high rates that allow you to add money anytime throughout your term.

[Matt]

Plus, Navy Federal gives you access to financial advisors and online tools to help you find the investing and savings plan that work for you. Sign up@navy federal.org Navy Federal Credit Union members are the mission Savings products insured by ncua. Investment products are not insured, not obligations of Navy Federal and may lose value.

[Joel]

Welcome to how to money. I'm Joel. I'm Matt and today we're answering your listener question.

[Matt]

We hope everyone had a fantastic weekend. Specifically you buddy. A big old Happy birthday. Today is Joel's 49th birthday.

[Joel]

Thought at this point. At this age we don't acknowledge birthdays, Matt. Right.

[Matt]

Well it's one thing to say that, oh, I'm 41 and a half as opposed you can still celebrate your actual birthday Though, but this is Monday and we. I mentioned that because I want everyone to wish Joel a happy birthday.

[Joel]

Thanks, pal.

[Matt]

Okay. We do have listener questions to get to.

[Joel]

And honestly, I'm not ashamed of my age, so.

[Matt]

Ye.

[Joel]

You know, I think some people are. I don't. It's just a number.

[Matt]

Who cares?

[Joel]

And I'm going to be like Brian Johnson and live forever. So, you know.

[Matt]

Exactly.

[Joel]

It really is a number.

[Matt]

He referenced that recently. But a listener is asking about direct index investing, if it is worth the squeeze, considering the benefits he's receiving from it versus the cost. We'll talk about that. Another listener is asking what he should do about this awkward family money situation. Things I think are going to be. Get weird, but I love weighing in on awkwardness. Yeah. And another listener is asking for the easiest way for his kids to spend their money. We'll talk through some methods of payment.

[Joel]

Sure.

[Matt]

Get to that more during today's episode.

[Joel]

Buddy, quick psa. Matt. My parents just came back from Houston. I have mentioned this on the show before. My mom is dealing with a kind of skin cancer and she's doing well.

[Matt]

Hopeful.

[Joel]

But, gosh, you just never know with this kind of thing, Right? That's true. But one of the things that I was looking up, because they were going to get a second opinion in Houston at MD Anderson, of course, and the hotel rooms were quite expensive. And so I just had this hunch. I was like, there has to be some sort of free place for people who have cancer who are going to some of these bigger cancer centers to stay, because there are a lot of people who I would imagine can't afford expensive hotel rooms near where they're getting treatment. Right. So I just, like, did a quick search and found that, yeah, there is in fact such a thing. And I'm sure there are even more resources that I'm completely unaware of. And if anybody is aware of them, please let us know. We'll, like, maybe compile them, put them on our website or something like that. But the American Cancer Society runs something called the Hope Lodge, and it turns out it was all booked up. My parents only had like a week that they knew in advance. They didn't have enough planning, so they did. Unfortunately, they had the funds to fork over for a hotel. But for the future, when. If they have to make a return visit or at other cancer centers around the country, this Hope Lodge exists. And I mean, it's. It's kind of cool that there are resources out there for people. And I guess just don't assume that you Got to go it alone.

[Matt]

You got to fork it out.

[Joel]

Yeah.

[Matt]

Well, I mean, this is like the Ronald McDonald house, right? Like in essentially, is that. Does that still exist?

[Joel]

I think it does.

[Matt]

Okay.

[Joel]

Yeah.

[Matt]

I mean, which is, I'm pretty sure, for setting up families to have a place to stay if they're somewhere where there's a. Where there's a child, I guess, getting receiving treatment.

[Joel]

So this would be the adult equivalent of that, right?

[Matt]

Less orange and red, perhaps? No, I'm pretty sure they make those houses.

[Joel]

Your chicken nuggets look.

[Matt]

Look pretty classy. But I appreciate your. Your outside of the box thinking when it came to trying to find a spot for them, but.

[Joel]

Yeah, I mean, I was like, literally my first initial knee jerk was go to Hotwire, go to Priceline, see if I can find them a good deal on a hotel. And then second line of reasoning was, wait a second. What if there's something even cheaper than that?

[Matt]

Yeah. This isn't a typical vacation or, you know, something like that.

[Joel]

And that is how my brain works, by the way. Yeah, it's like orders of magnitude of money savings, so.

[Matt]

Right on. Nice little quick tip for folks out there. Let's quickly introduce the beer that you and I are going to enjoy during this episode, buddy. A tiny S's, which is a sour ale with fruit candy flavor. And this is a beer by Prairie Artisan Ales, a brewery we've had on the show plenty of times. But not this one. Even though I know I've actually had this beer.

[Joel]

Oh, really?

[Matt]

We haven't had it on this. I'm pretty sure I don't remember. You're like the number one person I drink craft beer with, so I'm pretty sure it was with you, but maybe it wasn't. But looking forward to enjoying and sharing our thoughts at the end of the episode.

[Joel]

Yeah, Prairie makes great beers. This one is very unique. So we'll give our thoughts in a little bit. But, Matt, let's.

[Matt]

Prairie Gold Oaky. Those are just a couple of the Prairie beers we've had a lot of.

[Joel]

Like, big boozy stouts, but, like, some really great sours, too. Funky mosaic, I want to say, was a good one.

[Matt]

Is it Christmas bomb?

[Joel]

Oh, yeah.

[Matt]

Was that. Is that a Prairie.

[Joel]

Total classic.

[Matt]

Okay. Yes, I remember that one, too.

[Joel]

All right, let's mention how people can ask a question if they're so inclined. If you've got a money question, we would love to tackle it on the show. Just go to howtomoney.com askforsimple directions.

[Matt]

Really?

[Joel]

It's just recording your question on the voice memo app of your phone, emailing it over to [e-mail] hopefully we can take it next week on the show. Matt, let's get to a question specifically about awkward family finances.

[Merv]

Hi Jerome, this is Merv Best. A couple years ago I signed a student loan for my great niece which is my sister's granddaughter and she graduated from Spelman College and I think she's started to work and she's not paying on her student loan which I co signed for. Now my banking institution was Navy Federal Credit Union. They are going into my account and taking out payments without my permission. Is this legal and what can I do to get my niece to pay off the student loan? Thank you, Joel.

[Matt]

He addressed you specifically. So why don't you kick things off?

[Joel]

Yeah, well, I don't know why. Maybe I'm more memorable, Matt.

[Matt]

Well, that's because he probably heard you talking with your buddy Bill Handel out there.

[Joel]

Weekly appearances indeed with Bill Handel every on kfi. Well, Merv, let's get to your question. So sorry to hear about this. The truth is, Matt, these kinds of things are financially and relationally frustrating. It's like a double whammy. It's like a gut punch and a face punch at the same time, which if you're like I'm thinking about Mike Tyson, punch out when I say that. And the double combo can be really.

[Matt]

Tough to deal with the old one too. Yeah, I guess what they call it in boxing.

[Joel]

That's right. And the truth is when you mix money with family, there are substantial pitfalls that can come about and often do come about. I feel like that's why our advice typically is like don't mix family and close relationships. Most of the time it doesn't work out well. I guess you and I run a business together and we're best buds. So there are pitfalls there too. Right. And we have had to come up with certain guidelines to make sure that we are caring for each other well and that we're splitting duties properly. And I think the typical story we hear is that a family member lends another family member money. They're hoping that they're going to get paid back in a reasonable timeframe. And that's probably what the promise is. And when that doesn't happen, it sours the relationship. And this Merv situation is a similar one. But co signing on a loan instead of directly putting money into a relative's hands, at the end of the day they can be similar in the way that they work. This is why we typically advise financial transactions to be considered gifts. If you do lend somebody money, then if you can't afford to give them that money, don't give them any sort of money at all. Right. If you can't just kind of completely write it off, it could come back to bite you. And in Merv's case, this co signing is going to come back to bite him.

[Matt]

Sadly, indeed. Yeah. And it's worth saying as well, we're not lawyers, but yes, Merv, I did.

[Joel]

Stay at a Holiday Inn last night.

[Matt]

The financial institution, it can legally take money out of your account, out of your account there with the credit union as a cosigner of this loan, if your great niece isn't making payments. This is known as the right to offset. We are getting a little lawyerly, you know, a little more technical in the weeds here. Basically, the lender wouldn't have given that loan to your niece alone. Like, the only way that they were willing to say yes is because of the fact that you signed. There's a reason for that and it's becoming crystal clear to you now, I'm assuming, like they were worried about her ability to pay and they wanted some additional recourse. And you in this case specifically, your money, if she were to fall behind or if she were to stop making payments altogether, which is, you know, what's led now to the sticky situation that you find yourself in.

[Joel]

Makes me think of my Nephew Matt. He's 15. If he wanted to go out there and buy a brand new Mustang or something like that, because you know he's about to about to hit full driving age, he's like, let's go, let me get this $40,000 car. If he shows up alone to the dealership, they're going to be like, sorry, buddy, you can afford maybe a 1998 Mustang, right? Like you have like 1500 bucks from working odds and ends jobs. But if I show up with him, not because I've got the deepest pockets in the world, they'll be like, oh, you just put your name on this paper too, and we can get whatever Mustang he wants.

[Matt]

And you have an income, right?

[Joel]

Exactly. And we know that you're going to be good for it even if he's not. But if I did that, then I'm putting myself at risk. Which is what happened here, sadly, with Merv. When you cosign a loan, you've created a legal obligation for that debt, even if you never saw a dime of that money. Which is exactly what happened in this case. And exactly what happens in so many co signer cases, like you are on the hook for the thing and you see none of the benefits. And Merv, you said this was a student loan, but you know, co signers don't have a legal obligation if they sign for a physical item either. So just because my nephew stopped making payments, let's say, on that proverbial Mustang, well, I have to pay for them and I don't have the right to be able to go get the Mustang from him either. And this is why co signing is something that we're just not fans of. I get why people do it. Right. Being asked by a loved one for help, it tugs at your heartstrings and you're like, well, I want them to go to college. I know this is going to be good for the future. Or I want to help them out and be able to buy this car that they might not otherwise be able to afford. And we should be willing to help our family members out, but just not by co signing for a loan. Right. It's just too risky. It's pretty much one of those don't ever do it things, in our opinion.

[Matt]

I don't want to have my name on those loan documents. And so Merv, what should you do legally, financially as well here? Like, you're on shaky ground. The only thing you can do honestly is just to have a heart to heart with your, with your great niece. It's worth coming in with like without your guns blazing and having a more kind of honest conversation because she might not even be aware.

[Joel]

Yeah.

[Matt]

Of what's going on here. I mean, I think given all the talk about student loan forgiveness over the past couple of years, there's a chance she's like, oh, I thought that got written off. I thought the gut that the federal government was going to forgive that at some point.

[Joel]

There's a lot of people confused about the state.

[Matt]

There was just a constantly, it seemed like every week there was something new.

[Joel]

So she might not even know that Merv is being like getting bills now and getting money taken essentially.

[Matt]

Exactly, exactly. So I would just reach out to her, just first put that on her radar. I can't imagine though that she's also not receiving requests for this money.

[Joel]

Delinquency notices.

[Matt]

Yeah. But you know, try to have this chat in person. I think that can go a long way as well, as opposed to like shooting her a text message or an email. But try and find out if she'll be able to resume making some payments because the ability to show her how this is impacting you. Right. Like, have a running total, show her how much you've paid and let her know that, hey, it'd be great to receive that money back over time. Maybe not expected all at once, but it's worth taking a more relational tact here because, like, I don't think you, like, you don't really have much legal recourse because your name is on the loan and so she doesn't have to pay you back. Like, you would have to go into more legal territory, which I'm guessing you want to try to avoid doing. Like, you could sue her if you can. If she has the ability to pay and she's not paying, you could sue her in small claims. But I'm guessing that's not something that you want to do and that this is going to be able to be more eloquently solved by y'all talking this over.

[Joel]

Yeah, it's one of those. And you can tell personally, hey, I cosigned for you in an effort to try to help you out when you needed it, and now I feel like the tables have turned and I need you to help me out and pay, you know, what you owe. And we need to come to a solution here. I think the emotional appeal, you're right, Matt, is really all that Merv has here. I think it's important to note that late payments or a lack of payments being made will impact your credit score as well as hers. So she's not paying, that this could negatively impact her credit score. She needs to know that I would highlight that for her. And then if you stop paying for some reason, you're harming both your credit and her. So this is one of those things where it's like lighting both of yourselves on fire at the same time, which I wouldn't advise, because the truth is, if you do that and you say, let's say, try to prevent the credit union from taking money out of your account, that could prevent you from being able to buy a home or a car or even rent a place in the near future, it'll impact her for a long time. To come from a credit perspective, too, you would also likely be sued by the lender for the outstanding debt. So it's not like you're going to be able to get away with it either. Right. At some point, they're going to come for you, come for the money. And so we can't sugarcoat it, Merv, you're between a rock and a hard place here. We wish you Good luck with that conversation with your great niece. We hope you're able to convince her to start paying in order to keep your finances, your credit, and your relationship intact. There's just a lot at stake here with this conversation. It's not easy.

[Matt]

No, it definitely is not. And hopefully this is a lesson learned without having to experience this firsthand. And I will say, Joel, this is one principle that we are in total agreement on with Dave Ramsey. Because I remember listening to him like, I don't know, 15, 20 years ago, and he would always harp on folks not co signing for somebody else. It's a terrible decision. And this is exactly the exact kind of situation that you want to find yourself avoiding.

[Joel]

The truth is, yeah, if you, if you help cosign for somebody, you're on the hook and there's a decent chance you end up paying for it. And the relational damage that often gets done in these situations is, can be severe. All right, Matt, we've got more questions to get to, including, well, is there a way that you can actually help out a much younger member of your family when it comes to building credit? We'll talk about that and just get to a bunch more of your money questions right after this.

[Capital One Ad]

This podcast is sponsored by Capital One in households. We subscribe to everything, music, tv, even dog food. And it rocks. Until you have to manage it all, which is where Capital One comes in. Capital One credit card holders can easily track, block or cancel recurring charges right from the Capital One mobile app at no additional cost. With one sign in, you can manage all your subscriptions all in one place. Learn more at Capital1.comsubscriptions Terms and Conditions apply.

[Joel]

What does the future hold for business? Ask nine experts and you'll get 10 answers. Will we have another bull market in 2025? Or we're going to get a bear market? What about inflation? Will it continue to calm or will higher prices remain sticky? Wouldn't it be cool if someone could invent a crystal ball that would give us some foresight?

[Matt]

Well, until then, Joel. Over 41,000 businesses have future proofed their business with Netsuite by Oracle, the number one cloud erp. Bringing accounting inventory HR into one fluid platform with one unified business management suite. There's one source of truth giving you the visibility and control you need to make quick decisions. With real time insights and forecasting, you're peering into the future with actionable data. When you're closing the books out in days, not weeks, you are spending less time looking backwards and more time on what is next. Our business is really small. But if we needed netsuite, we would be pumped about the time, the cost savings that it provides. Whether your company is earning millions or even hundreds of millions of dollars, NetSuite helps you to respond to immediate challenges and seize your biggest opportunities.

[Joel]

Speaking of opportunity, download the CFO's Guide to AI and Machine Learning at netsuite.com howtomoney the guide is free to you at netsuite.com howTomoney that's netsuite.com howtomoneY hi.

[Matt]

This is Joel and Matt from the how to Money podcast.

[Joel]

Yeah, Matt, this month, my kids, they've got a longer break from school coming up, and I want to take them on a trip somewhere while they've got the time off. Do you have any recommendations?

[Matt]

Ooh. Well, I love checking out national parks personally. And Joel, I know that you and the family love hiking together, spending some quality time outdoors as well. You could always check out Yosemite. That's like one of my absolute favorite places on earth. Starting down there in Curry Village, hiking up out of the Valley. Can't beat it.

[Joel]

Sounds pretty lovely. That's a good idea. And I'm going to suggest this to my family. I'll let you know what they say.

[Matt]

All right.

[Joel]

We may not know where we're going yet, but I do know one thing. We'll definitely be checking out the local Airbnbs wherever we end up. It gives us flexibility and incredible options for a place to stay while we're away from home.

[Matt]

Plus, while you're away, you can host guests in your home on Airbnb. It's easy and a great way to earn additional income.

[Joel]

And now hosting is easier than ever. With Airbnb's co host feature. Airbnb gives you access to a network of high quality local co hosts who can help take care of your home and your guests when you're not there. Find a co [e-mail] host.

[Matt]

All right, Joel, we are now back from the break. Let's hear from another listener. This is a listener who has some crummy benefits from her employer.

[Vicki]

Hi, Matt and Joel. My name is Vicki and I'm from Ohio. I work for an employer that offers a 401k and an HSA. There is no matching for either. I max out my HSA every year. My 401k I do not use because it's through an insurance company. They have high fees and the paperwork says that they can change the pricing for services at any time without alerting the investor. I have some money in A brokerage account that I would like to put into a 401k but I'm uncomfortable using this 401k and I'm not sure what I should do. Thank you for your help.

[Joel]

Bye, Matt. All right, there's good news and bad news here for Vicki isn't there. And I'm glad that she has access to multiple tax advantaged retirement accounts.

[Matt]

That's the good news.

[Joel]

Yeah. Sounds like she's using her HSA properly. She's maxing that out, letting it grow.

[Matt]

Also good news, which is something we.

[Joel]

Talk about regularly on the show. And we'll put a link to an article about HSAs and how good they can be in the show notes. By the way, just, just random note here, Vicki. You could always move funds from that HSA to Fidelity over time if the fees are high on that account too. You didn't mention kind of what the HSA fees you're encountering are, but that might be the best move to avoid some of the fees that you might be encountering. But huge bummer about your 401k being with an insurance company.

[Matt]

That's the bad news.

[Joel]

That is always a giant red flag. Makes me frustrated for anybody out there dealing with that reality because that means that the fees are significantly higher than what they would be if you were with one of the low cost brokerage firms that we talk about here all the time. Specifically Vanguard, Fidelity, Schwab. Those brokerage firms make costs essentially non existent for anybody who does business with them. Yeah, there are small expense ratios, but they're infinitesimally small and they barely impact the return that you see. But if you're with an insurance company, they could be 10, 15, 20 times as high and they can massively eat into your returns over time. So this is, yes, a big problem. And if you had a match offered to you, well, the advice would be to suck it up and get the match, even though the investment options are massively inferior. But with no match, I think that 401k, Matt. I think of that as like a. It's dead to me, right? Like totally. I don't need that 401k. Honestly, if. If it's that bad and it doesn't come with any match either.

[Matt]

Well, and good on her for having looked at the fine print. The fact that it's with an insurance company, the fact that they can change the terms, you know, the price, the rate point. Too many folks make a really important decision like this without having dug into the details, without any due diligence and I'll say so. Regarding the money that you have over there in your separate investing account, your brokerage account, what I would do here is to leave that money that you have in that account. Like leave it in place. I would not. It sounds like you might be considering selling some positions, selling some funds, some stocks there where you would trigger capital gains tax in order to fund a very subpar 401k again with no match. And that would be just a terrible situation to find yourself in. Like if you have additional funds and you want to invest outside of that brokerage account, then we've got some ideas for you. But I would not be looking to pull that money from that in order to get it within a 401k somewhere else.

[Joel]

Yeah, no, the 401k I think is just. I would ignore it, pretend like it doesn't exist. Essentially you're already funding your HSA quite nicely. You've also got money in the brokerage account. And Vicki, I'm not sure if you have any additional in particular outside of the brokerage account that you would like to use to invest, but if you do, we'd love to see you contribute to a Roth IRA with one of those low cost providers I mentioned just a second ago, because that's another tax advantaged account that we love. And you can stick up to $7,000 a year, thousand dollars more than that if you're over the age of 55. $8,000 a year in total, every single year if you wanted to. Right. You're getting some tax diversification. You'd be socking more money away for your future. Plus you're completely in control of the costs, potentially to the point of zero percent. Matt, like we talk about with Fidelity's zero index funds like fzrox, which is their total stock market index fund, you could.

[Matt]

How much more fun is it to say FZ rocks?

[Joel]

It's amazing the fact that the race to the bottom went to the legit bottom actually sometimes even better for some investors. When we talk about the match that some firms like Robinhood offer, it's gotten incredibly competitive. The individual retirement account landscape for individual investors. You stand to benefit. But it's all about opening up the Roth IRA and looking at those options.

[Matt]

Roths are great from the standpoint of ripping the tax band aid off right now and never having to think about it ever again. I think it's worth mentioning if you know that you are wanting to invest maybe a little more aggressively, let's say the next five years, and if you know that you're going to be in the highest income producing years of your life. If you're basically at like peak income, it might be worth considering a traditional IRA to be able to reduce the taxes owed because of your potentially higher income. But that's of course knowing that these are your peak earning years. But sometimes we know we have more of an idea of what that's going to be. Because if you're thinking, well yeah, I'm going to go after it pretty hard for five years but then after that I'm planning to switch to part time, I've got other things I want to pursue. Well, now's the time potentially to consider that traditional IRA obviously doesn't give you as nearly as much flexibility.

[Joel]

It's hard to project those things perfectly. But yeah, most people have kind of think through that. Yeah. Career trajectory they're hoping for.

[Matt]

Totally. Here's an outside of the box, maybe a less orthodox way of thinking. Let's talk about your actual job because so I just laid out a scenario where you're like at the peak of your career, you're making a sweet income. Maybe it's worth considering a different job at a different company. I wouldn't necessarily go hunting for a new job just because your 401k offerings are trash because they don't offer a match. But if there are other reasons that you're unhappy with your job, like maybe it's just like the hours or the career potential, maybe you've got more in the tank and you're thinking I don't see much of a future for me there, then I would consider this as a good reason to feel a job search. Great companies, they should offer competitive 401ks. It's almost like a non starter honestly now at this point for a company to not offer some kind of match, it's table stakes. Yes.

[Joel]

For literally to hire great employees. A match in a 401k is like yeah, you have to have it in order to get the right people, it seems like.

[Matt]

And it just doesn't speak well of the company if that's not the base, the bare minimum that they're looking to offer. And you know, you probably weren't expecting us to tell you to get your resume ready. But I think it's worth considering if there are other things that you're unsatisfied with at your current employer.

[Joel]

Agreed. Yeah. You don't want it to be the whole kit and caboodle reason to leave. You might be unhappy if you did. But it is certainly one of those factors that you want to consider the other thing, Matt, I would at least think through is maybe your employer doesn't know any better. At least when it comes to the fees that this 401k plan is charging to employees. You would think that they would know, but they might not. Think about the fact that employers often have to find health care plans for their employees. And guess what, the people in charge of that, they're not always healthcare specialists. They might not have the expertise to know exactly what's getting passed on to employees and what's not. So maybe give them the benefit of the doubt and in that case we'll petition them to help them understand what sort of product they're giving to their employees. Right. Let them know about the 401k options that would save them and you money. Yeah, and that's right, like it's not just about you and your fellow employees, it's about them too. There are lower cost plans for them to implement. In all likelihood, tell them about companies like guideline like Betterment that offer low cost 401ks for small and medium sized employers and they massively minimize fees for employees too. Maybe they'll be so grateful and they'll save enough that they can be more generous and start offering a 401k match too. You never know, but it's one of.

[Matt]

Those things where that's two birds, one stone.

[Joel]

Yeah, there's a kind of gentle way to let them know. Wait a second. Hey, look what I found over here. This might be great for the company and great for everyone in it too. In order to minimize the crappy fees they're forking over so that people can't actually utilize the account. I mean the employer, I'm sure they offer a 401k, they want their employees to take advantage of it.

[Matt]

Hopefully. Yeah, you know, like, I mean that's assuming the best. Like that's a good faith sort of argument. The fact that, oh, they, they don't know better and once you just provide them with the information, they're going to change their minds and they're going to want to treat their employees better. But like I guess a bad faith sort of scenario would be like if they're getting a sweet trip out of it every year from the insurance company or somebody who always takes them to a certain golf course. And those are deals that still happen today, unfortunately. And if that were to be the case, then this could be again going back to the suggestion of considering a different company. If this is just one of many reasons that you are finding yourself unsatisfied.

[Joel]

Now you think those insurance companies are taking the HR people out to the disc golf course or the real golf course?

[Matt]

I'm guessing this the. It's the latter.

[Joel]

Yeah.

[Matt]

But let's hear from another listener. Joel. This is a listener who has a question about direct indexing, which is not something I think we've talked about here on the show.

[Greg]

Hey, Matt and Joel, Greg here calling from Lynwood, Washington, and I have a question about direct indexing through an SMA. I'm 32, married. We have about 350,000 in income and our portfolio is 500,000 with half in retirement and half in a brokerage account. So with the brokerage account, I have an advisor. I'm not paying a fee. It's through Fidelity. And they make that available if you have more than 250,000 invested with Fidelity. But he's suggesting a direct indexing approach, opening an SMA. It has to be 100,000 plus and there's a 0.4% fee. And just using easy math here, his suggestion is, you know, we can, we can donate the winners, the top gains and tax loss, harvest the losers. So out of 100,000 portfolio, say we grew to 110. In an ETF fund, you just have your holdings grew to 110. In a direct indexing approach, you might have stocks that grew by 50% and you have other stocks that lost 50%. So instead of having just a plus 10,000, you might have plus 50 and minus 40. And in that instance, you could donate the ones that gained a lot and rebuy at a higher cost basis. Plus then you can tax loss, harvest the losers, and reduce your taxable income this year. So I think the math works here. The 4% fee is going to be more than returned with that tax efficiency. But I wanted to run it by you in case I'm missing anything.

[Joel]

Thanks so much, Matt. I like this question.

[Matt]

A lot of math.

[Joel]

It does show that actually some of the changes that have happened on the investing front are not insignificant when it comes to individual investors being able to save on taxes. And I'm glad that Greg is with Fidelity, by the way. I mean, although I have read that they regularly try to pitch folks on signing up for the more expensive account management services. Sometimes.

[Matt]

But yeah, I am not happy with the scenario that it sounds like Greg is finding himself in, because when it comes to FZ Rocks and the other zero funds, yeah, that's great. But when it comes to some of these other services that they're offering, I think there might be some better options out there that we'll get to.

[Joel]

Although just the fact that he had this conversation and he's asking this, this question, I think it sounds like Greg has the ability to save money on taxes in ways that he hadn't really thought of before.

[Matt]

That's true. Yeah. So we're talking about tax loss harvesting right now, which is one of the things that direct indexing takes advantage of. And you know, this is kind of like how we talk about the need for folks who have more complex tax situations to pay a pro. If the tax savings outweigh the fee that you're going to pay, well, you'd be shortsighted to not pay. And when it comes to tax loss harvesting, it's similar. So let's define it real quick. Tax loss harvesting is when you sell an investment at a loss in order to offset other gains that you might have received. And if your losses exceed your gains, well, you can then deduct those losses in a given year. It's up to $3,000 if you are married, filing jointly for that given year in order to reduce your ordinary income. If your losses are larger than that, well, you can then carry those losses forward, claim those losses to offset ordinary income in future years. And it's not an insignificant amount of money here. And a good advisor who is paying attention can help you to save on taxes by selling and buying in a timely manner without changing your portfolio allocation all that much.

[Joel]

Yeah, I mean, think about this. If you can even, let's say if your total stock market index fund has experienced some losses, you could sell in order to show a paper loss, rebuy an S&P 500 index fund. And those would not be subject to the wash sale rule because they're dissimilar enough and you can just reap tax savings because of it. And it's important to mention that the tax loss harvesting only works inside of a brokerage account. You're not creating a taxable event when you sell a fund inside of your 401k or your IRA. Also, tax loss harvesting is more effective for higher income earners. So you know Greg, he was pretty honest about what he makes. He makes a lot of money close to 350k.

[Matt]

Yeah.

[Joel]

Which means that his highest marginal tax bracket is getting up there. He's not far from at least some of those dollars being taxed in the 32% range if he continues to crush, which means the stakes are higher and that a tax loss harvesting strategy could have, I would say, a not insignificant impact on his tax situation. Still, the 4% fee, it's not cheap. And tax loss harvesting is something you can do yourself without an insane amount of effort. But this direct indexing approach, I would say that the Fidelity Rep is talking about does make it easier, kind of in the way that Greg outlined. Making it easier essentially to call the losers and to grab those tax savings than if you're talking about owning just a couple of funds inside of your brokerage account.

[Matt]

Yeah, direct indexing is a relatively new product. It's gaining steam, but it's an attempt to mirror the index strategy that you find with something like, let's say an S&P 500 ETF or something similar. But you've got fractional shares, you've got zero commission trades. And both of these advancements in investing has made this method more widely available to investors in recent years. So instead of just buying a simple index fund, instead what's happening is you buy small amounts of individual stocks that make up that index, and then this offers the potential for smarter tax moves when there is volatility there in the market.

[Joel]

I'm thinking of mat, you know, you have a folder on your desktop and you have 500 files in there, or you scattershot them instead across the entirety of your desktop. That's what direct indexing, at least in my mind, looks like. Instead of putting it in a folder inside an index fund, they're literally just all scattered all over. But, okay, what should Greg do here? And should he succumb to the Fidelity pitch? Go with their. Their separately managed account in order to have access to these tax loss harvesting benefits? I don't think so. And I also don't necessarily think it means that Greg needs to DIY it himself, although he could. But there are ways to actually, I think, maybe split the baby and get the best of both worlds. Betterment is a robo advisor that we're fans of. And tax loss harvesting is included in the fee that Betterment charges, which is only a quarter of a percent instead of 4/10 of a percent. And the bigger that portfolio gets, the more that fee matters. So that's actually a substantial difference in price, and I think that's a big deal. Reducing taxes matters. Yes, and I think it's important to highlight that. But Betterment has, you know, an automated algorithm that harvests losses without creating additional trading costs, while also helping you avoid running a foul of the irs, which is, I guess, from the DIY perspective, that's the biggest potential pitfall, is that you don't do it properly. Either from a planning perspective or from a tax perspective. And hey, it turns out you didn't tax loss harvest to its maximum ability. And while we love Fidelity, moving over to Betterment might be best for Greg in this situation. Betterment also highlights on their website that 7 out of 10 Betterment customers have their taxable advisory fee, their betterment fee covered by the likely tax savings of tax loss harvesting. And Greg would almost certainly be one of them, especially when he ran the numbers and he's like, hey, I'm going to come out ahead with the higher fee from Fidelity. Well, then you're definitely going to come out more than head with the lower fee from Betterment. So I think you can maybe have your cake and eat it too, just by doing business at the right place.

[Matt]

Yeah. And I think more than anything, the red flag that gets raised in this scenario is the fact that it feels like a pitch. It feels like a pitch from Fidelity. And while there are many things that we love about Fidelity, specifically there are zero cost funds. It feels like that they're trying to sell you on this perhaps in order to gain more of your business and have you pay for slightly more expensive services that they're making slightly more profit on. And it's not, that's the thing. It's not a ridiculous amount. 0.4 really isn't that bad.

[Joel]

It's a heck of a lot better than a lot of other advisors.

[Matt]

Better than 1% for sure. 1% of assets under management. It's not predatory. And that's the part that feels a little weird about this is that like, it's good enough for there to be folks who are satisfied with the services that they're receiving for that dollar amount. But what we're just saying is that, hey, go with Betterment and you'll be able to get the same thing. Basically, you don't have somebody that you're talking to, but you're going to get the same kind of service, the same tax loss harvesting there within your brokerage. And he said that Fidelity Advisor was saying that, hey, by the way, for the ones that gain that have seen a lot of gains, you can donate those. And so you're not realizing your capital gains there. Well, that's not a unique selling proposition of Fidelity. You can do that with any brokerage, any brokerage account that's like worth their salt. You can donate stocks or funds out of those brokerages. And so that's not. You can do that with Betterment as well. So in a similar way, it's like, well, you're getting all the benefit, literally, that you've mentioned with Betterment at a lower cost as opposed to going with the same services that are being offered there at Fidelity.

[Joel]

Okay, one minor downside actually, to the zero funds from FidelityMAT. Speaking of donation, I tried to donate some FZ rocks last year and you can't actually donate that fund because it's a proprietary fund.

[Matt]

There you go.

[Joel]

Didn't realize that until I tried to donate it. But. But so again, there are all sorts of tiny details you got to keep in mind. But in this case, I think the big thing is much lower price. You still get the tax loss harvesting. That's one of the things that Betterment does really well with their algorithm. So I feel very confident if that's something you really want and you feel like it's going to help you come out ahead from a tax perspective, I'd go there instead.

[Matt]

Totally. We got more to get to, buddy. We're going to talk about Apple Watches, HSAs and more right after this.

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[Joel]

What does the future hold for business? Ask nine experts and you'll get 10 answers. Will we have another bull market in 2025 or we're going to get a bear market? What about inflation? Will it continue to calm or will higher prices remain sticky? Wouldn't it be cool if someone could invent a crystal ball that would give us some foresight.

[Matt]

Well, until then, Joel over 41,000 businesses have future proofed their business with NetSuite by Oracle, the number one cloud ERP bringing accounting, financial management, inventory, HR into one fluid platform with one unified business management suite. There's one source of truth giving you the visibility and control you need to make quick decisions. With real time insights and forecasting, you're peering into the future with actionable data. When you're closing the books out in days, not weeks, you are spending less time looking backwards and more time on what is next. Our business is really small, but if we needed netsuite, we would be pumped about the time the cost savings that it provides. Whether your company is earning millions or even hundreds of millions of dollars, NetSuite helps you to respond to immediate challenges and seize your biggest opportunities.

[Joel]

Speaking of opportunity, download the CFO's Guide to AI and Machine Learning at netsuite.com howtomoney the guide is free to you at netsuite.com howTomoney that's netsuite.com howtomoneY hi.

[Matt]

This is Joel and Matt from the how to Money podcast.

[Joel]

Yeah, Matt, this month my kids, they've got a longer break from school coming up and I want to take them on a trip somewhere while they've got the time off. Do you have any recommendations?

[Matt]

Ooh. Well, I love checking out national parks personally. And Joel, I know that you and the family love hiking together, spending some quality time outdoors as well. You could always check out Yosemite. That's like one of my absolute favorite places on earth. Starting down there in Curry Village, hiking up out of the valley. Can't beat it.

[Joel]

Sounds pretty lovely. That's a good idea. And I'm going to suggest this to my family. I'll let you know what they say.

[Matt]

All right.

[Joel]

We may not know where we're going yet, but I do know one thing. We'll definitely be checking out the local Airbnbs wherever we end up. It gives us flexibility and incredible options for a place to stay while we're away from home.

[Matt]

Plus, while you're away, you can host guests in your home on Airbnb. It's easy and a great way to earn additional income.

[Joel]

And now hosting is easier than ever with Airbnb's co host features. Airbnb gives you access to a network of high quality local co hosts who can help take care of your home and your guests when you're not there. Find a co [e-mail] host all right, Matt, we're back. Let's get to the Facebook question of the week. This one comes from Chad. He posted this in the how2money Facebook group. He said authorized user or checking account. We got my 11 year old 5th grader an apple Watch with cellular capabilities. Matt, I'm pretty sure you didn't have any fancy technology like that in fifth grade.

[Matt]

Of course I didn't.

[Joel]

Chad says my current fifth grader.

[Matt]

Well, I don't have a current fifth grader, but my kids right now don't even have fancy tech like that.

[Joel]

I get that.

[Matt]

Sorry to interrupt.

[Joel]

Chad says I want to be able to give him the ability to use his watch to make purchases at the various events he attends, bowling club, sporting events, et cetera, instead of having him use actually more like lose Cash, which do you think is better? I know that Chase has a checking account for kids. Maybe it's for teens. I could fund that and put his debit card onto his watch. I could make him an authorized user on one of my Chase cards and set a really low limit on there so he can just use the watch to pay for stuff. Thoughts?

[Matt]

Well, maybe I gave it away a little bit. I'm not opposed to cash. And I will say I also, Chad, I've got an 11 year old who's a sixth grader, not a fifth grader. And over the past couple years there have been numerous basketball games, hangs with friends where they're out in public, where they can make their own purchases. And in all of those scenarios, she's taken her own cash with her. And I guess the way I think about it, I'm like, would I rather her like lose an Apple watch or and have like direct access to all of her, all of her funds there or just the ability to at most lose the amount of money that she's taken with her so personally? Man, for us at least the going with the old school physical cash method for us has worked out fine.

[Joel]

I can't imagine he's going to lose the watch, right? But I think he could lose some loose money. So I get where Chad's coming from and maybe his son has lost 20 bucks here or there before and he's like, gosh, this is up, man. If he could just tap with his wrist, that's gonna make this a whole lot easier. And I totally understand, Matt, what you're saying and I think especially for younger kids, cash makes the most sense sometimes.

[Matt]

Mo money more problems, you know, like you want to go digital and okay, so now you've got something that you've got to provide service for. That's true because like not only is the cost of the device or the phone or the watch or whatever, but then I mean it's not cheap to pay for the sell plans for these individual devices, although it's gotten a lot cheaper.

[Joel]

Actually we've talked about that is true US mobile on the show and how you and I are US mobile customers now for our cell plans. They're incredibly cheap, but they also have now service for smartwatches, I think $6.50 a month, which if that's what you want as it goes, it is affordable. Yeah. If he's already got the Apple watch and you're like, man, we just need to save money on that because it's costing us a lot more with one of the big guys. Well, look at us. Mobile. That's the best price I've seen. And I think getting used to digital money, this is probably right about the right time. I'm getting my sixth grader and fourth grader kind of used to it right now. I did cash kind of thrown in the towel on that. Honestly, it was mostly my fault.

[Matt]

It's a pain in the butt.

[Joel]

Yeah. I will say that I was not as good and dedicated to it as I should have been. So that's not my kids on my kids, that's on me. Although when we tried to go digital too early, that didn't work either. So it's a little bit trial and error in our household. But, yeah, we opted actually for free teen accounts from Capital One that come with a debit card. And so now it's really easy for me to transfer money to them from my Capital One account to theirs. They've got a debit card. They can take it with them. And that's actually been kind of the best solution for our family. They don't have fancy watches to attach that card to. But you could.

[Matt]

Yeah, I mean, if you do have that account, of course you can take that debit card, stick it in the Wallet app, and he could pay from his watch. You could actually, you could even attach it to Apple's new Apple Cash feature, which exists within, like, the iOS framework, where you can even, you know, you send your son money to his Apple Cash account via, like, text message. Now, that this is something you should be doing, I guess, on the reg, but it's worth highlighting that it's even simpler than, like, Venmo or Cash app, if you're so inclined. And if this is something that you do want to do.

[Joel]

Yeah. And I think the other thing Chad mentioned was, oh, should I make him an authorized user on one of my credit cards so that he can, you know, use the watch to pay for stuff with that card? Well, I think you, you can and probably should make him an authorized user on your credit card. That'll help with him building credit. Assuming you handle your credit well, he'll become a teenager and he'll have a score that many adults can only hope for. If that's the case, if you have a long, great credit history. But we wouldn't want you to give him access to pay with that credit card that's in your name. If you make him an authorized user, don't actually get him the physical credit card. But being an authorized user on yours and then having his own account, like the Capital One account that I mentioned that allows him to use his money that you have at least some oversight of. Seems like the right balance to me. I just don't want Matt to have a credit card that's mine and my kids using that card, they're way too young, in my opinion, for that. And I stand to lose more in that case, too. So I just kind of like that separation of powers. Like, I like them having their own card, their own account.

[Matt]

You don't want them messing up your stuff, right?

[Joel]

Not that they would, but I just.

[Matt]

There's always the risk, right?

[Joel]

There's the risk of them going and buying something that they couldn't actually afford. And then on my credit card, whereas, hey, they've got a finite amount that's in there, that's in their account, on the teen account through Capital One.

[Matt]

And so downside being if there is any fraud or something that happens, they're out their own money. I guess, while you're trying to claw that back, because that's obviously one of the benefits of using credit cards that we like, there are those extra protections built in. If I ever considered using a credit card, it would be for those protections. Not because I was looking to try to, like, completely optimized and to teach my kids about how to use credit card cash back and rewards and points. Like, if you're. If that's what you're thinking, I think it's a little too premature, at least at this point in the game. I think if you've got teenagers that are older, like 17, 18. Hey, time to start talking about points and cash back and how paying on time, in fact, ahead of time, before the statement even hits at the end of the month, why not run that through the credit card company? But at this point, at least at 11 years old, that would not at all be on my mind at all. Trying to teach my kid how to use your credit card like a pro, right?

[Joel]

Yeah. You're not ready to game that system at 11. Yeah, exactly. But I think this is like a perfect foray, getting him the right account, attaching it to the watch, and making sure he has money at his disposal. He knows how to spend. He knows where the money comes from. It sounds like Chad is handling money lessons with his son like a pro. Matt, let's get to another Facebook question from the how to Money Facebook group. This one comes from Megan. She says, given the benefits of HSAs health savings accounts, would you prioritize investing in an HSA over an ira? Assuming funds are limited and it's not possible to fully fund both if you're forced to choose.

[Matt]

That's what you're asking. If you have to choose a favorite child, Joel, which one would it be?

[Joel]

Well, we all know that one. That's like playing Russian roulette. Man, that's a tough one.

[Matt]

Yeah, it's, it's difficult. Uh, which one is superior? And I'll say, hopefully. Megan's talking, talking about the Roth IRA as opposed to an hsa. I'm imagining you've got a high deductible healthcare plan here, which gives you access to an hsa. I'm assuming here that your income is such that you are able to contribute to a Roth ira. So which one first? And I would say, despite the Roth IRA being far more popular, if you are looking at the technical details, well, then you can't beat an hsa. And that's because, yes, you can avoid a lot of tax when it comes to going with a Roth ira, but you can avoid all the tax with an hsa. So I guess I want to couch that answer in if you are optimizing for the absolute best rate or not the best rate, but for the best accounts. Yeah. For the least amount of taxes paid as possible on your investments, then the hsa, you literally can't beat that.

[Joel]

You. Yeah, and that's why we sing his praises often on the show. The triple tax advantage is huge. And if your contributions are coming out of your paycheck, you get to skip additional payroll tax on top of that. So it's almost like a quadruple tax advantage.

[Matt]

Technically it is.

[Joel]

And that puts the HSA on top, in our opinion. And it's not like you give up on a lot of flexibility by doing that either. I think, Matt, sometimes that's the trade off you have to weigh with certain retirement accounts is, well, how long is this money going to be locked away? And especially if I feel like I need access to those funds before I reach, like, full retirement age, gosh, I'm not going to be able to touch it. Well, the Roth offers some flexibility in that regard, too, being able to claw back some of those contributions. But the HSA allows similar flexibility for taking those funds out before retirement. So both of those funds have certain flexible withdrawal rules that are worth digging into.

[Matt]

But flexibility on both, for sure, they can be helpful.

[Joel]

Right.

[Matt]

I think the biggest trade off is, I think the question that someone needs to ask themselves is how committed are they to sticking with a spreadsheet? How organized can you be? Not over the course of months or years but like, even decades, because, yes, one is much, much better than the other, but it takes a bit more work. So in this case, the HSA requires more work. And it makes me think of something, Joel, that we like to do, which is smoking meat. And you talk to anybody who's into barbecue, and you're gonna get a superior barbecue, a superior brisket or pork butt. If you go with an offset smoker where you've got lump charcoal or you've got, like, white oak, right? But guess what?

[Joel]

It takes my mouth water.

[Matt]

It takes more hand holding. It takes a little bit more paying attention to that smoker to make sure that you're doing it right. The vast majority of folks out there, I think, are probably like, man, I just want some nice barbecue at home to where I'm not paying out the nose by ordering takeout every time I go out. And for those folks, in those instances, guess what? A pellet smoker, A Traeger, because it's not quite as good of a product in the end, but dang it, you know what? It does a whole lot with a minimal amount of effort. And for the vast majority of folks, I think that's going to be enough for them. And so I think you just set.

[Joel]

It and forget it. And it's idiot proof.

[Matt]

And that's kind of what the Roth IRA is like. You got to be committed to the system if you're going to take full advantage of the HSA.

[Joel]

I think the other thing worth highlighting about the HSA is that it can become like a traditional IRA after the age of 65. So if you're incredibly healthy, you don't rack up a ton of medical bills, which is what we hope for you. Hey, it's not like that money is locked away because you didn't incur enough medical expenses. You could also split the difference, right? If funds are limited, go 50, 50 funding each account halfway. You know, hopefully further down the line, you can contribute to both of those accounts in more meaningful ways. But why not go halfsies, too, if you're kind of seriously split on which one is best?

[Matt]

That's true.

[Joel]

I think the HSA is a little bit better. I like it's a lot better.

[Matt]

But from a financial standpoint, from an optimization standpoint, but it's a lot worse from how much attention do I need to give to this thing over the coming years?

[Joel]

So. Great question, Megan. We hope that helps. Matt, let's get back to the beer that we had on this episode. This one's called Tiny S's. It's like a fruited sour, I want to say, or, I don't know, candied. Fruity and sour from the good folks at Prairie.

[Matt]

And I think they've just knowingly embraced that because, like, it's got a illustrated chemistry motif going on. And even, like, some of the things that are so called atoms, they just look like nerds. And I literally, like, when I smelled it before we started drinking it at the beginning of the episode, I was like, man, this smells like nerd ropes. And that is totally.

[Joel]

It smells like your kid's candy basket post Halloween.

[Matt]

This is exactly what it tastes like. I don't know if I've ever had a beer that was so sweet. I guess we've had some big boozy sweet beers, but I don't know if I've ever had a sour that was this sweet before. Right.

[Joel]

No, you're right, because usually they're sweet with fruit, but this is sweet with candy. And so it feels, like, sugary sweet.

[Matt]

It's like Skittles sweet, 100%. It's like, as I drink it, I can kind of crunch my teeth together and I can almost feel the sugar.

[Joel]

I can taste the rainbow, Matt. I can taste the rainbow.

[Matt]

Yeah. Like sweet tarts. A little bit of tart, a little bit of sweet. This is just more sweet, less tart, for sure. And it reminds me of, like, Country Time lemonade as a kid where you can, like, mix your own because it does taste like that. It's less lemony. It's more pink tasting. And, you know, in the big canister, you can, like, add your own.

[Joel]

Oh, yeah, Extra.

[Matt]

And you can make it as sweet or as not sweet as you want. This tastes like the pink lemonade I was making in seventh grade.

[Joel]

Yeah.

[Matt]

Highly concentrated.

[Joel]

To me, this is a novelty beer, and it's not really my style, but every once in a while, it's fun to have a novelty beer and just see what people can create. In the beer category, this one is very far afield. Kind of goofy and it. And very sweet, which is not my jam.

[Matt]

Very sweet. And it's almost like it's marketed like, what do you think of that pencil there with, like, the pencil grip on there? Like, there's certain. It's like a throwback to, like, middle school kind of days. It makes me think about Founders Breakfast Out.

[Joel]

Oh, yeah.

[Matt]

Remember when it had the baby on there? And who was it? The.

[Joel]

Was it Vermont Federal Drug?

[Matt]

No. Somebody, like, shut them down and said, hey, you have. You can't have the baby on your beer anymore. Because it's like you're marketing to kids. What? It's like an old school Norman Rockwell looking kind of picture as opposed to this. Talk about the different vapes getting marketing to kids. This is like totally something of 9th grade would see and be like, oh.

[Joel]

But they taste so good.

[Matt]

Anyway.

[Joel]

They might actually like this. I don't know.

[Matt]

Not trying to accuse Prairie of anything underhanded here. This tasty beer, just a bit sweet.

[Joel]

Good stuff, unique. Not one I'll probably ever pick up again. All right, that's gonna do it though, Matt for this episode. And by the way, if you have a money question, please do send it our way. We'd love to hear from you. Just record it on the voicemail map of your phone, send it over to us. Hopefully we can take it next week and we'll put links to some of the resources we mentioned up in the show notes on our [e-mail] youm know it.

[Matt]

So until next time, Best Friends Out. Best Friends Out.

[Joel]

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