Jill on Money with Jill Schlesinger

Episode: Brokerage Over 401(k)?
Date: September 10, 2025

Brief Overview

In this episode, Jill Schlesinger and co-host Mark tackle the increasingly common question: Is funding a brokerage account sometimes better than maxing out traditional pre-tax retirement savings, like a 401(k)? Listener Pete from New York joins to share his financial situation and to ask why the hosts sometimes recommend brokerage accounts over traditional retirement vehicles—especially given his high income and the high-tax environment of New York. The episode also covers strategies around mortgage payoff, life insurance, college savings, and the importance of asset flexibility and tax treatment.

Key Discussion Points & Insights

1. Meet Pete: The Case Study

• Profile:
  • Married, mid-40s, three kids (ages 15, 13, and 10)
  • Household income: ~$575,000
  • Home value: ~$850,000; mortgage: $330,000 (3.2% rate, 17 years left)
  • Committed saver and investor (across Roth, traditional, and brokerage accounts)
• Main Concerns:
  • Should he keep funding a SEP IRA (pre-tax) or focus on his brokerage account?
  • Wants to pay down mortgage early for peace of mind
  • Ensures college savings and estate planning are covered

2. Understanding the SEP vs. Brokerage Dilemma

• Pete’s Setup:

  • $508,000 in traditional 401(k)
  • $46,000 in Roth 401(k)
  • $58,000 in wife’s 403(b)
  • $9,000 in SEP IRA
  • $48,000 in backdoor Roths
  • $50,000 in brokerage
  • Aggressively funding 529s for kids’ college
  • Future excess cash flow: ~$30,000/year

• Why Consider Brokerage over SEP/Traditional 401(k)?

  • Ordinary Income Tax on Withdrawals:
    • “All that money that grows, that has not yet been taxed, will come out. And I bet you it's not coming out at 18 or 20%. It's just not. You're going to be at least in the 24% bracket later on in life.” (Jill, 13:10)
  • Capital Gains Advantage:
    • Withdrawals from a brokerage account are taxed at a lower long-term capital gains rate (typically 15%, plus 3.8% Medicare surtax for high earners versus 24–35% for ordinary income).
    • Quote: “I would much rather put the money into a brokerage account and pay capital gains.” (Mark, 12:03)
  • Liquidity and Flexibility:
    • Brokerage funds are liquid; offer flexibility for needs pre-retirement.
    • “I like having the access to the money and having a little bit of money that doesn't have to get tied up in a retirement account that gives you flexibility.” (Jill, 13:30)

• Jill’s Guidance:

  • Given Pete’s already sizable pre-tax assets and his high income, the marginal benefit of further pre-tax contributions is outweighed by the flexibility and favorable tax treatment of brokerage investing.

3. Mortgage Paydown Debate

• Pete’s Position:
  • Emotional desire to pay down his 3.2% mortgage faster, despite knowing the math likely isn’t optimal.
• Jill’s Response:
  • “Mathematically that is not the wisest decision...In a very conservative or balanced portfolio” you could likely beat that return. (14:08)
  • Psychology matters too: “If you want to make the—like, I am not the kind of human being who believes that everything should be optimized mathematically.” (14:22)
  • Suggests tracking returns over mortgage tenure for peace of mind.

4. Broader Investment and Wealth Inequality Themes

• Market Returns Have Driven Wealth Gaps:
  • “It's one of the reasons that helps explain how the wealth inequality has blown out...If you think about 40% of the country not owning any investment...that chasm is just massive and gets bigger and bigger. So it's not just the amount of money that I earned, but it's like I started investing 10, 15, 20 years ago.” (Jill, 17:41)
• Jill’s Advice to Newcomers:
  • Buying a house isn’t the only path to wealth—“being an investor is going to be the way to accumulate.”

5. Estate Planning and Life Insurance Checklist

• Estate Docs: Pete’s finished all estate documents including healthcare proxies.
• Life Insurance: Both spouses have significant term coverage (over $1M each) expiring at staggered intervals.
• Jill’s Emphasis: Ensuring sufficient protection for dependents remains paramount.

Notable Quotes & Memorable Moments

• On Taxes and Account Selection:

  • Pete: "I was not getting that part. It's capital gains in the brokerage, it's ordinary income..." (12:19)
  • Jill: "Exactly, exactly..." (12:26)

• On Mortgage Psychology:

  • Jill: “Mathematically that is not the wisest decision, right.” (14:08)
  • Pete: "Yeah, no, I know...I've already paid off, I think, two years of that mortgage. I know mathematically it's bad, but it makes me feel good." (15:29)

• On Market Returns vs. Mortgage Rates:

  • Mark: “I actually looked for me personally and I looked at the last 10 years rate of return, 11.6%.” (17:25)
  • Jill: "Thank you." (17:39)

• On the Luck of Investing in the Recent Decade:

  • Jill: "Yeah, it's outrageous...We're so lucky to be investing during these years." (17:40)

Important Timestamps

• [04:07] Pete introduces his question and personal situation.
• [06:11] Breakdown of Pete’s investment and savings buckets.
• [10:19] Pete details excess annual cash flow for additional investments.
• [13:10] Jill and Mark explain the tax logic behind brokerage contributions.
• [14:08] Mortgage payoff discussion and tradeoffs.
• [17:00] Confirmation on estate planning, insurance status.
• [17:41] Broader themes on wealth inequality and investing.

Episode Takeaways

• If you already have a significant pre-tax retirement nest egg and income puts you in high tax brackets, extra dollars might be better off in a brokerage for flexibility and long-term capital gains treatment.
• Psychology (peace of mind) sometimes trumps pure math, especially with mortgage paydown—but understand the opportunity cost.
• Investing consistently over the past decade has supercharged returns, driving wealth divergence for those with market access versus those without.
• Ensuring estate plans and life insurance are in place is crucial, especially for primary wage earners with dependents.
• “Being an investor” (in the markets) should not be underestimated as a means of building wealth—sometimes more accessible and advantageous than real estate, especially in high-rate environments.

Listeners who want tailored advice can contact the show through jillonmoney.com.

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