← Jill on Money with Jill Schlesinger
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See fewer carts go abandoned and more sales with Shopify and their Shop Pay button. Sign up for your $1 per month trial today at shopify.com jillonmoney go to shopify.com Jill on money that's shopify.com jillonmoney this year, give a gift that goes far beyond the moment. An Invest529 account. Whether it's a child, grandchild or someone just starting out, you're helping them save for education that can open doors for a lifetime. Invest529 is a tax advantaged way to save for college, trade school, or even apprenticeship programs. It's flexible, easy to start, and you can contribute any amount, big or small. And because the money can grow tax free, it's a gift that really builds value over time. So instead of giving something that gets used up or set aside, give the gift that can change a Life. Start an Invest529 account today. Go to invest529.com to get started. Welcome to the Jill on Money show. It's Wednesday, February 4th and we are here answering your financial question questions. If you have something on your mind, something bubbling up and it remotely touches a dollar or changes the course of your financial life, why don't you get in touch with us? Go to jillonmoney.com click the contact us button. Write us a note if you would like to join us live. Check the box. Mark does everything else because he is the best executive producer in the whole wide world. Hey, while you're on the website, don't forget to sign up for the free weekly newsletter. Check out all the free stuff that's there You. We've got another podcast and it is called Money Watch. We release that on the weekends and we do try to dive a little deeper into a specific topic and maybe for folks who need a little refresher, maybe you'd like a little bit deeper dive when you're a younger person and you think, hey Jill, you and all your cohort here, you're talking too much about something or other. Check out Money Watch right there. Over there, Money Watch Saturdays and Sundays. So you can do a little bit of both. Okay. Isn't that cool? All right, today we have to answer some emails because we are, we know they're piling up. So I may bring Mark on just to torture him. He probably just wants to chill out a little bit, but so be it. Okay, so this is from Brian who writes. Hi Jill. I love listening to all of your shows. You give the best, no nonsense answers to such a wide range of questions. That's me, Mark. No nonsense Schlesinger. My question is, says Brian, at what age do you think I'll be able to retire? I know it's pretty vague, but my goal is around 56 ish. I'm open. I think I maybe even prefer to continue working in some sort of part time capacity or by starting a small service based solo operator business where I take on as much work or as I want. So here's the information. I'm 49 years old. I'm married. I've got three kids, 16, 13 and 9, living in New England. We've got a single income. My wife is 43 and she has been a stay at home mom since 2010. I'm a managing partner of a successful small business. I have 20% ownership. My salary is about $175,000 a year. And our company has profit sharing that has a defined benefit plan. Listen to this. 21 grand is what he's putting into his traditional 401k 7 grand into a Roth IRA company contributions. There are some rules. He mentioned something called a safe harbor. That's basically when you have a bunch of highly compensated people and they limit the amount of money they'll put in for those highly compensated people. So what he's saying is that in addition to his 21 grand a year and it's 401, that there's a company defined contribution plan. He gets about 20 grand a year from that defined benefit contribution credit. Last two years it has been $60,000 a year. Holy smokes. Okay, he's got 700 grand. Let me tally this up a little Bit better. It's about 850 in traditional assets, 60 in a Roth, 250 in a brokerage. He's got $264,000 in the defined benefit plan, which is a cash balance. He's got earnings in the business. His share, $136,000. House is worth $600,000. $200,000 on the mortgage. High yield savings account, $120,000. $529,000. Plans for each child are $30,000. Total is $103,000. That seems kind of shy on the needs there because let me just go back here. 16, 13, 9. That's not going to go very far. Okay. Business value is objective. Oh, boy. Partners and I have had an accountant give us a valuation that gives my share, that makes my share worth $800,000. Social Security benefit, 3,800 bucks. Not sure about my wife. She only has about 10 years, probably half of his anyway. He feels burnt out and he's thinking maybe he'd sell out in 2032, which would be 56 years old. That would be the year my oldest finishes college. The middle will have two years to complete and the youngest still three years from starting. Oh, here we go. My understanding is the FAFSA looks at the previous two years income for need. So this large amount of income for one year wouldn't affect my oldest. It may affect the middle and. And would be soon enough to not affect the youngest. I could be wrong. We haven't gotten too deep in college planning. But a business sale in a year where FAFSA is analyzing our income would cost us tens of thousands of dollars. Our goal is to be able to help our children attend college and exit without being saddled with extreme debt. But we do not intend on funding the entire bill spending about ten grand a month. 56, I know seems early for retirement, especially because my youngest will only be 16. But where might I stand at that point? Is this remotely possible? How much would I need to earn at that rate working part time to make this plan work? My intention would be to enter the health exchange unless the part time worker business would offer something better and that could add to the 10 grand a month. Yes, let's make that 12 grand a month just for planning purposes. That's me talking here. So because you have kids and there's a lot of people depending on you having health insurance. Oh, my wife would be also open to some part time income at some point. I look forward to hearing your response and I hope to hear from you about my situation. Thank you. For what you do, you help so many see a clearer picture of their future lives. Mark, get on that microphone. Mr. And let's find out about Brian from New England and whether this is all possible. It's fascinating because of that chunk of money from the business that does help him. And of course, the defined benefit plan is very helpful. I would follow up if he were on with us and I wish you came on the air with us. I would really want to know how that defined benefit works. If it's just a cash balance plan and we know how to grow it, that's easy. It's growing at a 5% fixed return. But I wonder if there's any monthly income choice on that. What do you think about Brian's goals here, Mark?
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Very, very close. Probably too close for comfort. I mean, where he's at right now for the next seven years based on what he's saving and, and this, you know, this is all pre tax.
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Yeah.
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Probably going to have around, you know, he'll have four, $4 million, maybe a little more. So 10 grand a month at 56. Very close. But you know, if they're both willing to work part time, you know, they could figure out a way to make it happen.
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Yeah, I mean, this is what I would say, Brian. I think that there is some way that you can cobble together a plan. I think that the areas that pop out to me are that, you know, 12 grand a month is a lot of money and a lot of the money that you have is going to be taxed. So even when you hear, if you hear 4 million from Mark, like that's pre tax we gotta pay tax on, that's not actually enough money. So I think what you guys need to really consider is would you rather work in this company which you're a part owner of and kind of stretch it into another couple of years beyond that. So be full time till say, you know, 58, 59, or would you rather call it quits and really put the pressure on yourselves to come up with some part time income that will cover Most of the 12 grand a month that you need personally, because I'm a wimp and Mark may have a different opinion. I would rather work a little bit longer, just me, because I feel like that will get, that'll help build up the pension that gets you covered for health care and it takes the pressure off having to find part time income. And by the way, your wife hasn't worked in 15 years. It's going to be so easy for her to just go get A job? I don't know. Maybe. But maybe not. All right. Don says he's 43 years old, he's single, he's got no kids, he's self employed. He contributes 80 to $100,000 a year into his investments. Holy smokes. So, you know, he's 43, and he's like, I want to retire, like, in the next five years, no debt. A very reasonable mortgage at 2.75%. And he's got a house that's worth, I don't know, it's probably 900 grand. And he's got about a $400,000 note that's left. He might sell this house and move somewhere else and get all of the money out of this. In terms of the equity, meanwhile, I mean, I could not give up a 2.75% mortgage in my whole life. I don't think. Okay, here's what he's got. 366 in a 401K, 173 grand in S&P exchange traded funds, 166 grand individual stocks, some money in an IRA and a Robinhood account, and a whole bunch of cash, 190 grand in crypto, and he's got about $1.1 million. He didn't give us one piece of information. Right. Mark, how much do you think this guy spends? He's. I mean, he is investing 80 to $100,000.
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Yeah. I mean, I'm guessing he spends very, very little, and that's really the only way it's going to work for him.
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Yeah. I want to know what your expenses are, and then I want to know whether you would work part time. This is going to be like the young people want to retire episode. We're going to call this episode Pipe Dreams and Real Dreams or something like that. All right. Clint says that he and his wife make over the contribution limit for Roth IRAs. Oh, I have my ED slot slides here that I can look this up. Mark. So the Roth IRA contribution limit is phased out this year. If you're married, filing jointly at $252,000, meaning you cannot use a Roth IRA and contribute to that, you might be able to do a backdoor Roth, but you can't do a straight up Roth contribution. Question from Clint is, am I still able to contribute to a traditional IRA while contributing to my work? 401K. Yes. Okay, wait a second. You can do both. You can do what is called a backdoor Roth with an asterisk. If you don't have a traditional IRA account floating around the way it would work is you'd open up an IRA account. You'd put in, let's see, how old is he? Does he say, no, but let's pretend that he is, shall we? Give him. Let's say he's under the age of 50. So for this year, you would open up a IRA account and this is a non deductible IRA. You would put $7,500 into the account and immediately then transfer it into a Roth ira. That's why they call it a backdoor. It's like, whoops, I get to go in through the back door. A non deductible IRA then turns into a Roth ira. However, and I can't say this enough, you absolutely, positively must do this only if there is not another IRA account that's out there. Okay? So if there is, you can roll all that old IRA money into your current 401k. One of the things that he said, I've never heard anyone mention, going from maxing out a 401k to then the traditional Iraq. Don't do the traditional IRA. You got a bunch of money that's already in the traditional asset, the 401k. Let's get you to Roth. He's.
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He's basically saying, can I max out my 401k and then contribute to a traditional IRA? Yeah, you can, but I wouldn't. I really see no reason anymore to use a traditional ira.
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It would be a certain circumstance. So not for everybody.
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Yeah. And also check, you know, if you're looking to get Roth money. Check if your 401k has a Roth.
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Yes, that's right. And more and more are doing this, Mark. This is definitely the case. Here is a question from N. Who asks. My question relates to a Roth Thrift Savings Plan for my husband. I am turning 56 this year and took the federal government's early retirement option last September. My husband is a few years younger. He's 51 years old. He continues to work full time. We've saved a good amount of money in our Thrift Savings Plan accounts, with most of it going traditional. We've been thinking about doing Roth conversions now allowed within the tsp. But I wonder if we should just have all of his contributions go to Roth. And is that sufficient to mitigate the tax cliff we will encounter when we have to take required minimum distributions? He maxes out on his contributions. We're in the 24% bracket. Thank you for your show. I've been enjoying listening now that I'm retired. All right. Okay, Mark, I'm going all in on new money. Absolutely, positively going into the Roth. I don't know about the conversions. What do you think about converting? We don't really know about their other money, but I have a good sense that they're two government employees. That means they're both going to have pensions and that means they're going to be in a probably not leaving that 24% bracket. So it would be great to convert some of the money, but I don't know if they have the assets to pay for it. What do you think?
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Yeah, without knowing that info, it's hard to say. I mean, it's definitely appealing if they can pull it off and they have the assets to pay the tax bill. But as far as switching over to Roth. Yeah, 100%. Your husband's 51. If he's going to be working for a few more years, there's no reason to do any more pre tax.
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Yeah, absolutely. All right, last question. This is from Sarah. She writes. Hello, Jill and Mark. We are making a plan to fund our child's college education. We are 50 and 52 years old. We work full time. Our child is at a top institution that is very pricey. We saved a good amount of money in her 529. It's only going to cover those first two years. In making a plan to pay for the second half of college, it looks like we could have a mix of loans. I'm just trying to figure out the best approach. Okay, so Sarah says, I have over $1,000,000 in my 401k. Does it make sense to take a $50,000 loan from there? Our house has paid off, so we could also do a home equity line of credit. I have a great credit score. So does a private education loan make sense? Again, she's covered for the first two years and I'm trying to plan for 2027. Basically, a lot of our wealth is tied up in 401k accounts and the house. All right, because they're 50 and 52. I mean, I don't know how much we really have to raise. My guess is when she said a tough institution, like I have to say with that sarcasm and it's pricey. So what do you think? It's probably 80 grand a year. So she needs 160. Let's say she needs 150 grand. Should she take a $50,000 loan from the 401k and then do $100,000 HELOC? What do you think, Mark?
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I'm inclined to say no. You know, I don't know a lot of the other details, but since they have so much money in their 401ks, I'm just going to assume and they're over the age of 50, so I'm going to assume they're maxing out and maybe doing the catch up contribution. If that's a case between the two of them, that's probably, you know, 60 grand a year right there. I would pause your retirement contributions for two years.
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Just up to the match.
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Just up to the match for two years, put that money towards college and probably take out what will end up being a pretty manageable loan for the rest.
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Yeah, I mean, and the loan doesn't have to be a parent loan. I would rather use the asset you have, honestly. So I love that idea of just like, hold on, let's like take a breath, pull back on our contributions, gather that money up, put it aside and then, you know, as you have that money, just shovel it into the 529, keep pumping that up. That is the best place to put that money. Even if she's in college already. Even if you just have to keep it in a money market so it doesn't have to be taxed. So I think that's the game plan, gang. You don't have to go into super duper debt to get your kids where they need to go or where you would like them to go. So I mean, look, it's great. Paying for education is great. It's just a huge commitment. So I get it. And if you're kind of juggling that and you're wondering how to pay for college, you're wondering how to make sure you don't read the retirement account. You want to get in touch with us, go to the website jillonmoney.com, click the contact us button and write us a note. If you want to join us on the show, check the box. Mark will do everything else. While you're on the website, you can check out all of the free resources, including our weekly newsletter which comes out on Fridays. We've got a blog, there are other broadcasts, we have videos and resources. It's all there for you. It's very exciting. You can subscribe to us on the Odyssey app or wherever you find your favorite podcast. Please leave us a rating and review wherever you listen. And don't forget to subscribe something nice for someone else today. Change your work, change your wealth, change your life. Thanks for listening. We'll talk to you tomorrow. Hey gang. I just made a first time ever purchase. On behalf of the pod, I was so psyched because Mark and I don't do a lot of promotional materials, but I was able to create a branded sweatshirt. Yep, a Jill on Money branded sweatshirt with vistaprint. Now I'm not usually good at these things, but vistaprint made it simple to bring this idea like, oh, wouldn't it be cool if Mark and I could create some sweatshirts that we'll try out and maybe the listeners would want to get them as well. They've got these great design tools, they have fast shipping, human support if you need a little guidance along the way. Because the sweatshirts were so easy to execute. Now I'm thinking about doing some other stuff. Maybe there's some baseball caps or, I don't know, other fun stuff that you guys would want. You'll let us know. There's a reason that over a million people trust Vistaprint for their small business print needs. Vistaprint print your possible right now new customers get 20% off with code new20@vistaprint.com.
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I'm Emma Grade, host of Aspire with Emma Greed, a podcast where I sit down with people who don't just dream big, they build big. From culture shaping voices like Mel Robbins, to leaders redefining success like Tracee Ellis Ross, to game changing entrepreneurs like Mark Cuban, Aspire is about mindset, ambition and doing the work that actually moves the needle. If you're ready to raise your standards and take charge about the life and career you're building, Aspire is where you start. Follow and listen to Aspire with me, Emma Greed An Odyssey podcast available wherever you get your podcasts.