Should I Put Extra Money in a Brokerage?

Summary

Podcast Summary: Jill on Money with Jill Schlesinger Episode: Should I Put Extra Money in a Brokerage? Release Date: May 23, 2025

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Introduction

In this episode of Jill on Money with Jill Schlesinger, host Jill Schlesinger delves into the topic, "Should I Put Extra Money in a Brokerage?" Focusing primarily on a listener named Heidi from Wisconsin, Jill and co-host Mark Telecio provide personalized financial advice tailored to Heidi's comprehensive financial profile. The discussion encompasses retirement planning, investment strategies, education funding, and effective asset allocation.

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Listener Spotlight: Heidi's Financial Profile [04:40 - 08:58]

Heidi, a 40-year-old professional earning $205,000 annually, reaches out to seek guidance on managing her substantial savings. Having recently paid off her student loans and settled into her current job, Heidi presents a robust financial situation:

• Retirement Accounts:

  • Current Contributions: 7% to retirement with a 5% employer match.
  • Account Balances: $65,000 total ($35,000 Roth, $30,000 Traditional).
  • Additional Retirement Assets:
    • ESOP rollover option: ~$100,000.
    • Previous 401(k): $130,000 ($100,000 Traditional, $30,000 Roth).

• Other Investments:

  • HSA: ~$50,000.
  • IRAs: Traditional IRA with $75,000 and Roth IRA with $90,000 at Vanguard.
  • Cryptocurrency: $2,000 in Bitcoin.
  • Brokerage Account: $1,500.
  • Employee Stock: $40,000 (not yet vested).

• Real Estate:

  • Home Value: Approximately $415,000.
  • Mortgage: $255,000 at 3.75%.
  • Upcoming Repairs: $40,000 for foundation and roofing.

• Savings:

  • High-Yield Savings Account: $130,000 earmarked for safety and upcoming home repairs.

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Evaluating Heidi's Current Strategy [05:25 - 11:20]

Jill begins by reviewing Heidi's comprehensive financial landscape, commending her disciplined approach to savings and debt management. The primary concern centers around her $130,000 in a high-yield savings account and whether to allocate additional funds into a brokerage account amidst market uncertainties.

Notable Quote:

"You're doing a fantastic job managing your finances, and it's clear you've built a solid foundation." – Jill Schlesinger [06:00]

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Recommendations for Asset Allocation [11:20 - 16:15]

Jill and Mark analyze the benefits and drawbacks of Heidi's current investment strategy, particularly focusing on her Traditional IRA contributions and the complexities introduced by the pro-rata rule when attempting a backdoor Roth IRA conversion.

Key Recommendations:

1. Consolidate Traditional IRAs:

   • Roll over ESOP and old 401(k) into the Traditional IRA at Vanguard to simplify management and eliminate complications with backdoor Roth conversions.

2. Adjust Retirement Contributions:

   • Increase retirement contributions from 7% to 10% to maximize employer matching and enhance long-term savings growth.

3. Optimize the 529 Plan:

   • Prioritize funding the 529 plan for Heidi's nine-year-old to secure her child's educational future, recommending an initial lump sum contribution of $10,000 if feasible.

4. Utilize Brokerage Accounts Strategically:

   • Instead of funneling extra money into existing Vanguard brokerage accounts, divert funds towards public education savings and potential brokerage investments once foundational goals are met.

5. Maintain a Safety Net:

   • Retain $80,000 in the high-yield savings account to cover six to nine months of living expenses, ensuring financial security against unforeseen circumstances.

6. Leverage Employee Stock Options:

   • As employee stock vests, consider selling portions to further fund the 529 plan, effectively aligning investment growth with educational funding needs.

Notable Quotes:

"Don't freak out about the pro-rata rule, but ideally, you should eliminate Traditional IRA balances to properly execute backdoor Roth conversions." – Jill Schlesinger [11:06]

"If you can get $10,000 a year into a 529 plan, that's a very good number." – Mark Telecio [16:03]

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Maximizing the 529 Plan [15:03 - 16:15]

The discussion emphasizes the strategic importance of the 529 plan in Heidi's financial plan. By allocating $1,000 monthly into the 529 plan, Heidi can significantly bolster her child's educational savings, providing flexibility and financial support for future educational endeavors.

Notable Quote:

"A 529 plan is a powerful tool for funding your child's education, and contributing consistently will yield substantial benefits over time." – Jill Schlesinger [16:00]

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Conclusion and Key Takeaways [16:15 - 18:29]

Jill wraps up the conversation by applauding Heidi's proactive financial planning and encouraging her to implement the discussed strategies. The episode underscores the importance of personalized financial advice and the benefits of consolidating accounts, optimizing retirement contributions, and strategically funding education through 529 plans.

Listeners are invited to engage with the show by sharing their financial challenges and receiving tailored advice. Upcoming webinars and additional resources are also highlighted, offering further opportunities for financial education and planning.

Final Notable Quotes:

"You're in excellent shape, and these adjustments will only enhance your financial stability and growth." – Mark Telecio [15:43]

"Change your work, change your wealth, change your life." – Jill Schlesinger [18:09]

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Conclusion

This episode of Jill on Money provides a comprehensive look into effective financial planning through a real-life example. Jill Schlesinger and Mark Telecio offer actionable insights that can help listeners make informed decisions about their investments, retirement planning, and educational funding. By focusing on personalized advice and strategic asset allocation, the podcast empowers individuals to optimize their financial futures.

Transcript

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[Jill Schlesinger]

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[Mark Telecio]

Oh yeah, William. William H. McRaven. Yeah, for sure. Maybe number one. I mean if not, I think so number two. Number three. Yeah, he's right.

[Jill Schlesinger]

Yeah, it's definitely a top. It's probably my my number one. And also we did this a long time ago we were in our studio in the CBS News broadcast center and his wife was sitting with Mark behind the glass. And the thing that I love the most is after we finished the interview, she, he had just done a ton of interviews and I think he had just come off the air in the morning show. Right, Mark? And so she came over and she said to me, that was the best interview that he's done for this tour, for this book tour. And I was like, oh, I was on Floating on Air. I just, I adored it. I thought he was fantastic. So in your Memorial Day feed, you will get Bill McRaven. And even if you've heard it before, listen to it again. It's just so great. Never gets old. He's fantastic. So today, however, we are focusing on you and your money. And remember, if you'd like to join us on the air and talk about whatever's going on in your financial Life, go to jillonmoney.com, click the contact Us button, write us a note, let us know what's going on. Check the box if you want to join us. And don't forget if you you've got to sign up for the free weekly newsletter and you also have to subscribe to Jill on Money Live. We have a webinar coming up Thursday, June 5th at 7 Eastern Time. We're talking cars. We're talking trucks. We are talking with automotive expert Mike Quincy of Consumer Reports. I have a lot of questions for Mike right now. The entire auto industry has had its head turned on its ear because of tariffs. So we're going to find out what's going on and what you need to know. You can only join us if you fork over 45 bucks. For the next 12 months, you'll get four webinars. You'll get the back catalog of webinars. You'll get bonus audio and video content. Jill on MONEY live. Okay. Right now let us go to Heidi, who joins us from Wisconsin. Heidi, you've been on the air with us. So I'm so happy to have you back. Welcome back.

[Heidi]

Yeah, thank you.

[Jill Schlesinger]

What's going on?

[Heidi]

So I've, last time I called, I was going into grad school. I've finished grad school in my job longer. I had just started a job when I called you last time. So now I'm more settled. I paid off my student loans and now congratulations.

[Jill Schlesinger]

Hold on. Can we just take a breath? That's great. Congratulations that you paid off your loans. Incredible.

[Heidi]

Yeah. Thank you. It's pretty incredible, I think.

[Jill Schlesinger]

Yeah. Awesome. Okay. What else is going on.

[Heidi]

So I have a 9 year old, and I have some extra cash I'm working with. I have money in my savings account. I want to know if I should put that in brokerage. I'm a little worried about the stock market economy. Should I not be worried about that? And just kind of wanting to know where I should put my money going forward.

[Jill Schlesinger]

Okay, so let's go back in time for a second. Heidi, how old are you now?

[Heidi]

40.

[Jill Schlesinger]

Okay. And how much are you earning?

[Heidi]

205,000.

[Jill Schlesinger]

That's great for your job. Do you have a retirement account available to you?

[Heidi]

Yes.

[Jill Schlesinger]

What is the amount of money you're putting into the retirement account?

[Heidi]

I'm currently putting in 7%, and then I get a 5% match.

[Jill Schlesinger]

Okay, how much money is in the plan right now?

[Heidi]

$65,000. 35,000 in Roth and then $30,000 in traditional. And that's all the match.

[Jill Schlesinger]

Okay, got it. So you're doing all roth for your 7% contribution, right?

[Heidi]

Correct.

[Jill Schlesinger]

Okay, great. Fantastic. Any other investments in retirement assets right now?

[Heidi]

Yeah, for my last employer, it was employee owned, so I have an ESOP that I can roll over into something. It's about $100,000, and then my previous 401k is 130,000. 100 of that's traditional, and 30,000 of that's in Roth.

[Jill Schlesinger]

Okay, how do you feel about managing this money yourself? Are you feeling comfortable with it?

[Heidi]

Yeah, I think so.

[Jill Schlesinger]

Okay. All right, good. Okay, so that's the retirement assets. What other assets do you have where you've squirreled away lots of money because you're making this couple hundred grand a year, which is amazing.

[Heidi]

Yeah, it's the HSA. I've always done HSA, so I have about a little over $50,000 in the HSA. And then I have an IRA, a traditional IRA that has about $75,000, and then a Roth IRA that has about $90,000.

[Jill Schlesinger]

Where are those held?

[Heidi]

Vanguard.

[Jill Schlesinger]

Okay, so you're comfortable in the Vanguard environment, right?

[Heidi]

Yes.

[Jill Schlesinger]

75 traditional. And you said 90 in the Roth, right?

[Heidi]

Yes.

[Jill Schlesinger]

Okay, got it. What else? What else we got?

[Heidi]

For fun? I just put a little bit of bitcoin in. I have $2,000. I don't touch that. I put $1,000 in a long time ago, so I don't plan on doing anything with that. Just to try and have fun. And in Vanguard, I also have a brokerage account with about fifteen hundred dollars. I do have employee stock, but it's not vested. And that's about 40,000 okay, but let's leave that off.

[Jill Schlesinger]

Let's not even think about that. Do you own your own home?

[Heidi]

Yes.

[Jill Schlesinger]

How much is the house worth?

[Heidi]

The house is worth fluctuates about 415,000.

[Jill Schlesinger]

Okay. And you have a mortgage on it?

[Heidi]

I do. I owe 255,000. It's 3.75%.

[Jill Schlesinger]

Great. So we're not paying that down early.

[Heidi]

No.

[Jill Schlesinger]

And you like the house? It's good for you. Like there's nothing you need to do with it.

[Heidi]

I do need to put some work into the foundation and the roof, and that's going to be about $40,000. That's impeding doom in the next couple months.

[Jill Schlesinger]

Okay. $40,000 of work needed. Okay. Now tell us about the savings account. Like where you could do this work and where you can pull from.

[Heidi]

Yeah, I do have cash. I could pay. I have about 130,000 in a high yield savings account, and I'm trying to figure out what to do with that money. I do like to be more conservative with my savings, just in case I don't have a job, who knows what's coming up. I'm confident in my abilities to get another job and all of that, but I just want to have some safety net involved.

[Jill Schlesinger]

Yeah, of course. I love that about you. I love you and your wimpiness. You're right up my alley. So let me ask you a question, though. What do you think your monthly expenses are? I just want to see how much we need to really keep in that high yield savings.

[Heidi]

I would say they're probably between eight and $9,000 a month. And that includes my mortgage and childcare and some fun money.

[Jill Schlesinger]

Okay. I like fun money. I'm going to say nine. So of the 130. Let me ask you something. Let's say that we said just tap that high yield savings account. Use the 40 for the work needed. Okay? Just use it. Don't think twice about it. In fact, it's going to end up being 50 because whatever the 40 is, it'll turn into 50, right? Won't it? Okay, so now if you had $80,000 in your high yield savings account, right? And that was, you know, you know, you're. Now you're in that six to nine months of living expenses, Would that be okay for you? Does that feel scary?

[Heidi]

I think that's okay. That's where the minimum I'd want to be is.

[Jill Schlesinger]

Okay. Yeah, I agree. I agree. Okay. So let's presume that's exactly what you have done, that you're going to spend your 50, you're going to keep your $80,000 that's left over. Okay. And then you're still paying your expenses, but you did build up this high yield savings account, which means to me that you have cash flow that can do other things. What do you think your cash flow looks like at the end of every month? What do you think you have Left over?

[Heidi]

Probably $1,000 left over every month.

[Jill Schlesinger]

Okay. And your 529 plan for the nine year old, how much money is in there?

[Heidi]

About $25,000.

[Jill Schlesinger]

Okay. And when you look ahead and you say, okay, I've got 25 grand in there, you know, I've got eight or nine years to go. Do you think you want to be able to pay for private or public school for your kid?

[Heidi]

Oh, I think public.

[Jill Schlesinger]

Public. Okay. So in your mind, you're putting in extra money in your retirement accounts. I'm wondering whether we should. Of your thousand dollars a month, right. You do your 7% into your retirement account. Right. And then you're also putting money into your Roth, I presume. Or you're. Are you making. When you say you're putting money into retirement, are you doing it in. You can't be doing it backdoor. So what do you. How are you doing that?

[Heidi]

Well, tell me if I'm doing it wrong. I put into traditional and I have a conduit ira, and then I transfer it to Roth. Can I do that?

[Jill Schlesinger]

Mark, I think she's doing a backdoor Roth. But isn't the fact that there is an actual $75,000 IRA put her in the pro rata rule? Yeah, yeah, theoretically.

[Mark Telecio]

Get technical. Yes, that's true.

[Jill Schlesinger]

It's a little technical here, but I think that for now, just don't do that anymore. Okay? Don't freak out about it. But ideally what happens is when you want to do that kind of backdoor Roth, you need to not have any actual traditional ira. That's outstanding. So if I were going to do that going forward, we would need you to roll your Vanguard IRA into your current plan into your pre tax current plan, because we'd have to kind of make it go away for purposes of making sure it's legit and not being subject to the pro rata rule, which kind of screws it up. And give me your or, Mark.

[Mark Telecio]

Or if you just want to avoid that mess altogether, just increase your workplace Roth contributions.

[Jill Schlesinger]

That's what I'm thinking. In fact, forget about putting the extra money into your Vanguard accounts right now. I would bump up my retirement contribution to say, 10% right now. And the rest of the money I would use to fund the 529 and maybe, maybe put some extra money into a brokerage account. But I think the 529 seems like it should be a priority right now, because if you want to fund the public education, the kid's nine. We got to get some money going, right? You paid off all your debt. You're a very good saver. Let's get that going. The only change that we're suggesting is instead of putting money into retirement accounts at Vanguard, that you up your contribution and into your plan through work, and then put a little bit more money into the 529, use the money that's in cash to do the work on the house. When that work is done, you'll see where you stand. You can come back on the air with us. I love talking to you every couple of years. It's fabulous for us. And then you're doing a great job. And you will be able to. Maybe at that point, we'll have a little bit more clarity on, well, is this stock in the money? Can we use that? Could you? You know. Cause one of the things that you could do also is that if you have this employee stock that becomes vested, you could start selling that over time and use that to fund the 529 plan. And that seems to me a very, very good way to kind of supercharge your. Your plan of putting money away for college. So does that seem reasonable to you, Heidi?

[Heidi]

Yeah, I think so. Should I put a lump sum of money into the 529 to get it started, or should I?

[Jill Schlesinger]

Well, I don't want to get you crazy because you're going to want to do work on the house, right? So if you wanted to put. Do a lump sum, let's say you said you really get this work done. Like, if you got everybody and you're like, jill, no, it's not 50, it's 40. I would then take 10 grand and pop it in the 529.

[Heidi]

Okay.

[Jill Schlesinger]

That I would do. And then, of course, tell me a little bit about your. You have life insurance? Do you have your estate planning done? Is everything not. Yeah, all good?

[Heidi]

Oh, yeah.

[Jill Schlesinger]

All right, good.

[Mark Telecio]

Would you move the old 401k, Jill, and just consolidate with the traditional IRA?

[Jill Schlesinger]

Maybe you can basically roll the ESOP and the old 401k into your traditional IRA at Vanguard. You could easily do that.

[Mark Telecio]

And then from that point going on, it's either you're either putting Money into your, your current workplace plan to the point where you're maxing it out. And if you get to that point, then any extra money is going into a brokerage account.

[Jill Schlesinger]

The brokerage. And 529.

[Mark Telecio]

And 529, both.

[Jill Schlesinger]

Exactly. I think that that's a good game plan.

[Heidi]

So no more traditional IRAs.

[Jill Schlesinger]

No more traditional Iran.

[Mark Telecio]

There's no reason for any traditional money.

[Jill Schlesinger]

No, you got a lot of traditional money, right? 230. You got $300,000. You know, there's 330 already. You're young, right? You're very young and you got great income. You've got the house with a good mortgage rate. And so I think you're in very good shape to continue this process. So I think this is all very. I think this is all smart and we can consolidate a little bit. You can use some index funds inside your Vanguard accounts and call it a day and keep it nice and simple. But you're on track. You're in really good shape. You really are. You've done a great job all by yourself. So congratulations.

[Heidi]

Thank you.

[Jill Schlesinger]

All right, anything else on our end? What do you want to know?

[Heidi]

What is the max I should think about with the 529 since I don't know what my 9 year olds will want to do?

[Jill Schlesinger]

I mean, a genius, right, Mark, how much money should we try to get in there?

[Mark Telecio]

What's going in right now? Every month?

[Heidi]

I think it will go up to maybe a thousand every month.

[Mark Telecio]

A thousand a month. I don't think you need to go beyond that.

[Jill Schlesinger]

Yeah, I don't think you'll do more than that. And especially if you're going to start to put down, dump some extra money in.

[Mark Telecio]

I always think, I always think the general rule of thumb should be, you know, if you can get $10,000 a year into a 529 plan, that's a very good number.

[Jill Schlesinger]

Yeah, absolutely. Absolutely. All right, we're going to let you go, Heidi from Wisconsin. So go be a badger. And we appreciate you getting in touch with us. So if you like Heidi, you're trying to juggle your own retirement. You're trying to think about 529Plan for your kid. You're just trying to manage different priorities. Get in touch with us. We might be able to help you flesh it out a bit and guide you as to what you might be able to do to reach those goals. Just go to jillonmoney.com, click the contact Us button, write us a note, and if you'd like to Join us on the air. Check the box. Mark does everything else while you're on the website. Don't forget to sign up for the free weekly newsletter which comes out every Friday, which is today. And by the way, you can subscribe subscribe to us on the Odyssey app or wherever you find your favorite podcast. Because it is Friday, I always like to do the thank yous. Our music is composed by Joel Goodman. Mark Telecio is the very best executive producer in the whole wide world and the king of all things web. We are distributed by Odyssey. We ask that you do something nice for someone else today. Change your work, change your wealth, change your life. Thanks for listening. We'll talk to you on Monday. Buying a home in California can certainly feel intimidating. We hear from listeners all the time throughout the state, and they want to know, where can they even start? Many of them find that turning to a Realtor changed everything. Realtors can help buyers understand what they can afford. They can explain all of the steps that are involved in purchasing a home, and they can walk you through every detail, from making an offer to closing the deal. Working with a Realtor can help you feel less alone or unsure about the process and that peace of mind that is the power of having a Realtor by your side. Whether you're ready to move or just starting to dream, don't go it alone. Don't let what you don't know stop you from starting your next chapter. Find your [e-mail] that's championsofhome.com when you're.

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[Jill Schlesinger]

Can I get you a refill?

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