Money Guy Show: How to Do Financially in Crazy Times

Released on November 13, 2024

Hosts: Brian Preston and Bo Hanson

In this episode of the Money Guy Show, hosts Brian Preston and Bo Hanson delve into practical financial strategies to navigate turbulent economic periods. Through insightful discussions and listener questions, they offer expert advice on retirement account management, investment options for side hustlers, handling financial uncertainties, and optimizing health savings accounts. Below is a comprehensive summary of the episode’s key segments.

1. Managing and Rolling Over Retirement Accounts

Timestamp: 00:07 – 03:41

Listener Question: Kadem inquires about the benefits of rolling over a 401k and 403b from previous employers into his current 401k plan. He also contemplates an IRA rollover within the same institution.

Key Discussions:

• Options for Old Retirement Accounts: Bo Hanson outlines three primary choices when changing employers:

  1. Leave the accounts as they are.
  2. Roll them over into the new 401k plan.
  3. Roll them over into an IRA.

  Bo Hanson (01:04):
  “We really have three things I can do. I can leave it where it is at the current institution, I can roll it into the new 401k, or I can roll it over into an IRA.”

• Decision Factors: The hosts emphasize evaluating the quality of investment options and administrative costs. They advise against automatic consolidation if the old plan offers superior benefits.

  Guest Speaker (01:58):
  “Do the research on how good are the investment options? What are the administrative costs within the plans?”

• Advantages of an IRA Rollover: An IRA provides greater control over investment choices, which can be beneficial if existing employer-sponsored plans lack favorable options.

  Bo Hanson (02:50):
  “If you find that your old 401k is bad, your new 401k is bad... That’s when probably an IRA rollover does kind of stand out. Because you control who you work with, what do you invest in.”

• Importance of Fee Assessment: All retirement plans have associated fees. Comparing fees across plans can lead to significant savings over time.

  Bo Hanson (03:41):
  “Look at the actual fees that you're paying. Compare the old one to the new one because if you can save money on fees, it's more money that's going to stay in your back pockets.”

Conclusion: Choose to roll over your retirement accounts based on a thorough evaluation of investment options and fees. An IRA rollover is advantageous for greater control, especially if employer plans are subpar.

2. Investment Options for Side Hustlers Without Traditional Retirement Plans

Timestamp: 04:27 – 07:41

Listener Question: Liam, a 27-year-old PhD candidate, maximizes his Roth contributions but lacks access to a 401k or HSA. He earns $40k-$50k from side hustles and seeks alternative investment avenues beyond a brokerage account.

Key Discussions:

• Income Classification: The type of income from side hustles (W-2 vs. 1099) determines available investment options.

  Bo Hanson (05:02):
  “If side hustles are 1099 as an independent contractor, now we have a lot of really fun planning opportunities.”

• SEP IRA vs. Solo 401k: For self-employed individuals, a Solo 401k offers higher contribution limits compared to a SEP IRA, allowing for substantial retirement savings.

  Guest Speaker (05:27):
  “Solo 401ks allow you to do salary deferrals up to $23,000 and a profit-sharing portion on the side gig profits.”

• Maximizing Savings Behavior: Regardless of available plans, maintaining disciplined saving habits (e.g., saving 25% of income) is crucial for long-term financial health.

  Bo Hanson (06:30):
  “What you really want to master right now is the behavior. If I'm saving 25% of my gross income for the future, I'm likely to carry that behavior forward when my income increases.”

• Brokerage Accounts as a Temporary Solution: If limited to W-2 income without access to retirement accounts, utilizing brokerage accounts is acceptable, especially when coupled with strong saving habits.

  Bo Hanson (07:41):
  “Even if it's just falling into a brokerage account, which is totally an okay thing at this stage of your financial journey.”

Conclusion: Side hustlers classified as independent contractors should leverage retirement plans like Solo 401ks to maximize contributions. Maintaining disciplined savings behaviors is essential, and brokerage accounts serve as a viable alternative when traditional plans are inaccessible.

3. Navigating the 'Messy Middle' of Financial Life

Timestamp: 08:30 – 20:34

Listener Question: Another Brian inquires about managing life’s chaos and organizing finances during challenging times, referred to as the "messy middle."

Key Discussions:

• Focus on Incremental Decisions: During turbulent periods, concentrate on making the best possible next decision rather than attempting to overhaul your financial situation entirely.

  Bo Hanson (14:00):
  “What you have to focus on is, what's the very best next decision I can make?”

• Embracing the Messy Middle: Acknowledges that many people experience financial struggles, often obscured by social media portrayals of success. Emphasizes the importance of staying true to a financial order of operations.

  Guest Speaker (17:41):
  “Break the illusion. Realize it's going to be hard. Embrace the messy middle where you're short on time, short on money.”

• Behavior Over Circumstances: Maintaining disciplined financial behaviors, such as consistent saving and adhering to financial plans, is crucial irrespective of external chaos.

  Bo Hanson (14:30):
  “Use the financial order of operations as your compass to stay on course.”

• Community and Shared Experiences: Recognizes that many are going through similar struggles, encouraging listeners to find solace in shared experiences rather than succumbing to the facade often presented on social media.

  Guest Speaker (19:00):
  “Everybody is struggling through what you're going through. Embrace this messy middle and realize there's a whole community of us.”

Conclusion: Navigating financial hardships requires focusing on small, positive decisions and maintaining disciplined financial behaviors. Understanding that many share similar struggles can provide comfort and motivation to stay the course.

4. Optimizing Health Savings Account (HSA) Contributions Through IRA Rollovers

Timestamp: 20:34 – 24:30

Listener Question: Torch78 asks whether to take a one-time tax-free rollover IRA conversion to HSA contribution next year or wait until reaching age 55.

Key Discussions:

• Triple Tax Advantage of HSAs: HSAs offer tax deductions on contributions, tax-deferred growth on investments, and tax-free withdrawals for qualified medical expenses.

  Bo Hanson (20:55):
  “HSAs are a triple tax advantage savings vehicle... tax deduction, tax-deferred growth, and tax-free withdrawals for medical expenses.”

• Prefer New Contributions Over Rollovers: The hosts recommend prioritizing new contributions to HSAs rather than rolling over existing IRA funds, preserving diversified investment portfolios.

  Bo Hanson (22:36):
  “I would love to see you put new money in there. So you're not just shifting the pots that it's in, you're actually adding additional dollars to the pot.”

• Eligibility and Planning Requirements: Ensures that contributions, especially rollovers, comply with eligibility criteria, such as being subject to self-employment taxes for side income.

  Guest Speaker (21:27):
  “Make sure that this is money that's going to be subject to self-employment taxes or payroll taxes for it to be eligible for these retirement plans.”

• Long-Term Financial Strategy: Incorporating HSA contributions should align with overall financial order of operations, ensuring that such moves complement broader financial goals rather than disrupt them.

  Guest Speaker (22:36):
  “Understand the components of HSAs and ensure they fit into your financial planning strategy.”

Conclusion: It is advantageous to prioritize new contributions to HSAs to capitalize on their triple tax benefits. Rollovers from IRA should be considered cautiously, ensuring they align with eligibility and long-term financial strategies.

Final Thoughts and Resources

Timestamp: 24:00 – End

The hosts wrap up the episode by emphasizing the importance of taking an active role in personal financial management. They encourage listeners to utilize the resources available at moneyguy.com for further guidance and tools to support their financial decisions.

Brian Preston (23:09):
“Moneyguy.com resources in particular have tons of free stuff... when you're thinking through these questions, go check out the resources.”

Bo Hanson (24:25):
“Remember, you have to own your financial future or it will own you.”

Key Takeaways:

1. Retirement Account Management: Evaluate investment options and fees before deciding to roll over retirement accounts. An IRA rollover offers greater control and flexibility.

2. Investment Strategies for Side Hustlers: Utilize retirement plans like Solo 401ks for higher contribution limits and maintain disciplined saving behaviors irrespective of available plans.

3. Handling Financial Turbulence: Focus on making incremental positive decisions, embrace shared struggles, and maintain consistency in financial behaviors during challenging times.

4. Maximizing Health Savings Accounts: Prioritize new HSA contributions to leverage their tax advantages, ensuring they complement your overall financial strategy.

For more detailed guidance and free financial tools, visit moneyguy.com.