← Ramsey Everyday Millionaires
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- [00:00]
A
Foreign. This episode is brought to you by SmartVestor. Connect with an investing pro near you at RamseySolutions.com SmartVestor Josh is in Jacksonville, Florida. Hi, Josh. How are you?
- [00:18]
B
Dave, it's an honor. I'm doing well.
- [00:20]
A
Good. How can I help?
- [00:22]
B
I've been reading a book called the no man and Stone Reference from another book I've been reading. Been doing a lot of that lately. And in this work it's being frugal with your money, which is also something that you preach. But I got hung up on something in this book that was referring to investments. And in the book it says when you invest and to hold it from being taxed, you basically wait till you die and you give it to people so that it's not taxed. Now, I was wondering, why should I invest in stocks and bonds if I'm never going to be able to use this money? And if I use it, how can I bring it out without being heavily taxed on it?
- [01:03]
A
Okay, well, the book was written in 1992. It's a best seller, perennial bestseller. It's a wonderful work. He did the first study of millionaires I ever read, the author's Tom Stanley. Tom was a friend of mine before he passed away. His daughter Sarah still interacts with us. They still do millionaire research all the time, and they're really, really good people. But Tom studied 750 millionaires and it became kind of the bellwether, the baseline for how millionaires behave. And that's what he's referencing in here. It's not necessarily an investment philosophy. He's saying that what millionaires end up doing is they save and invest. And they save and invest in good stocks, not bonds, usually. But usually good stocks, meaning mutual funds, growth stock type mutual funds. And this is what we found in our millionaire study that came out 30 years later after Tom did that. And it still found very similar things, actually. So I'm a fan of him, I'm a fan of his work, I'm a fan of Sarah's work, and so on. So anyway, what he's saying is you end up building up enough wealth that you don't end up having to use it to live your best life. And so it is given then to your kids at death or your heirs at death if you don't need it. Like for instance, in my case, the chances of me actually using my Roth IRA in my lifetime is really close to zero because I have enough real estate and other things that will provide me income if I ever chose to not be on this microphone, which provides me an income. Okay. And so if in my later years I took an income from, I would end up taking it from other stuff. So probably Rachel and her brother and sister will get my mutual funds that are in Roth IRAs. I'm probably investing for them. Very high likelihood. And that happens normally with wealthy people when you build some wealth. Now, if you get there and you need the money because you don't have any other money and you haven't built very much wealth, but you built a little bit and you need the money to pull out. Yeah, you're going to have taxation unless it's in a Roth ira. If it's in a Roth ira, all the growth is tax free. The whole thing is tax free because the money you put in has already been taxed. And all of the growth, which is the majority of what's in the account, is tax free. And so you don't have that problem if it's in a Roth. So oddly enough, mine's in a Roth. So I could take it out and not pay any taxes, but I probably won't even do that. I'll probably just let it roll. Cause it's making money, making money, making money, making money. Even if you did have to pay some taxes when you got it out, it would be because you weren't in a retirement plan. It would be capital gains rate. And unless you're making over $400,000 a year, then that's only 15%. And so you took out, you made $10,000 and you're going to pay 1,500 of that over. So you still got 8,500 left. The taxes are not crippling, even if it's not in a retirement account and it grows. So I think. I think probably what Tom was saying in that chapter, I. It's been a long time since I read that book. I read it in 1992 the first time. So I have to get it back out and try to catch. But. But I know the gist of his findings and the way he viewed things. I had him on this show when he was alive and years ago and so a couple times. So I kind of think that's what he was referring to. Josh. So you're going to be fine, Rachel. It's. Here's the thing. We do not currently, nor have we ever had in the United States to date a 100% income tax. So if you build wealth, some of it you're going to keep. We have fairly low rates today compared to other times. There was a time back in the 70s and 80s that the tax rate was 70%. The highest tax bracket was 70% tax bracket. So, you know, today it's 39 and 15 on capital gains, 20 on capital gains if you make over 400. So, you know, you're always you never say, I'm not going to build wealth because of taxes. Right.
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C
Right.
- [05:29]
A
Because you're going to have mathematically, it's incorrect. Right.
- [05:32]
C
Well, and it's still a great avenue, Josh, even though you are paying some of those capital gains to build wealth. Because I'm like, it's your money making money while you sleep. So I would pay taxes to build wealth versus not putting money in investments and letting it just sit there. And it actually goes down because of inflation. So it's it's still worth it, Josh.