"You Should Fire Your Tax Advisor"

Summary

Ramsey Everyday Millionaires: Episode Summary - "You Should Fire Your Tax Advisor"

Release Date: January 31, 2025
Host/Author: Ramsey Network
Featuring: Dave Ramsey, Chris Hogan

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Introduction

In the "You Should Fire Your Tax Advisor" episode of Ramsey Everyday Millionaires, hosts Dave Ramsey and Chris Hogan delve into the intricacies of retirement planning, tax strategies, and financial responsibility. The episode spotlights a listener, Rick from Columbia, South Carolina, who seeks guidance on optimizing his financial trajectory towards an early retirement.

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Listener Spotlight: Rick's Financial Journey

Rick's Retirement Goals and Current Financial Status

Rick, a 47-year-old professional earning a base salary of $111,000 with an additional bonus of $56,000, approaches Dave Ramsey with aspirations to retire at 55. Despite considering himself fiscally responsible, Rick recently recognized gaps in his financial strategy after tuning into Ramsey's advice in 2022.

• Debt Situation:
  Rick holds a three-year loan for a company truck, amounting to $1,500 per month. However, he receives reimbursements between $1,100 and $1,700 based on mileage, effectively offsetting his payments.
  Dave Ramsey [00:43]: “So you have to systematically keep money moving that direction so you can upgrade the truck periodically. Yeah, but no more payments.”

• Retirement Savings:
  Since April 2022, Rick has accumulated:

  • Roth 401(k): $19,000
  • Traditional 401(k): $67,000
  • HSA: $18,000
    Rick [01:48]: “My tax advisor said that I should be doing a traditional 401k. You should fire your tax advisor, as you said.”

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Tax Advisor Controversy: Roth vs. Traditional 401(k)

A significant portion of the episode centers around Rick's dilemma with his tax advisor, who recommended switching from a Roth 401(k) to a Traditional 401(k).

• Roth vs. Traditional 401(k):

  • Roth 401(k): Contributions are made with after-tax dollars, allowing for tax-free growth and withdrawals in retirement.
  • Traditional 401(k): Contributions are pre-tax, providing an immediate tax deduction but resulting in taxable withdrawals during retirement.

• Dave Ramsey's Standpoint:
  Dave expresses strong disagreement with Rick's tax advisor, labeling the recommendation as a "heart attack" and questioning the advisor's mathematical acumen.
  Dave Ramsey [01:56]: “So I'm serious. It was a heart attack. They're trading a tax deduction for tax free growth. This guy can't do math.”

• Outcome:
  Rick chose to continue with the Roth 401(k) despite his advisor's push for the Traditional option, leading Dave to advise him to seek a new tax professional.
  Dave Ramsey [02:10]: “This year and change tax advisors because I don't know what else he's doing this dumb.”

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Strategic Financial Planning for Early Retirement

Utilizing Ramsey's Tools for Financial Forecasting

Dave Ramsey encourages Rick to leverage Ramsey Solutions' calculators and the EveryDollar app to project his financial future, emphasizing the importance of understanding where his current savings and investment strategies will lead him by age 55 and beyond.

• Calculations and Projections:
  Dave Ramsey [02:17]: “You can use some of the calculations on our calculators on our website. They'll help you. Or in the EveryDollar app, either one. And start saying, okay, what will I have when I'm 55? What will I have when I'm 60?”

Realistic Retirement Expectations

Both Dave Ramsey and Chris Hogan caution Rick about the feasibility of retiring at 55 based on his current savings trajectory. They suggest that maintaining his current lifestyle without sufficient savings might not be sustainable.

• Chris Hogan's Perspective:
  Highlighting the importance of realistic expectations, Chris advises Rick to "double down" on his financial strategies and reassess his retirement timeline.
  Chris Hogan [04:03]: “I think the 55 is a little too aggressive. So now, you know, double down, do your numbers crunch and go, okay, what is it really going to look like.”

Balancing Financial Goals with Personal Well-being

The discussion extends beyond mere numbers, touching upon the qualitative aspects of retirement, such as mental and physical well-being. Both hosts emphasize that complete cessation of work may not be beneficial for one's health and sense of purpose.

• Holistic View on Retirement:
  Dave Ramsey [04:16]: “Having enough money to not have to work is different than just not working.”

  Chris Hogan [04:17]: “Financial retirement, in my mind, is different than just straight, professional. I'm not doing anything any longer. I think that it's not good for the body and it's definitely not good for the soul.”

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Key Takeaways and Actionable Advice

1. Evaluate Tax Strategies:

   • Ensure that your tax advisor's recommendations align with your long-term financial goals.
   • Consider the benefits of Roth accounts for tax-free growth versus Traditional accounts for immediate tax deductions.

2. Leverage Financial Tools:

   • Utilize Ramsey Solutions' calculators and the EveryDollar app to map out your retirement plans and adjust your strategies accordingly.

3. Set Realistic Retirement Goals:

   • Align your retirement age with your savings and investment trajectory to ensure financial stability.
   • Recognize the importance of continued work or purposeful activities for mental and physical health.

4. Manage Debt Strategically:

   • Address existing debts, such as Rick's truck loan, systematically to free up resources for investment and savings.

5. Continuous Financial Education:

   • Stay informed about financial best practices and seek guidance from trusted sources to optimize your wealth-building strategies.

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Notable Quotes

• Dave Ramsey [01:56]: “So I'm serious. It was a heart attack. They're trading a tax deduction for tax free growth. This guy can't do math.”

• Chris Hogan [04:03]: “I think the 55 is a little too aggressive. So now, you know, double down, do your numbers crunch and go, okay, what is it really going to look like.”

• Dave Ramsey [04:16]: “Having enough money to not have to work is different than just not working.”

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Conclusion

In this episode of Ramsey Everyday Millionaires, Dave Ramsey and Chris Hogan provide Rick with critical insights into optimizing his retirement plan, highlighting the significance of choosing the right retirement accounts, setting achievable financial goals, and the importance of holistic well-being in retirement. Listeners are encouraged to evaluate their financial strategies, seek competent financial advice, and utilize available tools to secure a prosperous and fulfilling retirement.

Transcript

[Dave Ramsey]

Foreign.

[Chris Hogan]

This episode is brought to you by SmartVestor. Connect with an investing pro near you.

[Dave Ramsey]

At RamseySolutions.com SmartVestor Rick's in Columbia, South Carolina. Hi, Rick. Welcome to the Ramsey Show.

[Rick]

Thank you, Dave.

[Dave Ramsey]

What's up?

[Rick]

Well, I'm 47 and I'd like to retire at 55 and I'm not sure where to go yet. I thought I was pretty fiscally responsible and then I started to listen into you in 2022 and realized I wasn't as smart as I thought I was. So I'm gonna ask for help.

[Dave Ramsey]

Oh, my goodness. Okay, cool. So how much debt have you got today?

[Rick]

The only debt I have is I've got a company truck where I got a three year loan and it's 1500amonth, but I get reimbursed 1100-1700 depending on how many miles I drive from my company.

[Dave Ramsey]

You get that whether you have a car payment or not.

[Rick]

Correct. So, yeah, I need to get that truck paid off and then still give me the same amount. But the truck has to be. It can't be more than three years old. So I have.

[Dave Ramsey]

So you have to systematically keep money moving that direction so you can upgrade the truck periodically. Yeah, but no more payments.

[Rick]

Yes.

[Dave Ramsey]

The program is independent of debt. It does not require debt. You just used it to justify debt. So. Okay, so we're gonna clear that now. What? How? What's your nest egg looking like in your 401k?

[Rick]

Well, I've only. I came out of a different position where I was in a pension program. And then April of 22, I started in with this 401k program and I've got. This is the big question is last year I started doing a Roth 401K.

[Dave Ramsey]

Good.

[Rick]

And my talk tax advisor said that I should be doing a traditional 401k. You should fire your tax advisor, as you said. Yeah.

[Dave Ramsey]

So I'm serious. It was a heart attack. They're trading a tax deduction for tax free growth. This guy can't do math.

[Rick]

That's what I thought too. So I kept doing the Roth 401k.

[Dave Ramsey]

This year and change tax advisors because I don't know what else he's doing this dumb.

[Rick]

Yeah.

[Dave Ramsey]

All right. Anyway, so you don't have a lot there. So you're a long way from retiring in seven years.

[Rick]

Yeah. So I got 19,000 in the 401 Roth 401K, 67,000 in a traditional 401K, 18,000 in the HSA. And that's all since April 22nd.

[Dave Ramsey]

Good. Okay, well, you're tracking. I mean, you're dumping a bunch of money. And what do you make?

[Rick]

My base pays 111,000, and then my bonus was 56,000 this year.

[Dave Ramsey]

Okay. You married?

[Rick]

Yes, three kids. But my wife stays home with the kids, so it's just my income.

[Dave Ramsey]

Okay. Well, I mean, the beautiful thing about what you're doing is you're making all the right moves. I think the thing that'll help you is to, you know, just do some calculations. You can use some of the calculations on our calculators on our website. They'll help you. Or in the EveryDollar app, either one. And start saying, okay, what will I have when I'm 55? What will I have when I'm 60? Based on my current trend line, with the lump sum I have now, plus the payments I'm putting in now, and that'll start to tell you, you know, give you some comfort level as to where you're going to be. I don't think you're going to be mathematically able to live, like, anywhere near like you're living now at 55 years old with no work. So I think you're working a while. That's not a bad thing, though. You need to be doing something. I'm 64. I work. So it's not the end of the world.

[Chris Hogan]

Yeah, I would agree with that. I think the 55 is a little too aggressive. So now, you know, double down, do your numbers crunch and go, okay, what is it really going to look like? And again, I. The data, Dave, just to back up what you said, the data is overwhelming for people who want to research it on what happens when you truly stop working. Now, financial retirement, in my mind, is different than just straight, professional. I'm not doing anything any longer. I think that it's not good for the body and it's definitely not good for the soul.

[Dave Ramsey]

Not good for the mind. It's a terrible thing to waste. Yeah. Doing something. I just. Having enough money to not have to work is different than just not working. That's what you're saying.

[Chris Hogan]

100. Yeah.

[Dave Ramsey]

Yeah. But either way. Either way, you can start to run your numbers out and it'll give you some insights onto where you are. So that you're doing. You're doing pretty good, Rick. Sounds like it. I'm gonna get out of the truck debt, and I'm gonna jack up on some of these other things, the investment side, and get this thing moving.