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- [00:02]
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- [00:28]
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- [00:57]
Austin Hankwitz
hey everyone, and welcome back to the Rich Habits podcast, a top 10 business podcast on Spotify brought to you by Public.com in today's episode, we're getting personal again. We've all heard the phrase the average millionaire has seven streams of income. Robert and I are both multi millionaires, so I think it's time that we share our own personal streams of income. My name is Austin Hankwitz, and I'm joined by my co host, Robert Kroke. Robert is a seasoned entrepreneur with lifetime revenues of over 300 million, and I'm a multimillionaire in my late 20s with a background in finance and economics. As the show name might suggest, every episode we talk about rich habits as they relate to business, finance and mindset. Robert, we got a fun episode ahead of us today, so what are we
- [01:39]
Robert Kroke
going to be talking about in today's episode of the Rich Habits Podcast? We're talking about those seven streams of income, and I think we're going to do this differently than most people have ever heard it before. We're not going to just define the seven streams and tell you how to build them. We're going to actually open the books on our own lives and show exactly how each stream works for us in real time. I've been building wealth now for 40 years, and I can tell you that when I was in my early 20s, I had one stream of income and that was my job. Now I have all seven. And the compounding effect of having multiple streams is what separates people who build real, lasting wealth from people who just earn a good salary.
- [02:18]
Austin Hankwitz
And that's a really good distinction to share up front with this episode, right? Having seven streams of income doesn't mean you need Seven jobs. It means your money is working for you in seven days, different ways, Right? So some of those streams take years to build. Some you can start this week. So, Robert, we're going to walk through all seven today. We're going to share how each one of those seven streams of income shows up in our own lives and give people practical ways to start building each stream of income, regardless of where they are financially. No one starts out with 2, 3, 4, 5, 6, 7 streams of income. Everyone starts out with one stream, which is that earned income. And then over time, they diversify and are able to build upon that single stream and turn it into seven different streams of income slowly over time. So, speaking of earned income, Robert, kick us off with our first stream of income for sure.
- [03:14]
Robert Kroke
Austin, I am really excited about this episode. So let's get into it. The first stream of income we discussed is earned income. And this is one that everyone starts with. This is money you earn by trading your time and skills for a paycheck. It's your salary, your consulting fees, your, your freelance income, wherever you're actively getting paid from. For me, earned income has looked different at every stage of my career. In my early 20s, that was a salary when I was working at the car dealership in finance. Then I started building businesses and my earned income became the salary I paid myself from my own companies. Even now, 40 years later, I still have earned income. I get paid to advise and host this podcast as a reference. The difference is now that earned income used to be a hundred percent of of my total monthly income in my early 20s, and now it's more like 10 or 15%. So that's the difference.
- [04:06]
Austin Hankwitz
Yeah, same deal for me, Robert. When I graduated from UT back in 2018, got my degree in finance and economics, I did mergers and acquisitions for a publicly traded health care company in Nashville, Tennessee. Was making a great salary, really enjoyed it, but that was literally the only way I was making money. I was trading time for money. So earned income, again, it is trading time for. For money if it's an hourly wage, a salary, whatever it might be. Now, fast forward to today. My earned income comes from my marketing consulting business. That consulting income flows through our business entity and it's still a meaningful portion of my total income. But like what Robert said, earned income for me today is no longer the majority of my income. It's maybe 20, 25% of it, but it's not the only single source of income like it was when I worked a 9 to 5 job.
- [04:58]
Robert Kroke
Yeah, the big lesson here for Everyone listen. Earned income is that foundation. It's how you fund everything else along the way. But the goal is not to maximize earned income forever. The goal is to use your earned income to build the other six streams so that over time, your dependency on trading your hours for dollars goes way down. The single best thing you can do with your earned income right now is make sure you're not spending all of it. You need surplus capital to invest and build the other streams that we're talking about. So, Austin, that's a great segue into our second stream of income, and that is business income. And this is different from earned income because it's profit generated from a business you own equity in, not just the salary you pay yourself. This is the money that is left over after all the expenses. And it's one of the most powerful wealth building streams that exist today. This is where I've made the majority of my wealth over my career in my lifetime. Think about when I created silly bands. That business at its peak was generating millions in profits a year. But even before that, I was building consumer products businesses where the profit, not my salary, was the real wealth creator. So when you own a business, or in my case, businesses that generate profits, you no longer just get paid for your time, you're getting paid for the value the business creates. And that value can scale way beyond any hourly wage or salary you would ever make.
- [06:24]
Austin Hankwitz
100% similar situation for myself. I've built businesses over the years that, yes, pay my salary from that straight up trading time for money perspective. But over time, alongside Christian Blackwell, my business partner, we've been able to scale our services beyond just the hours that we spent working by hiring employees. Right? That's how you find that arbitrage for a business and generate real profits. These employees allow our business to scale, generate meaningful profits over time and allow those profits to then get paid to us as equity owners in the business itself.
- [07:01]
Robert Kroke
And that, that's the magic of business income here. It can be somewhat passive depending on how you build it. My businesses today don't require to me to be in the warehouse packing boxes like they did 20, 30 years ago. The systems, the teams, the products, they generate revenue and profit on their own because you've built it correctly.
- [07:21]
Austin Hankwitz
So staying on this idea here of the second stream being business income, for anyone listening right now who has a skill or an expertise, the jump from earned income to business income is often just packaging what you already do into a product or a service that can scale beyond your own hours. Right? You're no longer. Just saying one hour of work is $100. You are saying one hour of work can turn into hundreds of dollars of profits for my business. Because I figured out how to scale effectively. That could be with a digital product, an online course, a subscription service, a physical product like what Robert's famously known for, whatever it is. The key is business is generating profits beyond just paying you a salary because you've built a system that allows it to work.
- [08:13]
Robert Kroke
And if you're working a 9 to 5 right now and thinking, Austin, Robert, I don't have a business, start thinking about what you could build on the side that generates even 500 to $1,000 a month in profit, not directly tied to your time, dollar for dollar. Maybe that means having people work for you or selling a product that scaled infinitely like a software subscription to. There are many, many ways out there with all of the AI and tools we have to build that first business, maybe even as a side hustle, and get you started to earn this business income.
- [08:46]
Austin Hankwitz
So let's now get to our third popular stream of income for millionaires, which is interest income. Interest income is the money that your cash earns just by sitting in the right place. Think your high yield savings account, your money market funds, maybe some bonds, CDs, treasuries, things like that. Personally, I keep between and $50,000 earning interest at any given time across my emergency fund and my portfolio. I've got money parked in T bills earning interest over in my investment portfolio on public.com and I've got tens of thousands of dollars earning interest in my high yield cash account on public for emergencies. And by having that money parked in the right locations, I have earned over $15,000 in interest income over the last three to four years. I logged in my account, it shows lifetime earning. It was like 14,900 something dollars. It was nuts, right? But that's money that I earned in interest income for not doing anything differently. I just had cash parked in the right places.
- [09:52]
Robert Kroke
So if you have your emergency fund, your sinking fund, et cetera, parked in a checking account, earning literally nothing, look at Austin's example. He made $15,000 over a few short years just in interest. And you could be leaving that much money or more on the table by not having this money for these emergency funds and high yield savings and all of that in the right places. And this is the easiest stream of income you can build because you're already probably sitting on the cash. You just need to park it in the right vehicles. Okay, Austin, let's get into Stream number four, dividend income. And this is one of my favorites because it's truly passive. This is the money that companies pay you just for owning their stock. I love dividends. As I've gotten older and my portfolios have matured, I've shifted more and more of my public market investments towards these dividend paying stocks and dividend focused ETFs. Think Coca Cola, Johnson and Johnson, Proctor and Gamble, Verizon. All of these great companies pay you a percentage of their profits every single quarter just for being a shareholder. You don't have to do anything, you just own the stock and the cash shows up in your brokerage account over time through these dividends.
- [11:08]
Austin Hankwitz
It's kind of like magic, to be honest with you. One of my favorite things to do is be a dividend investor. For me, dividends are a growing piece of my own portfolio strategy. I own a mix of individual dividend paying stocks. You mentioned a ton. You know, you could throw in Apple, Meta, even Nvidia pays a dividend. Microsoft, I believe. But also I've got dividend focused ETFs. Some of the ETFs I really like right now are from NEOS. As you guys know, NEOS funds, spyi, qqqi, iwmi, btci, these are all income producing ETFs that will pay me on a monthly basis in a very tax efficient manner. And like Robert said, it's literally money that just gets deposited to your brokerage account. It's the coolest thing ever. You wake up one day and you got $49 in cash just sitting there and you're like, whoa, where'd that come from? How nice, how nice of you. Microsoft. Do it again. The beauty of dividend income is the compounding effect tied to it. What we like to encourage people to do is to participate into drip. DRIP is an acronym that stands for Dividend Reinvestment Plan. So when you get these dividends paid to you by a Microsoft or an Apple or a Meta or whomever, Verizon, Coca Cola, things like what Robert was just talking about too, you can reinvest that cash back into buying shares of the company, which means over time you now have more shares of stock that's going to pay you more in dividends. And then you reinvest that back and it's this beautiful snowball that just keeps growing and growing and growing. The key distinction here is that dividend income is different than capital gains, which we'll talk about here next. Dividends are literal cash payments paid to you. They hit your Brokerage account on a regular basis. Capital gains require you to sell shares of stock. I like dividends because I don't have to do anything to generate the income itself. The best dividend investors build a portfolio and they hold it for decades. They let that, compounding that dividend reinvestment plan do all of the hard, heavy lifting. My advice for anyone listening, that's like, hey, I want to start earning some dividend income. What should I be thinking? Start with a hundred bucks and go buy shares of the NEOs funds, ETFs. They pay monthly distributions, Spyi, QQQI, they track the S&P and the NASDAQ 100. It's tax efficient and it's the easiest way for anyone to start seeing, whoa, I just had $4 deposited into my brokerage account. That's kind of cool. What happens if I put a zero on the end of that? Right? Like NEOS funds. Super, super simple. You can also buy other dividend focused ETFs like SCHD, DGRO and a handful of others there. But at the end of the day, the best thing to really think about here is how do I start? You start a little bit and you get that dividend, you reinvest it and it starts to become this incredible snowball that starts paying you a lot of money every single month or every single quarter, depending on how big that portfolio grows.
- [14:05]
Robert Kroke
I feel like we need some shirts that say I love free Internet money. Because these strategies, I think so many people think that they're outlandish or that's only for rich people. Anyone can do these things. Once you get up and running and you have that surplus of money to be able to start diversifying into all of these sectors or all of these strategies of building wealth. And remember, that surplus of money comes from our earned income. That's where we all start. No millionaire started with seven streams of income. No one does. We start with that earned income and we work our way up to all of these. And that brings us to number five, capital gains income. And this money is the money you make when you sell an investment for more than you paid for it. This applies to stocks, real estate, businesses, venture investments, anything that you buy low and sell high. Capital gains has been one of my biggest wealth creators over my entire lifetime. When I built businesses and sold them or sold equity positions in companies I'd invested in, those capital gains event were often life changing amounts of money. The sale of a single business can generate more wealth than 20 years of earned income. I think this is really important. To understand you're building that equity, you're building those profits for a later date where there's a possible liquidation event or a sale. But here's the thing, capital gains are lumpy. They don't just show up every month like a paycheck. You might go two, three years without a meaningful capital gains event and then have one year where a single sale generates more income than everything else combined. And that's what this is all about.
- [15:41]
Austin Hankwitz
Yeah. My personal capital gains here comes from a few places as I kind of reflect upon my whole portfolio. First is my stock portfolio. When I sell a position that's appreciated really well, that's capital gains. Did that recently with energy. Bought a ton of Energy ETFs in early February. I made like it was close, like $9,000 of capital gains by, by, you know, exiting that trade just a couple weeks ago. So that, that's a capital gain of $9,000. My bigger capital gain events in my life have come from private investments and business sales. As you guys might know, I sold the Rate of Return newsletter, which is a newsletter I had built alongside Christian Blackwell over the course of about four or so years after the pandemic between 2020 and 2024, and I sold it for seven figures. The sale of that business classifies as a capital gains event. Same thing with venture investments that I've made in the past that have had exits. Whether that's through an IPO or an acquisition, those exits generate capital gains. One name in my venture portfolio actually just exited, I think was like 2 weeks ago. I made a 5.2x return on my investment in about a 2 and a half year period of time. That return is a capital gains event. This is where venture investing that we do through the Rich Habits Network comes into play. So we invest into companies like Apptronic or SpaceX or Aether Flux and those companies eventually go public or get acquired. And the difference between what we paid for them and what we sell them for is capital gains. Now when they don't work out, obviously that's a capital loss. But we're talking about capital gains here.
- [17:11]
Robert Kroke
So for everyone listening, capital gains are the reward for patience and good decision making. The key is understanding the difference between short term and long term capital gains. If you hold an investment for more than one year before selling, you pay long term capital gains tax, which is significantly lower than short term rates. That's why it's so important. We always preach long term investing on the show and in the Rich Habits Network. So the difference here alone between selling A stock at 11 months versus 13 months may be tens of thousands of dollars on a bigger position and capital gains difference in the tax because you waited for it to be long term capital gains versus short term. So be patient, think long term and let your investments appreciate. And when you do sell, be strategic about the timing to optimize that tax situation.
- [18:05]
Austin Hankwitz
And this, you know, talking about, you know, stocks here and things like that. Capital gains is in real estate as well. So when you think about incurring a capital gain from real estate and trying to make it more tax advantage, you can think of things like a 1031 exchange where you defer those capital gains taxes by rolling the proceeds into another property. The tax code rewards long term investors and real estate owners, so be sure to take advantage of that now, speaking of capital gains and our stock portfolios, as a reminder, this episode is brought to you by public.com which is the investing platform for those who take investing as seriously as we do. On public you can build a multi asset portfolio of stocks, bonds, options, cryptocurrency and now what they call generated assets which allow you to turn any idea into an investable index using artificial intelligence.
- [18:55]
Robert Kroke
And it all starts with your prompt. From renewable energy companies with high free cash flow to semiconductor suppliers growing revenue over 20% year over year, you can literally type any prompt and put the AI to work. It screens thousands of stocks, builds a one of a kind index and lets you back test it against the S&P 500, all with just a few clicks.
- [19:15]
Austin Hankwitz
Generated assets are like ETFs with infinite possibilities. They're completely customizable and based on your thesis, not someone else's. So go to public.com rich habits and earn an uncapped 1% bonus when you transfer your portfolio. That's public.com rich habits paid for by Public Investing.
- [19:33]
Robert Kroke
Full disclosure in the podcast description so Austin, let's get into stream number six, Rental Real Estate Income. And this is the money generated from the real estate you own. This could be a rental property, a commercial building, a vacation rental, or even a real estate investment through a platform like Fundrise. Real estate has been one of my most consistent wealth builders in my life. I've been investing in real estate since my early 20s. Think single family homes, multifamily apartments, office buildings, storage facilities. You name it, I've done it. Some of those worked out great and some of them didn't, which we actually talked about in last week's episode. But the core concept here is when you own a property and someone Else pays you rent to use it. It that rent minus your expenses is the income that shows up every single month in your bank account. And on top of that, the property itself is likely appreciating in value over time. So you're building wealth in two ways, through cash flow and through that appreciation.
- [20:33]
Austin Hankwitz
Yeah, so I personally am not actively, you know, being a landlord. Like I know you've done very well in the past, but I do have real estate exposure through platforms like Fundrise Invest Funder. For a lot of people that are in their 20s and 30s who want a more practical entry point into real estate and sort of, you know, getting that capital appreciation with those properties and getting some cash flow, Fundrise Invest Funder are awesome. Where you don't have to come up with a $20,000 down payment. You can start with as little as a couple hundred bucks, a couple thousand dollars, whatever really fits into your own portfolio there.
- [21:05]
Robert Kroke
Yeah. That said, I think that owning physical real estate, actually being a landlord or owning commercial property is one of the most powerful wealth building tools that exist, especially when you factor in leverage. Now I'm not saying you should start out like this. Like he said, Fundrise Vest Funder, these lower entry point ways to invest in bigger projects is a great way to start. But think about the math here. When you buy a $500,000 property with $100,000 down in a mortgage and that property appreciates to 600,000, you didn't make 20% on your money, you made 100% on your $100,000 investment because of that leverage. And no other asset class lets you use that kind of leverage so affordably. And remember, mortgage rates are challenging right now, but real estate is a long term game. So I don't think that should dissuade you from getting into real estate anytime soon.
- [21:58]
Austin Hankwitz
So if you're listening, you're like, hey, how do I get this stream of income with real estate? Maybe you're not ready to buy a physical property with a hundred thousand dollars, $200,000 down payment. That's fine. You can go onto your broker, Public, Robinhood, Schwab, Fidelity, type in V. That is a real estate investment trust. It's a publicly traded equity on the stock market offered by Vanguard that allows you to track all of these sort of real estate investments that are also listed on the stock market. So the ETF for that is vnq. You also have again, platforms like Fundrise Vest Funder, things like that to get exposure to real estate over time, if you are ready. And the numbers do make sense in your market. House hacking is one of the easiest ways that you can start getting into real estate without having to get way in over your head as a landlord. Know a lot of millionaires that got their start in real estate with house hacking, including Robert.
- [22:52]
Robert Kroke
Yeah, my first property was a four unit. I lived in one unit for many years. I had three units rented at almost all times and it was a great jumpstart to get me into real estate without having to come out of pocket so much and have that dream house right out of the gate. That's the key here. You don't need to start in real estate with your dream house. You should be looking at it as a long term investment. And how can I get a lower cost of living while still getting all the benefits of real estate? And that leads us into stream number seven. This is the last stream of all that we've mentioned and this is royalty and licensing income. And this is one that most people don't think applies to them, but I actually think it's more accessible now more than ever before. And this one is special to me because licensing is literally a big part of how I made my fortune. Years ago when Silly Bands took off, I wasn't manufacturing every single unit myself, I was licensing the brand out, licensing the designs and earning royalties of every unit sold. We were doing band aids and video games and all these other things using licensing through Silly Bands. And that was the ultimate leverage play because you create something once that brand, that design that product or that piece of content and you earn money every single time someone else uses it, it or sells it. So think I've earned millions of dollars in licensing and royalty income over my career through all of these ways.
- [24:21]
Austin Hankwitz
And for me personally, the stream shows up a couple different ways, but the concept is still the same. So when I sold the rate of return newsletter to Grit Capital, I retain certain rights and still co author the newsletter today. So I earn ongoing income from the content that gets published regardless. And another no brainer licensing sort of royalty stuff is the Rich Habits podcast. It generates royal to you like income. When we record an episode once, it generates ad revenue on Spotify and YouTube across different platforms, things like that. And we get paid indefinitely for that. Against the back catalog episodes that were recorded two years ago, people still listen to them and they still generate revenue today. So I mean that's the whole play when it comes to licensing and royalties. You create it once and it just goes off into the sunset.
- [25:12]
Robert Kroke
Yeah, that one to many theory is why it's so important to be building your personal brand and your business brand and all of this because it puts you in the game and in that situation, and here's why I believe it's more accessible than ever in 2026, anyone can create a digital intellectual property that generates royalty like income. You can write an ebook and sell it on Amazon and earn royalties on every sale forever. Create an online course on udemy or skillshare royalties every time someone enrolls, build a newsletter with a paid tier. There's recurring revenue there from content you created, templates, presets, spreadsheets, apps. All of these are digital products that you build once and sell repeatedly or allow affiliate marketers to drive traffic to that product every single day. And the barrier to entry for creating something that earns you money while you sleep is lower than ever. So get out there, see what works with your skill set, what your niche is, what your hobbies are. I mean everything goes out there right now, now in this royalty income sector.
- [26:18]
Austin Hankwitz
Totally agree, Robert. The lesson here is to think about how you can create something once that generates income more than once, even if it's really small. I mean, for example, I know people who are making a ton of money by selling eight twelve, fourteen dollar notion templates, grocery list templates that they, they get traffic from Instagram Reels or TikTok and people go buy their notion templates. They made that grocery template template one time and then now they're selling it 19 times. There are so many different ways to do this. You can also think about it like TikTok shop. I mean Robert, think about it like this. I'm sure there are people who affiliate silly bands and they make one video in, let's call it August of 2025, mid summer about how fun and cool silly bands are on their wrist. Sell a bunch of silly bands, get affiliate revenue for it and the algorithm picks that video back up months later, years later even, because it's relevant again, it's summertime again and show just it continues to generate money, kind of like royalties without you trading time for money and putting in the hours every single time. Go look into Stan Store S T A N S T O R E they make it really, really easy for anyone to build and sell coursework if that's what you're into. But whatever your hobbies or niches are, that's where you need to focus and go create a royalty like income for yourself.
- [27:42]
Robert Kroke
Yeah, that reminds me, we have affiliates for silly bands right now through TikTok tok that are making 20, 30 $40,000 a year by just making cool videos about why they love silly bands and how fun it is to collect them. So that's a great call out because it's recurring revenue. And like you said, the algorithm picks those videos back up, makes them run again, and they make more and more money in perpetuity. So there you have it, everyone. The seven streams of income broken down personally from two multi millionaires who are living it every single day. So let's recap this quickly, though, so we remember everything. Stream one, earned income, your salary, your consulting fees, the foundation of everything. Stream two, business income, the profits from the businesses you own or that you have equity in. And stream three is interest income, your cash working for you in high yield accounts and bonds that we talk about out every single episode.
- [28:39]
Austin Hankwitz
Stream number four is that dividend income you're getting paid just to own stocks. Stream number five, capital gains, the wealth you build by buying low and selling high over a long period of time. And Stream 6, that rental real estate income, one of the oldest and most reliable wealth builders for millionaires. And finally, stream number seven, royalty and licensing income, which is building something once that pays you repeatedly. So here's what I want everyone to take away from this episode. Robert, you don't build all seven streams of income overnight. I turned 30 in a couple weeks. But I remember being 23 years old and having one stream of income, my earned income. I started adding streams of income one by one over the following years, and each new stream made the next one easier to build because I had more capital, more knowledge, more compounding. The goal is to have progress over a long period of time of achieving all seven different streams of income, not to get it done fund in the first or second year of starting.
- [29:43]
Robert Kroke
I love that. And I'll add this for my 40 years of experience. The first three streams are the hardest to build, bar none. But once you have earned income, business income, and investment income working together, streams four through seven start to happen. And it seems almost naturally and automatically the money you earn funds the businesses. The businesses generate profits, the profits get invested, the investments pay the dividends and appreciate, and eventually you're earning income in your sleep. And that's the compounding effect of multiple streams of income over your lifetime.
- [30:16]
Austin Hankwitz
What a fun episode. I love talking about stuff because I love talking about the things that are, like, personal to us because I think we've made a lot, we've lost a lot, we've learned a lot along the way, and that's what the show's all about is being as radically transparent as we possibly can about our wins, our losses, the lessons learned along the way, and sharing them with you so you also don't have to make the mistakes we or you can learn about the things that we learned, but faster. I just love this episode and I'm so grateful for this podcast.
- [30:44]
Robert Kroke
Yeah, I really do too. This was great because I like being vulnerable because too much information out there is all about rainbows and unicorns. And I love sharing my losses because there's no reason for anyone that follows the Rich Habits podcast and watches these episodes it's in the community should ever have to make the mistakes I made. I've already made all the mistakes. Mistakes. Learn from me, learn from Austin, and let's rock and roll.
- [31:09]
Austin Hankwitz
So let's now jump to the Q A section of our episode. As a reminder, you can ask us a question on Instagram at Rich Habits Podcast. Just send us a DM of your question and we'll add it to the queue. Or you can email us at rich habits podcast gmail.com so our first question is coming from KR. KR says hey guys, I'm a big fan of the show. Thank you for giving us all access to Building Wealth I'm currently optimizing my tax loss harvesting strateg across my portfolio to offset my W2 income. I have a taxable brokerage account. I utilize a Wealthfront taxable brokerage account running a direct indexing strategy. This algorithm aggressively harvests tax losses at the individual stock level. I also have Tax Advantage accounts. I am automatically contributing to things like a 403B HSA, IRAs, things like that. So here's my question Question can you tell us more about wash sales? Does the IRS look through the funds in my workplace retirement accounts and would this setup trigger a wash sale violation? If Wealthfront harvests a loss on an individual stock that is concurrently held inside my Fidelity automated fund purchases? What types of stocks, ETFs and mutual funds are just not okay to invest in because of this great question kr. Let's dig. Dig in. So the first thing you talked about here was direct indexing and using that as a way to tax loss harvest across your portfolio to offset my W2 income. Couple things to call out. It's really hard to offset earned W2 income with capital losses. They are sort of put into different buckets in the eyes of the IRS. Earned W2 income is money you earn by trading time from money, right? Like hey, salary, nine to five, job hourly, whatever going on, right? So that's money you're earning W2, where capital losses, which come from tax loss harvesting in your direct indexing portfolio, capital losses are kind of bucketed on the other side. Because think about it, Robert. Let's say someone had $100,000 of earned income and then they had a capital loss of $100,000. Oh, I don't know. I don't pay anyone any taxes now. Right. The IRS is smarter than that. So what they've done is they've maxed out and capped the amount of capital losses, offset your W2 income at $3,000 per year. So if you have, let's call it $9,000 of capital losses with this tax loss harvesting strategy you're doing, you can only use $3,000 of those losses to offset $3,000 of your W2 income. The losses can carry forward so you can offset another 3,000 next year and another 3,000 the year after that to completely, you know, utilize that $9,000 total. But you can only do $3,000 a year at a time. Another way lower their, you know, W2 taxable income. Here you mentioned the HSA. That's a great strategy. You mentioned having an IRA. Yeah, if you want to use that. You mentioned pre tax contributions to retirement accounts. All those things can offset taxable W2 income. So want to just clear the air there on that first. But you specifically asked about the wash sale rule. So what is that? A wash sale occurs when you sell a security like a stock or an ETF at a loss loss and buy a substantially identical security within 30 days before or after the sale, which is of a 61 day window there. When someone triggers this rule, the IRS completely disallows the loss for current year tax purposes and adds it to the cost basis of the replacement shares according to the Revenue Ruling 2008. 5. In 2008, the IRS clarified that wash sales apply across across all account types including IRAs. So if you sell a stock at a loss in your direct indexing account with Wealthfront and you repurchase it in your ira within that 30 day period of time, the loss is permanently disallowed. And unlike a standard wash sale, you don't even get the basis step up. Because IRAs don't track investment basis the same way as a taxable brokerage account would. So yes, the IRS absolutely can look through all of your retirement accounts. The rule applies across all accounts you and your spouse both own. Think 401ks, 403bs, IRAs, HSAs, all that fun stuff. So good question. Glad you're thinking about this, and I hope this helps.
- [35:40]
Robert Kroke
Yeah, I don't have anything to add to that. That was very thorough. But it's just. It really just makes me think about how so many people are always concerned about beating the tax man. If you have proper strategies and you set yourself up like you're trying to do here, you don't have to worry about paying taxes because the tax code is there too, to help and help people grow. So really good coverage, Austin on this, because that was a very deep breakdown of the situation.
- [36:06]
Austin Hankwitz
So our next question comes from an anonymous listener. They said, I'm 32. I have 250,000 in investments between my 401k, my Roth IRA and my Bridge account. I also have a rental property that is cash flow neutral, but it's building equity. The woman I plan on proposing to has $30,000 in savings and 90,000 in her student debt. I've been giving her advice from your podcast, and she's currently building her emergency fund and maxing out her Roth IRA. But for the next 10 years or so, she will contribute a large portion of her monthly income to pay down that student loan debt while I'm just maxing out my 401k and my Roth IRA and building wealth. I don't plan on divorce, but it takes two to tango. While Austin says the US Stock market tends to go up and to the right, so does the divorce rate. And with the majority of those divorces initiated by women. I'm not rich. But should I consider a prenuptial agreement to protect the interest I will generate in my retirement accounts over the next decade? Decades. Are prenups a rich habit? What a good question, Robert. You want to start?
- [37:04]
Robert Kroke
Yeah. I feel like this is my situation almost identically. And yes, prenups are a rich habit because as you can see, you already have your financial situation in place. You're doing really well. You're setting yourself up for the future. Meanwhile, she has all of this debt that you're agreeing to sort of take on. So I definitely think, number one, you need to have the hard conversation before you put the ring on the finish finger and say, hey, you've got all this debt. I want to make sure we're aligned financially for the future of what we're doing here. And I do think it makes sense for me, as I'm building my wealth, to have a prenuptial agreement. I want to make sure that's okay with you. It's not because of a lack of love or trust. It's just the facts that I need to do to protect myself over time. So I definitely think it is a rich habit. I went through it, I ended up divorced. I am one of those people that is in that 50% tile. She initiated the divorce. So yes, if I didn't have that prenuptial agreement and everything in place, things would have been a lot different for me financially. So I always tell everyone, if it's true love, another agreement along with the marriage license isn't going to matter. And it protects everything you've built prior to that person entering into your life.
- [38:17]
Austin Hankwitz
So I largely agree. But I have a different reason why to our anonymous listener and everyone else listening right now, you already have a prenuptial agreement. It's with the state that you live in. I live in the state of Tennessee. If I were to get a divorce, the state, well, I'm not married yet technically, but like the state has a very clear way that they go about things. Every state has it. So there's already a prenuptial agreement in place right now. So you either write it yourself and you agree as to what's going to happen if we have a divorce that then, you know, people follow as this is a written and signed agreement and this is what's going to happen happen or you just let the government figure it out. Personally, I'm not a fan of letting the government figure stuff out with my money. Right. So I do not yet have a prenuptial agreement in place. But how I've thought about approaching it is from the place of and maybe actually Robert, before I share how I think I'll approach a prenup with my fiance. You said you had a prenup with your ex wife. What was in the prenup and how did you think through. Through building it from scratch?
- [39:22]
Robert Kroke
Yeah, it basically was in. In different states have different rules and I'm not a lawyer, so just make sure you check your state. But like Louisiana for instance, where I lived is a no fault state. So when you enter in, and I think that's the correct terminology, when you enter into an agreement of marriage, then no matter what the documents say in a prenup, I believe they separate and split the information and the money and, and the equal equities. Whereas in Ohio, if your personal net worth goes down during the marriage, then you take what you came with and the other person takes what they came with. But if it goes up, then it is a split from there on up. The difference for me that's a little bit Harder for most people to take into place is I had more of an age gap in my marriage. We had a 20 year age difference. So for that, I had been building in my career a lot longer. Longer. And had a tremendous amount of assets and money already. So that makes it a little more difficult where the prenup is more important because you want to make sure someone's not getting into a relationship with malice in mind, where they stay with you for two, three, four years, get the divorce, they're all of a sudden rich off of your 30 years of hard work. So for me, I was pretty lenient in my prenup because I was truly in love. But I did still have it in place because I had already worked 25 years in my career prior to getting married, and I wanted to make sure, protect those assets.
- [40:46]
Austin Hankwitz
And the thing too, when it comes to prenups to consider is it's not so much that you are putting your spouse at fault, but it's your spouse's family sometimes. Right. Like, love my spouse's family, but I don't know if I got a divorce or, you know, something in the future. And there was a $10 million pot to figure out. People get crazy when there's millions and millions of dollars at play. Right. And so, like, if you've got everything figured out ahead of time, I feel like that just kind of nips that in the bud. I also want to consider, too, yeah, you mentioned divorce, but sometimes it's not divorce, sometimes it's death. And I'm in business with Robert, I'm in business with Christian, I'm in business with a lot of people. If I were to die, my fiance is now in business with Robert, in business with Christian, in business with a lot of people. That's weird. I don't want that to happen. I don't want that to, like, that's just weird. Right. So having a prenup in place also should write out and talk about what happens if Austin dies in a tragic car accident. How is Austin's, you know, business equity interests liquidated and how is Ireland, my fiance, compensated and like, all these other different things. Right. So, like, that's how I've approached a prenup is not just thinking like, oh, if we get a divorce, I'm going to make sure that I get my money out of this more in the sense of too. It's like, yeah, if we get married, I want to make sure I walk away with what I brought to the situation. Whatever wealth we build while we're married. Cool. We can split that, but having sort of a very level head. And again, I'm not a I've never had this done before, so I am talking about just straight out of my off the dome here. Generally no experience. Robert's gone through it, I haven't. But this is just how I'm thinking about it in real time as someone who's not gone through a divorce, as someone who doesn't have tens of millions of dollars and just like is trying to still figure this out over time. That's my raw perspective here. So good question. Are prenups rich habits? I think it depends on the situation, but they very much can be. So now, before we jump to our final question, gotta give a shout out to NEOS investments. NEOs offers ETFs that seek high levels of monthly income with a keen focus on tax efficiency while providing core portfolio exposure across equity, fixed income and real estate, as well as cryptocurrency and cash alternatives like treasury bills. Their ETFs may be interesting for investors looking to generate that tax efficient monthly income inside of their investment portfolios, something we just talked about on this episode. Their funds may serve as a compelling income focused alternative or complement to many investors already in those same portfolios.
- [43:12]
Robert Kroke
So if you're looking to add passive income focused ETFs to your portfolio, consider learning more about NEOs ETFs@neospunds.com and as with all investments, investors should carefully consider their investment objectives, risks, charges and expenses of NEOS exchange traded funds before investing. To obtain a prospectus containing this and other important information, please visit neosfunds.com Please read the prospectus carefully before you invest and an Investment in NEOs ETFs involves risk and includes possible loss of principle. There is no guarantee that NEO's ETFs will make monthly distributions and the amounts may fluctuate month to month. Cryptocurrency is relatively new and the market has its own specific risks. NEOs ETFs are distributed by 4 Side Fund Services, LLC.
- [44:00]
Austin Hankwitz
All right, Robert, our final question is coming from Jason. Jason says hey guys, my name is Jason and I've got a question I'd like your opinion on. I'm 21, I'm a junior in college pursuing a bachelor's degree in Business Administration. I work part time, earning about 2026,000 per year after taxes. I currently have $27,000 in taxable brokerage account, 14,500 in a Roth IRA and 4,000 in an emergency fund. My car is paid off. I live with my parents, so I do not rent or have other significant monthly expenses. I maintain a detailed budget to track my spending and keep it low. My employer offers a defined benefit plan that vests after five years. I've worked there for about one year so I could see myself staying there after I graduate. Once I exceed 1000 hours year, which will happen in the next few months, I will be required to contribute 9% of each paycheck to this defined benefit plan. I also have the option to increase my contribution up to 19%. I plan to max out my Roth IRA this year as I still need to contribute $6,000. If I increase my contribution to the defined benefit plan, I'm concerned that I may not have enough income to fully fund my Roth ira. More than half of my income goes toward college expense expenses, although I do not have college student loans. My question is, once I cross that 1000 hour mark, should I increase my contribution to the defined benefit plan or keep it at 9% to ensure that I can max out my Roth IRA? Thank you both for your time. I really appreciate your guidance. Super simple. Make sure you max out the Roth ira like full stop. If you are maxing out your Roth IRA at 21 years old, you will have millions and millions and millions and millions of dollars in retirement. And it's your, your money. No one can take that from you. That is your individual retirement account. And if you die talking about prenups, your beneficiary will get that ira. Might not be the same case for a defined benefit plan.
- [45:54]
Robert Kroke
Yeah, I think that's a great breakdown. And the only thing I'll add is just to keep in mind with these defined benefit plans, you're very young and if you were to switch jobs and not fully vest in that defined benefit plan, you could potentially lose some of the of that later on because it's not a portable vehicle for you to just take the money with you. So keep that in mind. And you also don't have any investment control like you do with the Roth ira because it is fully handled of what's invested and how it's invested by the employer. So that's the only two things I would add. Defined benefit plans can be good, but you need to make sure it's something that you're going to be there long enough to fully vet that plan and be able to have control. Control over your future with that money to be able to get it all.
- [46:39]
Austin Hankwitz
Yeah. So once you work Those thousand hours, 9% sure. If that's what you got to do, you got to do it, go up to the 9%. You're building wealth, that's great, you're investing cool. But then also do not put more into it after that 9%. Everything else Roth IRA.
- [46:54]
Robert Kroke
You all know we talk about the Roth IRA day in and day out. I think it's one of the best wealth building tools everyone should have. So from the time 18 and up, get the Roth IRA up and running. Try to max it out every single year and keep it simple. Think about voo, qqq, vti, maybe aiq, depending on if you want a little bit of international risk in AI. But just keep it simple. Get the Roth IRA maxed out as much as you can, if not every single year, because that is one of the easiest ways to set yourself up for financial freedom.
- [47:29]
Austin Hankwitz
Everybody, thanks so much for tuning in to this week's episode of the Rich Habits Podcast. We got personal again. Broke down our personal seven different streams of income that we've built throughout our lives here. Hoping that you all got to learn from the lessons that we've learned along the way because we've definitely made some mistakes, but really proud of what we've accomplished. As always, if you're not yet subscribed to the Rich Habits podcast on Spotify, on YouTube or Apple Podcasts, maybe your friend sent you this, Please consider hitting that subscribe button. We've got a quarter million of you subscribe to us across platforms and we could not be more grateful. If you listen to the show a lot and you've not yet left us a five star review, please consider doing so. It definitely, definitely helps. With that being said, we'll see you on Thursday for our Q and A episode. Foreign.
- [48:38]
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