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Rich Habits Podcast
Q&A: Hedging Against the “September Slump,” LTC Insurance, & Taxes on Worldwide Income
00:38:36
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- [00:00]
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- [00:15]
Ryan Reynolds
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- [00:17]
Austin
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- [00:45]
Austin
Hey everyone and welcome back to the Rich Habits Podcast Question and Answer Edition. These are our Thursday episodes where we answer your questions in real time off the dome, just Robert and I chatting it up and hopefully providing some value to you all. Don't forget, starting August 1st, it's a Friday. It's going to be an awesome Friday. Robert and I are introducing our third weekly episode. These new Friday episodes will be covering the biggest headlines and happenings that are impacting you and your money. If it's something to do with an ipo, an economic report, something to do with inflation or an earnings call or something, either that Robert and I just think is cool. We're going to be talking about it on these new Friday episodes, so be sure to tune in starting Aug. 1 for those new episodes.
- [01:28]
Robert
I'm so excited for the new episodes because I feel like they will be so topical and in the now and super, super fresh relative to what's happening right then and there in the markets. So I think it'll really be impactful for people because they see these headlines but they're not sure how to take them. What's real? What's not real? How do they react? How does it affect their money? And I think that is what is going to be so special about the Friday episodes.
- [01:54]
Austin
I couldn't agree more. Now before we jump into this episode, got to give a quick shout out to public.com as you guys know, public.com is the investing platform for those who take it seriously. No gambling, no day trading, talking about real serious investing toward financial independence in the future. If that sounds like you, it's time to Learn more about Public.com On Public you can build a multi asset portfolio of stocks, bonds, options, crypto and more. And that's not all. Public's artificial intelligence isn't just a feature built into the platform, it's woven into the entire experience. From portfolio insights to earnings call recaps. Public gives you smarter context at every touch point of your investing journey.
- [02:34]
Robert
And for a limited time, you can earn a 1% match on all IRA deposits, IRA transfers and 401k rollovers. Let me say that again. A 1% match on all IRA deposits or transfers and 401k rollovers. Fund your account in 5 minutes or less at public.com forward/rich habits Paid for by Public Investing Full Disclosures in the.
- [02:59]
Austin
Podcast Description Full Disclosures in the Podcast Description Go check out the podcast description not just for the disclosures, but also for links to all of the cool partnerships. We have a bunch of free resources including the Rich Habits Real Estate Hacks PDF. That's a really good one. And you'll also find the 2025 financial planning book in the description. If you've not yet downloaded that, that's completely free as well. So our first question comes from Shiho N. I think I said that correctly. Shiho N via email Shiho says hi Austin and Robert, I enjoy listening to your podcast and I really appreciate your advice. You mentioned a brilliant idea the other day and I would love to follow up on it. I've not been able to make contributions to a Roth IRA based on the income threshold that I've earned over the last couple years. I have a traditional IRA with a rolled over balance from previous employers and because of that I did not get to take advantage of the backdoor Roth ira, which just to remind everyone, makes total sense. BackDoor Roth IRA. You contribute it to the traditional IRA in cash, you convert it to a Roth IRA, then you invest that cash via the Roth IRA, but you can't convert it unless you have no other balances in traditional IRA accounts. So Shiho definitely was in a little predicament here. Shiho says, I would love to move all of these funds that are in my traditional IRA to my current employer's 401k so I don't have to worry about tax consequences and I can start taking advantage of that backdoor Roth IRA. My employer's 401k does allow this and it has performed better than my traditional IRA that I have with Morgan Stanley, which I think they even charge me high fees for, unfortunately. My question is, how do I actually move the funds? Do you have to liquidate all the funds at once and then send the cash to a 401k? I think that's their instructions. But I'm not too sure how to move this large amount of money at once. Any advice you guys have is great. I'll go first here. Robert. So essentially Shiho really wants to move the money out of their traditional IRA into their current 401k. And again, making sure we're on the same page about that. They want to participate in a backdoor Roth ira, which anyone can do, no matter your income. But the only way you're able to do that is by making sure there's no other money sitting in a traditional IRA elsewhere. If it's a SEP IRA, if it's a rollover 401k like nothing else, where pre tax can exist when you do the backdoor Roth ira. So this definitely solves Shiho's problem. In my experience, when I moved money from different brokerages and things of that nature, yes, you can do cash. That's totally fine. I think what is most important to consider here is that you're not trying to move over Morgan Stanley specific mutual funds or Morgan Stanley specific strategies and investment products into a 401k that doesn't support those strategies and products, right? So let's say, for example, Morgan Stanley has a growth mutual fund that's the Morgan Stanley growth fund. They probably charge you a bunch of fees, unfortunately. But what's specific about that fund is it's not an exchange traded fund, which means not everyone has access to it. Just Morgan Stanley clients and that specific like product that those holdings, that money you have invested of Morgan Stanley growth fund can't just be sent to something else. It just doesn't compute. So if I were you, to your point, I would liquidate it, which is a non taxable event, right? You can make trades all the time inside of these traditional IRAs or any sort of IRA without triggering a tax event. So I would probably liquidate out of those things. When you're ready to move the money, I would call up the 401k provider and make sure you say, hey, how do I move money into my 401k? I know you guys do this. Can you walk me through it? Then once that you figure that out, you call up Morgan Stanley and say, hey, I want to move money out of it, right? This is the cash that's in this account. And then you connect the dots there. They coordinate with each other and they'll move the money on your behalf. It sometimes takes five to seven business days. So don't freak out when your Morgan Stanley balances zero and you haven't seen the money show up yet in your 401k. That's the money's going to be there, you're fine, right? They're not just going to lose it, but it does take a little bit of time sometimes. And then once it's in the 401k, get it reinvested and you're back off to the races.
- [07:05]
Robert
That's an incredible breakdown and the only thing that I will add of importance for everyone to remember. So many of you that I talk to on a regular basis and I'm sure Austin does as well, you have these old 401k balances doing nothing. You didn't migrate them, you didn't roll them over. You did nothing with them. So I think the key here for me is remember, don't just leave that money sitting. Get it rolled over, get it moved and get it optimized. But Austin, I love that breakdown and you covered everything that I could imagine of what to do here and the best strategy to do it.
- [07:38]
Austin
And now shy ho that you've moved it over to your 401k, do the backdoor Roth IRA for 2025. Right? Get after it. Time's on your side here. So our next question comes from Luke S. Luke says, hey, Austin and Robert, I'm glad you guys are now doing Friday episodes, answering more questions, especially about small business ownership. Here's my question. I'm a small business owner and I have my own cash pay physical therapy practice. I have a bunch of people that reach out to me because I have hundreds of exercise videos that involve stretching, strengthening and stability in case someone hurts their back or any other part of their body. I know you guys have talked about stand Store in the past. Do you think there's a way that I could upload these videos on on Stan Store and begin to market myself and sell these videos? Say someone hurts their neck and they can go onto my Stan Store and purchase this specific video catalog and that's how everyone's happy? Do you think that's a marketable strategy? Thank you so much. Excited to hear your thoughts. Robert, you want to kick this one off?
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Robert
Yes. I love this one. And Luke, congrats. I think you could definitely weave Stan Store into this as a processor, as a funnel to get you started on this. But I love it. Because if you build your personal brand for your business around these videos, I could even see a world where you do a subscription agreement. Maybe it's 29.95amonth for people to join and then they get access to all of these modules and all of these videos that you have. You could sell them individually like a course as well. But I think you're definitely on the right track because I know for me, if I'm having back issues, I would definitely pay for it or anything fitness and wellness related. So I think you're on the right track. Stan is definitely an incredible platform. Austin and I both use it. And I think you definitely should really dig into this and figure out the best way to bring these into a platform in a way that you can make money from them but also provide help for so many people out there. So I love this.
- [09:37]
Austin
Yeah, I think it's a great idea, Luke. So tactically speaking, here's what I would do. You have these hundreds of videos. I would make sure that one, you have all them categorized internally as it relates to like, is it strength, is it stability, is it pain relief? Right. Make sure that you're targeting the very specific outcomes that you're trying to achieve for these people. And so then when it comes to Stan, you have the opportunity now to upload video coursework, digital downloads, they have email flows, they even have communities inside of Stand now that you can host, right? So there's a lot of different ways that you can go and say, okay, I'm going to open up a stand store for $29 a month. I'm going to upload all of my stability focused videos onto Stand store and let's call it 10 hours of video coursework that you have uploaded on here now. And then you're now going to start marketing this as the stability 101 course when it comes to, you know, stability in your elder age. Or maybe it's marketed to people in the 50s and 60s and 70s, who knows, right? Or stability before you have kids or like you gotta like niche down and market a specific like life event, right? That I think people will be going through that I need to start thinking, thinking about their stability. And so like that's how I do it. I have it all there. And then you start selling it for $39. 59, 1 99. And you now have this video course catalog. Someone goes to your stand store, your link in bio, they click it, they do the stripe payment, you get paid and then they get all the videos and they get to watch the Videos at their own pace. And now you've got the strength one, now you've got the pain relief one. Maybe you want to start honing in a little bit more as it relates to different parts of the body or different types of pain relief or different things of that nature. So there's a bunch of ways to think about that. But tactically, SPE speaking, I would begin to categorize them and then niche down on that specific ones probably starting with strength or stability. I would imagine those are probably the most common. But maybe pain relief for back, who knows? And then beyond that, there's other tools like their email flows, right? Every time you capture an email address from someone that buys one of your courses on Stan, you can then put their email address into an email flow, which means they'll get an automatic email after, you know, two hours, two days a week. Maybe you want to upsell them on another course or maybe you want to upsell them on coming into your practice physically and getting some one on one coaching, right? There's a whole business model around this that you could do where once you have someone's attention, it becomes now this sort of flywheel of content upselling and further value being provided to them considering you have so much content and video coursework already. So really cool stuff. Luke, I'm. I'm super excited that you're excited for these Friday episodes. Robert and I love talking with small business owners and sharing what we've done as small business owners and we're excited for you, man.
- [12:17]
Robert
And I think this goes for everyone out there that has a niche or an expertise. Please don't forget that your niche may be super specific but still very worthwhile for people. So just keep in mind whatever that niche may be, you can put it to work and you can start selling courses, selling digital downloads and all of that through a Stan store. And maybe that's your side hustle that gets you to the next level of your finances.
- [12:45]
Austin
And Robert, speaking of niches, right, literally any niche you want, like just go check out Stan's Instagram. They've got a ton of different examples of people that are doing some cool stuff stuff over there. But it might be making sourdough bread. Maybe it's about woodworking, maybe it's about manifestation, right? That whatever you are thinking of talking about on the Internet, there's a tribe that exists out there that you can talk to and they're going to listen. And there's a world where you can provide enough value for a reasonable price, they will buy your product. So, Luke, you're providing great value with your physical therapy practice. Now it's time to reach out to the online masses and we are rooting for you. Our next question comes from Sean M. Sean says. Hey, Austin and Robert, thank you for sharing your expertise with everyone through your podcast and weekly newsletter. I have a question about the chart of the week from your newsletter. On June 26, you pointed out how over the past several years, July has been the best month of the year for the Nasdaq, with an average return of 4%. But I couldn't help notice that September was in the red nearly every year after that for the past 16 years. Obviously, we can't predict what's going to happen in the markets, but with this data, would you recommend any action to hedge against the possibility of a September slump? And if so, what might that action look like? If you can predict a slump in the market, how would you prepare your portfolio? I know this is speculative and the average loss over the last 16 years is only 0.3%, which isn't much, but I guess I'm just trying to better understand what actions you each might take if you did have a strong suspicion that the market was going to be in the red. Robert, you want to kick this one off?
- [14:19]
Robert
I would love to, Sean. I like the thought process. I like where your head's at. But the way I look at this is two part. Number one, if you have $100 million plus and you have a team of money managers, great, you can make those adjustments and you can try to manipulate the market with these ebbs and flows of these months that mathematically generally are slower or there's a slight downturn like you mentioned. But most people that listen to this podcast do not have that kind of money and therefore I think what you're doing is setting yourself up chasing pennies while dollars. So in my opinion, part two of this is we don't like to see anyone try and time the market. At the end of the day, you want to get your money invested correctly. You want to have that diversification and stop worrying about the ebbs and flows of every headline every month and every market move. Because at the end of the day, over time, the markets go up and to the right. So for this question, I really do appreciate the process and your thoughts, but I don't think it's necessary to really dig that deep into the minutia of how you can try to time a downturn. Now, if every September the market corrected 10%, then sure, maybe there would be a philosophy or a strategy that we could make work to take advantage of that. But I don't think this is the case.
- [15:42]
Austin
Now let me answer that second part, which is I'm just trying to better understand what actions you each might take if you had a strong suspicion the market was going to be in the red. So as it relates to that, we had a very strong suspicion that in 2025 we would experience market volatility. Right. That was a January 13 episode. It was our big market predictions for 2025. And unfortunately we were right. The Trump tariff tantrum that happened in April caused the Nasdaq to fall 21%. And the market's been very volatile, to say the least. So what did we do about it? We hedged our portfolios with some precious metals like gold and silver. We hedged our portfolios with QQQ H and Spyh, which are the hedged equity income ETFs offered by funds. And we also had Steven sykes on episode 120, which was published on June 2nd. And that episode was literally called how to Hedge against market volatility in 2025. And in that episode he talked about bonds that you can get on the public's bond account paying like 7, 8% right now, obviously you could also buy put option contracts as a way to hedge against existing holdings, covered call option contracts to collect premiums. There's a ton of different ways that we encourage people to learn more about as it relates to hedging a portfolio if you have a strong suspicion of volatility. And we followed a lot of those strategies in the first half of this year to help buoy some of the downside risks that the markets were experiencing. But at the end of the day, what Robert and I don't want you guys to do is to always be planning for a Black Swan event. They're called Black Swan events for a reason. They don't happen often. You can't see them coming. Right. We want you instead to be positioned for the other 85% of the time, which is stocks go up and to the right over 1, 3, 5, 10, 15 year periods of times. And you need to have enough allocation to equities and stocks to ride that wave to the upside as well. And so, Sean, I hear you. I want to reiterate what Robert said. I love where your head's at. It's a great way to be thinking. But I don't think, in our opinion, that this is a run for the hills. Let's all try and hedge our portfolios and overthink this, but if you wanted to get some precious metals or some of these hedged Equity Income ETFs from NEOs funds like QQQH or Spyh, knock yourself out. So our next question comes from Greg P. Greg says. Hey guys, I love the podcast and I really appreciate the practical advice you share. I'd love to hear your take on long term care insurance. For many people it seems like the decision hinges on net worth. Either one you're below a certain threshold so you might be able to rely on Medicaid or two you're above a certain threshold and you can maybe afford to self insure, but of course it's not that simple. So how do you guys approach this question? Would you lean toward a traditional long term care insurance policy or explore a hybrid or maybe an annuity based product? Personally, I'm not a big fan of the annuity route. It feels more expensive and less transparent and I like to keep things simple and straightforward when possible. Thanks again. Looking forward to hearing your thoughts if you decide to dig into this topic. Robert, you wanna kick this one off?
- [18:43]
Robert
Yeah Austin, I'll take this one because I have a very specific story of what happened with me. My mother's Medicaid ran out. We had to put her in hospice. I was in the consideration of long term care insurance but I never pulled the trigger and unfortunately it was a very costly mistake for me. So I think the non hybrid version is definitely the better way to go. I'm not an insurance expert but we have worked with Suriance and we can put a link in the show notes to give you the contact there. I think they do a wonderful job but I think everyone should consider this, especially as your parents are getting elderly and there might be some health issues in question because you might not be able to count on Medicaid fully, especially moving forward as there are more and more issues that have been discussed of potential payouts from Medicaid and Social Security and some of these other funding mechanisms. So I would just really look into it and not worry so much about what your net worth is, but what it can do and what the cost is relative to what the cost could be if you went down the road of needing long term care.
- [19:51]
Austin
Yeah, I also think Medicaid isn't like a solution for more than maybe like 10 or 15% of people seniors. Right. I mean I think the threshold is about 25 or $30,000 a year of income and so if you're a senior that makes more than that then like you can't qualify, which I imagine is a lot of people listening to the show. So my experience was starting earlier this year, I started paying about $4,000 a month for at home caregivers to start coming over to my dad's house and be with him for six, seven, eight hours a day. And that was all out of pocket. Of course I didn't have any sort of insurance that would cover any of that stuff. And you know, he wasn't qualifying for Medicaid. He made about I think like 40 or 50,000 a year or something like that. So he wouldn't qualify for Medicaid. I was paying for some of that stuff out of pocket. And so like the predicament that we were in was he needed more care than what was offered at home. So we needed to have to move into one of these sort of long term care facilities for seniors, senior living facilities. And those were anywhere between. I think the cheapest one that we had found was about 4500 plus another thousand or 1500 bucks for more care. So you're looking at about 5 to 7000, like average is kind of what we were seeing. I looked at three different places around Nashville. And so if you didn't have some sort of mechanism to pay for that, you were pretty much sol Right. And so if I were to do it all over again, I guess there's like, there's two ways to solve this problem and everyone listening needs to take this very seriously. As someone whose dad just died last week and had a crazy six month experience trying to figure out all of the ebbs and flows of, you know, care at end of life. End of life care, the first way you do this is to self insure, which is what Greg was alluding to. That essentially just means that you are paying for this 4, 5, 6, $7,000 a month of care out of your assets. That might be, you know, you sell your home because you no longer need to live in that home, you're living in a facility and you, you tap into the equity of that. Maybe that means you have some retirement accounts that you're paying for this out of. Maybe that means that you've got some sort of pension or Social Security and things that you're using to pay. So like you're paying for it out of your own assets, you're self insured. And the way that you become self insured is you're setting aside 3, 4, 5, $600 a month and investing it for 20 years, right. While you're in your 40s, 50s and 60s, allowing this nest egg to grow. So you have money to pay for this type of care when you're older. The other way is you actually go and you buy long term care insurance. And long term care insurance, how I understand it, I'm no expert. Go talk to our friends over at Shurian's. Russ McBride's great at this type of stuff. Stuff. But how I understand it is you're paying a monthly premium of 4, 5, 6, $700 a month. And in exchange of that, whenever you need long term care insurance in the future, you have up to 7,000, 10,000, $12,000 a month in perpetuity that they will provide you over a. It's either perpetual, maybe a specific period of time. There's a lot of nuances there. But I guess what I'm saying is you pay a monthly premium so that in the future you have guaranteed income coming from this contract that will allow you to offset, you know, your, your expenses as a senior. If you were paying 3, 4, 500 bucks a month throughout your 40s, 50s and 60s into this insurance contract. And then on the flip side, let's say at 71, you now need to start taking out 12,000amonth for the next, you know, 10 years. That's $1.4 million that this contract will have paid you over that 10 year period of time. Maybe $1.4 million you wouldn't have had from putting that same 300amonth into the market. So like you have to like do the math and figure out like timelines and like things like that. It's a lot. Please go talk to a professional about this. But one, it' important. Everyone here needs to be thinking about it. If it's with your parents, if it's with you, like I would go back a hundred times and pay for my dad's care. $4,000 a month, no problem. I'm in all the time. I love that man. But on the same token, I know that it felt weird for him for me to like pay for his care. And it felt like he didn't want me to, but he kind of needed me to. So have those conversations with people. Do the planning necessary. Everyone's going to die. We're all going to get older, right? There's going to be a point where we can't take care of ourselves. If it's in our 70s or our 80s or whatever else. And you know, as someone who wants to be self sufficient as long as I can, I don't want to feel like I'm a burden to other people. So there's a lot of things to consider there. But Greg, really, really great question.
- [24:10]
Robert
I want to add one more thing because it kind of spelled it out really well. A couple weeks ago, Ray Dalio did an interview and he was talking about what he calls the midlife squeeze. And I think you just covered it, but I really like that term. And he was talking about this exact topic where so many people when they get into their 40s, their mid-40s and getting into their 50s, the kids are getting expensive and the parents are elderly and you get in that situation where you're not prepared for the additional expense of, let's say the kids need college help or they need help with the down payment on a home. But then the parents might need long term care help. So be prepared. Like Austin said, get ahead of it. Don't wait until it's too late or find yourself caught off guard in a situation where it might cost you 4, 5, 6, $8,000 a month for that care. And you can do all of that ahead of time by proper planning. So before we get into our next question, listen up folks. You can lock in a 6% or higher yield with a bond account, but remember, your yield isn't locked in until the time of purchase so you might want to act fast. Lock in a 6% or higher yield with a diversified portfolio of high yield and investment grade corporate bonds only at public.com forward/rich habits.
- [25:26]
Austin
So our next question comes from Richard E. Via email. Richard says, I'd love your insight on a question that I've been wrestling with. My wife and I are 37, we're debt free besides our mortgage and we've always lived below our means. She makes 49,000 a year, I make 75,000 a year. And this is our highest income ever. We have a six month emergency fund in a high yield savings account and we're trying to begin to build long term wealth through consistent investing. She has $73,000 in a 401k from her work. I have $72 invested in index funds and ETFs with Vanguard. And so here's my question. Now I have $20,000 in a rollover IRA from a previous employer. I'm thinking about converting that $20,000 into my Roth IRA. So transferring those $20,000 into my existing Roth IRA that has $30,000 into it and letting it grow tax free. Do you think that I should keep it in this pre tax account or should I roll it over and pay taxes now and let it grow tax free and then of Course, I'll do some weekly automatic deposits and continue to time. What do you guys think about this? I've learned a ton from your show. Thank you so much. Robert, you want to kick this one off with Richard E. Absolutely.
- [26:35]
Robert
We love this type of question because at the end of the day the answer is pretty clear. We don't know what the tax man is going to be doing in five, 10 or 20 years from now. So we always want to see people get the taxes out of the way now where we know where they're at, and then get the tax free growth for the rest of the account and until retirement. So that's my answer. It's pretty straightforward. I don't like to mess around with the tax man, so I always want to make sure I know where I stand, get that bill paid. And so we could only assume that in 10, 20, 30 years from now taxes are going to be higher. And it could be a lot more painful to wait until you're, you know, going into retirement to pay the tax bill. That's my take on this question.
- [27:18]
Austin
Yeah, I'm right there with you. So, so we were talking with Carlton Dennis and he was saying if you're making over 300 ish thousand dollars, that you should consider thinking about doing a traditional IRA versus a Roth ira, all that fun stuff. And like in the short term, I'm sure there's some very clear cut and dry strategies and maybe there's a formula to consider. I'm over here thinking about I can't predict the future. Right. All those equations and formulas and assumptions, they all assume that the tax rate's going to be the exact same in the future. Well, I don't know if you guys remember this, but we also talked about how the big beautiful bill just made it so the highest tax bracket I think is now 37% versus 39 that it was supposed to go back to. So if you were assuming that it was going to be 37, then it goes up to 39. But you know, the bill wasn't getting passed. Like there's a lot of things that could have happened that have changed your assumptions in the future. And I guess what I'm trying to get at here is that Robert is correct in the sense that I have no idea what the tax brackets are going to be when I'm 65. I have no idea what they're going to be when I'm 75 or 85 or whatever else in the future. Future. And so in my opinion, I'd much rather say I know what my tax bracket is today. I know what that looks like right now and I'm okay with paying those taxes knowing that these investments will grow throughout the next 40, 50 years of my life and compound tax free. And I'll be able to take the money out and enjoy it tax free as well. So if I were you, Richard E. I would convert the 20,000 into the Roth IRA. I'd pay the taxes on that 20,000. You're looking at probably four to six thousand dollars of taxes that you would pay. I'd pull that money from your six month emergency fund, replenish the six month emergency fund and then get back after it and keep investing. You guys are going to be net worth millionaires in the next 30 years. I promise. You are so on top of it. We could not be more excited for you both. So our next question comes from A.J. a.J. Says, I've been a fan and listener of your podcast for over a year. I love your content and I'd love to get your advice on the following following My spouse and I are U S Citizens moving abroad for work for a few years. We'll be paid in US Dollars by a foreign entity with a combined annual income of over 1 million per year. However, our new jobs will not provide any sort of retirement plan. We currently have one and a half million dollars in our retirement accounts. Think 401k and IRAs and two and a half million in liquid investments held in brokerage accounts, mostly in equity equities and ETFs. We also have two rental properties that are generating $10,000 a month in income and are cash flowing 3,000amonth after expenses. Do you guys have any guidance on how we could effectively continue to build our retirement specific savings during these years abroad while maximizing tax efficiency and managing our portfolios? Specifically, how can we invest toward our U.S. retirement accounts? And how do we manage tax implications as it relates to the foreign earned income exclusion or maybe even foreign tax credits? And do you guys any idea of alternative retirement saving vehicles or investment strategies available to high income expats beyond the traditional IRAs and brokerage accounts? Thanks in advance AJ so let's answer these questions one by one. How to maximize contributions to US retirement accounts considering foreign earned income? You absolutely can still max out your traditional ira. You can do a backdoor Roth IRA if you'd like, depending on your specific situation, but you and your spouse can absolutely put $7,000 a year assuming you're under the age of 5050 and you can do that just totally fine. Traditional IRA max those out every year. You can also do a health savings account, an HSA if you are eligible. Right. So those 20, 25 limits are 8, $550 for families. That's going to grow tax free. You can use that in retirement as well. So those are the two, like general ones that are pretty popular. I'm sure you guys have already looked into that. Another one is a solo 401k if you are are maybe earning this money. So like this only works if you're not employed by this company, but instead the company is paying maybe a LLC that you own or an S corp that you own. And then through that S corp you're paying yourself. That's what I do. Right. We get paid by different entities. And then I'm an employee of my own S corp and my S corp has a Solo 401k inside of it that allows me to contribute up to like $70,000 a year. So if you really want to figure out how to do all this stuff, maybe it's worth opening your own LLC and having them pay your llc. But maybe that also complicates things given the foreign aspect of this. But the other thing I did want to just quickly call out was what the foreign earned income exclusion was. For people that might not be familiar, it's a US tax provision that allows qualifying US citizens and residents to exclude a certain amount of foreign earned income from US taxation. So for example, in this person's specific instance, AJ in their spouse house are able to essentially write off $253,000 from their combined earned income every year that they won't be taxed on. Now, it doesn't eliminate the US tax obligation entirely. You still have to report worldwide income, but definitely lowers your taxable income. But you know, when it comes to any alternative retirement savings vehicles, like, it really comes down to like the traditional ira, which you're doing great on, I'm sure the HSA get that maxed out, that's fine. And if you can figure out how to have this foreign entity that you're getting paid a dollars from to pay you as a, you know, S corp or a partnership, whatever you have here with your spouse and you're an employee of that, you guys both, I guess, can have them and both Open up solo 401ks from different entities here that can really turbocharge your retirement, investing again, $70,000 a year.
- [32:57]
Robert
Yeah. And the only thing I would add to this from my experience with silly bands and all of the income that I was getting from various countries is make sure you have the right person handling the structure and how this is done because I learned so much during this process. And you don't want to be in a situation where, let's say your current accountant or lawyer is somebody that is not well versed in international tax law and doesn't understand these structures properly because you don't want to find yourself setting something up incorrectly and then get dinged later on. That's the only thing I can add to this is higher export experts for everything because this is a little more complicated, especially if you're getting income from multiple countries like I was. So just keep that in mind, hire the expert and make sure you do it all correctly.
- [33:45]
Austin
So our final question comes from Evan M. Evan says, hey guys, I'm 24 years old without any monthly bills at the moment because I live at home. I make a salary of $78,000 a year and I have a high yield savings account with $78,000 in it earning 3 1/2 percent. I have a 403B with $20,000, a Roth IRA with 3,000 and an individual bro account with 2,000. I'm actively dollar cost averaging into the brokerage account by adding 600 a week to various ETFs that you guys talk about. I know that my high yield savings account is holding way too much money for the long term, but my question is, is it a better move to use this chunk to invest in real estate, AKA using this as a down payment on a duplex or a rental? Or should I take all this money and invest it in my brokerage account? I've worked hard to get to the solid base and I want to make sure it's used best as possible possible. Thanks and I appreciate the feedback. Robert. I'll let you kick this one off.
- [34:35]
Robert
Evan. You are crushing it. I wish everyone out There that was 24 years old was keeping an eye on their money, executing the plan like you are, and setting yourself up to be very wealthy later on. We need a clap button for this podcast because that is awesome. I think you're definitely on the right track, but I would wait a little longer, get that base built up a little bit more because you've got all your ducks in a row and you're crushing it. But I would wait a little bit longer, get over that 100k threshold, get it maybe to 150, 250. Then start thinking about house hacking, buying that duplex, triplex or quad plex. I would look at the Fannie Mae 5% down mortgage and you'll be on your way. Because right now, the more you set yourself up at this early age where you're making money while you sleep and allowing compounding the longest period of time to build wealth for you, you, the better off you're going to be. And I would hate to see you this close to being really mastering, having your base built and it growing a ton over the coming years to then dump a bunch of money into a new property because you might need 50,000 for a renovation. You need closing costs, all these other things. I would hate to see you go backwards when you're doing so well. So I would just hold off on the real estate, maybe add in some precious metals, maybe add in a crypto account account to build some diversity and keep doing what you're doing.
- [35:56]
Austin
Yeah. The only thing I would add to that is thinking about the rule of 72. Right. We all know that over a long period of time, stocks tend to go up by about 10% per year. And much more than that if you'd listen to this podcast, because you're investing in the right things, which means that this 78, $80,000, let's call it, is going to become $160,000 by the time you're 31, and then it'll be $320,000 by the time you're 38, and so on and so forth, assuming you don' more money to it. So I guess what I'm trying to say Here is the 78,000, I think, will be able to grow more exponentially than maybe buying a duplex would. You know, Robert and I, we talk about building the base, right? Getting $100,000 invested, and then diversifying into different asset classes like real estate. You know, real estate's great. Want everyone to own real estate, maybe be a real estate investor at some point in their life. But what's really, really great is having $100,000 working for you in the markets, up, down, left, right, and in circles. Because we know where it's headed over a long period of time because of American capital capitalism.
- [36:55]
Robert
Yeah. And if you look at the rule of 72, in many years we're beating the rule of 72, so it's going to multiply faster. But if you started out at 25 years old with a hundred thousand dollars, and the rule of 72 does its job, at 59 years old, you'd have $3.2 million, which is just a fantastic place to be. So keep that in mind. It's all about consistency. You're crushing it. Right now I'd wait a little bit longer like Austin said and just rock and roll and keep doing what you're doing.
- [37:25]
Austin
Everyone. Thank you so much for t tuning in to this week's episode of the Rich Habits Podcast Question and answer edition August 1st Friday. We are so excited about it. It's coming up. These episodes are going to be so much fun. Got a little taste of it with that question about the stand store and the building up of the the practice, the physical therapy practice. But these episodes are going to be absolutely incredible when it comes to answering questions specifically from business owners and also giving you guys the inside scoop on the biggest headlines and happenings that are impacting you and your money on a weekly basis. As always, enjoy this episode. Please consider leaving a five star review, sharing it with a friend following our Instagram account at Rich Habits Podcast subscribing to our free newsletter. It was actually mentioned here in a question which was cool. Rich Habits Newsletter. Just go search it on Google. As well as participating in the seven day free trial that we offer with the Rich Habits Network, this is our community for our biggest fans. We have eight hours of video coursework. Robert and I host a weekly live stream that's like two and a half hours long. Every Tuesday night we talk with you guys face to face on a zoom call. We answer questions, we give you our hot takes on what's going on with our own portfolios and our own investments. You get to invest alongside of us into some of these pre IPO private deals that we're doing behind the scenes, some real estate syndications, things like that. And you get to ask questions all the time. And we have a wonderful community of nearly 700 people now inside of the Rich Habits Network. So if you're not yet plugged into this ecosystem that we are building with the Rich Habits Podcast, you need to we're working really hard behind the scenes to make sure that we're delivering as much value as possible and we always appreciate your support. Over a hundred of you come back every single week and we could not be more grateful.
- [39:05]
Robert
We love you all and appreciate just following along on this journey. We are here to provide a ton of value. Keep giving us those five star reviews. Share these episodes with a friend, Join the newsletter all the things Austin talk about and we'll see you next week.
- [39:19]
Austin
Thanks everyone and have a great rest of your week.