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Rich Habits Podcast
Q&A: Paying Off $300K in Student Loans, Roth IRA vs. Roth 401(k), & Kiddie Taxes
00:42:59
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- [00:01]
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- [00:31]
Austin
Yes.
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- [00:37]
Austin
Let's do this.
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Robert
Hey, you weren't listening to me.
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- [00:49]
Austin
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- [00:52]
Robert
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- [00:53]
Sponsor/Advertiser
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- [00:59]
Austin
Hey everyone and welcome back to the Rich Habits Podcast Question and Answer Edition brought to you by public.com these are our Thursday episodes where every Thursday morning we come and answer your questions as if we were in your shoes going through whatever you are going through. You can ask us questions on Instagram at Rich Habits Podcast. You can email us questions at Rich Habits podcast gmail.com or if you are a super fan and you always want to make sure your questions get answered, consider joining the Rich Habits Network 7 day free trial still going on over there where every Tuesday evening Robert and I host a zoom call and we answer your questions face to face. It's a lot of fun.
- [01:39]
Robert
Yeah, if you're already following the podcast, maybe you're in the newsletter. I don't know what part of our ecosystem you've enjoyed so far, but we'd love to see you join and use that seven day free trial for the network because there is just so many deep dives, so much cool information happening and the school community is actually kind of this incredible side note as part of what we've built here because there's just so many lawyers and real estate people and CPAs and just all these cool people in there all sharing notes of how they're doing and how they're building their wealth. So make sure you check it out.
- [02:13]
Austin
Robert, before we jump in, I want to pat ourselves on the back. We published on January 16th our 2026 markets prediction episode. We talked about Potash, specifically the company ipi, how we really enjoy that as a commod that could be interesting in 2026. We talked about Copper as well. And then even recently we talked about Generac. Generac is actually up some 60% year to date. That was more of a Friday episode thing that we had talked about ahead of the Winter Storm. I talked about Generac and Costco, but the potash company, IPI, I'm looking at it. My portfolio, I've got about 500 shares. I'm up 18% since that episode came out. And then Copper Cop X is up about 16% since that episode came out. So who knows what's going to happen here for the of 2026. We're only six weeks into our 2026 market predictions, but you know, as we look around and we see all of the red that's happening and these high beta names and you know, everything that's that's really gotten hit pretty hard. If it's the SaaS apocalypse or whatever is happening to people's portfolios, seeing some green is a win in my book.
- [03:21]
Robert
Well, definitely, and you are spot on with Generac and Potash. But I think it's also important for everyone following along to understand that we are always talking about diversification and your eye on the prize. We want to see you and that doesn't mean day trading. We're not trying to tell you to live inside your portfolios and watch them every hour. That's not healthy either. But it's all about maintaining and understanding where the markets are going. And that is one of the number one things we try to do here at the Rich Habits podcast and in the network is just really try to prepare people for what's next so they can get ahead of it and be able to rebalance their portfolios as needed to, to be able to take advantage of these secular growth trends or these changes in the market conditions. And I think that is one of the things we've done really well on for all of our audiences across the entire ecosystem.
- [04:15]
Austin
Yeah, actually just looked it up. January 23rd is when we published the episode Winter Storm stocks. And on January 23, Generac stock was at 173,170ish a share. But even if you pull from the 173, it's currently up 31%. It's at 226 right now. So shout out to anyone that actually jumped on that. It's just cool. It's so cool. And if you like these sort of like interactive, hey, I just saw this, like we've been talking about energy and international stuff for like probably four or five weeks now, right? People inside the Rich Habits Network saw that first. So if you're someone who does like to have that active management with your portfolio. You want to see what moves Robert and I are making in our own portfolios. The headlines we think are important. Sort of our update on the markets week to week, month to month, quarter to quarter. Be sure to join the Rich Habits Network as well. Robert My favorite part about the Q and A episodes is the fact that we are partnered with Public.com on these episodes. Public.com is the investing platform for those who take investing very seriously. Because on public you can build a multi asset portfolio of stocks, bonds, options, cryptocurrency and now generated assets which allow you to turn any idea into an investable index using artificial intelligence.
- [05:26]
Robert
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- [05:48]
Austin
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- [06:08]
Robert
Full disclosures in the podcast Description so
- [06:11]
Austin
our first question comes from Kyle B. Kyle says hi Austin and Robert. My name is Kyle and I'm a physician currently doing my residency. I'm a big fan of the show. I've watched almost every episode and the question I have is in regards to my mountain of student loans, you guys often mention that it doesn't make sense to pay off low interest debt and instead put that money into the markets. I'm wondering at what point you would specifically recommend me paying on my student loans. Here's my specific situation. My current student loan balance is right around $300,000 at a 6% interest rate. My loans are in forbearance and I have a zero dollar minimum payment. Instead of paying my loans, I have put as much money as possible in my Roth IRA and my Roth 403 through a very fortunate set of circumstances. I have about $140,000 invested in a taxable brokerage account, 36,000 in my Roth IRA, 34,000 in my Roth 403B, making all of this combined worth about $212,000. All of my accounts are essentially 70% US and 30% international. What's your take on my situation Robert, you want to kick this one off?
- [07:17]
Robert
I would love to. Kyle, you're doing a great job. I don't know your age, but I assume you're probably late 20s, early 30s, so let's go with that. I think you're doing a wonderful job and you're right on track. I always take a little bit of a different approach when it comes to student loan debt because there's always the ace up the sleeve that the government could come in and say, hey, student loan debt's out of control. We're going to knock it down some. So it's going to be 2% interest from here on out or 3% or we're going to forgive parts of it for these people that are doing meaningful duties in the United States markets. So for me, I think you're spot on. I would leave them in forbearance as long as they can be. I would keep building your wealth. You've already built your base. You keep building that up and let that compound for you for life and then at some point jump back in and start paying these down. But I would always put the investing first, especially if the student loan debt is in what we consider high interest debt. And in your situation, it's right on the border there at 6%. I wish it was 4 or 5, but I still believe long term you're going to make more money with this, these funds if you're investing in these low cost index funds and ETFs we talk about. So I would keep doing exactly what you're doing, keep building the wealth and then get back to the student loans later on. Or you can start chunking away some money to get them knocked down some. But I'd love to hear Austin's thoughts.
- [08:39]
Austin
Kyle, totally echoing what Robert said here. You're doing great. You are going to be a super high earner. You've got $212,000 already invested. But as you described, you have a mountain of student loans here at 6% interest. And it's cool that they're in forbearance, right? It makes a lot of sense that they're in forbearance. You're not earning doc money yet. You are still in your residency. But once you jump out of that residency and you are working as a full time physician earning that 2, 3, 4, $500,000 a year, they will certainly begin to, you know, kick in at that monthly payment somewhere around, I'd argue, I don't know, maybe two to $4,000 per month is what they'll likely kind of hover around depending on how they're split up. I mean, it really comes back to this, right? And we talk about this with student loans all the time, in our opinion, before you start tackling massive student loan debt, and I would argue this is considered massive student loan debt here at $300,000, you should have the equivalent amount or more invested somehow, some way in your taxable brokerage account, your retirement account, whatever that means to you. And so you are here at 212,000, which is not yet that $300,000 balance that you owe on your student loans. To your point, I mean, you know, Robert, you mentioned he's in his probably late 20s, early 30s. He's got 30 years of compound growth ahead. I would love to see him have 3, 4, $500,000 invested into his taxable brokerage, his Roth IRA, his Roth 403B. Like just get this money working for you in the markets before you start spending 10,000amonth paying off these loans or 15,000amonth paying off these loans. And also let me caveat that with even when you are spending 10, 12, $15,000 a month paying off these loans, that is not at the expense of maxing out your Roth IRA or contributing up to the match in your Roth 403B. We always want to make sure that you are investing, right? If it's the, you know, 15, 18, 20% of your take home pay, you need to be saving and investing always. But luckily, because your income is so high, 2, 3, 4, $500,000 a year, you will easily be able to save and invest that. Call it 10, 12, 15, 18% of your take home pay, while also being able to afford a $10,000 per month sort of, you know, payoff toward your student loan debt. Our goal, of course, is for people to not go into retirement with student loans. You're very young, still, late 20s, early 30s, we would imagine. You obviously didn't tell us your age, but I think that's kind of where people are in their residency if they do it straight out of college. So you've got a long time of wealth building ahead of you. Kyle, I think our answers are pretty similar in the sense that you should get rid of the student loans, but you should also make sure you've got several hundred thousand dollars invested in the markets before you do. So.
- [11:27]
Robert
Yeah, 100%, I agree with that.
- [11:29]
Austin
So our next question comes from Brent. Brent says, hi, Robert Noston. I have a question mostly related to real estate. I'm 55 years old and I've got Close to a million dollars in 401k investments and a small portion in a Roth 401k which I contribute now up to our company match. Because of you guys, I do not have a Roth IRA. I have $1.25 million in a brokerage account invested into ETFs in some bigger name, single stocks, about a 6040 split between the ETFs and the stocks. I have absolutely no debt. I make $300,000 a year, including some side hustles. I'm financially fine, especially since I live a very simple life and do the hobbies I like at little cost. I don't need new or fancy things. I give my kids $7,000 a year for their own Roth investments. So here is my question. One child is getting married soon. They're in their 20s and I'm debating buying a house and renting it to him and his soon to be wife for the monthly cost. I really don't spend that much and they will likely end up with my stuff anyway when I pass. Unless something happens and they don right in their adult years. My question is, does it make sense and what's the best way to make sure I can pass on this money without the government taking half when I'm gone? I would rather my kids and my grandkids get this money. Any advice would be greatly appreciated. Real estate is your forte, Robert, so I'll let you kick this one off.
- [12:50]
Robert
Yeah, it's a great scenario, Brent, but there are a few things I want to touch on here. You said you're debating buying one of the children a home and then renting it to him. So my first red flag here is are you buying it in cash and you're going to deplete all of your retirement or are you going to get a mortgage on it? So that's number one I want to figure out. Number two is what about the other child? If you're helping this child out with a 5, 6, $700,000 home, maybe it's a $400,000 home. Isn't the other child going to feel slighted or are you planning on helping that child in some meaningful way as well? So once that's figured out, I would say first and foremost you have to consider how do you protect yourself for the long term in this situation? Because you have to make sure. Let's say the mortgage on this property is $2,500 and you say you're going to rent it to them for the cost. Well, who is going to pay for the upkeep the repairs, all of those things. So there's a lot of complexities here that I want to make sure you consider. Because if they move into this home and you're just going to rent it to them at cost, you need to make sure that a, the rent is market value because the IRS frowns on you giving a big discount on the rent. But you also have to spell out who is taking care of the upkeep. Are you taking care of the upkeep because you own the home and they're just paying the one fee to rent it, or are they going to maintain the house and any repairs that it needs over the years? So that would be that part of it. Then I would go on to how to structure it. I'd want you to probably put this home purchase in an LLC and then run it through a revocable living trust. That way you're covered, you're insulated. If something happens to you down the road and you want to pass it on to them, they are going to be covered really well having this revocable living trust. So you're not then just signing it over to them. Then they have to go through probate, pay all these taxes and everything else. So those would be the main things I'd be concerned about. But even though it's your son, I would make sure you have an operating agreement. You spell everything out who's responsible for what, because like you mentioned, unless they don't act right, we want to make sure down the road, five, 10 years, if they're still there, everything is smooth and there's no contention over who's supposed to be doing what as the house gets older, as it needs a roof, as it needs a new, you know, washer and dryer or whatever. Spell it all out early.
- [15:10]
Austin
Robert, you mentioned the fair market value rule by the irs, and I think that's an important one to talk about here. So, Brent, if you rent the home to your son for less than fair market rent, the IRS considers that property now to be for personal use. So here's how that could happen. Maybe you put a large down payment, you get a favorable interest rate because you borrow against your assets or, you know, whatever's going on. And you mentioned you're going to rent it to them at cost, Maybe costs you $2,000 a month to, you know, own this home via the mortgage and stuff. But fair market rent in California is 6,000. So that $4,000 difference here is what we're talking about. This means that support the rental income, but you cannot deduct rental expenses like depreciation or maintenance. In excess of that rental income, you can only deduct mortgage interest and property taxes as if it were a second home to you. So don't think about the whole like, oh, if I do this, I could get the write offs, I get the depreciation, the mate, like, it's going to be great. My son's going to live there. It's going to be, you know, the IRS is privy to that, so just be careful. And the last thing I want to talk about is you. You mentioned sort of the phrase here. When I die, I don't want the government taking 50% of my wealth. There's federal estate tax exemption, which in 2025 exempts taxes on estates up to $14 million. You've got roughly two and a half million in total assets, which means you are way below this threshold, which means the government's not going to take a dime from you. Now, once you exceed $14 million, who knows what it's going to be in the future. But I'm sure it's only going to go up because last year it was 13 and a half million. But as you know, your wealth builds over time. You listen to the podcast, I'm sure you're building wealth for sure. After you exceed that, then yes, there's some different things about here. But from a step up basis, like when it comes to this brokerage account, because you were talking about you don't want to be taxed and stuff at $1.25 million, when you pass and your heirs inherit those ETFs and stocks you talked about here, it's going to be at a step up basis. So they're not going to have to pay taxes, long term capital gain taxes as to where you purchase the stocks and ETFs at, it's going to be long term capital gains as to where they inherited them at, right? So if you bought Microsoft at 100 bucks a share, right now it's at 400. And you know, tragically, let's say you pass away tomorrow, your kids are going to inherit it at $400 a share, not at the 100. So they pay taxes on the profits at 400 on a step up cost basis versus at the 100 where maybe you bought it at. Right? Brent, you got a lot of money here, right? You got, you got millions of dollars. You should definitely sit down with a tax estate planning attorney, someone that's going to, you know, it's going to cost 3, 4, 5, $6,000. But I truly think, to Robert's point, the revocable living trust. We're talking about the step up stuff here. Like there's a lot of things that I really benefit from by sitting down with a tax estate planning attorney who's going to walk you through specific steps that you can take to ensure that you're happy, your kids are happy. And you know, they don't act up. If something does happen and they do act up, you know, you can have a little bit more control over what they inherit versus maybe what they don't.
- [18:14]
Robert
100%. The biggest mistake I see people make all the time, they get older, they go, you know what, Brent or Sally or Betty, I'm going to sign my house over to you. And they just sign the deed over. And that is a disaster. Never, ever, ever do that. Get the revocable living trust set up, get it together. Because then that way you can avoid probate. All of the hassles, all the struggles, and it's all spelled out and like Austin alluded to all of the step up and basis benefits as well.
- [18:43]
Austin
So our next question comes from Martin C. Martin says, I love the show. Quick question. I feel like I'm behind in my retirement portfolio. I'm married, 53 and 51 years old with $420,000 in the current employer's 401k, 205,000 in a previous employer's 401k, 70,000 in a taxable brokerage account. My wife stopped working to be a stay at home mom with our first child and when they were born and now we have four children total. Our oldest child recently graduated college. One is a junior in college, one is in high school and the youngest is in middle school. My wife has $25,000 in a rollover IRA from a previous employer and she just joined the workforce part time. Now that our kids are older and currently has 5,000 in her pension account, we own a home with about half a million dol of equity. But unfortunately we have $30,000 of credit card debt, a $20,000 car loan and a $12,000 personal loan to help our kid with college. I recently got a credit card with 0% interest for 24 months and we'll be transferring the credit card's balance over to give us some relief. I'm not sure if we're on track with retirement balances. I can't seem to make any progress reducing this debt. I make a decent amount of money, $190,000 a year between my salary and my 40,000 bonus. And my wife works part time, making 25,000 a year total. We make $215,000 a year. We don't drive fancy cars, we don't waste our money. Our kids play sports, which is very expensive, but that's about it. Any advice you guys can share is greatly appreciated. Robert, I'll let you kick this one off.
- [20:22]
Robert
Martin, Martin, Martin. I'm going to start with being nice. You're not behind because the average 45 to 55 year old male in the US right now has $115,000 saved and invested for retirement. So you're ahead of the curve. But you're a high earner at 53 years old. And why on earth are you carrying all this credit card debt? That doesn't make any sense whatsoever. You should not be giving out these loans. You should not be having credit card debt. You need to pay those off before you do anything else. I would stop doing all other spending, stop giving loans, stop helping others. You need to help yourself because you should never, at your salary, over $200,000 in income per year carrying credit card debt. It makes no sense. So right now I would sit down, get a pen and a paper out. I would maybe check out our honest budget, which there's a link in the show notes, and I would figure out what you're doing wrong, what your debt to income ratio is and get these debts paid off, the high interest debts, first and foremost. And I don't mind you transferring them to a zero interest credit card as long as you're going to get them paid off before that term is up. Because I don't want you to transfer it over, ignore it, keep spending like you're spending and then find yourself in 18 or 24 months still carrying that balance. You got to get that fixed.
- [21:45]
Austin
Yeah. So I'll start with the good news, just like you did, Robert, Martin, you guys are going to be fine in retirement. You have $725,000 invested. You have half a million dollars in your home. You guys are millionaires, right? Your net worth is like 1.2, 1.3 million depending on what the markets are doing on any given day here. You know, even if you, you know, toss out some of this debt, right? I mean, you're really talking about 1.15, 1.2, like you guys are millionaires, 100% millionaires here. But we're carrying credit card debt. So let's, again, let's start here with the retirement stuff. You're 53 and 51, so let's just say 52, right? Just to make sure we're between two ages here. If you take this $725,000 that is in the current employer's 401k, previous employer's 401k, which you need to roll over into your tradition so you can have control of it, right? Go do that. 70,000 in this brokerage, right? If you take all this money and you let it grow at 8% for the next, I don't know, 15 years to about 67 years old, you guys are going to have two and a half million dollars adjusted for inflation. Okay? So that's two and a half million in your retirement accounts. You guys are, you guys are going to be fine. And by that time too, I'm sure your home's going to appreciate a ton more too. You're going to. It's going to be awesome. So, no, you are not behind. I understand you might feel behind. Go listen to last week's episode of the show. We talked about why you feel behind financial. It's a lot of the online stuff. But you guys aren't behind it all, Martin. So give yourself a pat on the back for how much wealth you have built throughout your lives. To Robert's point, I've got a feeling here between the 175,000 you guys earn, between your wife's part time job and your salary and the $40,000 bonus and the kids sports and the college this and the car loan that. And like I got a feeling that you all are doing exactly what a lot of Americans do and that's flying by the seat of your pants and drifting through life and let life happen to you. You need to flip that on its head. You need to happen to life. You need to say, okay, honey, we are going to just have complete control and clarity over our money. We know exactly what our net worth is. We know exactly how much money hits our bank account on what day. We know exactly how much money leaves our bank account on what day because we know the scheduled payments we have. You know, you guys aren't credit card people, so maybe we cut up the credit cards and stop using. So going back to a debit card here, but we understand how much we're spending on a monthly basis. We know exactly how much this kid's sporting event is. You know, this expense is not going to surprise us. We have this much in an emergency fund and what's not in an emergency fund is in a sinking fund. We have clarity into what the future can look like. You all are the perfect example of a high earning American family. Right. You're trying to out earn your stupidity. Not to call you stupid, but like, I tried it, Everyone tries it. You try to out earn your stupidity. It's like you can't just be so willy nilly with your money and think, oh, I make 200, 000 a year, it'll figure itself out. I make great money, I'll be fine. Like, I still to this day, as someone who earns multiples of what you earn every year, I look at every dollar that comes in and out of my bank account because I want to know what I'm spending my money on. Am I spending too much in a specific category? Did I forecast this correctly? And I'm sure Robert does something similar as well, right? Looking at the different categories and you know everything of that nature. So please, Martin, do us a favor, go start an honest budget, sit down, category by category to understand your fixed expenses and your variable expenses. And then once you understand your fixed expenses, like completely, which is these expenses come out of my bank account every single month because I need to pay the mortgage, I need to get groceries, I need to pay for transportation, insurance premiums, things like that. And then you say, all right, sweet. Where are my variable expenses? Can I begin to cut back if I need to? And like that is the underlying foundation of any person who's good with money is they have clarity into what they're earning and where it's going. And then once you have that clarity, Martin, you're not going to feel behind. You're going to say, Whoa, I'm investing $3,000 a month, or my kid, you know, they were able to get this scholarship or you know, whatever's going on. And the other thing I want to just quickly touch on here, you have $30,000 of credit card debt and 70,000 in a taxable brokerage account. Sell those stocks. Sell the stocks that you might be at a loss on or the lowest profit so you have a very little tax hit. Sell the stocks, pay off the credit card debt, stop using credit cards. You guys aren't credit card people. Like, I don't care about the zero percent, whatever. Like you can't out invest high interest debt. And that's cute and fun that you want to do this 24 month thing. Like could it work? Sure. But you've already proven to me that you're not disciplined enough to just stay within a budget making over 200,000 a year. I don't trust you be disciplined enough to pay this off in the next 24 months. Like just, just, just get Rid of it. And then if you want to bump up and put money back into this brokerage account, like, be my guest, you make a ton of money. But you guys just need to do a better job of tracking what's coming in and what's going out, writing it down, Every single expense, every single one. Because in the moment it's like, oh, yeah, we've got a thousand dollars budgeted for dining kids this month. And then like, you go and you look, you spent 1800, right? Or we've got sports stuff budgeted at 700. And then you realize that little Johnny needs a new baseball bat or Rebecca needs a new volleyball net or whatever it is. And that's going to be another. Now you're, you know, seven or 800 bucks turns into 1200. And like, it's not that you are doing a bad job. It's just you got to find those, those leaky holes, those little ankle biters.
- [27:19]
Robert
I love when you go on rants like this because you get so emotionally into it and it's amazing. So here's what I took away. Wealthy people forecast, broke people react. And Martin is definitely not broke, but they're definitely not forecasting. That's what I heard. Also, willy nilly, 100%. If you have this much money and you have this much income, you should not be carrying credit card debt. 100%. You got to get rid of it. I love your idea, Austin. Sell it from the brokerage account. Take the tax benefits you can get from that. If you have any from the. The lowest profits or the losses, pay the credit cards off, cut them up. You're not credit card people. And I think that was all of the really, really good takeaways. But that was awesome.
- [28:02]
Austin
Yeah, no, I'm rooting for Martin. Martin and his wife, they're doing so well. I mean, they're millionaires. They're millionaires in their 50s. Like, that's the goal. Right? They just need to now get really intentional with how they are spending and allocating their income every single month.
- [28:18]
Robert
Yeah. I remember when I first became a multimillionaire there and I had a few million bucks and I was like, man, this is so cool. I can be the hero for everyone. So I started helping everyone in my family and helping people that I was close to and employees and all that. Then I realized, especially now with modern technology and medicine, we're going to live a lot longer. So people that get a million, $2 million in their retirement accounts, that's not going to be enough in 10 or 20 years because we're no longer going to be be getting sick earlier on and dying off earlier. So I just want people to really think long term, still help people and still take care of your family, but do it with a plan and not just willy nilly.
- [28:59]
Austin
So our next question comes from Tom H. Tom says. Hey guys, I love the show. If I'm going to budget $7,000 a year to invest into some sort of Roth retirement vehicle, does it matter if I choose the Roth IRA or can I just choose my employer's Roth 401K? As you guys know, I'm eligible for both. But it seems to me that routing it through my employer is just simpler. Just comes right out of my paycheck. I don't have to worry about any intricacies end of the day. Is one fundamentally better than the other? It's a really hard question to answer. One comes with a really cool perk nine times out of ten which is a match, right? The Roth 401 kit day. If you work at a cool company, which I'd imagine a lot of you all do, you get that 3% match, 4% match, 5% match, whatever it is at your specific company. Which means if you are contributing 3% of your annual salary, let's just pretend your annual salary is a hundred thousand dollars here for round numbers. That means over the course of 26 pay periods, assuming you get paid every other Friday, you are now contributing $3,000 to this Roth 401K and your employer is matching that 3,000 contribution with their own money making you now have a hundred percent instant return on your investment in year one. That's awesome. That's a really cool, better than the other type vibe, right? Now on the flip side, the what's not so cool about that sometimes is you could be limited as to how this money is invested. For example, maybe like my old employer, we used bank of America for our like 401k stuff. I had to choose between like, like conservative, moderate or aggressive. Like what is that, right? Like I, and I looked at it, it's like, oh, congrats, you're in a bunch of small cap stocks. I'm like, I don't want that. Like go put me in the s and P500, right? It's like I don't want these. And it's like, oh well, do you want to go be moderate? And we put you in half bonds. It's like, I don't want bonds either. I just want to be in the S P. So like with these Roth 401K or any 401K retirement things that are offered at your employer, depending on who their kind of broker agent is in that situation, you could have some very, very not that great options to invest. But again, you're getting that 100 match. Now you compare that to the Roth IRA where it's no match, I guess unless you use like a public dot com. I think they match like 1% of your contributions. I think Robin Hood doesn't match too. Like there's a couple things out there that do some cool matches like that. So you can get 70 bucks or 100 bucks or whatever a free money against that, but it's not like that much. But you just contribute your $7,000 or this year in 2026, $7,500 and then you have complete autonomy into what it's invested into. You can put it into VU and VTI and you're off to the races. Or QQQ and dia, right, the Dow Jones and you're off to the races, right? You can choose how the money is invested and you're not paying the fees, you're not doing the bonds, you're not in these small caps like you have full autonomy. So if I were in your shoes and we say this all the time, match beats rock, Roth beats taxable. I would contribute up to the match and then anything above that that you still have left over of the $7,000, I would then ensure that it gets invested in my own Roth ira. And I think that should max out your total because you said you're going to budget about $7,000 for this, so you should be good to do that. But up to the match, get the free money and then everything above the match goes into your personal Roth ira and then you invest it in a low cost index funds and you close your eyes for 20 years and congratulations, you've built wealth.
- [32:24]
Robert
Before we jump into our next question, I do want to take a moment, Austin, to talk about generated assets. You all know we love public.com and a couple months back they created generated assets where you can go in and you can put together your own plan, your own etf, your own vibe for exactly what you want to invest in. And it'll even back test it against the S&P 500 and it's really, really cool. We did a bunch of them in the rich habits network that are doing really well. But you can have a blast. You could go in and tell it, hey, give me the top companies in tech that are female led or you could say, hey, I only want CEOs that work out or whatever you want to do and let the AI do the work. So make sure you check out Public.com's generated assets. It is a very cool tool, one of my favorite tools they've ever come out with and we are really enjoying using it in the Rich Habits network and for all the people in the community.
- [33:18]
Austin
Community, yeah. Generated assets is awesome. I mean, literally anything you can think of, they just figure it out. It's like I'm just going to come up with one on the spot right now. And I don't know how this is going to back test, but it's like I would be curious to know, Robert, what companies invest in companies that attend conferences, right? Like, like Money 2020 or CES. Like there are companies out there that are always attending like these big conferences. The JP Morgan Healthcare conference is a big one in healthcare, right? I don't know, like investing companies whose management teams, these C suite executives are speaking, speaking at these conferences. Like maybe that's a cool thing. Maybe that's something to invest in. Like maybe that's some alpha. Or invest in companies you mentioned. Work out what, invest in companies where the CEO has publicly run marathons before. People. Who knows, right? That's what's so fun though about generated assets is they do all the work for you. They back test it against the S P. They tell you, hey, this is a, historically speaking, a winning strategy or historically speaking, the strategy sucks. Then you can make your own decision if it's going to be be better in the future or not. But that's what's cool about generated assets. You've got complete control. It's, you know, sort of an ETF with your own conviction, your own themes. So go to public.com rich habits, open up a account on Public and play around with their new generated assets product. So our next question comes from Chad M. Chad says. Hi, Robert and Austin. My name's Chad and I'm a longtime listener on Spotify. Thanks for all the great content. You guys are the podcast that got me off the sidelines and got me to finally start taking notes and taking action. So thanks. Thank you. Let's go, Chad. That's awesome, man. Chad says, my question is this. I'm a pilot for a major US airline and my wife is a nurse practitioner. Together we have a combined income that exceeds the income limits for the Roth IRA contributions. We've been looking at doing a backdoor Roth IRA conversion. Would you do this before maxing out the 401K for me? And the 403B for my wife. Or would you max those out, then contribute what's left over on the backdoor? Roth, same thing from last question. Match beats Roth, beats taxable. So up to the match for both you guys, max out the Roth ira. And then assuming you have autonomy over your investments in this 401k and 403b, go back to that retirement account, max it out how you like, make sure it's invested into things that you get excited about that align with the low cost index funds and ETFs that we talk about here. Make sure it's aligned with your risk tolerance and your age and things like that. You mentioned you're 40 here year, your wife is 35. So aggressive. Right. You've got 20, 25, 30 years of investing ahead of you both. So that's, that's the playbook. You also went on to say you have a $1 million net worth, $290,000 of combined income, $600,000 already invested across your 401k, 403b and Roth IRAs from previous years, taxable brokerage, and one investment property that you're planning to sell. You say that your income could increase significantly in the next two years.
- [36:08]
Robert
Years.
- [36:08]
Austin
And your wife's will increase moderately. Yeah, Chad, same deal, my friend. Match beats Roth, beats taxable. But then like, here's the deal and Robert, maybe you can talk about this. You get to a point where you're 52, your wife is 47, and you guys are like, wait a Second, we've got $3 million in these retirement accounts, and I'm not 59 and a half yet. You're nowhere near 59 and a half yet. This kind of sucks. Like, you know, we, we have enough money to retire. We're multi, multi, multi, multi millionaire. But we can't touch any of this money. And yeah, you could pull it out or you can do, you know, I'm seeing something like a hardship distribution or a rule of 55. There's a couple things out there that can make some nuances as you get a little bit older, but like you want to have the bridge account. So, Robert, explain what the bridge account is and talk about why it's so important that high earners have this sort of account as they get older.
- [36:57]
Robert
Yeah, I mean, you crushed it. And exactly. That is where my brain was going is I want to see them build up this taxable brokerage. We call it the bridge account. And the reason it's so important is a lot of people end up in this situation where they wake up one day, they're 47, 52, 53, they've got millions of dollars, but they're still broke because it's all tied up in these retirement accounts. We like to see the bridge account grow right along with them along the way. Because let's say at that 52 years old, he has three, $4 million. But in the bridge account is a million or a million five, then they can still retire early. No penalties, no concerns. Let the, the 403B, the 401K and the Roth keep rocking and rolling. But they have this money in the bridge account to do whatever they want to do without having to go dip into retirement savings. So that's why it's so important, because you have total autonomy. Let it grow along the way and you can rock and roll and retire whenever you want. Because too many people don't think about that. And we had the question earlier where it says it's just easier year. We don't want everything to be easy. We want everything to be planned out. So if you guys want to retire early and have a blast, build a garden or travel the world, you can do that because you thought ahead and built up the bridge account right along with everything else.
- [38:18]
Austin
And Robert, let me just take this one step further. Okay, guys, I've got a million bucks in this bridge account or 600 grand in this bridge account. Like so what? I still have to pay taxes. Like I still got. It's a taxable brokerage account account. No, no, no, no, no. If you are married, filing jointly here in 2025, you can experience all in $96,700 of income, portfolio income, Assuming you're not like making money elsewhere, like you guys are truly retired. The only money you have is coming from this portfolio. $96,700 of portfolio income at a 0% long term capital gain rate, right? So like you literally go make essentially 100,000 dol and you don't pay any taxes on it. Now that's also like assuming you're not earning money elsewhere, right? This is like all in. How much money did the household earn? We all just earned the portfolio income. Now if you have like you're still doing the captain thing, now it's tax at a different. So like just make sure you work with the cpa. But if you are truly retiring early and you have no income coming from anywhere but your portfolio income, you can essentially tap into $97,000 a year and pay no taxes on that, which is awesome. Assuming it's a Long term capital gain. So our last question comes from AD Ad says. Hi guys, I'm a new listener. I've been enjoying your podcast. I'd like to please stay Anonymous. I think AD is pretty anonymous. Yeah, you're anonymous. AD no one knows what an AD is you're good at. AD AD says. I'm 43, I'm a single mom and I have two questions. My child who is 10 receives $300 a month and come late March she will have 23, 000 saved in a CD earning three and a half percent. It's in a three month short term bond treasury bill. I also have a UTMA where I'm saving monthly funds until the CD matures and then I will reinvest all of those funds into the UTMA account. Should I keep this method going until she's 18? I really don't want to commit to a 529. Is there a better alternative to my current method? So Robert, here's the summary. Right ad our anonymous listener has roughly $23,000 saved for her 10 year old plus she's putting in $300 a month. This three month CD that you're doing is earning that three and a half percent, which on the surface sounds pretty good, but it's much too conservative for an eight year time horizon. You mentioned 18 years old is when you want to unlock this money for your child, the whole utma thing. So over the long term, right? 10 years inflation is going to erode that purchasing power and the constant manual reinvesting creates unnecessary friction as well. So if I were in your shoes, I would shift away from the CD and instead invest this money into a broad market index fund like the S and P or VTI or something of that nature and allow your child the opportunity to have compound growth with this money between 10 and 18 years old. Now, something that a lot of people don't talk about, Robert, and I think maybe it's a good opportunity to talk about this right now ourselves is the kiddie tax. So why don't you break down the kiddie tax rules for 2026?
- [41:26]
Robert
Yeah, a lot of people don't know about this and I want to just spell real quick. The first $1350 of unearned income like dividends or realized capital gains is entirely tax free. However, the next thirteen hundred and fifty dollars is taxed at the child's tax rate which is typically 10%. And any unearned income above $2,700 is taxed at the parent's marginal rate. So this is very important for people to understand because if you're saving this much money for your kids, you also have to understand the tax implications and how they work. And a lot of people are unaware of this. So make sure you're talking to your CPA or whoever gives you the help on these matters to make sure you don't miss this.
- [42:12]
Austin
But my whole gripe with this is, why, why not the 529? I'm a, I'm a big 529 guy. I like a good 529. I think it gives you some cool flexibility for college, plus trade school. And you know, you can roll it into the Roth IRA at 18, all the fun stuff that comes with that. So maybe to our anonymous listener, I would encourage you to want to think about that 529 one more time. All right, Robert, that is another Q and A episode of the Rich Habits podcast in the books, everybody. If you enjoyed the show, please consider leaving us a five star review either on Spotify, Apple Podcasts, Iheart Podcasts, or wherever you get your podcasts. If you're watching on YouTube, please give us a thumbs up up and subscribe to our Spotify. We've got like a quarter million of you that are subscribed to our Spotify. We're so grateful. So many of you come back every single week. It's, it's unbelievable. So thank you so much. We are so, so grateful. And be sure to come back tomorrow for our Friday episode of the Rich Habits Radar, where we break down the biggest headlines impacting you and your money every Friday morning.
- [43:15]
Robert
And don't forget about the newsletter. It's free. It's awesome. I think it's one of the best newsletters in the country. We cover a lot of really, really cool stuff there. You can check it out in the show notes. There's a link and it's just awesome. It's just a quick read for you guys every week to keep you in the know.
- [43:32]
Austin
Thanks everyone and we'll see you tomorrow. Sam.