← So Money with Farnoosh Torabi
So Money with Farnoosh Torabi
1917: Ask Farnoosh: Invest in Gold? 401(k) Changes? Buying a Home Without Raiding Retirement?
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Seeking profound ways to live a richer, happier life.
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Welcome to so Money.
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Welcome back to so Money everybody. I'm Farnoosh Tarabi. Friday, December 12, 2025. We're going to be tackling your biggest money questions that have come through this week. We're going to also make sense of some of the big financial storylines that are shaping our lives. I know that a lot of us are feeling uncertain at this moment because the markets are twitchy. We're talking about a tech bubble that may or may not keep inflating and we're trying to plan for 2026 with only a little bit of visibility into what the economy is going to like. So we're going to get grounded a little bit today and what we actually know, what the latest data is telling us, and how we can take some concrete steps to protect our money. So we're going to first start with a breakdown of the latest Federal Reserve news that came out this week and what it may mean for us. We're also going to look at some of the important 401k changes that are happening next year that is important to know about. I'm also going to jump into your questions, of course, including one about gold and how to buy it, how much to buy, why we should think about buying gold. You can get it beyond just at Costco, FYI. And also, someone in the audience is wondering whether to pull money out of their 401k to buy their first home, because that's where we're at. Everybody homes are not very affordable, in case you didn't know that. And so we're just, We're. Desperate times call for desperate measures. So let's dig into it. First up, the Federal Reserve has cut rates again. It came down to a 9 to 3 vote. And so that split alone tells you that there is some disagreement inside the Fed about this whole issue around interest rates and also what next year should look like. And that conflict internally is not great for everybody else. The Fed cuts rates again. But this Fed cut hinted very strongly that this may be the last cut for a while. The Fed also released its quarterly dot plot, which is basically a forecast from all of the voting members. And the dot plot only shows one more rate cut next year and then one in 2027. So that's a clear message that the Fed believes inflation is still sticky enough and that the labor market is softening but not collapsing, so there's no urgency to keep loosening. Inflation's hovering right now at about 3%. And the labor market, we're going to get that November jobs report next week. We know that the labor market is weakening, but we're not exactly in recession territory. The Fed also announced that it's going to continue buying treasury. It's going to continue buying treasury securities. And this is a bigger deal than many people realize. So the central bank is planning to buy about $40 billion in treasury bills beginning today. This means that it's going to now be injecting liquid into the market, which is going to mean putting downward pressure on yields. But it also signals worry. When the Fed starts buying bonds again, it's usually because it thinks the economy needs a little bit of that cushioning. What does this all mean for us in terms of rates? A lot of people are mostly interested in those mortgage rates. A lot of the people who are watching the markets, especially the housing market, say not much in the short term mortgage rates. Remember they don't react to Fed moves directly. They tip typically respond to things like inflation and long term bond yields. Yields. I was reading Fortune magazine and they quote Melissa Khan, who's a mortgage veteran and she says that the markets anticipated this cut and the real shift will come as new inflation and jobs data arrive in the coming months. So right now the average mortgage rate, if you've got decent credit, good credit, is about 6.3%. So I think the days of 3% under 3% is gone, but it is also down from the 8% that we saw in late 2023. If you're shopping for a home right now, I think it's wise to think of the market is cooling rather than crashing and rates could drift lower if inflation improves and they could also rise again if inflation picks up. So we're in this messy middle. And we'll talk more about housing later on in the show when one of our audience members has a specific question about afford a home. So in short, in summary, with this Fed data, with this Fed news, my advice is hang tight, pay down your debts, keep investing, don't make any big moves based on this latest interest rate decision. Whether it's I'm going to buy a home now or I'm going to launch my business finally. The data is too choppy but I think take it as a sign if the Fed policymakers scratching their heads, that means that we also can't be too certain either. Right. We're also in this holding pattern and I think when things are uncertain, what do we do? We control what what we can control, which is that we just stay the course, we continue to pay down our debt, we continue to save. We don't take huge risks right now unless we can afford it. And if you can afford it, go for it. Now, let's talk about retirement. 401k changes are afoot. They're coming in 2026 and this will affect a lot of us. I know many of us are investing in 401ks and there are some rules that are changing next year. They're going to affect our contribution limits, our employer matches and then just overall planning for retirement. So here's what we need to know. Firstly, there's going to be a higher limit for employee contributions. So your contributions can actually be higher next year. If you're under the age of 50, you're going to be able to contribute up to 24,500 bucks next year. That's an extra thousand dollars from what you were able to do in this year. If you're between 50 and 59 or if you're over 64, you have an even larger limit and it's newer this year and it's going to be and it's also new in 2026 it's 32,500. So we call that a catch up contribution for those over the age of 50 or over the age of 64. If you are between 60 and 63, your special hire catch up window rises even more to $35,750. That's meaningful. Even an extra thousand dollars or $2,000 every year compounded can mean a lot more in savings. And we know that when you're retiring these days it with between rising health care costs and inflation and just the cost of living pounds. And then these are combined limits for both your traditional and and Roth 401k. You can't be maxing out both. Also, you're going to see a higher annual additions limit. This is the total amount that you and your employer can contribute together. So that limit is going to go up an extra $2,000 in 2026 to $72,000. So people often get confused and I say my employer is offering me a match. So does that mean that what I contribute plus the match can't be more than the total contribution limit for the employee? And it's no, it just can't be more than what is called the kind of annual limit that is your employer and you and that is much more than just you. This is going to now be $72,000 in 2026. This is obviously only going to affect not only but mostly high earners or people who receive large employer profit sharing contributions. And then thirdly, the 401k is going to see a higher annual compensation limit. So this dictates how much of your salary your employer can consider for calculating a match. In 2026 the cap rises about $10,000. It's going to go from 350k to $360,000. If your income is in that range, then your match could go up. So some action steps based on these changes next year or review your 2026 budget and see if you can bump up your contributions. Talk to your HR to understand whether your employer plans to change the match. You might want to revisit your investment mix and then avoid leaving money on the table. If your employer is going to offer matching Dollars. Okay. I had a very good conversation today. You're not going to believe with who? I'm very excited. Maybe this is geeky, but I had a call with Senator Elizabeth Warren's communications team today. She's very interested in coming on SO money. You may know she is a big advocate for helping Americans live more affordably. So we're working to schedule her to come on the show in the new year. And you better believe I'm going to ask her a lot of questions about housing and debt and the debt crisis. And we often talk about that 50, 30, 20 rule when it comes to budgeting. She invented that. She is the architect of that. So just cross your fingers, cross your legs, toes, all of it. Knock on wood. Let's hope that we can get her on SO Money in January or I'm hoping February at the latest on SO Money. Because we're going to need all the experts on this show in 2026 to help guide us. All right, let's hit the mailbag. All right, first question is about gold. Our audience member says, hey, Farnish, I've been hearing about how gold may be a safe haven for investments during turbulent times. And with so much uncertainty heading into the new year, what are some ways to buy gold? And if I should buy it, how much should I own? All right, this is a great question. Earlier in the year, we were joking about how do you remember? I told this story about I was in line online at Costco for a long time and I was wondering what the heck was going on, because this guy in front of me, he had nothing. He was just talking to the cashier forever. And come to find out, he was doing a gold transaction. And the gold bars he was buying, which you can do at Costco, it was something like $2,000, which was a discount to what he could then sell it on the market. I think the market was like $2,400 or something. So whatever. It was a. If he theoretically he was making like 800 bucks because I think he bought two gold bars. And in any case, it was taking him quite a bit of time because Costco has a thing where you can only pay in cash. I don't know. Long story short, it got me remembering about the value of gold. And yes, gold is actually quite a popular safe haven. We call it during uncertain times. And historically, it has been a hedge during volatility. It's not a magic solution and it's not risk free. So let's break it down. Why do people buy gold? 1, it holds value when there is worry about inflation and 2 it tends to move in the opposite direction than the stock market. So when the stock market is doing poorly, gold is usually up and vice versa. It can also cushion your portfolio when markets are chaotic. But gold is not a growth asset. It doesn't produce earnings, it doesn't produce dividends. Long term, it actually lags stocks significantly. So just keep that in mind and you'll realize that later I'll say this, that it's not where you want to keep the majority of your money. It's something you want to maybe like season your portfolio with and I'll tell you later how much maybe to buy if you're going to buy it. How to Buy Gold the general rule of thumb with any and I call this an alternative asset because it is it's not your mainstream asset, right? It's not stocks, it's not bonds, it's gold, which is it's not your average investment. I'm Farnish Tarabi, host of so Money and this episode is sponsored by ghelt. Feeling like your CPA is always one step behind, causing you to miss valuable tax advantages? Questioning if your tax plan is truly as optimized as it should be. That's where gilt comes in. Gilt is a tax planning and strategy solution for you and your business. 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So how to buy gold. You have a number of options. There's Costco, right? You can actually buy the physical gold and it comes via bars, coins, bullion. You can own it outright. It's not tied to the financial system. The cons to this, obviously it's heavy, you gotta store it, you want to get insurance for it. There might be markups and then there are liquidity challenges when you want to sell it. There are places where you can actually go like they buy your gold, gold jewelry, gold bars. But there's usually a premium for that. There's usually a fee, a transaction fee. And so it's weird. Like even when I was at Costco, I was thinking to myself, okay, so Maybe he's paying 2000 and the market quote unquote, it's priced right now at 2,400. But that he, what's he going to do now? Go on Facebook Marketplace and try to find someone who's going to buy it for him? But what's the price there? It's not a guarantee. It'll be 2,400. So anyway, another way to buy gold, there are gold ETFs, just like you might buy an exchange traded fund that tracks solar investments or the S&P 500. So these are easy to buy, they are sold in a brokerage, they carry low fees, you don't have to store them. The cons of course are that you do not hold the physical metal. The price tracks the market sentiment. So they can be more volatile. And thirdly, you can buy gold mining stocks. So this is like a gold adjacent category. The pros are that there's potential for higher returns actually than gold itself. But it can be more volatile because it's tied to company performance. There are also gold IRAs which have tax advantages. And so people like that. It's a way to hold physical gold in a tax advantaged way. But there are fees and they can be high. And then there are also some rules which can be strict. So the question now is how much gold should you own if this is something you've now decided I want to do for most people. Again, because this is an alternative asset class. And as we discussed, it can be volatile and in the long term, it actually lags the stock market. You don't want to go big with gold, right? I would say between 5 and 7% of your overall portfolio. It's enough to diversify, but not enough to derail your long term growth. And when you go above that, when you're at like 15, 20%, you know, you're really making a bet rather than a hedge. So like I said, it's a seasoning, it's not the entree. But if it helps you feel better at night knowing that we're heading into volatile times. And by the way, I will say that this time of year, every year, every single year, it always feels like the new year is going to be crazy. I don't know, like the market's going to bust and we just have all these doubts. It's human nature. Who knows, who knows? Let's be optimistic too. But anyway, I think with gold, again, it should not replace your stocks, your bonds, your cash. If you do invest my personal opinion, ETFs, low fee, track the market, you get a basket of gold options. It's simple, it's clean, and you can trade that if you want, day to day, if you want to just decide, you know what I want to sell it, it's liquid. It's probably the most liquid way to be in the quote unquote market. All right, here's Lucy's question. Her question's about online banks, which she puts in all caps. So this is a big one. She says, I recently inherited a good chunk of money and I wanted to take advantage of these great interest rates everyone is talking about. I want to know how online banks fit into the bigger picture. Okay, Lucy, the first thing to address is why you might be interested in banking with a high yield savings account. With an institution offering a high yield savings account. When does it make sense to put your savings in a high yield savings account? Isn't the answer just always? Not always. I would say, look, high yield savings is great and if you can get that with some other attributes that I think are just as important, then we're talking. But to just pick a bank because you see a high yield, it's not where the research needs to stop. So firstly, when are you ready? When is it right to put this money in a high yield savings account? This is not money that you are transacting with on a daily basis. This is not money in your checking account, right? This isn't even probably the money that you want to put away in the event of an unexpected big cost that's going to come from savings like a flat tire, a plumbing bill, an unexpected root canal. Things that you may not have money for in your checking account, but you have them in the immediate savings account and you want to be able to pull that money out very fast that day. Not all online banks that offer these high yields allow for quick transacting. Some do. So that's just one thing to consider. Before you transfer a huge chunk of money to a high yield savings account, you have to be sure that your relationship with this money is such that you don't need it immediately. Because also, the whole point is to benefit from this high yield. If you anticipate needing to take out this money in the next month or two, or honestly before the end of the year, you're not going to get the full yield. This is an annual yield. So first, just understand your need for this savings, the relationship that you have with this money. Is it a relationship that requires maintenance, active transacting? Then this is not money that goes into a high yield savings account with the intention of parking it there for the full year, hopefully to get this interest rate. Now, in your case, Lucy, you're talking about an inheritance, which is which to me, I'm thinking my thought bubble is that this isn't money that you're going to go put in your checking account necessarily. This was an unexpected lump sum that you would like to put somewhere safe and maybe year or down the road sometime tap it for a goal. So do some research. There are sites like Nerd Wallet and Bank Rate that will look up all of this for you and show you what's available. All right, thanks so much for your question. All right, Paige just switched jobs and she says she's torn on whether to leave her money in her old employers 401k plan or roll it over to her new employer's plan. She noticed that she's getting a record keeping fee in her old plan and she's just trying to weigh the pros and cons. All right, Paige, I'd say the big con here is that you're now getting charged for a dormant retirement plan. Because remember, as you've left the money in your previous employer's plan, you can no longer contribute to this plan. You are just letting it sit there. And so it's not growing, it's just getting smaller. At this point, my recommendation is that you do roll this over into either a traditional IRA so that you can continue to contribute to it, or you roll it into your New employer's plan, whichever you feel has maybe the lowest fees and more options. Typically, that's an IRA. 401ks can be more costly, but people love them because it allows you to automatically contribute from your paycheck. Makes it super duper simple. There's a match, all the things, but with Rollo, get the match right. With rollovers, you're not contributing directly from your paycheck. You're either dumping it into an existing portfolio or you're creating a new one with it via a traditional ira. That choice is yours. I think it's time to move on from your previous employer's plan. This is what happens when we leave old 401ks sitting there for too long. After a while, there's usually a three or six month time frame after which the plan provider starts to charge you a maintenance fee or in this case a record keeping fee. What they ultimately want you to do is move that money not completely out of their domain because they also probably offer traditional, traditional IRAs and other sorts of retirement vehicles. So if you like this company, maybe it is one of the bigger ones and they have a lot of options. You could just move it to a traditional IRA or some other sort of retirement vehicle at that brokerage house or move it into your new existing 401k, which I would say the Pro there is one is that everything is consolidated, everything's under one roof. Roof. It's just easier to keep tabs on it. Right. And then finally a question about the question about home buying and whether to dip into your 401k to buy your first home. Our friend in the audience says they have $87,000 in their 401k and they're thinking about taking somewhere around $40,000 out for a down payment plus renovations. This person's almost 30 years old. They have Roth contributions and they can qualify for the mortgage. But the idea of cutting their 401k by 50% frightens them. Should I do it? Farnooche. All right, thank you for this question. I know it feels very vulnerable right now. I know it's a vulnerable question. And I also know you're not alone. I know that right now, first of all, there's not enough supply to go around for everybody who wants to buy a home. And I know that also the affordability is just insane. Is insanity. Again because of the supply demand issue, but also because of where interest rates are and because of just inflation. The cost of living has just gone up and people are sellers just want what they want for their homes. A lot of first time buyers are staring at high prices. And so you're looking at your 401k and you're thinking, I'm only 30, I've got a long ways to retirement, maybe I can and use the next 40 years to rebuild. And in the meantime, I'm going to buy this house. There is some logic to it. I get it. But let's break it down. I want to give you the full picture. Let's talk about first the pros of borrowing from a 401k because there's, there are a few. Firstly, unlike borrowing from a bank, okay, you're going to pay the interest back to yourself. So you're the bank. Your credit score is not affected and the repayment schedule is more predictable. The cons though, and these matter a lot more. One, your retirement account stops growing on all that money that you remove. So you pull out $40,000 at age 30. Think about it, that could have grown to more than $300,000 by retirement using just a standard 7% return. So that is the real loss. That is the true cost of taking out 40k. You're not losing 40k, you're losing 3, $300,000. So let that sink in. And that's just again using a standard 7% return. If you leave your job, the 401k loan comes due pretty fast, usually within 60 days. And if you cannot repay it, then that $40,000 actually it's no longer a loan. It becomes a distribution, an early withdrawal, a penalized early withdrawal, which means you're going to get hit with taxes and penalties and then that $40,000 is actually more like $20,000. And then keep in mind, renovations typically cost more than expected. So you're saying $40,000 for the home and then renovations. But truthfully, I've been through several of them myself that the down payment you can predict typically, but not renovations. And so I'm worried that you're going to actually end up needing more. And so you may be tempted to into that 401k because you do it once and they oh, that was easy, let me do more. I just worry that you're going to tip over. You are almost 30 and this is exactly when your retirement accounts should be compounding aggressively too. So you will lose some of your most valuable financial years by cutting your balance in half. So my bond. So if you ask me, and you are, I would say don't do it. I think that the long term cost is just too high. We've talked about it ad nauseum on this show that while homeownership can be wonderful, it is one of those things where if you find yourself really sacrificing so much to buy a house, it just begs the question, is it really the right thing? Is it the right time? Is it really for you? I understand that financial decisions carry trade offs and we do it all the time at calculations. We all, we're always doing a math equation and we purchasing one thing means losing one thing. But in this case, I think it's too big of a cost. We're not talking about going into debt for a year. We're talking about potentially losing six figures out of your retirement. And I don't want that for you. I would rather you continue to work, you continue to save that, you build your cash, you maybe adjust your expectations a little bit, maybe you find, find a home that is maybe a little bit less, more affordable. Where you $40,000. I bet you could save that on your own. Truly, you're 30 years old, you might be making more in four in a few years. You save a few bonuses, you save a few cat tax refunds, you cut back on some expenses, you get uncomfortable for a couple of years. I'm not saying it's going to be easy by any stretch, but then, but that's going to be the test. How bad do you want to be a homeowner? And that's our show, everybody. Thank you for tuning in. If you have a question, please send me a direct message on Instagram. We'll be back on Monday with a brand new episode and until then, I hope your weekend is so money.
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