← So Money with Farnoosh Torabi
So Money with Farnoosh Torabi
1947: Ask Farnoosh: Tax Season Moves, Optimal Rainy Day Funds, Traditional or Roth IRA?
00:26:21
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- [00:00]
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Farnoosh (Host)
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Farnoosh (Host)
so money episode 1947 ask Farnoosh.
- [01:28]
Sponsor/Advertiser
You're listening to so Money with award winning money Gu Farnoush Kohrabi. Each day get a 30 minute dose of financial inspiration from the world's top business minds, authors, influencers and from Farnoosh yourself. Looking for ways to save on gas or double your double coupons. Sorry, you're in the wrong place. Seeking profound ways to live a richer, happier life. Welcome to so Money.
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Farnoosh (Host)
Welcome to so Money everybody. Ask Farnoosh Friday I'm Farnoosh and it is February 20th and today's episode. I was writing it out and it it's kind of layered in a way that I wasn't anticipating. We're going to get into all sorts of things like tax strategies, headlines, your questions. I want to begin, though, with something exciting and really meaningful to me. It's my show after all. I'm going to take a little bit of time to talk about this. You know, earlier this month I taught a free webinar on how to make money with your podcast and I've done this many times. Not just with so Money, but also my new show, the Montclair Pod, which has a fraction of the audience that so Money has as you would imagine. It's a local show that's dedicated to the town of Montclair, and over 200 people signed up. And it got me and my co founder, Mike Schreiber, who he and I host the Montclair Pot together, got us thinking about what can we offer these very eager podcasters, and in some cases, podcasters to be. So we decided that next month in March, we're going to kick off a program called Build a Profitable Podcast. It's a mentorship program, and we introduced it basically on the call last Friday, and now we're almost full. So we were on the money, so to speak, about how in demand this need was is. And truth be told, I taught this during COVID as well, to an extent. I taught a program called Pays to Podcast with Jaclyn Malone, where we focused more on kind of like figuring out the audience and. And idea behind your show. And then we got into monetization. But this cohort, this program is entirely about ROI and growth, too, because you can't have ROI without growth, without really knowing who your audience is and going deep with your audience. So this program, you can check out the link in our show notes. We only have a couple of spots remaining. We're keeping it intentionally very small because we want to bring a lot of value to the clients. We want to be able to help as many people as possible. We're busy, you're busy. So we're not going to turn this into a giant program. Um, it's very, very tailored to the people that sign up. It's created for podcasters at every stage, whether you're still finding your footing, whether you've been publishing consistently for years, but just can't seem to translate those downloads into revenue. Or maybe you have this quiet pull within you that, you know, my show could be bigger if I just had the right framework. And so that's where I'd love to step in and guide you. You know, over the years, I've seen firsthand, firsthand how podcasting can be transformative in your career if you treat it like an aspect of your career, not just a fun thing to do. Hopefully it's always fun, but also a business, you know, so money. This show grew not just because of good timing or luck, although there was a lot of that, but because of really intentional decisions about growth, partnerships, diversification, and community building. Then there's the Montclair pod, which I launched last year, and it became profitable within the first year because we built it with revenue architecture in mind from the beginning. And what I'll be teaching in this mentorship program. It's not just theory, right? It's this road tested blueprint that I've been using for more than a decade. My co founder, Michael owns his own media company and helps clients build their content platforms. And so we're coming to this with a lot of journalism, media, and sales experience. I know that a lot of us feel like podcasting is super isolating. I mean, even now, as I'm recording this, I'm all alone in my office at home. And I appreciate that because if my kids were here, it'd be a different story. But, you know, it can be a bit of a lonely journey in terms of not having other thought leaders to help you build your business. A lot of podcasts are hosted by solo hosts. And so if you've been waiting for a sign to take your show more seriously this year, this. This might be it. We begin in March. Like I said, we have about one or two spots left. We're keeping the cohort really tiny, so would love to support you if the timing is right. The link is in the show notes. All right, let me shift gears. I was on the Today show this morning. I actually recorded it on Wednesday and it aired today. I didn't realize that they did that, that even the Today show people like to take Fridays off. Good for them. Not really, because they're working. But, you know, no live show on Fridays. But I was there to talk about tax season, how to maximize your savings, how to approach filing more thoughtfully this year and in future years, and how to use also this time of year as a financial reset rather than just like this scramble. But I have to be honest, when I walked into Studio 1A, the usual buzz and the bright lights, they felt very different. There was definitely a heaviness in the air because as we know, Savannah Guthrie's mother has been missing. And as of today, it's been nearly 20 days. And, you know, I have been interviewed by Savannah many times over the years, and I've always admired her composure, her intelligence. She has really this unique ability to make you feel steady, even in live TV's most unpredictable moments. But she's also an extraordinary human being. Beyond her professional brilliance, she's deeply present, she's warm. And we know she's so devoted to her family, especially her mom. And as I stood there this morning preparing to talk about tax deductions and withholding adjustments, I honestly, I could not help but think about her. And of course, she's not been on the show since her mother has gone missing. But really the Today show is her, her family, you know, and like going to work knowing that your colleague, your friend is carrying something so personal and painful and then showing up to work to do the work, it's, it's, it's quite a bit. It's a lot. And so just wanted to call that out. My heart really goes out to Savannah and her family. Moments like these put a lot in perspective. Now, what I was on the Today show to talk about was how to optimize our finances this tax season. And one of the biggest mistakes I see people make is leaving tax savings on the table simply because they weren't aware of some of the rules and assume that maybe contributing to your retirement account, given that now we're in the new tax year, can no longer apply for last year's taxes. And that's not true. You have actually until April 15th to contribute to a traditional IRA and that will count for the prior tax year. And this is good because if you contribute, you get to reduce your taxable income from 2025 or with that contribution amount, if you are under the age of 50, you can contribute up to 7,000, if you're 50 or older, up to 8,000. And that contribution, it can help you again reduce your taxable income, but can also be a meaningful way to strengthen your retirement. Right now. There are also some important changes that will help us this year reduce our taxes. There's the child tax credit. It's increasing to $2,200 per qualifying child and it's now indexed for inflation. So that's important if you have a kid. There's also a new overtime pay deduction for certain workers, allowing up to $12,500 for single filers and 25,000 for joint filers. And probably the most notable of the deductions, the new deductions, is there's a brand new senior deduction up to $6,000 for individuals and 12,000 for couples. This is in addition to the existing age based standard deduction. So pretty significant. Equally important is the right way to file. So did you know that if you make, I think it's $89,000 or less adjusted gross income, you can qualify for free filing through the IRS website, IRS.gov or you can also work with one of their partner software companies to file for free. And if you've got a very straightforward return, there's a lot of reputable tax software out there that can walk you through the process step by step, often for less than 100 bucks. And that helps to reduce errors, it helps to flag potential missed cred. But if you are self employed, if you own rental property, if you have investments that you sold real estate stocks, or if you have or you have experienced a major life change like a divorce, a marriage, an inheritance, then in that case stepping it up and working with a CPA certified public accountant or an enrolled agent can give you the clarity that you need as well as save you time. Because this stuff does take time. Even if it's straightforward enough for you, it does take time. So what is your time worth? We also talked about on the show the importance of setting yourself up for success next year as we're learning a lot right now doing our taxes, we're learning about our organization lack or lack thereof for taxes. And also are we withholding enough or too much? You know, adjusting your W4 now can prevent unpleasant surprises next April. A large refund often means you're giving the government an interest free loan. And then a large bill may signal under withholding. There is a withholding estimator on the IRS website that can help you calibrate. Tracking deductions throughout the year is also important. Saving your receipts digitally and keeping a simple system for logging your contributions to charities, your business expenses, all of that, so that come next year you're way more buttoned up and saves time and money. And then of course, beyond mechanics, we talked about how to use this time frame to learn again more about what is stressing us out in our financial lives. So now we've probably gone through our whole full financial picture. Maybe not yet. If you haven't filed yet for April 15, I know business owners, we definitely have because it's coming up. March 15th is the deadline. So what's a pain point in your financial life that needs attention that you have been reintroduced to right now? Maybe it's that nagging high interest credit card balance. Maybe it's an underfunded emergency account or it is that you forgot to, you know, contribute to your workplace retirement account. And maybe you have one and you have forgotten to roll it over to an IRA somewhere and it's just one of those things on your to do list that now's a great time to address it. Now in the news today, this was a big news day for the Supreme Court striking down President Trump's sweeping tariffs. I got on a call this morning and the first thing this person asked me was what did you think about this, the Supreme Court ruling? And honestly, I hadn't checked the news yet, so I had to quickly look into that. But this is great news, I think, right? I mean, for business owners who were saddled with this additional tax. So basically the Supreme Court again struck down President Trump's sweeping tariffs, basically saying that it's exceeding his authority without explicit congressional approval. Yeah, you need congressional approval. And the White House has indicated that it's going to explore alternative avenues to reimpose import fees. The markets have responded, you know, kind of cautiously rather than maybe dramatically. No, huge. Not a lot of volatility in the markets. Investors seem to think this is not the final chapter in the tariff story. What I'm watching closely is how this may impact small businesses, restaurants, retailers, manufacturers who've been navigating years of squeezed margins and supply chain volatility, and now on top of that, tariffs. So let's hope they get some relief soon. Ask any small business owner and they'll tell you Finances get messy fast. A bank account here, bookkeeping software there, tax tools and invoicing apps stacked on top of. Before long, you're buried in subscriptions, behind on your books, and not totally sure where your business really stands. That's why there's Found. Found eliminates the clutter by giving you one platform that handles it all. 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And recently I found this out thanks to function. It's National Heart Month and I've personally been thinking more about my heart health, especially because heart disease runs in my family. And what surprised me was how much I didn't know until I actually saw my recent lab results. And as it turns out, my low density lipoprotein LDL cholesterol, often called bad cholesterol, was slightly out of range. But my report didn't end with that. I also learned through function, potential root causes, foods to eat, foods to limit, and some ideas for medical intervention. And that's what I really like about function. It doesn't tell you just what to worry about. It shows you what's actually happening in your body. Function is designed by world class physicians and trusted by hundreds of thousands of members. I use this and you should too Own your health and start with your heart. Function gives you access to over 160 lab tests each year, including advanced markers for heart health, inflammation, stress hormones and toxins for $365 a year. That's a dollar a day. Learn more and join using my link. Visit functionhealth.com somoney and use the gift code SOMONEY25 for a $25 credit towards your membership.
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Sponsor/Advertiser
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Farnoosh (Host)
Let's turn now to your questions. Everything from how to save for a rainy day, how much is enough contributing to retirement? What to do after you have the 401k and you want to do a little bit more? You know one that surfaced during my members office hour today. I do a office hour every month for the so Money Club was about sett your kids up for financial success beyond funding a 529 plan. Now I just want to say if you have a 529 plan for your kids, you're doing great. And I mean you can just stop there because to have your kid go through college without debt because you have done the work of saving for them and for yourself, to be honest. Because a lot of times parents will compromise their financial life. To send their kids to college is not a small thing and it will set your kid up for success. I mean, let's just look at it this way. You graduated from college with 100,000 in debt, student loan debt, which is not unreasonable considering that's just one year of college right now at many elite universities. So imagine you don't have that, but imagine that you do. How many years is it going to take you to get out of that debt? At least 10 years. And all that time you are struggling, because I don't care what you studied and what university you went to, your salary upon graduating from college, on average it's about what, $60,000 a year right now? That's assuming you got a job right away. Okay, let's do the math. That loan is thousands of dollars a month. Okay. That's another rent payment. So imagine that you didn't have that and how you could actually, you know, do some stuff that is important to you that's more meaningful to you than paying off debt. So this question comes up, how do we set our kids up for money success beyond affording them College through a 529 plan? And it reminded me of our guest on Monday, Lynette Calfani Cox, who's a financial expert and author, and she's got grown kids all out of college. At the end of our interview, if you remember, she talks about this wealth starter kit that she has given all of her kids. Basically, it's a kit that commits to supporting them through college, help with a first home and a car. Take a listen.
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Guest Expert
What we've done in our family, we've given our children. We recognize that especially because we're African American, there's a huge, not only wealth gap, but there's a homeownership gap in this country, which in large part accounts for the wealth gap. About 75% of white Americans own their own homes and about 45 to 48%, depending on whose data you believe of black folks own their own homes. And unfortunately, that's like the same that it was 50 or 60 years ago when housing discrimination rules were put in place to try to beef up lending, to stop redlining and historically discriminatory practices. So we again evidence that we've not seen much change on that front. What we've done is we've given our kids what we call a wealth starter kit. And I think that a lot of families are going to have to recognize that the only way the typical younger, millennial or even Gen Z is going to get into the housing market is with family assistance on the down payment front or going through down payment assistance programs. And there's a great website out there, down payment resource that will show you in your state, in your area funding. If you're a first time home buyer, some hope that you can get on that front. But we told our kids, we'll buy you your first house, we'll put you through college debt free and then we'll buy you a car, as my husband likes to say, because then drive away now. We've given you everything that we can give you. We don't want you living in our basement. We don't.
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Farnoosh (Host)
When I was a kid I thought I need two things to earn my freedom. I need a license and I need money. And I know you've written many books about kids and wealth, but I love this title, the Wealth Starter Kit. I told her that she needs to probably write a book about this. And if you listen to the show, you'll also hear about the strategies they deployed when their kids were choosing a college. It wasn't just go anywhere you want, it was go to a college that's a state school. And that state will give you residential status, residency within the first semester of going to school there. Because you've done a couple of things like you've gotten a driver's license, you've gotten a mailbox in the state. And some states are more lenient than others. Some states require maybe you to have an LLC or something, but it is doable. And I think all of her kids did something like that and ended up getting in state tuition for these out of state colleges and universities that they went to. And so that, that is an incredible savings because I always look at Penn State where I went and I think for out of state right now, going there, full ride, full tuition and housing is probably around 60, 70. And in state it's less than half of that, I think maybe half, but still significant savings. If you haven't listened to that episode, go back and listen. It was Monday's episode. Now not every family can do that, right? Not every family can provide a Wealth Starter kit. Not most families can't even do a five to nine. So what are the other ways that we can set our kids up for financial success that are more accessible to any family regardless of where they are financially and what they can contribute? Resilience, work ethic and having honest conversations about money. These are the things that we can Start to implement early on in their lives. So things like being responsible for aspects of the household, unit, chores, whatever you want to call them, getting a job when they're ready to do that in high school and able to do that. This question reminds me also of my conversation with Randy Crawford. This was way back in January. Way back, yeah, like a few weeks ago. We talked about how to launch kids in our very expensive world, how to raise financially aware and financially motivated kids. Really, like, not like, I have to make all this money, but I need to be conservative and save and be diligent with my money. And we talked about how sometimes it doesn't even come down to the money stuff. It's really about the developing certain personality traits, certain mindsets around work and life that then bleeds into your financial life and how you manage your money. When you are somebody who has a strong work ethic, who is organized, who is personally motivated to go out there and do things, and driven by success, I mean, a lot of that then does translate into your ability to manage your money and also want to be financially independent. Another question came in this week about how much to hold in your emergency account in today's economy. So this may seem like a really basic question, and maybe you've heard the answer to this often, but I want to add some more nuance to how we would answer this normally. So normally you would say four to six months of savings tucked away in an account that's accessible to you. But, you know, you got to think about where you are in your career, the context. In some industries, job searches are averaging six months or longer. So keep that in mind. It's not just an arbitrary number that we say six months. It actually is pegged in many cases to this data point that we get from the government every single month, which is how long is it taking for someone who filed for unemployment the first day and then stopped because they found another job? So that's important factors also, like potential severance, your state unemployment benefits and your budget and how flexible you will be or can be to reduce your expenses. This is all gonna inform your target. You might find out that, you know what? I work at a company where they give you two weeks for every year you've been working there. And I've been working there for 15 years. That's 30 weeks of severance. That's almost eight months of pay. Now, that's not gonna get you health insurance. Right. So still probably important to have some savings set aside. If, again, you don't modify your living expenses that's a very generous severance, but it's going to go quick if you're also not making some savings adjustments and if you don't have your own savings to supplement that. If you're an entrepreneur, own your own business. We always say a year's worth of cash flow saved. And you know, because your business has seasonality and you might have some months where you don't get anything and then you get stuff. So you have to make sure that you have reserves to help with that cash flow, to help with the budgeting, both within your business and outside of your business. Then we had a question from a woman in our so many members club who was asking about how to balance retirement contributions between the 401k and other things like basically, should she open an IRA in addition to the 401k, a traditional IRA or a Roth. So I offered this advice. I think first of all, with your 401k, the tax benefit with that is that you contribute whatever you contribute and then that helps you to reduce your taxable income. So you're getting the tax benefit today when you go to make the withdrawals in retirement. Those qualifying withdrawals will carry a tax bill. It's going to be pegged to your income, your income tax rate. It's very important to have tax diversity in retirement when it comes to these savings vehicles. So I would love if you can qualify, because not everybody can, depending on their income. If you can qualify for a Roth ira, that is where I would go to next. Because the Roth IRA offers the reverse tax benefit, right? Where you don't get a tax break today from your contribution, but when you go to withdraw from the Roth IRA in retirement, those withdrawals, the taxes are $0. So it's nice to have these different tax vehicles, these different investment vehicles that have different tax implications in retirement to just kind of soften the blow of the tax bill. There might be some years where you're still earning a pretty good salary and now you do want to withdraw from your retirement accounts to supplement your life. Well, having a Roth IRA to do that would be great because you're not going to be taxed on that. And then as you start to earn less, then it's like, okay, maybe now I'll withdraw from my deferred accounts and I'll pay taxes now because I don't have theoretically a bigger bill based on where I'm at financially with my income. But in all this is giving you flexibility in retirement to have these different tax oriented savings vehicles. And just FYI, in 2026, the Roth IRA begins phasing out. You cannot contribute once you are making more than $168,000 a year. That's for a single filer. For married filing jointly, it is. Once you are making more than $242,000. Someone asked me on the Today show as I was leaving, if I'm 65 but my partner is not and we file our taxes jointly, can we both get, can we get the senior tax deduction that just got introduced, the one that I talked about earlier where you can deduct? I think it's like $6,000 for single filers, 12,000 for joint filers. And the answer is, the person who's 65 would qualify for one senior deduction amount, $6,000. You would not qualify for the full 12,000 unless both spouses are 65 by the end of the tax year. 65 or older. The question kind of stumped me and I went and looked it up. And if they're listening, that's the answer. All right, that's our show for this Friday. Once again, if you are interested in applying for my podcast mentorship program, we're going to focus specifically on growth and monetization. That link for the website and the application is in our show notes. Again, limited spots will probably fill up by over the weekend or early next week and we kick off the program on in early March. It's a virtual program. I think you knew that, right? All right, thanks for tuning in, everyone. I'll see you back here on Monday. And I hope your day is so money.
- [31:31]
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