Afford Anything - Q&A: My Mom Is 73. She Has a House — But It Doesn’t Pay the Bills. Now What?

Episode Date: April 21, 2026

#708: What’s the smartest way to handle big financial transitions—when the stakes are high and the “right” answer isn’t always obvious? Anonymous “Cyndi Jr.” is helping their 73-year-old mother relocate across the country and needs to decide how to use the proceeds from a home sale to balance long-term housing security with inflation protection. Anonymous is trying to figure out how to handle quarterly estimated taxes on investment income—without relying on safe harbor rules that don’t always reflect market swings. Luz, whose previous question was featured on the show, is now navigating a major job change and wondering what to do with an old 401(k)—while also rethinking how Roth accounts, an HSA, and debt all fit into a bigger financial strategy. We’ll walk through each of these and help you think it through in today’s episode. Resources mentioned: Don’t miss the YFRP Webinar! https://affordanything.com/rental2026 Join the YFRP waitlist: https://courses.affordanything.com Listen to Luz’s previous question: https://affordanything.com/episode583 Stay in the Loop: https://affordanything.com/newsletter Share this episode with a friend, colleagues, and Cyndi Lauper: https://affordanything.com/episode708 Learn more about your ad choices. Visit podcastchoices.com/adchoices

Joe, I know it's audio only so people can't see the fact that we're sitting in the same room, but I'm in your mom's basement right now. It's so wild having you here. It's crazy. I am in beautiful Texarkana, Texas, right at the Texas Arkansas State Line. We had breakfast at a diner that is just perfectly the Texas Arkansas State Line. If you think of iconic Texas Arkansas State Line. Yeah, exactly. That's what we ate for breakfast today. That is the diner. That is, yeah, that was the plate.

And you had biscuits and gravy, which is also appropriate for. Yeah, and hash browns and sausage. Yes. And diner, oh, I love diner coffee. It was so good. Yeah. And they're such nice people. Very, very nice people.

Yes. But Paula is here because she is our special guest at Texas A&M, Texarkana. Yeah. By the time this airs, we will have done a live show at Texas A&M at the Texarkana campus. But you know what? We should make a show right now. What do you think? What?

Really? Yeah, I believe we should. Okay, fine. Welcome to the Afford Anything podcast, the show that knows you can afford anything. Not everything, though. Saying yes to something means you're going to accept the trade-offs. This show covers five pillars. Financial Psychology, increasing your income, investing real estate and entrepreneurship, acronym Double I Fire.

I'm your host, Paula Pant, every other episode, ish. I answer questions that come from you with the buddy who is literally sitting across the table from me right now. I could close enough that I could kick him. Joe Saul, see, hi. Please don't. Please, please. Wait until I answer one the way you don't want me to. Yeah, I'll be like, ex-nay on the answer say. See, finally, we always compete for who has the best answer, and now Paula can kick me and go, no, mine's better. But you can kick me too, right? I wouldn't do that. Aw. No, you could do a squirt water gun across the table. I could do that. I have a pink marker in my hand. I could marker you. Oh, yeah. Yeah. Well,

Speaking of markers, that was a terrible transition, we're going to answer a range of questions. The first one is from a caller who's worried about her 73-year-old mom and is wondering how to move her mom across the country and then manage mom's money. We're going to hear from a caller who has some tax planning questions related to money that's in a taxable brokerage account. And then we're going to hear from someone who overall wants an idea, you know, here's a snapshot of her. life, what should she do? So wide range, we're going to talk about all of them starting with our first caller, Anonymous, Anonymous worried about mom. Hi, Paula and Joe. Thank you for your podcast. I've learned so much on how to think versus what do you think by listening to you. My family and I are helping my 73-year-old bomb plan her move from California to Maryland so we can better manage her.

As a part of the move, we're planning to sell her paid-off condo, but determining the best course of action on what to do with the proceeds is making me question everything. In terms of financials, she is on Social Security with a monthly income of $1,300. She has some stocks, but it does not provide sustainable income she can live off of. And her paid-off house. She has no other major liquid assets. I want to ensure her housing needs are met for the long term and prevent inflation eating up more of her spending powers. Here are the strategies I'm considering. One, use the cash and purchase a property out right after the move.

Two, make a large down payment to reduce monthly mortgage cost, invest 50% of the remaining cash in broad market ETFs to hedge against inflation, and put the rest in high-yield savings for daily expenses. What do you think of the plans? What else should I consider? What did I miss? Thank you, and I look forward to hearing your insights. Paula, we have to give her a name. We can't just answer any anonymous person's question.

Right, exactly. So anonymous worried about mom. Your mom is 73 years old. That means she was likely born in or around 1953. So I looked up, who are some of the famous women born in 1953, Cindy Lopper, singer-songwriter Cindy Lopper? singer-songwriter Cindy Lopper. Well, there you go.

Was born in 1953. But that's mom's name, so what's her name? Daughter of Cindy. Cindy, Jr. We'll call her Cindy. Cindy Jr. Yes. She's a Cindy, too.

By the way, in case you're wondering, other notable famous women born in 1953 include Kim Basinger, Rosie O'Donnell, Shaka Khan, and Marie Osmond. Wow. A lot of 1953 talent. Big year. All right. So this is a multi-layered question here, Paula. So the number one thing that I want to solve for is housing, because that's going to be the biggest expense and it's going to occupy the biggest chunk of money. The first question, Cindy Jr., that I want to ask you, and I don't know how you're going to feel about this because different people have different feelings about.

Wow, really? You heard it here first. How would both you and your mom feel about her at least for a little while living with you? And I know that's going to, some people are going to be like, no, not an option. Some people are going to be like we would kill each other. Some people are going to be like, oh, that's not so bad. Like there's huge variation in every family about how people feel about that option. But here's the thing.

Your mom's income is $1,300 a month. That is not enough. That's her income from Social Security. And that is not enough to be able to cover just modern day-to-day living costs. She will have this lump sum from the sale of her condo. But that is pretty much the only money that she has. And so if we tie it up in buying another home, we could do that. And it would give her some space.

But it would tie that money up. the use of that money would be another home. If you have both the type of family dynamic and the type of home in which she could live with you and eliminate the need for her own housing, that would free up that lump sum to be invested in a conservative inflation protected manner and to be, you know, harnessed for a drawdown strategy from that lump sum. the drawdown from that lump sum plus the $1,300 per month, that would actually provide more reasonable living expenses. My first thought was very similar to yours where I thought that we needed to exclude, just take all the money, put it toward a new house. Don't want to do that. It sounds like it's also Cindy's thought as well, not to do that, like it's an option, but not a great option. I think this is a question that we really would do well by knowing the actual numbers.

Like if we know what numbers we're talking about, how much does mom need to live? What is that amount of money? How much is a condo going to cost? How much is she going to get from the proceeds? Because if she's taking the condo and we're deciding how much money to put toward the new condo as the down payment, what we really want to solve for is what's the amount of money we want to free up as free cash flow, right? So my thought process is the first thing I want to do, this will come as a shock to anybody who's heard this show before, I think we really need to timeline out mom's life. Like what is her monthly expense? What's that budget that we want? and then how much money can we afford then for a possible payment on the condo if we don't use all the proceeds.

That also then will- You mean on the new condo that she buys? Yeah. And that'll also then could also give her a better idea. This is what I like too. This gives her a better idea of affordability. And when mom goes looking for the new place, like what's actually my price range, what's out, you know, where are my guardrails? So I think if we knew those numbers, we'd do better.

There's another factor here, but I see the look on your face. Yeah. So, okay, here's the thing. Cindy Jr., of the suggestions that you made, I do not love the idea of making a big down payment on your mom's future home. Oh. I don't love the idea of making a big down payment and then giving her a mortgage because putting her in a mortgage at the age of 73. Sure. when she's on a very low social security income, I just, there's too much risk.

I don't like that. Too much risk to have that level of debt with a limited fixed income. That one I would want to eliminate immediately. So if we buy mom a home in Maryland, I want mom's home in Maryland to be purchased in cash. So you want a serious downsize? Yes. Yeah, yeah, yeah. And I mean, the good news is she's moving from California.

California to Maryland. Hopefully that means... Hopefully it's the Bay Area that she's moving from. Right. Like, just hopefully that means that she can get more, better home for her money in Maryland. But if mom buys a home in Maryland, I want mom to pay cash for that home. I don't want to put mom in a mortgage at the age of 73. So that's number one. But number two is, I also don't want to tie up too much of her money in a home. Yeah, that's why, that's why I don't know if I do or not. I don't know if I care about the mortgage or not because what I care most about is mom being able to cover her cost. Right. And if we need a small mortgage to be able to afford that, fine, fine. But I don't know what those numbers are. Monthly cash burden. It does add to a month of cash burden, but if she can put down less

money, if we're solving for cash flow, we actually might do better by leaving money off to the side and having a small mortgage on that property. Here's the other spectra that's coming up for mom, though, that we have to worry about. And this is where I may differ from you, Paula, about that large down payment, which is, what is the strategy around a catastrophic illness for mom? Because I think that any CFP will tell you that the biggest specter in any retirement plan is the threat of long-term care, right? And what am I going to do about long-term care?

Now, here is the reason why a large down payment. might be good is because of the fact that most states have an exemption from Medicaid. If this is all the money mom has, mom's looking like Medicaid would be a way to potentially solve the biggest problem in financial planning, right? Medicaid will help her, but you have to qualify. It's very difficult. So mom gets a little bit of money, and this is going to vary from state to state. I'm not trying to be oblique, but it's different from state to stay.

But every state has. She's going to get a little money because every person needs to have a little bit of cash for stuff. So you're allowed a small amount of money. And then up to a certain cap, you're allowed your home equity. Right. Now, most states cap that between $750 and $1.2 million. Like that's the cap. Or above that, then, they're going to say, hey, you got to take cash out of your house to pay for your long-term care needs. So if you are solving for that part of the problem, having too much cash outside of the house that doesn't qualify, and then having money instead of money in the property could be a long-term care mistake. Yeah. As of 2025, the maximum allowable equity interest in a primary residence in the state of Maryland is $730,000. Yeah. So that's on the low end, right? That is the maximum allowable equity interest. Yeah.

That's on the low end of the 50 states. Oh, yeah, yeah, yeah. Yeah, that's what I'm saying. That's on the low end of all the 50 states. So you are moving to a state where it's a smaller amount of money. Oh, look, actually, it looks like in 2020. So those were 2025 numbers. It looks like in 26, it's pushed up to 752,000.

I think that that is the Achilles heel. Now, we don't need to solve for that. We just need to know that that's out there, right? That that might be something that you're going to deal with in the future. If there's a different way to deal with it, then great. But I think we have to think that that may be on the table. Yeah. That being said, you know, there's gamifying the system and then there's simply having

enough cash to be able to pay your bills. This is why I come back to if you would be happy, if your family would be happy with an arrangement in which mom lives with you, right? Multi-generational housing. Cindy, in your question, Cindy Jr., in your question, you said that your main goal is to make sure that her housing is secure. If you can provide that housing for her, it would then free up that lump sum of cash. And then let's just imagine that that lump sum of cash is $750,000. Let's imagine that as a planning exercise. I don't know how much it is. Even using the 4% rule, which I know

there are, you know, big asterisk here, right? We want to be more nuanced than that. But just as a simple thought exercise, even using the 4% rule, if that lump sum is 750,000 and we're investing it conservatively in an inflation protected manner, that gives mom an extra $2,500 a month, which if right now she's receiving $1,300 a month, that is a tremendous boost to the quality of mom's life. That also is Paula White. I also keep coming back. You come back to one thing and I come back to another.

I keep coming back to if we timeline out the goals and we know how much money she needs, cash flow wise, that also solves a ton of problems. Like what is, what is that amount of money that we need to solve for? Because now then the math gets incredibly easier. And then what to do in this case? Because she also has, if you have a fair amount of money in a brokerage account and you want to, if she brought up inflation, we need enough money that's sitting in a high yield savings account to make sure that mom has enough money ready, that money's not going to beat inflation.

I mean, we just got to give that away. Our goal there is to equal inflation, right? If we can just keep up with inflation, that's great. But then we'll also know how to invest mom's money if we know what her burn rate is to put it into corporate terms, you know? If you're a startup company, you have this thing called a burn rate, which is how much money are you spending per month from, your investments and any retiree has a burden rate.

I think zooming out, the big way that I see this is let's assume that mom and Cindy Jr. do not live together, right? Let's assume that mom lives separately. If mom finds a home that is relatively inexpensive that she can buy free and clear with only a portion of the proceeds, then she eliminates a housing payment. She lowers her monthly expenses and she puts as few assets as possible into that one illiquid property. Because having a paid off home reduces the need for monthly cash flow. It reduces the need for income.

And it's a place where she can age. Because Cindy, Jr, you talked about how you see inflation is the biggest threat. And I agree, inflation, particularly in retirement when you're living on a fixed income, is a massive threat. but I see the bigger threat as being your mom simply not having enough money to be able to cover her bills, given how low that monthly Social Security payment is. I mean, how do you cover anything beyond groceries and utilities with that? And so if she's got to cover co-pays and deductibles and prescription copayments and all the other bills that are medical necessities as you get older, the number one problem I'm solving for

is that monthly cash flow because it's, 1,300 is just not going to cut it. I mean, 300 is like groceries and heating and not much more. So again, I don't know what the numbers are. Let's say that after selling her condo in California, she gets $750,000. And let's say that you live in a part of Maryland where she can buy a condo for $200,000

and she'll still have $550,000 left over. Okay, great. Other than her moving in with you, that would be the alternative best case scenario because then there's still an additional 550,000 that you can then invest. And you can invest it in a way that manages for sequence of returns risk and manages for. Well, I think the way that I play that game is I take that timeline and I look at the early time I make sure I have no volatility there, sequence of returns, or make sure that when I need the money, I don't have to worry about any market volatility.

and then bump up the volatility slightly for the next five years. And then any money that she has beyond that, now she can invest like any other investor. And that's the money that she uses to beat inflation. Right. But when she said beat inflation, Paula, to be from my point of view, I thought inflation is down the line of the things that I was worried about. Like, don't get me wrong.

I'm worried about inflation. But I'm more worried about mom having enough money for her bills like you are. Yeah. So, and you can't have. both. You can't have money available for your bills and beat inflation with that same money. Right. So of the two, I'm solving for pay the bills, which makes me wonder then. So once I know how much is in each of these amounts and we know what type of investor mom is, and these are a couple other important questions, Paula. What type of investor is mom? Who's going to monitor the investment

strategy, like who's going to monitor these buckets? Because if it's nobody, if Cindy junior is helping Cindy Sr. take care of this one time, but that really isn't welcome beyond this approach. And mom's not really a sophisticated investor. This may be that application that we've talked about that's a sliver of the time. You've an unsophisticated investor who needs lifetime income and freedom from worry, then there might be a possibility of that's the immediate annuity payment that adds to the income stream. You do it with cost a living rider on it. So that income stream goes up over time. So she just gets a check in the mail. And then she doesn't have to worry about tracking the investments. She doesn't have to worry about inflation. She doesn't have to

worry about all that stuff. Now, as we've talked about before here, that comes with a host of negatives. Yeah. But if Cindy is going to be monitoring the investment strategy, maybe you don't want to do that. Right. But this is a case, though, where especially for older people, if you tell them that we're going to turn this into a pension, you're looking at me dubiously. Yeah, I am. Let me defend the pension, because let me tell you the statistics around this. And this is part of the research I've been talking about a lot lately about happiness and retirement. Retirees that have have what the financial planners like, a longevity, annuity, money in an income stream that I can't outlive where I get a monthly check and I have freedom from worry. If we're solving for

happiness, the happiness among those people that have that product is through the roof. It's incredibly high. The people that have a deferred annuity, an annuity that I have is an investment with a fixed interest rate and I could cash it in later, I could anewitize it later, I could do all these things. Those people incredibly unhappy. And they generally don't know why they have it. They don't understand what they have. And they usually never end up spending that money because it's a tax trap.

I still think for the sake of both simplicity and low cost and not getting sucked into the annuity industry. What's simpler? What is simpler than getting a stream of income? Put mom in a Vanguard Target Date Fund, right? Put that money in a Vanguard Target Date Fund and then draw down four and a half percent of it or five percent of it annually. That's simpler. I just threw up in my mouth.

I can't stand the Vanguard Target Date Fund. Put mom in a, if you want simple, put mom in a Vanguard Target Date Fund. Yeah. And then draw down four and a half percent a year. I think I would make that decision. It's the only reason I brought it up. I brought up for two reasons, A, to start a fight with Paula. And then secondly, because of the fact that, as we've talked about before, there's times when fiduciary advisors say an annuity is good.

But it's only good. And the key here is it's only good if you've an unsophisticated investor and nobody, you're not going to monitor their portfolio. mom's not going to monitor their portfolio. In that case, then you can make a huge case for creating a stream of income. And listen, even a CFP will tell you, don't take all the money and create a pension with it. Like when I was a financial planner,

I would meet people that worked for, I was in Detroit, so I'd meet people that would work for the auto manufacturers. And some of them would come in and they're like, well, yeah, I had a pension, so I didn't save any money because that was taken care of. And now to you and I, that sounds ridiculous. But to older people, it was, hey, the company takes care of me so I can freely spend my money.

But now what they learned too late in many cases was they learned they had zero flexibility then. So more money that you put in an income stream, zero flexibility. But a combo of the two, not against it. Don't think it's horrible. Joe and I are going to have to agree to disagree here. And Paula's going to be wrong. And she kicked me. She just kicked me.

I did not. Under the table. Liar. Liar. He just scored him with a super soaker. This is horrible. Lye. Oh, lie.

Oh, what is that smell of smoke? Is that your pants on fire? Oh, my goodness. Great question, though. And a much more nuanced question, I think, than people often think when they're faced with this. So I'm glad that we were. were able to give you. Yeah, I think we gave you a lot, not a clear answer of what to do next,

but I think a lot of data points to consider. Again, without knowing the numbers, we're limited in precisely what we can say, but I will say broadly, I don't want your mom to have a mortgage. And I also don't want her to spend too much on a home. And I am also against the mortgage, if at all possible, but that also depends on what the cash flow need is that we're solving for. but bias against the mortgage. So, Cindy, thank you for the question. I hope this has given you some direction and some things to think about.

We're going to take a moment to hear from the sponsors who allow me to fly to tax arcana to hang out with Joe. When we return, we're going to hear from someone who has questions about how to manage taxes from his taxable brokerage account. Local news is in decline across Canada, and this is bad news for all of us. With less local news,

noise, rumors, and misinformation fill the void, and it gets harder to separate truth from fiction. That's why CBC News is putting more journalists in more places across Canada, reporting on the ground from where you live, telling the stories that matter to all of us, because local news is big news. Choose news, not noise. CBC News. Welcome back. Our next question comes from Anonymous. Hi, Polo and Joe. This is Anonymous. Of course, I'm interested in the name you give me. I'll listen to your show for some time,

although I don't recall hearing many tax questions. I'm a W-2 employee on the way to fire. I do my own taxes with turbotax, and I need to pay quarterly estimated taxes on my taxable investments. I know I can do safe harbor, but I don't really like it because it doesn't work too well when performance in the market goes from good to bad or from bad to good. In the last two years, I've done estimated taxes on the spreadsheet. The 2025 penalty is smaller than 2024, so I am getting better. I keep discovering new details, and the OBVBB, of course, changed a few things. I tried the local tax service.

They're not interested. It's hard to believe that in the fire community, everyone is solving this deal. DIY. Hope you have a better suggestion. Thank you. Anonymous, thank you for the question. And before we answer, we've got to give you a name. And I think I have a good one, Paula. As Paula is here to speak specifically to the students at Texas A&M, Texarkana. And this is a very smart question from a gentleman who has clearly done some very smart things with his money to accumulate enough money that he's worried about quarterly. quarterly taxes on his brokerage account. So we had a great conversation last night with one of the students here.

Oh, wow. Really? Wow. Okay. Let's call him Stefano. Wow. We meant this. And you will probably hear him when he asks a question himself.

But we got to spend some time talking to Stefano. Yeah. And also his friend Gabriel, both two intelligent young students here at the university. Stefano really was all about, I want to network with people. I want to get out there. I want to do this smart stuff. So I feel like he's Stefano in the future. Oh, right?

Yeah, Stefano will one day grow up to be like him. That's right. Right, right. Yeah, it's been amazing being here, like meeting the students. Joe and I were talking this morning about how impressed we were by so many of the students that we met. Some students were invited by Jay Davis, who people will hear. who's the head of the program, a really interesting, cool guy who is as excited about personal finance and you could feel that. And so he attracts a lot of students. Right. And we were so

impressed by the students that we met. They were talking to me about how meaningful it was to meet a Nepali person who, you know, is 20 years ahead of them. Yes. And so last night, we did some behind the scene stuff. Like, what's it like building your brand? How did Paula build her brand? What was she doing? And it was great getting those questions. But my favorite question came from the regional director of economic development who asked Paula to move here. Yeah, he was sweet. Which was great. And she's considering it for like 20 seconds.

Well, I won't be moving here, but I will be visiting more frequently. I will be visiting more frequently. So anyway, Stefano. So Stefano. Yeah. In honor of one of the students that we met last night. And really symbolic of all of the students. Yes.

So this question is interesting, Paula. What do you do? Now, the reason, let me talk first, if you don't mind, Paula, about the reason why, because he said, I don't believe all the people in the financial independence, retire, early community have solved for this DIY. I think the issue, Stefano is most the people that I've met, and by most, I'm going to say, I'm going to peg this at 90, 95% of people. I don't think that they build a very big taxable brokerage.

Yeah. And I say that because here on afford anything and on stacking benjamins, whenever we get questions about this, Paula, we always encourage people to build a taxable brokerage more. Well, yeah, we encourage people to build out the tax triangle. Yes. But generally speaking in the fire community, a lot of people, they bias towards tax advantage accounts. Yeah. For many people, once you've maxed out every tax advantaged account available, including HSA and Backdoor Roth and 401K, once you've maxed out all of those. for a lot of people there's nothing left. So yeah, I agree. I think a lot of people have not built out

a big enough taxable brokerage account to have this issue. Yeah. So I don't think there's a ton of people who are in this situation. So let's, let's tackle it. Well, so first of all, I think the Safe Harbor method, I know you said you don't like it, but I think the Safe Harbor method is great, because Safe Harbor, you pay last year's liability and you're done and you don't have to really think about it or you know you pay up to 110% if you've got like very high income but you have no risk of penalty it's super simple I guess there's a slight risk that you might overpay a little bit if you're if the income drops or that you've you know there's a risk that it won't be exact but you avoid the risk of penalty so I think we need clarity on what the goal is is the goal to be

exact or is the goal to avoid penalty and that was the issue for me was if I'm solving to get this perfect, okay, I do have some things there that we can talk about, Paula. But if I'm actually solving for more happiness, my goal is to not spend a ton of time on this problem. Because when I look at all the problems in financial planning that I face, all the problems of my life, all the things in my life that I want to do, I don't think I want to dedicate. I don't think the juice is worth the squeeze to solve this for perfection. Yeah, exactly. I would just go safe harbor. I don't think it's important to be exact.

I do think it's important to avoid penalties. You want to avoid IRS penalties, but as long as you're avoiding penalties, if you slightly overpay because last year you made more, it'll come out in the wash. And if you slightly underpay and you end up hanging on to that money for a little longer than you otherwise, quote unquote, should, but you do so in a penalty free manner. I mean, over the long term, some years you'll overpay, some years you'll underpay. So be it. You know, so be it.

Yeah. over the span of the next 20, 30, 40 years, you'll have a little bit of both. It'll all come out in the wash and the most important things that you're avoiding penalties. I look at this as people who overwithhold on their W2. Yeah. And it's a problem, but isn't a huge problem? It depends on what interest rates are prevailing, right? If the prevailing interest rates very low like it was for a long time, then it wasn't a problem at all to overwithhold because you weren't going to earn any money on that anyway sitting in a savings account.

But if the interest rate was high and you missed out on stuff, then it could have been something, but I'd still not that big an issue. I mean, if you really want to get granular with it, then when you're making quarterly payments, you could look at what you've earned so far. Don't spreadsheet out a projection of what you might make in the future. This is exactly what I was thinking. You got to go to Schwab or whoever, look at the last three months statements and take the exact numbers from the statement of what stocks paid a dividend. then what were your tax obligations for that three month period? There's an IRS form. It's Form 2210.

You can use Form 2210 to look at what you've actually earned so far on a quarterly basis. You don't want to guess for the whole year. You just want to pay based on what has happened in the past. So inside of Form 2210, there's this particular thing that's called Schedule AI. AI stands for annualized income installment. that's basically a way of saying you are, it's a payment method that you are paying based on what you've actually earned so far. So the part of 2210 that you care about is schedule AI. It's that particular schedule. And that's the part that lets you base your taxes on your actual earnings so

far. So if we're comparing the actual quarterly matching with Form 2210 to the alternative of using a spreadsheet to try to calculate out the future, to try to make guesses about the future, quarterly backwards looking is the better route. But if we're comparing quarterly backwards looking to just using the safe harbor rule, I'd say safe harbor rule is the best. Yeah. Basically, we've got three options, right? We've got the option of safe harbor rule, and that's the simplest. We've got the option of quarterly Form 2210, and that's the middle option,

maybe the Goldilocks option. And then we've got the option of what he's currently doing, the status quo with the spreadsheet. And that's, I think, the worst because it's not only the most complex, but also the most prone to error because it's, yeah, based on so much guesswork. And if your goal by going to a local tax office was to get somebody to look over your shoulder.

I think, Stefano, that a better idea would be to find a financial planner also who has a history of tax preparation. As an example, you mentioned the fire community, so I'm going to give you a name of one of those people, somebody like a Shaul Malini, whose background is in tax, but now covers the full financial planning area, and just hire them for an hour of their time if you really want somebody. And I'm not sure if Sean does that or not, but that's the type of person I'm looking for.

Full-fledged, full-on financial planner so they can look at it holistically. But they know the tax code in the tax game. And that's really their core area of expertise. Stefano, those are three options for how to deal with it. And what's interesting about those options is that the one that is most complex is also the one that's the least accurate. You know, the range of options, the spectrum, goes from most complex slash least accurate slash most prone to penalties, right, which is the spreadsheet method, to simplest and least prone to penalties, which is safe harbor with Schedule AI in the middle. And I agree with Stefano. It's not perfect.

Right. But it's not super offensive. Right. Yeah. Those are the three options. and that's how they map along the complexity and prone to penalty spectrum. Yeah. And you can do with that framework what you'd like.

So if you want to stay in the middle of that spectrum, you can. And it would be an improvement over the spreadsheet method. But if it were me, I would just move all the way over to the safe harbor side. Thank you, Stefano, for that question. We're going to take one more break to hear from the sponsors who make this show possible. And when we return, we're going to hear from a call. who we first heard from in episode 583. She has new life updates.

She just changed jobs. All right. And we're going to hear what's been happening since episode 583. Cool. Welcome back. Our final question today comes from Luz. Hello, Paola and Joe. Thanks for answering my question in episode 583.

I recently changed jobs and I was wondering what to do with my all 4-1K. It's a target day fund and it has about 129K. Half of it is traditional and half of it is Roth contribution. I can leave it in this account given that the currently fees only $6. I can roll it to my new 401K plan since they asset both Roth and traditional contributions. Or I recently opened a Roth IRA. I can roll over the traditional amounts to my 401K employees. and then the Roth portion deposited in my Roth IRA.

Another question is regarded this Roth IRA. I never contribute to the Roth IRA before, given that I had the Roth for 1K option. But I was wondering, is it worth contributing something to this account, even though that my current employer also offers Roth contribution? Another thing to note is that with this new job, my salary increased about 43%, so I won't be able to do the full contribution to the rough IRA account, so it would be only a partial contribution. With my new salary, I will be able to max out my 401k this year for the first time, so I'm really excited. I also have a brokerage account with the stocks that I mentioned from last episodes for my previous employees.

value around 12k. In total, with my new 401k and my previous 41K, it's value 133K. And then thanks to this new employer, also I'm able to contribute to an HSA account. I have about $6,000 in my car loan left and $5,000 left in my student loans, both loans are less than 5% interest rate. I still carry that 10k in 0% interest fee credit card balance, given that I still am the breadwinner of my household, but with this job, that should be easy to pay off. I own my home again, and the interest is less than 4%. I have an emergency of 12K. So any advice would be beneficial in trying to decide what to do with this previous 401k.

Thank you. It's interesting, Paula, because going back and hearing the first time that Luz called, the numbers sluze are much higher. Right? So much high. The progress. Like, wow. Huge congratulations.

And this is why, Paula, we remind people to not always chase the horizon, which we have a tendency to do. Right. I'm always looking ahead. I'm chasing the horizon, but the horizon's an illusion. The further we march, it's always out there. Right. Every once in a while, pause and do what we just did.

Look back and go, no matter how I feel, whatever's going on, this is the progress I made. Right. So cool. And it's only going to get better because with this new job and the raise that you're talking about, what, 40 something percent raise. Yeah. With a new job, that's incredible. So it's the numbers have gotten big and it looks like, you know, of course we can never tell the future, but all signs point to. it's only going to keep getting better.

Yeah. So let's take her really good situation, make a betterer. Betterer. Yeah, yeah, betterer. Okay, first of all, Luce, you mentioned that you thought you would only be able to do a partial Roth IRA contribution. I have good news for you. You can do a complete Roth IRA contribution as long as, it's true, as long as it is a backdoor Roth. They're very simple to execute.

All you need to do is move the money into a traditional IRA. And that's going to be a non-deductible traditional IRA contribution. Because anyone can make one of those if you're a U.S. citizen, regardless of your income. Income. Income level. Exactly. Exactly. Now, some trad IRA contributions are deductible and some are not. Once you're above a certain income threshold, it's a non-deductible contribution. But that's fine. It's not going to stay in your trad IRA for that long anyway. So what you're going to do is you're going to move the money into a traditional IRA.

technically they don't require it to be there for any particular length of time. So there are some people who will move it immediately. Personally, I like to let it sit for at least 24 hours just so it's got, you know, a day to be on the books. But for me, 24 hours later, I move the money from my trad IRA into a Roth IRA. And you flip it good. And then you're done. That's it. That's the backdoor Roth IRA contribution.

When it comes to your decision making about what, do with your old 401k, my preference. Let's go through all the things that you can do. Number one, Luce, you told us that it can stay there and it's in a fund that has only a $6 fee. By the way, sadly, that is not true. I do not know what your fund is. I don't know what your fund is. I have no idea. There is no fund on earth that just says the $6 fee is the fee that you see. What a lot of people don't know is that, and you'll find this if you look up your fund at a website called Morningstar, Morningstar.com, and you put the name in, it'll tell you what the expense ratio is. Now, it might have a really low expense ratio. It might have a very low fee, but I think

it's going to be $6 that you see plus this additional management fee. Right, right. So six bucks might be the top line, maybe like account administration fee or something like that. Yes. Now, If the money there is significant enough, and yours is, you're custodian, and that's the company that your former employer hired to handle this money, if it's substantial enough, they will say, hey, you can just leave it here, which you told us is one of your choices. Right. So you could leave it there. The second thing that you could do, which you also mentioned, is roll it to your new employer.

And the cool thing about that is you have all the money in one place. And let's say that the choices there are really good. They have great low-cost options that are super for your goals. I'm going to tell you something, lose. While I always love that, I never, ever, ever, ever, ever, ever, ever, ever, want to roll my 401k over to my new 401K. I don't know if you're that hard and fast, Paula, but I am. Wow. Would you always roll it into an IRA?

Is that your always always always? I would. I would. Ooh, I have a different take. Dun, done, done, done, done. Should I explain the reason why first? Yeah, yeah, yeah. She gives the other take and then we'll arm wrestle or you kick me under the table again.

You know what? I can summarize my other take in like two sentences. Okay. So the reason that I am a little bit IRA avoidant is because the amount of money that you can put into a backdoor Roth IRA is proportionate to your total IRA assets. So if you have other IRA assets, that reduces the amount that you can put into a backdoor Roth. And so for that reason, it's this thing called the pro rata rule or pro rata rule. For that reason, I like to minimize other IRA assets by prioritizing the 401K.

The issue with that is behavioral, which is this. we move money over to the new 401K, well, let's deal with leaving it where it is. Okay. If we leave it where it is, there is this tendency for it to become an orphan. And 10 years from now, even though it's a substantial amount of money, it'll continue to grow, because it's not where you work, because it's not the same login as everything else, people have a tendency to just forget about it. And then you go in there and you find out the company went cheap, got a new,

new 401k provider. The new fund sucks that replace the old fund. You didn't even know what happened. You missed the, you know, the email went to your spam file. And because you didn't check it, because you haven't worked there for so long. So that's why I don't like leaving it there. Even though you can, I don't like it. I don't like it. I don't like moving it to the new employer because of the fact the average person changes jobs fairly often now. And then you're just going to roll it to the next job. The next job is the next job. That doesn't even bother me that much because you're going to do it anyway, like we just said. The thing that bothers me the most, Paula, is that if your new 401k provider decides to go cheap and decides to change it, you're beholden to whatever they do.

And the cool thing about a fidelity, a vanguard, and a Schwab, what we've seen over the years from these major custodians is this, they give you not less freedom of choice. They give you more because they're competing with each other. And so what have we seen? We've seen fees drop over time. We've seen the number of choices go up. We don't need five million choices. I don't know a reason why you'd need more than a handful of good indexes. But the fact that you have the flexibility to do whatever it is and leave it in the same place, behaviorally, and when you leave a job, everything's going into the same master account. So I've got the master account, which is my lifelong account, which is my IRA at one of those three custodians. And I have the 401k where I'm currently working.

And that's all I have. And then I've got just two accounts. It's really easy to follow both of them. I'm going to follow both them because I got a bunch of money in one, the one where I've been rolling over everything. And then I have whatever amount of time I've worked at my current employer in that one. And it just simplifies everything. And behaviorally, what have we found?

We found that people are more likely to pay attention when you don't have 50 million tabs open. Joe's got the behavioral answer and I've got the mathematical one because my position is if you keep it in a 401k, and I don't have a strong preference, keep it in the old one versus move it to the new one. I'd say go with whatever gives you better investment choices. I would move it. If you're going to take Paula's advice, I would move it to the new one because of the number of times working with a law of larger numbers, Paula. Yeah. I've seen too many people that orphan it, if it's a place you don't work, at least if it's at the place where you work, you're going to

pay attention at least a little bit every time you open your 401k. Right. Okay. Yeah, I don't object to that. I have no a dog in the fight in terms of old 401k custodian versus new 401k custodian. My entire position is minimize IRA assets so that you can backdoor as much as possible into the backdoor Roth. But I say that because I'm such a Roth fan. I couldn't believe when she showed up in mom's basement. She had like a Roth hat and T-shirt. Roth T-shirt, Roth sweatshirt, pom-poms, you know, waving the Roth. palm palms yeah she was listening to david lee roth sing right exactly yeah now if you roll it to an IRA you still want to be careful because there's a mistake that sometimes custodians will

accidentally let you make paula which is they will let you roll it over to the same because you talked about your rot that you contribute to if you did and you could just roll this into that your old Roth 401k into a Roth that you're contributing to, talk with a tax advisor, but that can create a big mess. Roll over money has slightly different rules than contributory money. So if you're going to contribute to a new Roth IRA and you're going to roll over an old Roth 401K, you're going to want to have that be a rollover 401k versus a contributory 401K. 401k. And it's it's even worse in the pre-tech side. It can get messy in the pre-tax side, what you contribute to versus the rollover. Keep those separate. Oh, I will say one good thing is

if you've got money that's in a 401k, because the level of legal protection around money in 401k versus contributory IRA is different. But if it's money that was in a 401k that you then roll over, you still have the same legal protection as the 401K. So in that regard, if you move money out of the 401K, you don't have to worry about losing the legal protection as long as it's in a rollover. Because it says rollover. Right. Because it's a rollover IRA.

Right. That may be the biggest point. Yeah, yeah, yeah. So as long as it's a rollover IRA, you don't lose the legal protection that 401 has. And again, this is getting a little bit granular. But it's just in the concept of if you were ever. subject to a lawsuit, the money that's in a 401K is protected at the federal level. It's protected by ERISA, right? And so that extends into if you take your 401K and you put it

in a roll over IRA, that same protection moves with you, right? And that is different from money that you put into a contributory IRA. And there's some people that might be thinking, well, Joe, weren't you just talking about simplicity? Like, why wouldn't I just, put them all in one just for simplicity purpose. If you're not yet working with a fidelity, a Vanguard, or a Schwab, even if you have these multiple accounts, they will give you a pie chart of it all together if you want. You just have multiple tabs.

So it's still very easy if it's at one custodian to keep those tabs arranged nicely. It still is incredibly simple. And you get the additional protection that you need. Now, with regard to Roth 401K, if you're going to contribute, do I contribute to my Roth 401k or the Roth IRA? And as Paula said, you can contribute to the Roth IRA anyway? Yeah, I would go Roth 401K first, though. 100%.

That's what I was going to say. Yep, same. Yep, yep, yep, yep. And that is behavioral and it's also because you can stuff more money in. Yeah. And, well, and as we just talked about, 401Ks have higher legal protection, better legal protection than IRA assets. Better legal protection, put more money in.

I love both of those. The third thing is, it's just freaking easier. When you automate your life, how great is it that the money just goes where it needs to go and you don't got to set up anything except for on that form at work? Just go into your provider and go, I want to bump it up to, you know, 25% of my income. 40%. Let's go 40%, Paula. Well, based on the amount loses has gone up. Right.

She might be at like 80%. Yeah. Yeah. I mean, she's getting a massive pay raise with this new. new job. Yeah. I want to talk about the debt because when she said out of all the things that I'm doing like, do you have any other comments that here are things that I should be doing? I think that car loan is it a really, it's a decent interest rate. It's a low interest rate. And I know the $10,000 balance is going to go away. That's it what looks like a promotional rate. Yeah. Yeah. Teaser promotional

rate zero percent for the time being. Yes. But you want to wipe that out before it gets any higher. Good on you. You're doing that. And if I was just looking at interest rate. I would say, you know, okay, the car loan at 6% fine, the student loan, fine. But I just think that as Luce continues to do better with money, again, I'm going to go to behavior and I'm going to think about flexibility. I would love to see that car loan paid off. And instead, she's putting money into a fund every month where it's a car payment. To herself.

And to the next car. Right, right, right. So yeah, I refer to this as making a car payment to yourself where when you finish paying off a car loan, the habit is to continue making that same monthly payment. But once that car loan is paid off, you keep making the same monthly payment just like you always have. But now you're making that monthly payment to yourself. So now you're making a monthly payment to a separate savings account that is different from your other. It's different from your emergency fund. it's a totally different account, different bucket, different, if you even need, and I know, Joe, you don't like opening too many accounts and too many institutions, but if you even need to open an account in a different institution in order to just keep it out of sight, out of mind, you do?

Yeah. You have a separate account where you just keep making a car payment every single month and you're making that payment to yourself. Well, it's funny you say that I don't like it because, to your point, I don't like it. Simplicity rules, but sometimes friction really works in your favor. And it did for me when I was trying to go all cash lifestyle and I was trying to actually get an emergency fund together, the first thing I found was that I was touching it just because I was so used to touching any cash that I had. I'd never tried to build money before. So I had to get that bank across town at a different institution, cut up the debit card, burn the whole thing about the online access, don't get any of it. And if I had to go get money, I was going to have to drive about 45 minutes to go get it. And it was funny because if it was an emergency, Paula, what's 45 minutes? Who cares? Yeah. If it's truly, truly, truly an emergency, you will get in your car and drive 45 minutes to go to the nearest bank branch to be able to access it. They also said that I couldn't ACH out of that account, but I could get it wired. But if you, and people might not know this, a wire has a fee.

Right. And at the time, it was like a $12 fee. And it was. It's like $25. Right. But it was so amazing how much a $25 fee. Right. we'll stop you from doing stupid crap. Yep. If it's an emergency, who cares about a $25 fee? Right. I'm like, oh, yeah, $25? No, no, no.

I need the money now. So $25, fine. That says great. So with the car account, if you want to make sure it's a car account, do the same thing. And it sounds like they'll lose. You're getting really good at this. So for you, you could probably just have it be another account at your same bank. Or like, I use ally where it can have different buckets inside.

of the same account, something like that. I got to tell you when Cheryl and I got to this point, and for people that have been with us for a long time, I've told my financial journey about how we were struggling with money, but we got to the point where we finally paid the car off and we switched over. The thing that was remarkable is that I do this all the time, so I kind of knew it was going to happen because I'd seen it work with other people when I got smart enough to actually do this stuff myself that I was telling other people to do. Yeah.

But Cheryl had never done it, meaning she had never gotten to the point where now we have this car fund. And she said, she goes, it is now become a game to see how long we can keep this car. Right. And we ended up with more money in that account because of the fact that I wasn't for the first time of my life just going, oh, car loan's over. Time to get a new one. It was really fun, really, really fun. So there's a fun piece of this too, which is great. anytime you can gamify this thing is super.

So I would get rid of that. You know, the student loans are a different thing for me because the student loans, once they're gone, they're gone. But you're always going to need a new car. So if you get in the habit of paying for your cars differently than you are now, I think I like that one, Paula. Yeah, the most important thing, as I see it, is wiping out that credit card debt before the interest rate goes above zero because those teaser rates, when they go up,

they sneak up on people. and when they go up, they go up to shocking double-digit amounts, you know, 20 plus percent. Yeah, that's danger zone. Right. So you don't want to get too comfortable with the zero percent rate. The last thing here, Lou's, from my perspective, I'm sure Paula has like 18 more. But the last one for me is 43 percent salary increase. Right.

That's the big thing. That's also danger zone because it is a time when you can use. to use a phrase that you may not have heard, this is the time when the rat race rears its ugly head. And a lot of people, maybe not you, but a lot of people go,

oh, I have a 40% raise. I can now buy this. I can now afford this. I can do this. And the cool thing, Paula, is loses, lived her life a certain way forever. So whatever amount you can afford to do.

And I'm not saying you need this austerity and become a monk and, you know, live in a tent. But what I am saying is this is a huge opportunity to maybe raise your savings rate and lock in financial independence even earlier than you already were. So holy moly, if you cut that in half and you bump up your saving to capture 20% of that 43% raise and you're living on the extra 23% bump, you still get a little bit of the rat race or a little bit more enjoyment now, but you're also able to lock in sooner financial independence for yourself.

And the reason I say it's danger zone isn't because it's dangerous per se. The danger is if you don't do it now intentionally when you get the raise, you're not going to do it a year from now. Right, right, right, right. Yeah, the easiest time to capture a raise is when you haven't gotten used to it yet. and the easiest way to capture a raise is to forget that you have one. And so if you just continue living your life exactly as you lived it prior to the raise and you make that money automatically disappear, you'll just forget that you ever got a raise and that money will quietly go to your HSA, it'll go to your Roth 401K, it'll go to a backdoor Roth IRA, it'll go to paying off debt, it'll just quietly go to all of these things,

and you will ideally completely forget that you've received a raise. I think you may need to bump it up a little bit because that credit card debt exists for a reason. And it's because maybe because you're the primary red winner, as you've mentioned, and it might be a little tight. So you might be able to loosen it up, assuming that you have good financial controls and you know where the money's going. But examining how you got that credit card debt. And a lot of times you know, Paula, it isn't the monthly thing that kills you.

It's that you have enough to make the monthly stuff happen. But then your dishwasher breaks or your muffler's dragging behind your car. And it's these things that happen once every few years are the things that sink you, not the fact that, you know, I only go to restaurants twice a week or whatever. You know what I mean? It's not that activities of daily living that kill you. It's these events that you're going to have to pay for. I, yesterday, with the help of my buddy Cooper, spilled red wine on our new carpet. So I now have oxyclean coming to clean this carpet and get this big red wine blotch out of my carpet.

I didn't expect that. But that's the kind of thing that I saw with people with a really tight budget. That's where the credit card debt comes from. Right, right, right. Yeah, I answered an email earlier today from a property manager informing me that one of my properties has a big water leak. They caught it because the water bill for the previous month topped $1,500 for the month. Holy. Yep.

Oh, wow. And so when they saw that bill, they were like, hmm, why is the water bill so high this month? That's a insightful question. Yeah. I don't think you have to be Sherlock Holmes. Yeah, exactly. Seems slightly high. Exactly.

So A, got to get a plumber out there to fix that leak. And then B, we have to appeal to the water municipality to see if we can get a credit for that giant bill, which they may or may not grant. You got to ask. Right. That's the kind of reason you want to have a little bit of money set aside. And if you don't, that's where the credit card debt is. Yeah. I found so many people who are so conscientious about their spending and it's value-based spending, but their income is so close to that monthly number that the water leak.

Right. Exactly. And then now you've got the interest payment every month because you can't pay it off right away. And then it just slowly gets a little bit worse, a little bit worse, a little bit worse. It's death by a thousand paper cuts. Right, right, right. Yeah.

Well, Lou's, this is fantastic. Yeah, I'm so happy for you for all of the progress that you've made and all of the progress that you are going to continue to make. Oh, I haven't told you, I hope this is obvious. Please max out your HSA. Just that should be said. Please max that out. max out your HSA contribution.

And if possible, if you have the money to do so in your budget, pay for your health care expenses in cash, even though you've got money in your HSA so that the money just accumulates inside of the HSA so that you can continue to compound the tax advantages of the HSA rather than spending money from it. What I do is whenever I pay a medical bill, I just pay it in cash, I take a picture, I just upload that photo to a drop box folder. And so if I ever need the money, I've got a drop box folder full of receipts. But the behavioral reality is that out of sight, out of mind, you know, this is like Joe and you had to drive 45 minutes. Yeah. Big deal. Well, yeah, once it's,

once it's in a drop box folder full of receipts, I've kind of forgotten about it. And unless it's truly an emergency, I'm not going to think about harvesting those receipts. in order to reimburse myself from my own HSA. But later on, when it's part of your withdrawal tech strategy. Yeah, or you could just wait until you hit retirement age, in which case that money all becomes available without penalty anyway. But if you want to still take it tax free after that. Tax free after that, yeah, yeah.

I mean, I would still go for the tax free even after that. Yeah, exactly. Although, by that time, if you think about how much those receipts will lose value to inflation, right? The nominal dollar value of those receipts, you know, 40 years into the future. but sure. Right. The prescription was 12 bucks and prices have doubled twice.

It's the equivalent of $3. You're saving tax-free. Yeah, that's funny. It's weird to think about. Yeah. So, Lou's congratulations on the new promotion, on all of the progress. And thank you for calling back and sharing this update. That's so cool.

Nice work. Joe, we've done it again. Already? Already. Holy cow. Yeah, now we can get out of your mom's basement and out into the world, into the wide world. Yes. Let's go talk to some college students. Yeah, Texas A&M. Here we come. Joe, where can people find you when you are not on the Texas A&M campus? We did a fantastic interview with a gentleman. This is really cool. He self-published a book a long time ago called Inner Excellence, which I'm sure a lot of the afforders know. The book ended up being a huge seller, even as a self-published book. And there was a massive auction for it when major publishers came knocking because they knew it was going to be a number one New York Times bestseller. And people who aren't insiders may not know.

Everybody says, number one bestseller. Well, Jim Murphy's book, Inner Excellence was a number one New York Times bestseller. And he's coming on stacking measurements to talk about living your bestseller. life. This whole idea of affording anything and not everything is about choosing what's your best life. And Jim is a coach to some of the top executives in the world and some of the top sports stars. This is how good Jim's work is. It's the Super Bowl. A player named A.J. Brown was photographed reading inner excellence while he's on the bench playing in the Super Bowl. During the game, During the game.

Wow. During the, he took it out on the field with him. And while he wasn't on the field playing, well, you know, well, it's, you know, not his unit out there. Right. He's reading Jim Murphy's work. That's what a great coach, Jim Murphy is. And it's inspiring. And it really resets like what's important, which I think we all need from time to time.

So Jim Murphy coming up on stack. He's visiting mom's basement right after the amazing Paula Pan. Wow. I'm followed by great company. Yes, you are. Well, thanks to all of you for being part of the Afford Anything community. If you enjoy today's episode, please share this with friends, family, neighbors, colleagues. Share this with people who have taxable brokerage assets.

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Share this with all the people in your life and more because that is the single most important way that you spread the message of F-I-I-R-E. Remember to subscribe to our newsletter of Ford-anithing.com slash newsletter. We have a course on rental property in. investing and it's only open for a very limited window twice a year. We are about to open it for our spring 2020-6 cohort. If you want information about it, go to afford anything.com slash newsletter. We will send out info to the people who subscribe. But we're opening those doors in May, May 11th. Again, afford-anything.com slash newsletter to get more info. And we'll see you in there. If you have any questions around rental property investing, this course will answer them.

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