Afford Anything - Q&A: Should I Sell One Property to Pay Off Another?

Episode Date: May 12, 2026

#714: When you’re making big financial decisions, what matters more: optimizing for the best long-term outcome, or choosing the path that gives you the most flexibility and peace of mind right now? Melissa retired early and now lives off rental income, but she’s considering selling one property to pay off another. The catch? Her monthly income would stay about the same—so the real question is whether giving up future appreciation is worth the simplicity and stability today. Von is trying to better understand how real estate returns actually work—specifically, whether cap rates tell the full story for multifamily properties, or whether there’s more going on beneath the surface. Layla is planning to retire at 50 and has built a strong portfolio—but she’s wondering if she’s leaned too heavily into Roth accounts. Should she keep maximizing a mega backdoor Roth at a high tax rate, or shift toward a taxable brokerage to better bridge the early retirement years? We’ll get into all of that—the tradeoffs, the assumptions behind them, and how to think through each decision. Resources: TONIGHT, May 12th: "Can You Still Buy a Profitable Rental Property in 2026?" webinar. Register for free here: https://affordanything.com/rental2026 Share this episode with a friend, colleagues, and your Uber driver: https://affordanything.com/episode714 Learn more about your ad choices. Visit podcastchoices.com/adchoices

Joe, your son invests in rental properties. He does. How many does he have now? He still owns 14, but he does it also as a full-time job flipping, which, as you know, is a full-time job. That's why we don't recommend a lot of people do it because of the fact that it is a job. So he's holding on to 14. He flips a couple at a time and makes a good living out of it. That's amazing.

Well, we are going to hear from someone who, like me, has seven units, but she's thinking about cutting them in half. Oh, wait a minute. Then she'd only have seven half units? Well, I guess, I guess technically she would have three and a half units. Oh, gosh. It's like I never stay when people say they have, you know, the average American has two and a half kids. You're like, oh, I feel bad for the half kid. Right. Or, you know, two and a half bathrooms. I mean, I guess like a half bathroom is a thing, but it's always been. I get the half bath. Right. I don't, I still don't quite get that. I understand what it means, but it just sounds like funny terminology, a half of a bath. I know this one kid who lost his whole left side and now he's all right. Oh, okay. Let's go. Let's cut to the intro. Welcome to the Afford Anything podcast, the show that knows you can afford anything, not everything. This show covers five pillars. Financial Psychology, increasing your income, investing real estate and entrepreneurship. It's double eye fire. I'm your host, Paula Pant and the guy crack in lame jokes is a former financial planner, believe it or not. Someone let this. guy be a financial planner. Joe Salcii. I'm so proud of myself because just when you thought they couldn't get dumber. You go do something like this and totally redeem yourself. I'm so proud. And we're going to cut to our first question, which comes from Melissa. Hi, Paula and Joe. I would love your

help thinking through a decision I'm grappling with on if I should continue to hold a long-term rental or sell it. I was able to retire early about six years ago at the age of 49, partially with the advice I've gotten from this show. I've been supporting myself through the cash flow of three rental properties and living a dream life pursuing traveling and new interests. My goal has been to hold them and live off their rents until about the age of 60, which is five years from now, and then sell them and invest the equity and live off of that plus my retirement funds. So here's the dilemma. I own a fourplex in New Hampshire, which has done pretty well. The property is doubled in value and the five years I've owned it. The cash flow is about 2,000 to 2,500 a month,

depending on repairs and vacancy. My second rental is local to me in Massachusetts. It's a triplex. It's also doubled in value in the last seven years. I've owned it. A cash flow about 3,500 a month, give or take. I keep $50,000 in a high-yield savings account for CAPEX for these two properties so that my cash flow stays more even. My current thinking is to consider selling rental one in New Hampshire. And with the proceeds after fees, taxes, recapture depreciation, I should end up with the perfect amount to fully pay off rental two near me in Massachusetts. The cash flow I would lose on the New Hampshire rental is almost exactly the same as the principal and interest I would no longer have to pay in Massachusetts, so my monthly cash flow would be very similar. Plus, I would have the CAPEX cash that I'm

holding for emergencies freed up. The pros I see are that I would be dead free, have a similar monthly income without worrying about income variations due to repairs and vacancy and fewer headaches from a tenant and building point of view. The cons I see are the loss of future potential. Rental increases and appreciation that I might be giving up on this property by selling now. My bias has been to sell as the pros seem secure and the cons based on speculation. A few other details that you might want to know, my third rental is paid off. It's a condo I used to live in. My sister rents it and I'd like to hold it for now. The proceeds from the rentals are enough for me to comfortably live on, and I have a little side hustle that gives me spending money for travel and other fun

things. I could always push that more if I need to. I have about 800,000 in retirement between Roth and 401k, $250,000 in a brokerage, and $50,000, as I mentioned, in high-ield savings. So should I sell the New Hampshire 4plex and pay off the Massachusetts Triplex or hold them both for the next five years? Is there anything else I'm missing or that you would consider in making this decision? I appreciate hearing from both of you and everything you've done for the community and thank you from a successfully fired member of our community. Melissa, congratulations on the real estate portfolio. Congratulations on being fire.

And I stay uncorrected. Melissa has eight units, not seven. She added one between the time that you said it and the time she finished the question. It's fantastic. I'm going to cut to the chase with the answer. If you are optimizing for lifestyle and peace of mind, then sell. If you are optimizing for wealth accumulation over the long term, then hold.

That's so funny and better stated than the way I was going to say nearly exactly the same thing. And Joe, you and I did not talk about our answers in advance. Not at all. No. I think that selling it is just a safer approach. It's a smoother glide path. And if she wants to have freedom from worry, then I think paying off that mortgage makes a lot of sense to me. The downside is exactly what you're talking about, which is right now she has leverage working in her favor. And as you know, leverage during good times works in your favor. And in bad times, it really works against you. But leverage in this case really can help her continue to build the empire more and more and more. So I get excited about keeping leverage in a lot of cases.

But this is one that just based on her question, I think she's asking if it's okay. to sell it. And I'd say it's a much safer path to sell it. I'm just going to play devil's advocate for a moment. If she sells it, she's unlikely to find anything as good. And I say that for a number of reasons. First, there's that better the devil you know. Melissa, you know this property. You know it's ins and outs. You know it's water heaters. You know it's windows. You know the problems that it's likely to have. And you know the problems that it has recently addressed. Like you have a, as all rental property owners do, you have a very deep knowledge of this property as a result of having held it for so long. And there's a certain level of certainty when you have

that property knowledge. Surprises are less surprising because absent Black Swan events, you can reasonably anticipate things that go wrong in a property that you know so deeply. That's A. B, you bought it at a time when the price was a lot lower, which means your debt payments on it are going to be a lot lower. The mortgage, the interest rate, all of that is just going to be a heck of a lot prettier based on the time that you bought it than it is now. That doesn't mean that you shouldn't or can't by now. In fact, on the contrary, now is a great time to be a buyer because of the fact that there are so few. buyers in the market. If you're optimizing for certainty, by definition, when you're buying something new, you are wading into uncertainty in a way that you've already done, right? You

already waded into that uncertainty once. So if you exited out of it, the question is, you know, would you ever in the future change your mind and then wade back into that uncertainty again? Yeah, I do think that if she's out, she's getting out. If she's out, she's out for good. And that's where I hesitate because, Melissa, you're young. Six years ago, you were 49. That means you're about 55, depending on when your birthday falls within the year. For discussion purposes, we can say that you're 55. Again, genius at math. I know, right? She owes us to flex her math chops on this show. That SAT score. If you add six to that, bam, you're around 55.

But no, I get where you're going. Yeah, she is young. And, you know, a real estate portfolio can really drive some really nice results over long periods of time. Yeah, exactly. And Melissa, you said something in your question that I thought was really interesting. You asked about holding for the next five years. And that kind of, that like, ding, ding, ding in my brain when you said it, because

it illuminates a fundamentally different assumption. than a lot of other buy and hold investors have because there are many buy and hold investors who at the age of 55 might be thinking about holding for the next 30 years. I said, I was thinking it's so funny, Paula, when I heard the question, it threw me for a loop that she was going to sell it at age 60 at this. And I don't know if she attached it to like some traditional retirement age or something that was a reason why she would, like, why 60? Maybe 59 and a half. Maybe that's one. Which, by the way, four and a half years.

Oh. Two can play this game, Paula. But I did wonder why. Like, what's special about that age? That's a question that I really wanted to ask. Yeah, I had the same thought. And the reason I flagged that as interesting is because it illuminates a certain assumption

about the role that these properties will play in your life as you move into your 60s, 70s, 80s. I know a lot of people who assume that when they get to their 80s, they might start selling off their rental portfolio because at that point, the focus becomes estate planning. They may not have heirs who want to manage those properties. And so in your 80s, moving into market-based investments, moving to some combination of stocks and bonds,

so that estate planning can run more smoothly makes sense. That being said, you could also make the argument that in your 80s, holding onto your property so that your heirs can have a step-up basis, also make sense. So we can, nobody, there's a question nobody asked. We can really debate which is the better strategy in your 80s. Yeah.

And you know, it's funny, this is actually even part of the reason why I, in my notes here, it says, I can play both sides of this. Yeah. Maybe in your 80s you hold your properties for the step-up basis. Anyway, all of that is to say, that's a conversation that I hear a lot of buy and hold investors have when they're thinking about what to do with their properties when they reach very old age. But I can't think of an obvious reason why a person would sell their properties upon turning 60 or 59 and a half. Unless it is, no, no, I can't quite think of it.

If you're going to do it at 60, do it now. I do know that a lot of go-go real estate investors, they would see it as horrible to decrease the amount of leverage to keep this rocket moving. But I don't think there's anything wrong with having a kinder, slower moving real estate portfolio because it's still at half the size it is now, it's still going to be a valuable piece of her portfolio. it's a nice diversifier away from the stock market. Like even though returns are very good,

they work differently than the stock market does often. And so cutting it in half and not having to worry about it, I would be interested. I'm interested in two things. This is the last note that I had was, I don't know what kind of cash flow overall she's looking for in the future. She talked about the side hustle and how she could do more if she has to. But how much cash flow is she looking to maintain?

what is she trying to achieve lifestyle-wise? And would it be harder to support? Because it sounds like from everything she said, it's a wash, right? She's going to take the equity and it's going to be a wash. Yeah. I mean, from a cash flow perspective, it's a wash. But you're right, from an appreciation perspective, from a wealth-building perspective, you know, there are so many ways that rental properties contribute to your overall net worth

that is beyond simply the cash flow. Right. Well, your future expectations are going to go down if she gets rid of it. Right, exactly. From a wealth-building point of view, I don't love the idea of selling it from a strictly speaking wealth-building point of view, especially given how young she is, I would rather that she hold on to it. But I also recognize that there's a peace of mind trade-off that comes with that.

and peace of mind has benefits that can't be expressed on a spreadsheet. And so that's why I really think this comes down to, do you want peace of mind or do you want additional wealth building? And whichever of the two is your higher priority, that one is your answer. And Joe, since she has eight units, it kind of renders, if she sells a fourplex, cuts it in half, that puts us at a clean four. So it renders our entire opening joke sequence, moot. But we had to do it anyway.

Right, the 2.5 kids, the half bath? I did have one last point, which is, while Melissa has done a good job saving and I'm so glad that she was able to get to financial independence, when she shared the amount of money that she has outside of these two properties, she obviously has a good chunk of. of her net worth locked up in these two properties. You know, I start thinking about the conversation we had last week around safe withdrawal rates and I start thinking about what percentage of her portfolio she's has to withdraw for living expenses. And that may also cloud my judgment because of the fact that I think this idea of modeling, modeling how things would go over time if she kept it or if she got rid of it, I think that would be valuable in this case, don't you?

Like, model it out and just see. Because often, by keeping the unit in New Hampshire, it's going to be a rougher ride. And yet what I've found was that if you can model it and see the results, often, Paula, when you can give people a different perspective of the same numbers, if you can take the data and show the long-term effects, it often would turn. an investor's viewpoint so that they see it as maybe much more safe to keep it because they know that their freedom from worry is truly wrapped up in the fact that they have leverage on both of these places and they're growing their net worth fast enough that it continues to fuel a very nice financial independent journey versus struggling along. And I don't know that. But I do think that modeling it often helps people tolerate what they initially saw as risk initially as being far

less risky in terms of their approach. Hey, Joe, sorry, I'm just thinking about this right now. I want to go back to our earlier conversation about selling the properties at the age of 60. Okay. Yeah. We still wonder. Well, so the reason I'm still thinking about it is because the timeline feels arbitrary. because it's invested now.

Right. It's invested now. And if she turns and invest it in exchange trade of funds or a collection of indexes, whatever it might be, it's just going from one investment to a lateral investment. And I'm not sure. I'm not sure why. Is it liquidity? And that's what made me question cash flow, Paula.

Is this a cash flow thing where she's going to want to bump up her ability to have more liquid assets? Yeah. I don't know. But I agree, Joe, the money is already invested. It's already performing well. I certainly understand, regardless of age, I certainly understand that a person might want the peace of mind that comes from debt reduction, independent of age. I get that. But I just don't see any reason why, Melissa, why you wouldn't hold this into your 80s. hold one or both of these properties into your 80s, since at a minimum, I mean, you already have 800,000 in retirement assets. Assuming rule of 72, that's going to double to 1.6 million. If we assume 8% average market returns, that would double in the next nine years.

So why not have a diversifier or hold on to a diversifier so that you've got 9, years from now, assuming 8% returns, you've got 1.6 million in brokerage, and then you've also got either one or both of these properties. And then that can lead you into your 70s and 80s. So yeah, I'll throw that one out there for consideration. Why not hold on for a lifetime? Joe, that was the opposite of the question she asked. Leave it to us to cover every angle. Right. Well, Melissa, I think that gives you your answer. and again, congratulations on what you've built.

And call us back and let us know what you decide to do. I would love to know how this goes. Yeah. Before we take a break to hear from our sponsors, Joe, I have an announcement. Oh. Announcement. Tonight, tonight, tonight, I'm hosting a webinar on investing in real estate. Fantastic.

Tonight, Tuesday, May 12, this webinar, you can sign up for, it's totally free. afford anything.com slash rentals 2026. And I'll talk all about investing in the 202026 market, being a new buyer, being a first-time buyer in the 2026 market, or being somebody who already has properties and wants more. All of that, like a deep dive into investing in 202026 is what I am covering. You can sign up for it at afford anything.com slash rentals, 2026. It's tonight. And I think it's really important if you've never invested in real estate before to make sure

that you're hearing from the right people. And as a guy who used to have a real estate podcast, I'll say that there are so many horrible voices in the world of real estate. So I think it's very important to know who the voices are that you should be listening to, how to make sure that you stay out of trouble. As an example, I mentioned earlier, Paula, that my son is flipping houses. I saw some people on TikTok talking about that's the place to start. That is 100% the last place you want to be.

the last place you want it, especially when you start out, because you're going to make mistakes. Yeah. And so having the right mentorship, the right training and staying away from these what could potentially be huge pitfalls into something that once you build it, man, it can be a real machine for you. It can be really nice. It can be much easier than people think that it is, much easier certainly than I made it. So I would encourage everyone to show up tonight. Yeah. And Joe, I know you've been really inspired by watching what your son has done. I have a lot. And what's cool is watching him at the beginning turn what were big mistakes into his biggest strengths. Because now he knows from learning from those mistakes like building your team, super important. Building systems. There's so much automation

you can have that he didn't have before. And to learn all those things and not have to go through the mistakes that he made, I think would be a huge leg up for people. Beautiful. Well, yes, we'll be talking about how to invest in 2026, how to get started in this market with high prices, interest rates, inflation, all of the things that are specific to this market. We're going to talk about how to get through it, how to say, yes, I'm going to do it, and here's how. We're going to dive into that. Tonight, Tuesday, May 12, it's free. Sign up at afford anything.com slash rentals, 2026. All right, we're going to take a break to hear from the sponsors who make the show possible.

And when we return, we're going to hear a question from Vaughn. Vaughn actually has two questions. One is about cap rates on rental properties, how that applies to single family versus multifamily. It's a very interesting discussion. The second is about retirement account contribution limits. We're going to hear both of those questions coming up next. Welcome back. Our next question comes from Vaughn.

Hi, Paul and Jill. this is Vaughn from Michigan, and I have two unrelated questions. My first is about cap rates. Paula often refers to cap rates as the unleveraged dividend yield on a property and says that the total return is the cap rate plus any appreciation. That makes sense to me for a single-family rental where the home's value is largely driven by overall market conditions. However, am I correct in thinking that for multifamily properties, the market value is primarily determined by the property's income? If so, does that mean that the cap rate and total return would effectively be the same since any appreciation would largely come from changes in income rather than external market

factors? And then my second question is about contribution limits for retirement plans. Why is there such a large gap between how much you can contribute to an eye? versus an employer-sponsored plan like a 401K when both are meant to encourage retirement savings. I recently saw a statistic that the average person in the U.S. will have around 12 jobs over their lifetime. That's a lot of different employer-sponsored plans to keep track of, coordinate, or roll over. Wouldn't it make more sense to allow individuals to contribute up to 401K-level limits in a single IRA and then have employers make matching contributions directly into that account. It seems like that approach would reduce the administrative burden for employers

and simplify things for employees who would only need to manage one retirement account regardless of where they worked. Maybe the current system made more sense back when people worked for the same company for 35 years, but it seems very outdated and inefficient in today's work environment. I'd love to hear your thoughts on both of these. Thanks for a great podcast. Paula, good timing on Vaughn's question about real estate. Yeah.

Especially with what's coming up tonight. But this idea of cap rate, does it work on multi-unit properties? Actually, Vaughn, it is the opposite of what you asked about. So you said you get how it works on single family but not on multifamily. Flip that around. Cap-rate actually has a much closer relationship to the valuation of a multifamily than it does to a single-family. than it does to a single family. And here's why. If a person is buying a multifamily property, they're an investor and they're looking for returns. And if you're an investor who's looking for a

return, then you are going to value a property in a manner that is related to its cap rate. As an investor, you're looking for a good cap rate relative to the risk profile of the property. And when I say risk profile of the property, I mean the type of neighborhood that it's in, the condition that the property itself is in, all of those play into the risk profile of the property. As an investor, you're looking for a cap rate that is commensurate with the risk profile of that property. Certain things, you know, if the neighborhood improves, for example, those are market-based things that are outside of your individual control. If the condition of the property improves, that's called forced appreciation, that is within your, as the owner, that is within your direct control. those things do improve, they lower the risk and therefore improve the market value of the property.

But at the end of the day, the investor, if you just think about buying a business, right? If you're buying any business, what are you going to look at? You're going to look at the returns on that business. And then you're going to pay, just to talk about business buying in a very simple manner, you're likely going to value the business at some multiple of its returns. conceptually, that same thing happens when an investor buys a multi-unit property. And that's why the cap rate in a multi-unit has a very, very close relationship with the valuation on that multi-unit. Now, contrast that with a single family where the most likely buyer is going to be an owner-occupant.

If you're selling to owner-occupants, then you're selling to people who are not making a spreadsheet-based decision. They're making an emotional decision. And when you sell the people who are making an emotional decision, then it doesn't matter what the property rents for. It matters what emotional spark you can create. Now, of course, neighborhood, condition of property, those play into that. Like, you can't just bake cookies and install beautiful gleaming hardware and infinitely raise the value of the property. But we do know that baking cookies and upgrading the hardware does generally, have a positive correlation to higher valuations on a single family. Why? Because you want to give

an owner-occupant buyer, a retail home buyer, the wow factor when they walk into that open house. That's not something that you're thinking about when you're selling a multi-unit to an investor. I mean, that's 100% right, even in my life. I've been investing for a long, long time. And the house that we purchased was based on an emotional decision. It was where I wanted to live. it was on the block I wanted to live, was the price right for the place that I wanted to live. Heck, we just added on. We've talked about this on the show before. You were just here, Paula.

This room was stupid. Right. Your new addition. It is not at all what you would do if you were an investor. It's the dumbest room. But Paula, is it cool? Oh my God. It's so cool.

It's so cool. It is so much, not the decision that you make. So it's a whole separate part of your brain. Like I made that for purely lifestyle decisions. I'm going to live here for a long time. I want a place that it's beautiful that I can go hang out in. And we hung out there almost the whole time you were here. Just for context, everyone, Joe just built this new addition onto his home.

Beautiful room. It's what is like 400 square feet or so? 400 square feet, yeah. Absolutely 400 gorgeous square feet. It's got this massive fireplace that's probably over six feet long with this, copper wall. It is metal that was meant to rust. And when we installed it, it was completely black. And now it's turning this nice copper color, which is what we're going for. Right. And you've got a built in wine fridge. You've got an outdoor built in grill. Yeah, a whole outdoor kitchen attached to it.

This cool, raised circular fire pit area, because people that know me know how much I like, out at the fire pit. So it's this beautiful fire pit area. I saw the design. I thought, this is stupid. And in fact, the guy that installed it said when I saw the design, he said, he thought it was stupid. And then he built mine and he went home and told his spouse, he's like, we need one of these two. Yeah. So, yeah, Joe, you've designed a room where you go from the fireplace to the fire pit. Right. Joe's a secret pyromaniac. Well, I thought when they said achieving fire, that was what it was about. You were like, the fire commuting. You were like, the fire community. Oh, cool. I love these people. You know how awkward that got? But I'm the only one talking

about a solo stove and a gas lighter. Oh my God. Joe's got a flamethrower. He has a literal flamethrower. I don't want to brag, but my friend Mike got me the world's best fire starter. But anyway, that, I mean, that's a perfect example of spending that you did on a single family home, which is a primary residence that is purely for the sake of personal enjoyment, and as an investment, it makes zero sense. And if you were to rent out your property, let's say that you and Cheryl decide that you want to spend a year, I don't know, traveling across Asia. Yeah. Right? And you decide to rent out your property. There would theoretically, sure, you could take that rental income and calculate some sort of a cap rate on your property,

and it's probably going to be garbage. Could be horrible. And the fact that that cap rate on your property is garbage has no relationship to, if you were to then sell your property the next year, it has no relationship to what you would sell that property for. Because the person buying that property is likely not going to be buying it to rent it out. They're going to be buying it because it's got this awesome fireplace that leads to a fire pit. I love it when we use Joe's bad financial moves as our example.

Here's exhibit A of what not to do, Von. All right. So let's talk about Vaughn's second question. Yeah, this one I can actually chime in on in a way where I'm not the example of the person doing the. Where you're not the cautionary tale. That's right. Yes. Von, I've often wondered this.

And obviously, I think, Paula, any answer we give is going to be complete conjecture. But I think that's what Vaughn wants us to do. I strongly, having thought. about this. Vonham, everybody's frustrated as you are, number one, because it does seem ridiculous that we can put so much money into a 401k or a 403B through work, even a simple plan, a solo 401K. And then you get to the regular old IRA, the regular Roth IRA, and it feels so, so, so much less. And the only, the only way I can think that this actually makes sense. is through the lens of, if I'm a member of Congress,

who's going to ultimately have to put this in a bill to change the rules, why would I not do that? And I think the answer is, if you tie these higher employment numbers, if you tie these higher contribution numbers to employment, that maybe they see it as a carrot to keep unemployment low, It's just another reason why people might want to go get a job. You don't think having a paycheck is the reason people get a job?

I would think so. But what other reason would you have? Because there seems to be no reason. That's the only reason that I could come up with is that somebody somewhere said, no. Number one, I think Vaughn's thought about it way more than Congress has. Yeah, that's probably true. That's number one. But number two, I do feel like the reason why working for an employer has all of these,

quote, advantages are just multiple reasons to continue to hopefully keep employment numbers higher. But that's all I can come up with. Overall, though, Paula, this is why I also don't spend a lot of time on this. I can spend a lot of time and energy with how frustrating it is. of the ways that the rules are backward, don't make sense. And I could just get frustrated or I can not spend my time and energy really worried about that and figure out how to use the rules the way they are, which I think is a much better use of our energy than questioning why the heck.

Why the rules are written in the way they are. But one commonality that Joe and I both have, and one thing that I think is a little rare to find in today's environment. Joe, you and I both, we like to focus on what is in a world in which people have endless conversations about what should be. And people often are at great odds with one another about what should be to such an extent that families are sometimes torn apart because people can't agree on a shared vision of what should be. Rather than discuss what should be, rather than discuss what should be. Joe and I both prefer to take a look at what is and then say, all right, given the conditions on the field at this present moment, what's the next actionable step? What do we do from here?

How do we plan a life and how do we stay inside of our own internal locus of control, given the reality of the present situation at this present moment? That's our approach to life. And it's so frustrating that that is not the prevailing wisdom. And it's how as afforders, I think, were different. And yet, I was in an Uber about a week and a half ago with the driver who kept telling me how they couldn't save any money. And that was why they were Ubering. And I thought, this is cool.

This is a person trying to take control. I'm trying to work extra hours. Respect. And I'm doing the thing. Huge respect for that. I can be online complaining about somebody. I don't know, or I can be out making stuff happen. It was really cool talking to this woman who was going to change her situation.

I felt like in a short time just by sheer force. So, Von, that's not to say that I don't love the question because I do love the question. And obviously, I've kind of plated this. And then I go, you know, I can't do anything about that. I could write my congressperson and say, how come we're not focused on this? But would I like to see IRA contribution limits increased? Heck, yeah, I would. Please.

I know that lots of members of Congress listen to this show. There you go. You'll get the afforder vote. Higher contribution limits. Higher contribution limits. What do we want? Higher contribution limits. What do we want it right now?

Like 10 years ago. Doesn't seem to have the ring that we're open for. Yeah, we'll workshop that. We'll workshop that one. All right, well, Vaughn, thank you for both questions. And please come to the webinar tonight. Again, afford anything.com slash rentals 2026. Totally free.

We're going to take one final break to hear from the sponsors who make this show possible. And when we return, you know, on the topic of retirement accounts, Layla has a question about pausing Roth contributions in order to prioritize other goals. Welcome back. Our final question today comes from Leila. Hi, Paula. I know you and Joe are big fans of the Roth, but I'm wondering if there's ever a reason to stop Roth contributions in order to meet other goals. For context, I'm in my late 30s along with my husband, and we have over $400,000 in Roth accounts with a total of $1 million in. in non-529 investments spread between 400,000 in Roth, 500,000 in pre-tax, 20,000 in an HSA, and only 80,000 in a brokerage account. The reason why we're able to have so much Roth

contributions is because I have access to a mega backdoor Roth through my work, which I've been maximizing for the last few years. our goal is to retire by 50 and be able to have a spend of about $150,000 a year. We are targeting around $3.75 million to be able to do that in investments. But I'm wondering if for the first five years I might need more in my taxable brokerage and therefore because I can only contribute so much towards savings at this point, should I focus more of my savings towards the taxable brokerage at the expense of the mega backdoor Roth? For context, we are in the 35th percentile for income taxes.

So at a fairly high marginal tax rate. And this means that when I've asked Claude and Gemini, they have suggested that to meet my goals of retiring by 50, I should pause my mega backdoor Roth contributions since I'm paying a very high tax rate for that. And instead redirect it to the brokerage because the 15 percentile taxable rate that I could get from a taxable brokerage withdrawal in the future would be much more optimal than the 35 percentile marginal tax rate that I'm paying right now. Curious to get yours and Joe's thoughts if you agree with the different AI chats that I've asked

or if as Roth superfans you would suggest that I really try to squeeze making that mega backdoor Roth maximized every year. Laila, thank you for the question. And before, before we answer it, Paula, can I defend at least my honor here? Ooh, all right. Which is I, I'll let Paula speak for herself. I am not a Roth superfan. I'm not a super fan of any investment. I hope to never be a super fan of any investment. I'm a super fan of plugging the right tool into the correct solution. It just happens to be that in a lot of cases, the Roth has been the correct tool. I just want to be clear. I just want to use what works. I am a Roth super fan. Absolutely. Total. Roth T-shirt on her Roth. Yeah, exactly. Roth it up, Roth Dog. Yes. So yeah, I am a Roth super fan, absolutely. But that does not necessarily

apply to the mega backdoor Roth. Because with a mega backdoor, that's a whole different can of worms. When you put the word mega on it, it could be too much of a good thing. Yeah, you know, it's bigger than a can.

It's a bucket of worms. It's a bag of worms, sack of worms. It's a mega sack of worms. It's a mega sack of worms. Yeah. The mega backdoor Roth has a whole bevy of considerations.

How's that for a word? that are not present when you are simply directing money from your paycheck into either a traditional IRA or a Roth IRA or a traditional 401K or a Roth 401K. Like that is a much simpler set of tradeoffs and that is a much simpler evaluation. It gets different when you're talking about a megabackdoor Roth. That's not to say don't do it. It's just to say, when I say that I'm a, I am a Roth superfan, 100%. My bias is strongly Roth unless you can make a very convincing argument otherwise. But that applies to new contributions that come from a paycheck.

I think when it comes to this question, Paula, I think first we have to talk about the use of AI. Because I think it's really important to know how should we use AI and how should we think. about using AI because Layla, I like your use of AI in this case, but I want to define why I like your use of AI. There was a recent piece in psychology today of all places, asking about financial advice specifically. Do you believe AI or a family member who knows you, who knows nothing about money? Like which of the two? would you prefer? And the answer came back very convincingly from the vast majority of people. It is a family member that knows very little about money versus AI. Wow. But the one reason

that I think is incredibly valid is no matter how empathetic AI may seem, no matter how it can explain its reasoning, the family member has some skin in the game on your success. They're related to you. They have a connection with you. And even though, AI is my buddy every time, every decision I talked to AI about that like, this is the best thing you could ever be thinking about. Let's explore. So I feel really good about that, but there truly is no skin in the game. Robert Ferrington over at the college investor did a huge study just a few months ago of asking AI some very basic questions to common financial problems and AI hallucinated far too often for us to be comfortable.

Where I draw the line is, and this is why Leila, I really like what you did, you asked it to challenge your thinking and to bring up other courses of action, which I think is a great use of AI because if we look at how AI is built, it's combing the entire universe of potential outcomes, potential solutions, things that have been written, talked about online everywhere. and it's going to pick these most likely scenarios to help you come up with a better decision. If you ask it to answer a specific question definitively, I think that's a huge mistake. I think it's a monster mistake. So I like the fact that you said, hey, what could the problem be with putting money in the Roth?

And the answer came back, hey, you know, you're paying all these taxes to. today because of your tax rate, Paula, where if you just put it in the brokerage, you might not have that friction. And I like that answer. Well, Joe, I think what I hear you saying is when it comes to the use of AI, use it as a data point, but not as definitive truth. And also run it by people who know enough to know when it's hallucinating. Yeah. I was actually helping somebody with an estate plan a few weeks ago. Just a friend. I'm not a licensed financial planner anymore, but they know that I'm a guy that knows a lot about stuff. And I asked, asked it a question about beneficial IRAs.

And 100% Paula gave me the wrong answer. Right. Well, I remember you were telling me about that because the AI interpreted the word beneficial as an adjective describing IRAs. Yes. And not as the proper noun of a specific type of IRA. There's a couple ways to handle this. Number one is to add money in the brokerage account.

number two is to look at SCPP payments and Rule of 72 and calculate in this pension type device to last 10 years. That's kind of a long time for me for an SCPP payment because while it locks in an amount of money that you'll get every year, there are a number of ways you can take

SCPP payments where it will go up with inflation. So you can actually have that payment rise, it still locks you into a construct that, you know, who knows what's going to happen six, seven, eight years in. I like SEPP payments when we only need it for five. Well, she wants to retire at the age of 50. And really what we're solving for is from age 50 to age 59 and a half. Right. So there's a nine and a half year window of time that we're solving for? Well, maybe we are. Actually, maybe it might be fewer years than that, but go ahead. Well, okay, assuming it's nine and a half years, assuming she retires on her 50th birthday,

where the window that we need to plug, the bucket that we need to fill is age 50 to age 59 and a half. A couple of things strike me. Number one, SEPP 72T, I think, could be a good option. Number two, given that she's currently in a 35% tax bracket and when she retired, she's going to be in a much lower tax bracket. There's the opportunity to do a Roth conversion ladder when she's in her 50s. And so I'd like to move towards that. I am still a Roth superfan, but why not Roth conversion ladder in her 50s? That will fuel the bucket of money that she can pull from when she's in her 80s.

And then number three, I don't think that she really needs to have a huge taxable brokerage account. Like, I mean, yes, it's good to build out the tax triangle, but also, contributions to a Roth, the contribution portion, the nominal dollar contribution, she can pull out at any time. So putting money in a taxable brokerage account, you're losing the advantage of you could put that money into a Roth and still pull out the contribution at any time. So why not do that instead? Well, the reason why not is because if she needs any of the return on that money. if she needs that money pre-59.5. Yeah, but she likely wouldn't be,

and I guess it depends on the size of her SEPP 72T, but she likely wouldn't be drawing down all of her Roth contributions, right? So there would still be some portion of the contributions that could remain in those accounts in order to create tax-free earnings. There could be. And the way that you do that is that when you do this rule, this SEPP rule, what you're doing, if you're new here, Layla, what we're helping you create would be what feels like a pension payment.

You're allowed to take money without penalty from your retirement plans without a penalty using a specific rule. We keep calling SCPP. So just to bring new people up to speed on what we're talking about, that way you don't have a 10% penalty. You can get at the money and you're just going to pay tax on pre-tax accounts. you're just going to pay tax as if it were earnings today. You do it as an ordinary income. So the way that you maneuver this so that you solve for the amount of money that you want to get every month from this to create the pension size you want, legally you have to use a whole IRA to do it. You can't say, I'm going to use half of it and SCPP it and leave the other half. It has to be a whole IRA.

Now, the cool thing is you're allowed to have multiple IRAs. So you could have one at Fidelity, one at Vanguard, let's say. You take the amount you're solving for, have that amount in Vanguard, do the SCPP on that, and then the rest of your money's in a different IRA at Fidelity. So they have to be two different entities. They can be doing the same thing. They just can't be commingled together. So if you're using SCPP, you figure out how much money you need on a monthly basis, segregate that much money, put it in its own IRA, and then bam, turn on the lever and start taking money out. Layla, one thing that you said in your question, you talked about the idea behind putting money in a taxable brokerage account, you said you could potentially withdraw at a lower

long-term capital gains rate around 15% rather than paying 35% up front. But the thing is, if you're putting the money in a taxable brokerage account, if you're taking it as income, you're still paying taxes on that income. You're paying taxes on that income in the year in which you earn it. And then later, you'll be paying at the long-term cash-term cash. capital gains rate on the gains that you make from those investments. So, I mean, I think there's still, you don't save taxes by virtue of putting money in a taxable brokerage. Now, what you do, what you do get is you get more flexibility. Of course, that applies to new money. So Joe and I just had a conversation behind the scenes, by the way, about part of where

this answer gets a little muddy is where are we talking about new income that you're investing versus where are we talking about taking past money and recharacterizing it? Because if it's new money that you're freshly investing, you're not going to save anything by putting it in taxable brokerage. So if the AI is telling you that, then there's no savings with taxable brokerage. So new money coming from fresh paychecks, I don't see any reason why not to direct it to a Roth. Now, when it comes to past money that you already have,

that's where it gets different. And that's again where I would encourage you to opt instead for the Roth conversion ladder when you're in your 50s. But I will caveat that there's only so much that you can Roth conversion ladder at a time if you want to stay in a lower tax bracket. So even that has to be gamed out based on the amount that you want to convert. So, Leila, the answer becomes different depending on if we're talking about present income versus past recharacterization. But overall, you've got a fantastic portfolio built. So congratulations. And I hope that gave you some direction on how to think through these different buckets of tax treatment.

Call us back. Give us an update on your progress towards your early retirement goal. And remember, the important reframing is how do we solve for a nine and a half year bucket? That's the key. Yeah, because solving for nine and a half years for age 50 to 59 and a half, that bucket specifically requires a very different plan than everything that happens from 59 and a half forward. Joe, we did it again. Three questions. Great questions, too.

Joe, where can people find you if they would like to know more? Oh, tonight I'm going to be hanging out at Paula Pant's fantastic webinar. So you can find me learning how to do real estate the right way tonight. It's at 8 p.m. Eastern, 7 p.m. Central, 6 p.m. Mountain, 5 p.m. Pacific. I'll be there at 7 p.m. Central. That's where I'm going to be. That's where you can find me. But I won't be there at 8 p.m. Eastern. Oh, you will. If you're there at 7 p.m. Central, Joe, then you'll be there at 8 p.m. Eastern. Nope. I can't do both.

You'll also be there at 5 p.m. Pacific and 6 p.m. Mountain. I can't do 4.4. things, Paula. I'm going to just do the central one. Well, thank you. Thank you, Joe. I will see you there. And yes, to all of you, please come to the webinar tonight, afford anything.com slash rentals 2026. Thank you to all of you for being afforders. If you enjoy today's episode, please share this with the people in your life. Share it with that Uber driver who is inspiring you because they are operating inside of their locus of control. share it with your congressperson, Vaughn.

Wow, yeah, seriously. Share it with your IRA administrator. Share it with your friend who uses Claude to ask every question. And share it with the people of New Hampshire and Massachusetts. Share it with all of those people and more because that is the single most important way that you spread the message of F-I-I-R-E. Thank you so much for being afforders. Joe and I will both see you tonight of Fordenking.com slash rentals, 2026. I'm Paula Pant.

I'm Joe Sol C-Hi. And we'll meet you tonight.