Afford Anything - Q&A: The Hidden Tax Drain in Your Investment Strategy

Episode Date: February 25, 2025

#585: Michael rebalances his portfolio every year. But he’s worried that triggering capital gains taxes on his brokerage account will cancel out the benefits of reallocation. Is there a better approach? Sam has an opportunity to switch jobs, but she’s confused about how an Employee Stock Ownership Plan stacks against her current employer’s 401(k). Is she getting a good offer? Carlos is excited about early retirement in Brazil, but he’s worried about the tax implications for his U.S.-based retirement accounts. How should he prepare for this move? Former financial planner Joe Saul-Sehy and I tackle these questions in today’s episode. Enjoy! P.S. Got a question? Leave it https://affordanything.com/voicemail For more information, visit the show notes at https://affordanything.com/episode585 Learn more about your ad choices. Visit podcastchoices.com/adchoices

Joe, have you ever thought about living in another country? Not for an extended period of time. Our goal is, though, when Cheryl, who loves what she does right now, decides that she doesn't want to do it anymore, pick up and move from the heater that is northeast Texas during the summer, and maybe just live in Portugal for a few months or every year live someplace different, just for two or three months at a time, though. Ah, well, you'd probably still keep your residency in Texas then, which means there wouldn't be tax implications to deal with.

Thank goodness. Well, you're not going to dodge that complexity just yet because we're going to answer a question from a caller who is moving to Brazil and is wondering what some of the tax considerations are. We're also going to hear from a caller who rebalances his portfolio every year on his birthday and is wondering what the tax considerations are when rebalancing that taxable brokerage portion as well as just kind of what the strategy around it is. And we're going to answer a question about 401k's versus employee stock plans. Wow. All that today. All of that. It's a big day, Joe.

Buckle up. Welcome to the Afford Anything podcast, the show that understands you can afford anything, but not everything. Every choice carries a tradeoff. And that applies not just to your money, but to your time, focus, energy, and attention. This show covers five fillers. Financial Psychology, increasing your income, investing, real estate, and entrepreneurship. It's double eye fire. I'm your host, Paula Pant. I trained in economic reporting at

Columbia. Every other episode, I answer questions from you. And I do so with my buddy, the former financial planner, Joe Saul C-high. What's up, Joe? Wow, sounds like we're giving people of Brazilian reasons to listen today. Oh, Steve, can we get a want-want? Come on. Oh, that was not want-want. That was good. We don't want to lose our audience before the show has even started. So we're just going to dive right in with this first question, which comes from Michael. Hey, Paula, I had an interesting question. I don't think I've seen anyone cover elsewhere. So part of my financial plan is to rebalance my accounts yearly. I do this on my birthday, lack of a better time to do it. But one of the things I've been thinking about is how to do

that about my taxable brokerage accounts. So in those, if I sell some of these assets to rebalance, I will be realizing capital gains and that has tax implications while I'm working. The main purpose of my taxable account is I have extra money and I have nowhere else really to put it and nothing I plan to spend it on in the immediate future. So it's just sitting there compounding until I need the money for something. So is there any advice out there for rebalancing a taxable account yearly? What I've currently been doing is I take some portion of new money that I'm adding to this account and I use it to kind of help try and bring things closer to my idealized asset allocation. Again, I don't know if there's a better way. I've never really seen anyone really talking about rebalancing those accounts while you're still working.

But I figure you might have some good advice that you could provide on how to go about that. Thank you for taking the time to listen. Michael, happy birthday. It sounds like you know how to party. I'm joking. That's exactly the type of thing this community does. That's what I love about afforders. We find a celebration in taking care of our financial health.

Absolutely. To answer your question, the two things that I would wrap. recommend doing in terms of the assets that are in your taxable brokerage account. One is make sure that they're there for a solid year. Heck, if you really want to be on the safe side and not risk it, go every year birthday plus one day and then the next year birthday plus two days. Just make sure that you're going to get taxed at the long-term capital gains rate and not the short-term capital gains rate. So maybe leave a safety margin of an extra day just to be on the safe side. I don't know if that's strictly speaking necessary.

I would just do that out of an abundance of paranoia. So that's the one thing I would do. The other thing I would do is exactly what you suggested, which is rebalance by virtue of purchasing more assets rather than selling out of positions in order to avoid the tax hit. Oh, and the third thing, of course, is asset location. So when it comes to the asset allocation of your entire portfolio, locate the most tax-efficient investments into,

your taxable brokerage account. Those are the three things. Sure. And the only thing that disturbs when people do that, Paula, is that often the money... Timeout that disturbs you? Dis disturbs me. Wow. I get very disturbed, Paula. Jeez. Very, very disturbed. All right. Sorry to cut you off. About that recommendation. That was dramatic. Disturbs you. The only thing that I see people do when they try to be. No, no, no. Stay with disturbs. That's great. When people try to be overly tax efficient, it is often the assets that are the safest that also create the biggest tax consternation. So I will see people put safe assets into tax shelters because they don't want the dividend payout. And then it comes time to spend money and the money that is very tax efficient, it's because it's a growth

fund that doesn't pay a dividend, which can be the most dangerous place to take money from. To some degree, I just have to realize that I'm going to lose some tax efficiency. There's going to be some tax friction when I have money outside of my IRA. I think what's cool is this is a good opportunity to look at your allocation and ask, does this work for me more often on the outside? I think I mentioned before with the efficient frontier, maybe looking at the drift every five years. But I think that because of the fact that you want to avoid taxes as much as possible on your non-IRA money, just looking at what's working and what isn't before I begin to fill in is the thing that I would do. Yeah.

But besides that, I love his strategy. I like the idea of not selling anything if possible and instead deciding what I buy and how I buy. In fact, you and I a few weeks ago were with our mutual friend Nick Majuli, who wrote a great book called Just Keeps. buying. And I asked him this question about which way do you like to get back to your allocation? He said, whenever possible, I like to just fill in the balances so that then I don't have to sell a thing. So exactly. I'm 100% on board with this strategy and I don't know of a better one. Yeah, same. That's exactly how I rebalance. When I go to make contributions, I just take a look at that drift. In fact, I don't even get too specific about it.

I just sort of eyeball the drift and I can usually see, all right, I need more of that asset class and then I just buy into it. If something's down, though, and I'm looking at whether I'm going to do some tax lost harvesting or if I'm going to stay with it, it's in those moments especially that I'm like, does this asset class suit me at all still? Is this still the place that I need to be? Because if I'm going to sell it for tax reasons, then I want to make sure. before I buy it back and avoid wash sale rules by staying out of it more than 30 days. I'm going to clarify much more quickly whether this position even serves me in the first place. Joe, do you think my birthday plus one day is excessively paranoid? I don't. I think that's just fine.

Oh, thank you. It doesn't disturb you. It does not disturb me. I don't get overly disturbed. It's a day after Paula's birthday. And I am disturbed. I mean, heck, if you keep doing that over the span of 30 years, you're going to end up like a month past your birthday. And then who knows what madness happens. Yeah, but Michael, I think you are absolutely on point. You're doing exactly what both Joe and I would do.

So, kudos to you. Well, up next, we're going to address a question from a caller named Sam who's wondering. about how to compare a 401k to an employee stock ownership plan. That's coming up next. The holidays are right around the corner and if you're hosting, you're going to need to get prepared. Maybe you need bedding, sheets, linens, maybe you need servware and cookware. And of course, holiday decor, all the stuff to make your home a great place to host during

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fifth third better. Our next question comes from Sam. Hi, Paul and Joe. I have a question about a potential job opportunity. I got an offer from a company that doesn't have a 401k plan, but they do have an employee stock ownership plan. While they said they can't guarantee any contributions into the ESOP, for the past six years, they've been contributing the maximum annual amount, which they say is 13 and a half percent. At my current company, I get a match of 5 percent into my 401K. So this seems like it would be an increase. I wanted to ask what my thought process should be, what are the potential pros and cons of an ESOP? The company has been around for about 75 years, and they've been doing really well, especially in the past decade.

There's huge growth potential there, but I understand that there's some risk involved in this contribution only going into the company's stock. So any guidance would be appreciated. Thanks for your help. Love the podcast. Sam, first of all, congratulations. on your new job offer. That's incredible. And I hope that you negotiated for your pay package. I'm kind of into that. And as we all know, when you switch jobs, switching employment tends to be the best opportunity to get a big bump in salary. So I hope that this new job offer comes with that big bump in salary and that bump in benefits. But speaking of a bump in benefits, that's

exactly what you're calling about. How do you compare the Trad 401k that you currently have with a 5% match, which is an amazing match, to this ESOP? It sounds as though the company that you may be moving to is doing very well with 13.5% for each year for the last six years, making that max. However, as you mentioned in your question, the major red flag when it comes to ESOPs is that you're getting an offer of a stock. specifically the stock of the employer who you also rely on for a paycheck. And so there's a concentration of risk because not only does your entire paycheck come from this one particular company, but now a big portion of your portfolio does as well. You can, of course, invest money into a traditional or Roth IRA. You can invest money into taxable brokerage accounts. But people who have. Stock-based compensation often tend to have an over-concentration of their employer's stock. And when that goes well, it goes very well.

And when it goes badly, it tends to go very badly. So you want to shed a lot of the realized employer stock that you have as quickly as possible. A few notes here. One is that because your new employer, assuming that you take this job, because your new employer is going to be funding this ESOP, you yourself are not going to be making those contributions, which then freeze up the money that you have for making those trad IRA or Roth IRA contributions. So I don't know how much money, if any, you're contributing now to IRA accounts that are outside of your current employer.

But if you accept this job, when you make that move, be sure that since you're not going to be making contributions from your paycheck, be sure that you move that money into a non-employer-sponsored IRA account. A way to get that done fairly easily if your employer alikes, it is often you can take your direct deposit, Paula, and split it up among different places. And so if you can split your direct deposit, you can even eliminate yourself and hopefully have part of it go directly to an account that is inside of a plan so that you don't even touch it. And it feels very much like your 401k. If at the employer level, they'll let you do that. The drawback, though, when we talk about

these non-employer IRA accounts is the contribution limit. Very small. Yeah, it's frustrating. Yeah, exactly. I don't know, Sam, if you have HSA eligibility. If you do, you can use your HSA as a essentially a de facto supplemental retirement account by virtue of contributing money into an HSA and then committing to never touching that money until you reach retirement age. Yeah, really just call it your Roth IRA, but tax free going in, tax free coming out, retirement fund. Yeah, exactly. You can use an HSA as a functionally a substitute retirement account. That being said, not everybody has HSA eligibility and also, particularly if you expect to have any health expenses, if you have the option to get much better health insurance plan that is low deductible rather than high deductible, heck, that's even better.

I would never advise somebody to take a high deductible plan just for the sake of having HSA eligibility, especially if they think they're going to have health expenses. I love the fact, though, Paula, that she's looking at total compensation. And I think this is missed a lot of the time. Most people, when they look at a job offer, they're just looking at what is the gross pay. pay, not what's the total package that I'm getting. So for her to consider this, I think really helps all the afforders when they're looking at different job opportunities go, okay, what benefits do I get? How do that compare with the benefits that I have now?

What's the cost of that? Because Sam's going to need to bring that to the table herself if she tries to match it. And in some ways, especially in this way, if she's going to contribute more than an IRA allows, it's going to be the same answer that we just gave to Michael, which is a lot. is there's going to be some friction, some tax friction, because to save the same amount, she's going to have to put it into a non-IRA brokerage account, which I would do over and over again. She's going to have salespeople that are going to tell her that an annuity gets around all that. Don't do it.

Don't do it. Don't do it. Not a great place to go, although people will tell her, you know what you got to do. I think on my end, I think you nailed it, Paula. I think she can't because that employee stock ownership plan, plan is not guaranteed. I don't think you can count it. Oh. Well, just because past, if she's tried to do an apples to apples comparison, you want to do your plan around. Can I make this work without them making the contribution? So if it's not contractual, if it's not a part of

her total compensation package, they just go, hey, the last several years in our old, we made it. And our stock's done really well. So here you go. I think when it appears, it's a, happy thing that way. I think if she counts it at all that they've done this in the past, and then they don't do it, I think she's looking for a world to hurt. But I love your advice around this is an apple and an orange. Loading up on employee stock isn't something that you're going to want to do anyway. So as you, once you decide what percentage of your portfolio, you want an employee stock than anything beyond that, you're going to have to sell. And then it goes in this taxable brokerage account again with friction, not the end of the world.

Right. I think it's a fantastic place to accumulate money because that money is so flexible, there's going to be a lot of moving parts. Yeah. And if I can speak in defense of the taxable brokerage account, many people don't like those accounts because, of course, they are taxable. They aren't tax advantaged in the way the other retirement accounts are. But what you are, quote unquote, buying with that tax bill is flexibility. It's great. 100% love it. I'm totally with you. There have been so many times that I've recommended to people that they get just a brokerage account. I don't know, but what about taxes? Don't. Let's worry about having more money. Let's worry about having money in the right place when we need it, much more than worrying about just optimizing for a future that may or may not happen.

Right. So I think that as she looks at this opportunity and she's looking at total compensation, not only these, obviously look at the amount. that they put toward health care benefits, that will change from company to company, just how good and well-rounded the benefits package is in general? Yeah, you know, and I don't know the size, Sam, of the company that you're moving to, but particularly larger companies can sometimes have everything ranging from commuter benefits to Costco membership, I've seen. Right, yeah, exactly.

Class pass. Right. Yeah. Companies will sometimes offer class pass. Gym memberships. Yeah, precisely. So there are particularly for large companies, just this massive range of benefits. Of course, what you trade off is you don't have in terms of the day-to-day work experience at a larger company, you often don't have the same level of autonomy or nimbleness that you do at a smaller company.

You don't tend to have as much decision-making authority. everything is very procedural. Often your best efforts can sometimes get stymied in bureaucracy. And so there's that company culture element as well that you need to counterbalance against these benefits. So we teach our students in your next race. I should say we are still in beta. So what we have taught are beta students as we're developing this course out. We have them create a spreadsheet where we assign a weighted,

value to every single one of these factors. And so if there is a non-monetary factor, for example, the perceived degree of autonomy that you believe that you will have at work, you know how much autonomy that you have at work at your current job, you have, I'm guessing, an impression of the level of autonomy that you believe that you will have at work at your new job, if you were to accept it. You then assign a numerical ranking of importance. and then you assign a second number to it, which is the scoring that it has. So you basically you give it two numbers. You give it an importance level ranking. So you give it a weight, and then you give it a score. And then you do that with every single non-monetary factor,

and you put these all on a spreadsheet. And it's a way of quantifying the unquantifiable. And I think that when you're considering whether or not to accept a job offer, that is as important as, as calculating the monetary value of your total compensation package. Because what we know from the research is that the three factors that predict job satisfaction are autonomy, mastery, and purpose. And so to the extent that you can wait for those, wait meaning in a spreadsheet, to the extent that you can assign some type of a waiting to, how much autonomy, mastery, and purpose you believe that you will experience within your new role,

the better of a decision you can make. What we also know from the literature is that the single biggest predictor of whether or not you like your job is your relationship with the person to whom you directly report, your direct supervisor. That is the single biggest predictor of job satisfaction, which makes sense. You have to interface with that person on a daily basis if you think that they are belittling or dismissive, then you're not going to enjoy any job. Whenever you're considering a new job offer, you're working with this asymmetric set of information because you know the circumstances at your current role and what you have educated guesses about the circumstances at your new role, but you are making these very imperfect educated guesses about, particularly

factors like those interpersonal dynamics. Yeah, fit. Exactly. In fact, it's funny. We spoke with a couple of experts in this area, Paula. We spoke with Ashley Goodall about this specifically on stacking Benjamin's Paula, and he and Marcus Buckingham had done a wonderful piece in the Harvard Business Review that even in a big company, Ashley said there's no such thing as culture at a company.

You know what culture is? The four people you work with on a daily basis. And if those four people stink, you're going to think that no matter how big the company is or how small the company is, you're going to think the entire company stinks because of those four people, which is why in Harvard Business Review and on our show, they talked about if you are a senior manager, you need to teach your lower level managers about culture and about fit and about making people feel warm and welcome and needed. because you're totally going to think the pot of people that are around you are either fantastic and so goes the company the way you think about the people around you. And I think that's a great point that you, it's almost impossible to know that going in unless you're able to talk to the people. The hiring people know exactly where you're going to fit and you're able to talk to some of those people ahead of time to get a feel personality-wise, how much you'd like them. And still it's

going to be imperfect. I'm thinking about when we first came to Texarkana, we had a nice dinner with the people that Cheryl was going to be working with here in town because we moved here for her job initially about 15 years ago. And I remember one of the people at that table that I thought was kind of weird ended up being the nicest person and one of Cheryl's best friends. And one of the people I thought was really, really cool ended up being. being this person that we still to this day, do not love. Just do, do not love. So some of these first impression feeling can even give you the wrong sense.

So to your point, it is tough. Right. And some people are a little bit awkward in new or unfamiliar situations. Yeah, I've known plenty of people who don't give great first impressions, but as you get to know them, they open up. That's this woman that we thought was really weird. Yeah. She's just like that when you first meet her. And she still is quirky, but her quirkiness is why you love her. She's hilarious and she's so warm and friendly. Right. Kind of weird in the best possible way. Right. And then by contrast, you've got other people who have the mask. Right. And they wear the mask well until one day the mask slips. Yikes. Yeah. And it slips mostly for people that are around them every stinking day.

Yeah, exactly. And those are your close colleagues, and that's your direct supervisor. It is funny, Paula, because I think what you're building here is this bridge between you and I talk about in financial planning, but bridging it to your next rage, which is this risk premium. Right. Yeah. This job can't be the same. It has to pay a bunch more because of the risk that you're taking that this might not be a fit. Well, it depends on what her perspective is on her current job. Is her current job untenable? Or is her current job satisfactory, but she's thinking about making a switch anyway? Because if the current job is untenable and toxic and she needs to move no matter what, even if that means running, off with the circus to Antarctica.

Circus in Antarctica. Yeah, exactly. All those penguin acts. Precisely. They're already dressed up in their tuxedos. That still fills me full of dread, though. I know where you're going with that. I just think getting off a burning to another burning boat is not a great solution.

Is this the second thing this episode that has filled you with dread? Yes, I have concerns. But I think about that. your next employer. If you've just, think about you're a hiring manager, Paula, and you're sitting across from somebody who just left a company three, four, six months ago, and they're looking to make another move again right away, I'm not thinking about the surroundings. I think that this person looks a little bit toxic to me as a hiring manager. So I may at least try to fill in as many blanks as I possibly can. If it's a circus and Antarctica, I'm probably not going for that very

reason. That's true. And that is why you do need that risk premium for the asymmetric information, because the cost of making the wrong move, moving to a company that you immediately dislike, and then having to switch out of that company quickly and looking like a flight risk on your resume, there's a great degree of cost there. I love your usage of flight risk. He's going to escape from this job, Al. Watch the back door. We have a runner.

I had those days when I was working for American Express that I would have loved to have been fleeing across the back parking lot. We have a runner. Go get him. Just I've been in one too many corporate meetings of flight risk. I thought that was standard terminology. Am I the only one who says that? Not when it comes to corporate employment. Although every person here that works for, quote, the man knows exactly what you're talking about.

Because I have been on that train, as I just mentioned. It's like we're seeking bail. We do think they might be a flight risk from this job. We have strayed far from comparing 401Ks to ESOPs. Yeah, but I think we did that early. I think this is important stuff, though, when you're value. I think the process of evaluating opportunities, is something I think we do very poorly.

I truly think if we looked at the total compensation package and did a better job in negotiating on that compensation package, we not only would be happier, but studies show that you're happier than at work. Right. Because the number one reason people don't get their work done, study show is because they're worried about their financial picture. And if I can show up at the job,

and not worry about my financial picture, it's in my boss's best interest and my best interest at the same. Because everything's taken care of at home. So guess what? I can help the company move ahead, which is whatever boss in the world wants. Right. Exactly. Which is why we shouldn't be afraid to take your negotiating class and to ask for the raise. No, seriously. You see these people, especially studies that show that women don't want to rock the boat, right? And I know plenty of men that don't want to rock the boat either, but every study shows it's a lot of women. They're like, I shouldn't ask. It's not the right time. I shouldn't do that. It's not the answer. Thank you, Joe. Thank you for the plug. But in all seriousness, that is, of all these subjects

that I could have decided to build a course around, there's a lot of thinking that goes into, all right, what subject matter am I going to really deep dive into and pour a lot of focus on? You know just willy-nilly choose one. Right. Yeah, exactly. Because there's so much time and effort and energy that goes into the development and the iteration, the revision, the refinement, the refinement of something like this. And so making that upfront decision about, all right, what subject matter is it going to be? Is it going to be investing?

Are we going to be talking about asset allocation and index fund selection? Is it going to be money mindset? And we talk about behavioral finance. And I think both of those, those are two of many topics that we cover here on the podcast that are incredibly important topics. But as we interviewed our audience, as we found out what people's pain points were, and as we really thought through, what are the most practical and applicable ways that we can make an immediate difference in somebody's life now, It kept coming back to how do I make more money and how do I find work that I love? And this topic, getting a raise, which tends to often, not always, but often your biggest raises happen when you change jobs, that is the Venn diagram intersection of those two desires, find work that you love and make good money doing it. I don't mean to keep plugging your course, but can I put in another?

Oh, oh. Reason why you need to do this right now? Why, thank you, Joe. I'm flattered. Well, I don't, but here's the deal. I mean, no offense, Paula. My goal isn't to have more people come to your course. What my goal is to help people get what they need when they need it.

And here's the thing I was thinking about today. As we record this, all this tariff stuff is beginning, right? And we've had the president himself come on and say, it may get worse for your pocketbook, right? forget all the promises, forget the lower price of eggs, all that nonsense. Tariffs always have and always will increase the price of goods. Inflation is going up. I said this during the stimulus packages during the pandemic, and I'll say it again now, you need a raise just to keep up. You don't need a raise to make more money, even if you think, you know what, I'm fairly compensated. If the tariff train works the way it usually does and these end up being extended tariffs, you will need more money

just to keep pace. I wouldn't leave it to my boss to take care of my personal financial situation. Don't get me wrong, every study I've seen shows most bosses want you to get a raise. They think that you may deserve it, but they have other priorities. They have things they're thinking about when it comes to the company. It's your job to take care of you. So maybe Paula, this is another accidental plug for your course, but this is the year you're going to need a raise if this tariff train continues. Right, not to mention the fact

that we're coming on the heels of the worst inflation since the 1970s and 80s, the worst inflation 40 years. Yeah, if you didn't get a raise during that time frame, then you're behind. You're behind because the money we're making

three years ago is not the same money. It doesn't spend nearly as far. as it did three years ago. Right. But Sam, in direct answer to your question, as you're thinking through the value of the ESOP, plan to take whatever money you are currently contributing towards your 401k and instead put that money towards an IRA, non-employer-sponsored, traditional or Roth IRA. Do that if you take this new job because the benefit of the ESOP is that there's no contribution from you. All of that comes from your employer. And so that frees up the money that you're currently putting into a 401k to put into an IRA instead. And if you do that and you hit the

limit and there's still more to contribute, then it goes taxable. And so then, yeah, you lose that tax advantage, which sucks. But the question on a spreadsheet is precisely how much in dollars and cents does that suck and how does that math out against the other elements of the benefits that you'll get? And I agree with what Joe said. Plan on that ESOP not even being there. And then when it is there, it's icing. And tactically, if possible, and a lot of people don't take advantage of this benefit, if you are allowed to split your direct deposit into different places, make your saving

automatic direct from the employer into the accounts that you set up. in this case, it'd probably be a traditional IRA and a non-IRA brokerage account. So thank you, Sam, for the question. And best of luck with whatever you decide whether or not to take this job. Next, we'll hear from Carlos, who is moving to Brazil and is wondering what financial ramifications, particularly what tax ramifications are going to come from that move. He's up next. Our next question comes from Carlos.

Hi, Paul and Joe. I just wanted to say how much I like the show. It makes my long commutes here in Atlanta a little more bearable. Keep up the awesome work. Just one point of feedback. I don't completely agree on your take about Tread versus Rot for the simple reason that in the real world, you almost never can make the same contributions. Post-tax as pre-tax. Of course, post-tax contributions on your paycheck is much larger. and you feel that. Also, I'd like to hear your thoughts on a case like mine. I've been in the U.S. for the past 10 years now, earning a solid income with the green card. I've been maxing out my traditional 401k, Roth IRA, and contributing as much as I can to a brokerage account. But in about five years, I plan to early retire in my home country of Brazil, which doesn't have a tax treaty with the U.S. what should I expect in terms of taxation and count withdrawals when I move there? Thanks again for all you do, Carlos.

Carlos, thank you for the kind words about the show, and we're glad to be with you on your long commute. I want to say something about the traditional versus Roth IRA point that Carlos made, that in the real world, you feel the difference between the two, and certainly you do. This is why this is personal. And I think some people, Paula, might have taken us the wrong way. And we pointed this out the last time I was here. Our bias is toward the Roth.

If there is a reason why, and for you, Carlos, it sounds like because your budget is tight to the point that paying the tax today versus paying the tax tomorrow makes it so you cannot make the same contribution, then certainly you need to weigh that into the equation. That is you pushing back against your bias. So if your bias is the same as mine, you go, well, my biases to the Roth. And then you go, oh, wait a minute. If I do the Roth, I can't do as much into the account. And if you can't, then certainly that's going to change what you decide to do on the end. So I believe, Paul, a lot of people took what is our bias and said it's this hard, fast rule. They're very rarely as a hard fast rule in personal finance, very rarely.

Like, don't max out your credit cards. There's a high fat, hard fast rule. Right. But besides that, they're very few. So I just want to caution people again on that. But Carlos, clearly for you, if the traditional ends up working out better because you can make a larger contribution, then you need to weigh that. Think of it as opt out versus opt in. Yeah.

Essentially our position, myself and Joe, we independently both came to the same conclusion, which is that the default answer that we would have is to go with a Roth account unless there is a compelling reason to do something else. And so you can think of it almost the difference between opt out versus opt in. We're not opting into the Roth account. We're challenging you to opt out of the Roth account, setting the Roth as the default unless there's a reason to opt out of it, in which case, opt out of it if there's a reason to do so. And that's really my contribution to this because Paula, international taxation is nothing I know a thing about. But you've done some research. I am not an international tax expert, nor do I play one on TV.

But I can tell you that the U.S. is one of the few countries that taxes both its citizens and its permanent residents on worldwide income regardless of where they live. And so Carlos, you are a green card holder, which means you're a permanent resident of the U.S., which means, congratulations, you're going to be paying taxes even when you live in Brazil because the U.S. taxes its permanent residence across the globe, even after you move abroad. So a few things that you're going to have to do, I mean, and absolutely consult a tax expert who has expertise in this field because this is neither my nor Joe's expertise. but you will have to report and pay taxes on any U.S. source income. You're going to have to think about the timing of your account withdrawals. Remember that any distributions that you take from traditional retirement accounts are going to be subject to U.S. withholding. I would recommend if you don't have a bank account in Brazil yet, it's your home country, so likely you already have one.

But just in case you don't, make sure that you set up. a bank account in Brazil before you move there just for the sake of ease. That's not a tax thing. That's just a logistical ease type of a thing. It's just easier to get one set up in advance. Since you are making money in U.S. dollars, but you're planning on spending it in Brazilian Real, plan for potential currency exchange consequences, figure out how you're going to plan for Brazil's foreign asset reporting requirements. And most of all, since, since you are a U.S. permanent resident, know that you're going to be paying U.S. taxes, even after you move abroad. But the number one thing I would say is find a tax advisor who has an expertise in this area, because neither Joe nor I are tax experts generally, and we are.

Nor specifically. Yeah, specifically. I mean, we're not tax experts generally, and then you get into the specificity of taxes for, U.S. permanent residents who are living overseas, that's a specific area of taxes that even some CPAs, you know, might not work with. So given the degree of specificity of your question, you're going to want to find an expert who specializes in that arena. I think this goes back, Paula, to some great advice that I got from fantastic mentors, which is surround yourself with great who's. And a lot of people might not be familiar with that.

phrase, but a lot of people ask how, how do I do things? How do I do this? And then we get lost in YouTube hell, right? Or we ask strangers on Facebook who may or may not have any idea what the heck they're talking about, yet we take their word for it. But knowing people that know the right people, filling your circle with the right who's. That's what that that means. Ask who, not how. So ask who. Always ask who. Don't ask how. who knows the answer to this question in the way that it fits me. So if Carlos says, I need tax help and he doesn't specify Brazil, I may give him the name of a tax person who is fantastic, but then I end up wasting his time because of the fact that

they don't know anything about international tax law or specifically a better who for him is somebody who knows Brazil. Right. That's the person he's looking for. And it's funny because when we ask, ask who, not how, not only is it a much quicker path to the right answer. It also is just generally a quicker path. Often when we ask, who knows this? I go, oh, wait a minute, Paula knows this.

And I'll jump on my phone and I'll text Paula. Paula, who knows? And almost every time, because I know who to ask who, Paula goes, oh, you should ask so-and-so. And then it gives me the right answer and an answer that more often applies directly to me. Right. So thinking critically about surrounding yourself with those right people versus just getting the question, asking YouTube or whatever, I think is a much better way to solve your problems. Yeah. I've been interviewing CPAs actually for myself and for my own business.

And I had a phone call, this is about a month ago, with a CPA who told me that he's specializes in working with online businesses, which afford anything, of course, is an online company, but he specifically specializes in working with online e-commerce businesses, which have to manage physical inventory, and he doesn't have a whole lot of experience working with a company like mine, which sells digitized products and services. So he was very upfront about saying, yes, I work with a lot of digital businesses, but I actually don't really work with your kind of digital business. I don't tend to work with digital education and media businesses. I work with digital e-commerce businesses, and those are different.

That is, it's funny, even though that's not the right who for you. Right. It still is a great who to have. Because think about the number of people that would just go, yeah, I can do that. Yeah, I got that. The fact that he had the temerity to say not something that I can do or that I choose to do makes him even more valuable, I think, to me, somebody whose opinion I would ask. Right. And to me, it also underscores the value of specificity. It's not enough to simply talk to a tax expert. You want a tax expert who specifically works with U.S. permanent resident. who reside in Brazil.

Because, Carlos, that is your specific situation. You are a U.S. permanent resident. You said Brazil is your home country, so likely you are, I'm assuming a Brazilian citizen with a U.S. permanent residency who will be residing in Brazil. There's a certain tax situation that applies to that category. And you want to work with a tax expert who has expertise in that domain. Because here's the thing, when you start working with someone with financial advisors who have country-specific expertise, part of their job is to keep tabs on changing regulations within that country, which are often in a state of flux. And so occasionally, and this doesn't apply to Brazil anymore, but this is a broader statement, occasionally there will be countries that put restrictions on the amount of currency that you can remove from that country.

You sometimes see people sneaking their assets out of a country in the form of tangible goods like Rolexes because they can't overtly make actual currency transfers, right? there are, depending on what country you're talking about and what type of government it has in place, there can be limitations on even the movement of money. And so that's why country-specific expertise is so critical when it comes to choosing who your financial advisors will be. Because finance as a field is so nation-specific. Yeah, it is interesting that you'll look at some investments from an American, U.S. specific point of view, and that same investment given different currency fluctuation can perform wildly differently, on top of different tax treatments, et cetera. Right. That said, Paula, I have a who you should talk to about your taxes.

Oh, thank you, Joe. Ask who, not how. when you put that who out there, as I just did, people who have the who will, will volunteer it. Sahil Bloom says that a closed mouth doesn't get fed. So if you have questions, if you're looking for that who, tell everyone in your circle, hey, I'm searching for that who. I like the Abraham Lincoln quote, though, which is better to keep your mouth closed and have people think you're a moron than to open your mouth and prove it. something to that extent. I don't think that's exactly the way that Lincoln said it.

I think there are some people who have strong opinions about topics about which they know very little. Oh, I definitely do. Do we want to spend some time on those? And it is for those topics when you don't have a whole lot of information, those are the best topics on which to keep your mouth shut and to listen, you know, to be there to listen. Listen, rather than opine on subjects about which you know nothing. So Carlos, I hope that answers your question and best of luck finding that who. Well, Joe, we have done it again. Thank you for joining us today.

Where can people find you if they'd like to hear more of you? Well, if you're a student at UC Santa Barbara, you saw me last week performing great financial wisdom in front of students there. And I had a wonderful time, you see Santa Barbara. I will be at Economy speaking. So if you're at the Economy Conference, I'm going to be talking, Paula, about what the happiest retirees know at economy. And I just found that up just a couple of weeks ago. So if you want me to speak to your group, it's just go to Joe Sol-Seahy.com.

J-O-E-S-A-U-L-S-E-H-Y.com. Ah, beautiful. Performing, Joe. I've never heard anyone call it performing. You've never seen me on stage then, Paula. It's always performing. Well, thank you, Joe. And thanks to all of you for being part of the Afforder community.

We've talked in today's episode about our course, Your Next Raise, which is currently in beta. We will soon be opening up spots for the second round of beta. Our first round of beta, we ran that beta tester round last fall. we got a lot of feedback from the students. We learned a ton. We made a lot of changes. We built out the course even more. We made a lot of iterations, a lot of improvements.

We improved the video. We improved the delivery system. We improved the process for peer-to-peer practice. And now that we have implemented all of that feedback into the course, we are ready to roll the course out to our second round of beta testers. I should add that the benefit to being a beta tester is not only do you get to help shape the course, but also you lock it in for life at a substantially reduced cost. If you want to be part of this founder's team that helps give the feedback that shapes the course and turns it into what it is, and you want to get it at the lowest price that it will ever be

from this point forward, if you want to lock in that low, low cost, stay tuned because we're going to make the announcement in three weeks. So keep that filed in the back of your brain. In the meantime, join our newsletter, afford anything.com slash newsletter so you can keep up with all of our announcements. And as always, please share this podcast with your friends, your family, your neighbors, your coworkers, share this with the people in your life. Thank you so much for tuning in. I'm Paula Pan. I'm Chosol-C-Hi. And we will meet you in the next episode.