BiggerPockets Money Podcast - 18: Accessing Retirement Funds Before Age 59½ with The Mad Fientist

Episode Date: April 30, 2018

Early retirement is a goal many people have. Diligently saving for retirement age to fund your life after you stop working is great, but the same programs that help you avoid taxes while saving come back and hit you with taxes AND penalties if you... Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome to Bigger Pockets Money, show number 18. Early retirees are so different than standard retirees when it comes to taxes, especially, because if you think about it, like most people have income that just gradually increases their entire career, and then all of a sudden they're 65 and their income drops and their spending, hopefully maybe drops a little bit. But for early retirees, we have this, you know, period of high income that's maybe 10 years, 20 years, whatever your career happens to be. And then you have a big drop in income and potentially low expenses and low income for maybe 20 years before you even hit standard retirement age. So I realized that all the standard advice about retirement accounts really didn't apply to

people who were pursuing financial independence or early retirement. So that's where I started looking into first. So it's time for a new American dream, one that doesn't involve working in a cubicle for 40 years, barely scraping by. Whether you're looking to get your financial house in order, invest the money you already have, or discover new paths for wealth creation, you're in the right place. This show is for anyone who has money or wants more. This is the Bigger Pockets Money Podcast. How's it going, everybody? I'm Scott Trench, and I'm here with my co-host, Miss Mindy Jensen. How are you doing today, Mindy? Scott, I am doing really great, and I am so excited for today's show. As you know, I booked the guests for both the Bigger Pockets podcast, where we talk

about real estate investing and this Bigger Pockets Money podcast where we talk about money. For the listeners, if you'd like to be a guest on either show or you know someone who'd be great, go to biggerpockets.com slash guest and have them fill out the form or fill out the form for them. For these past 17 episodes of Bigger Pockets Money, I have pulled from my list of favorite people in the FI community. And today's episode is no different. Today we're interviewing Brandon. Nope, not Brandon Turner.

Brandon, the mad scientist. Brandon studies science or the science behind financial independence. Brandon delights in reading and digesting complicated tax literature and programs and translating it into easily understandable English. His favorite sections of the tax code are, of course, those that have to do with retirement. Yeah, Brandon, what we're going to talk about today for most of the episode is really this how to use tax advantaged accounts like 401ks and Roth IRAs to your advantage in the pursuit of financial independence. And there's a lot of talk about Y-4-1K is great,

prefer taxes, Y, Roth is great because your wealth can grow tax-free. But he really has a strategy of using both of these in tandem. And for me, even someone like me who's not, I historically have not been the biggest fan of retirement accounts, this is the kind of strategy that I am probably going to begin pursuing here in 2018 because it's just such a fantastic way to increase returns on your passive index fund investing. It's such a good marriage of these if you're already done, if you already have good finances in order and you are investing passively in index funds as a primary part of your portfolio, this is just, I think, the way to go. And it's just great hearing it from someone who's such an awesome thought leader in this

space. Yeah, I encourage anybody to listen to this episode. It doesn't matter where you are on your retirement journey. This episode is for you because some of these strategies take some additional planning. Some of them take, they take a couple of years to implement. Yeah. And this episode is really geared towards someone who's got their financial ducks in a row, I guess. You know, this is not going to be on saving or, you know, reducing your grocery bill, which is, which is great. This is for someone who's already got those things in place and is looking to optimize their investment strategy, not their investments. This is still within the context. of discussion of passive index fund investing.

But it's a way to, you know, if you're going to max out that 401k and take your employer match and put in 18,000, maybe more into your retirement account, this is how you can really use a strategy to get the most out of that. And it works, of course, if you're just investing smaller amounts of money into your retirement accounts. So it's something to learn about. But it's how to use those accounts to achieve financial freedom and to have access to them, I think earlier than most people think that they can.

Yes. Yes. And I encourage you to listen to the very end of this episode for a couple of reasons. First, Brandon's amazing. Even if you don't like his information, his made-for-radio voice is mesmerizing. But second, he shares tips for retirement planning that you need to know now, no matter where you are in your journey to financial independence. These are tips for optimizing your retirement and optimizing the money that you are saving.

And lastly, I have taken over Brandon's podcast a few times myself. And the last time I did so, I wrapped. And I don't want to give anything away, but I got 99 problems, but taxes A-1, hit me. Yeah, Mindy's rap is definitely a highlight of this episode, and it's fantastic. Tax season is one of the only times all year when most people actually look at their full financial picture, including income, spending, savings, investments, the whole thing. And if you're like most folks, it can be a little eye-opening. That's why I like Monarch.

It helps you see exactly where your money is going, and more importantly, where your tax refund can make the biggest impact. Because the goal isn't just to look backward. actually make progress. Simplify your finances with Monarch. Monarch is the all-in-one personal finance tool designed to make your life easier. It brings your entire financial life, including budgeting, accounts and investments, net worth, and future planning together in one dashboard on your phone or your laptop. Feel aware and in control of your finances this tax season and get 50% off your Monarch subscription with the code pockets. What I personally like is that Monarch keeps you focused on achieving, not just tracking. You can see your budgets,

debt payoff, savings goals, and net worth all in one place. So every decision actually moves the needle. your financial goals for good with Monarch, the all-in-one tool that makes money management simple. Use the code pockets at Monarch.com for half off your first year. That's 50% off at monarch.com code pockets. I love Matt, said no one ever. Nobody starts a business thinking, you know what would make this more fun? Calculating quarterly estimated taxes. But somehow every small business owner ends up doing it. Your dreams of creating, selling, and growing, get replaced by late nights chasing receipts, juggling invoices, and wondering if that bad sushi lunch with Scott counts as a write-off. Change all that with Found.

Found is a business banking platform built to take the pain out of managing money. It automatically tracks expenses, organizes invoices, and even preps you for tax season without you doing the heavy lifting. You can set aside money for business goals, control spending with virtual cards, and find tax right-offs you didn't even know existed. It saves time, money, and probably a few years of life expectancy. Found has over 30,000 five-star reviews from owners who say, Sound makes everything easier, expenses, income, profits, taxes, invoices even.

So reclaim your time and your sanity. Open a found account for free at found.com. That's fowundd.com. Found is a financial technology company, not a bank. Banking services are provided by lead bank, member FDIC. Don't put this one off. Join thousands of small business owners who have streamlined their finances with found. Audible has been a core part of my routine for more than a decade.

I started listening years ago to make better use of drive time and workouts, and it stuck. At this point, I've logged over 229 audiobook completions on Audible alone, and I still regularly re-listen to the highest impact titles. Lately, I've been listening to Bigger Leaner Stronger for Fitness, the Anxious Generation for Parenting Perspective, and several Arthur Brooks' audiobooks that have been excellent for mental well-being. What makes Audible so powerful is its breadth. Beyond audiobooks, you also get Audible Originals,

podcasts, and a massive back catalog across business, health, parenting, and more, all accessible in one app. If you're looking to turn everyday moments into real progress, Audible has been indispensable for me over 10 years. kickstart your well-being journey with your first audiobook free when you sign up for a free 30-day trial at audible.com slash BP money. Yeah, really excited to introduce Brandon. Brandon's been a huge mentor to me, even if he maybe didn't know it because I was a huge listener of his podcast and a follower of the mad scientist back when I was getting started on my very own personal finance journey.

So I'm very grateful to all the things he's put together. And with that, let's welcome Brandon. I, Brandon, the mad fiantist, welcome to the Bigger Pockets Money Show. It's great to have you here. How's it going? Oh, really well. Thanks. Yeah, thanks a lot for having me.

This is a real treat. I'm excited to chat with you both. I am super excited to have you on because you need to teach Scott about the concept of contributing to your retirement accounts. Scott has just recently started contributing to his retirement accounts, but he is already, what, almost 28, Scott. You're so old now to start to start your. contributions? No, I think I had some reasons for not contributing to them and those circumstances have changed. But I also want to kind of home my thinking and learn from Brandon, who's probably one of the foremost experts on this, how to use kind of retirement accounts in pursuit of financial

freedom and how to kind of leverage that. So definitely looking forward to hearing from that. Maybe we could get started by kind of starting from your story and hear about how did you kind of begin pursuing financial independence in the first place? What was the kind of, when did that kind of first hit home and how did you begin your journey? Sure. I've always been frugal. I don't know where that comes from, but like my parents would keep me occupied in the summer by throwing quarters into the deep end of the pool and I would spend all day like diving and to find them just because I was like, there's money down there. There's got to be more. So I don't know where my love of money came from, but that's been with me for a long time. It wasn't until I think it was probably like 2010 that I stumbled

upon get rich slowly.org. And at the time, like, I was saving a lot of money. I was really good with money. I'd never had any, like, crazy debts or anything. And I stumbled on this site and I was like, oh, my, that's exactly what I'm doing. Like, I want to get rich, but I want to do it the right way. I don't want to, you know, have some scammy thing or just get lucky out. Like, I'm happy to work hard for a while to get rich.

And at the time, I didn't really understand what rich was to me. Like, I just wanted to be rich. I wanted to have a portfolio to manage. I want to tweak my investments and look at my portfolio and have spreadsheets and all this stuff. But the richness wasn't for any like big house or a boat or any sort of those things because to be honest, like fancy things really stress me out. So I'd much rather have just like a beater car and like just a manageable house that's not, it doesn't take a lot of time to clean and all that sort of stuff.

So I had no real like big goal. So I stumbled upon get rich slowly and I was like, wow, this is amazing. Here's some guy who's just writing about his journey to get rich and he's just a normal guy. That was actually the first blog I ever read. I didn't even know what a blog was, which is shameful since I was a computer science major. So I should know computers better than I do. So I stumbled upon that. And then I think probably about a year after seeing that blog and reading it every day and there was a guest post from early retirement extreme.

And it may not have been a guest post. It may have been like a review of the book, Early Retirement Extreme. And that's a book by Jacob Lund Fisker. and he has a website, early retirement extreme.com. And it just laid out the math behind early retirement, which, as you guys know, is very simple. It's, you know, the 4% rule or any of these other Trinity studies that you hear talked about.

And I know you guys have talked about on the podcast. And it's just like, it's like, oh, that was like the biggest light bulb of my adult life. And I was like, wow, this is what I'm saving. I want my freedom. Like that's worth buying. So that was probably 2011 at some point. And then I started the math scientist in 2012 because I was like, I know I can get to financial independence quicker if I actually put in a lot of work to like at the time I thought

it was going to be studying like investment strategies. I was like, if I can become a better investor, I can get there quicker. So I was like, I'll start this site. And two things I can like, the need to publish post will force me to do the research that will help me get to financial independence quicker. And I can also start a podcast at the same time so that I can, I can talk to people who have already done, who have already retired early, and I can find out other secrets for how they got there. So that's what I did. Early 2012, I started Matt Fientist and I started the Financial Independence Podcast, and

it definitely helped. Who is your first guest on that podcast? It was the same first guest as your first guest. It was Mr. Money Mustache, which back in 2012, luckily I was naive and didn't realize how big he was. He wasn't obviously as huge as he is today, but he was still massive and I had no idea. And I was like, yeah, well, he was a software developer like me. So of course, I want to talk to him first. So I sent him an email and he agreed, which is still shocking because I had nothing on my site. I had nothing to offer him. I think he just liked my logo. So I think that was

that he's like yeah because I've asked we've become friends over the years and it was only a couple years ago and I was like why did you say yes to me all those years ago he's like you're the mad fiantist and I was like no I always like to I always like to mention that because I think that was really what it like I've been reading and learning about kind of personal financial freedom for a while but I think back when I first heard that podcast your podcast with Mr. Money Mustache that was my introduction that was my moment where it clicked and you just kind of talked about your moment where I clicked, where you read with early retirement extreme with Jacob, your show is where it clicked kind of for me. So it's kind of fun. That is amazing to hear like when you're writing,

and especially for so many years, like the number, you see numbers on the screen of how many people are reading and things and that you can't really comprehend that. But I know you personally and I know all the things you've gone and done and with your life and what you're doing now. And to think that I had some small little part in putting you on that path is just insane to me. No, I. That's awesome. I don't think it was a small part. I think it was a pretty big part. Oh, that's crazy.

That's amazing to hear. So, yeah, that's awesome. Well, so one of the things that you said that was interesting to me was you started because you wanted it to help you become a better investor. I was one of the reasons why you started the mad financiist. And the way you phrased that, it sounded like that maybe didn't act, that it wasn't actually what happened. So can you maybe kind of talk about how it did help you shape your view of personal

finance? Sure, yeah. So when I started, that's exactly what I thought. I thought, all right, I'm going to become a better investor. And this is going to make me do it. This is going to make me, you know, read corporate statements and all this stuff and force me to become like this amazing investor. But then I started doing research. And I quickly came to the conclusion that, hey, passive investing in index funds has much higher probability of turning out well. And it has, you know, allows you to control the things that you actually do control, like costs and things like, things like that in diversification. So really quickly, like my second guest on the show was J.L. Collins, who wrote the Simple Path to Wealth. And so, you know, it was really early on that I came to the

conclusion that, hey, like index funds are where it's at. And that's something I feel confident in, comfortable with. And I'll just focus on controlling the things that I can, like the fees and making sure that my portfolio asset allocation is in check and all that stuff. But yeah, quickly, I was like, okay, all my optimizations that I thought I was going to be making, I'm not even going to look into anymore. So that's when I started looking into other ways to optimize. So what does your portfolio look like right now? Do you have any individual stocks or are you all index funds? I have a very small amount of Apple, which I talked to your husband about this. This is probably, I don't know, four years ago that we were at FinCon. And I was like, man, like Apple's getting 10.

I don't buy anything, and yet I would buy a MacBook Pro no matter what it costs because it just is such a nice experience and so good. And at the time, it was like the stock price was like roughly what the cash value, like they had that much in cash. And I was like, this is crazy. So back then, this was like four years ago, I had an extra eight grand that I hadn't invested yet. So I put eight grand into Apple.

And then that's obviously doubled at least since then. So I may, I maybe have like max 20 grand in Apple. but that's it. So everything else is index funds. So it's a very small, small percentage. Okay, I'm going to stop you right there. And I want to address this to the people who are listening right now. Brandon is an incredibly intelligent person.

And for him to say, invest in index funds, that's a really powerful statement. Like, I invested $8,000 in one stock. And my entire rest of my portfolio is index funds. Warren Buffett has said, when I die, my wife is, is being instructed to invest in index funds, not specific stocks. I mean, maybe Berkshire Hathaway, but, you know, that's kind of its own index fund right there. Well, not really. It's kind of its own mutual fund.

So I think that's really powerful. Two really smart people are telling you invest in index funds. Do it. Yeah, thank you. Thank you for putting me on the same playing field as Warren Buffett. It's actually like this. Here's Matt Fine. Here's Warren.

But don't tell him that because I want to get him on the show too. You know, it's great because like this one stock that I have in. still have is still teaching me lessons because even though it was the right bet and it's doubled since I bought it. And like I said, that was four years ago. So it's at least doubled. I haven't checked it in a while. But the fact that it's doubled and it's in a taxable account means that even though I made the right bet, if I want to unwind that bet, then I'm going to have a big, a lot of tax consequences. So the thing that I focus on now is like buying an investment for life. Like, I buy this investment and I don't ever plan to sell it.

And that is so much more tax efficient, so much less stressful. And yeah, so having this one stock in my portfolio that I would love to get rid of because I'm like, I like the simplicity of having just index funds. And I would love to get rid of it. But I can't because I would get a huge tax hit on it. And I don't want that either. It's funny because like I also invest primarily in index funds alongside real estate, which is one of the ways that what we do on bigger pockets, obviously. And what I think is so funny is I went

through this phase where I tried to become a better investor, better stock picker, like look through all these 10Ks and all that kind of stuff and try to figure out what the management was going to do and, you know, try to value companies based on their cash positions relative to price to equity. Like all this stuff, I was terrible at it. And then I read like probably six, seven books on stock investing and then finally came to the conclusion that index fund investing is the right way to go. And I think that's a journey that a lot of aggressive seekers of financial independence will go through because you think you can beat the market. You think you can pick these things. You think you could do research. But you really also, I think, have to go through this study of why index fund investing is the

correct move and why it is why it is so powerful over time. Yeah, absolutely. And the good news is what you're usually making these mistakes when you're young, when you don't have a lot of money to blow, which is good. And then hopefully by the time you do build up a nest. egg that would be sad if you lost, then you figured this stuff out by then. So to kind of summarize your story here, you started off being pretty frugal. You're a computer science, I guess computer scientist, uh, scientist or whatever. And, and so you've had this, you had us, I would imagine you had a solid career and a high savings rate and you kind of plowed things into index funds.

You did this over a period of five, six, seven, ten years. Is that about? Yeah, absolutely. Yeah. So I graduated in 2004 with a degree in computer science and then immediately. started my career as a software developer. And yeah, I was frugal. I was maxing out my retirement accounts at the time just because I was like, well, you know, I know that the power of compounding and stuff like that, even before I got like became the math fientist and all that, I was like still

aware of compounding. And I was like, I'm just going to max out my retirement accounts and all that stuff. So, so yeah, so it was, it was a nice base to start from once I realized that, hey, FI is actually my ultimate goal. And where were you living at the time? Well, as soon as I finished school, 2004, I moved over to Scotland. My wife is from Glasgow, Scotland, and we met my junior year. And as soon as I graduated, we moved back to Scotland. So I was there for the first four and a half years of my career. And then back in the States for the next six and a bit.

And then I've been back here for another three cents. So just keep flip-flopping between Scotland and America. And do they have 401Ks over in Scotland? Or were you working for an American company? No, no. They have pensions, which is the bane in my existence because I started my first career here and I started contributing to a pension. And I only stayed there for like four years.

So it didn't get to be much. But now since I have a foreign bank account, I have to tell the U.S. government everything about it like every year. And it's super annoying and I can't figure out how to get my money out of there just so I can stop having to do that. but yeah. And then I guess I won't. So like eventually when I'm 70,

I'll get like, I don't know, $25 a week or something. Oh, nice. Nice. You can buy some haggis with that. Well, let's transition then into talking about the how to use these tax advantaged accounts to your advantage over the course of a career.

And I'd love to get kind of different perspectives on this. Like what should someone who's young and planning to build businesses and become an entrepreneur do? Is that change anything versus someone who's just looking to seek, you know, early financial freedom. Is there, I don't know, I guess where should we start? How do we introduce the concept of tax using these accounts for fire? Sure.

Yeah. So, well, just to go back to like my story of how this whole thing started. So once I realized that investing, I wasn't going to do any sort of optimizations there, I just started looking for other ways. So at the time, like I said, I was already frugal. So the spending side of the equation was pretty set. And I didn't want to like go any crazier on that side. The income was pretty.

fixed. I was trying to build side income and stuff like that, but I had a good career with a good salary. But then there's taxes. And I think that's something that people just don't even think about because it automatically gets taken right out of their paycheck. They don't see it. It's not even part of the equation, but it's a huge part of the equation. It's such a big chunk. And that's something that you don't directly get a lot of happiness from in your spending. Obviously, you know, the services that the government provides are great. But, you know, the U.S. government wants you to pay the absolute bare minimum that you legally have to. They don't want you to pay more.

And, you know, paying the bare minimum still will keep the country afloat. So there's no reason not to try to optimize this huge chunk of your expenses. So that's where I started to do some research. And I knew that my research was going to be different than any of the other, like, mainstream articles on this stuff because early retirees are so different than standard retirees when it comes to taxes especially, because if you think about it, like most people have income that just gradually increases their entire career. And then all of a sudden, they're 65 and their income drops and they're spending,

hopefully maybe drops a little bit. But for early retirees, we have this, you know, period of high income that's maybe 10 years, 20 years, whatever your career happens to be. And then you have a big drop in income. and potentially low expenses and low income for maybe 20 years before you even hit standard retirement age. So I realized that all the standard advice about retirement accounts really didn't apply to people who are pursuing financial independence or early retirement.

So that's where I started looking into first. So for early retirees, the reason this is so powerful is because you're taking your taxes that you would be charged now in this. in this period of high income, high tax bracket, and you're just shifting that to the future when you can control your income more because you're not just getting a salary every year. You can lower your income and you can seriously lower your tax burden overall. So for an early retiree, like the pre-tax accounts, like I'm not sure how much you've discussed the different types of accounts, but pre-tax accounts are like 401Ks, 403Bs, 401A's,

traditional IRAs, those sorts of things where you don't have to pay tax up front, and then the investments grow tax deferred. And then when you eventually take that money out, that's when you have to pay tax on it. So they're super, super valuable for early retirees because you do have this long runway of low X income. So that's where I started. So I was like, okay, this is, I get that. That's amazing. So I'm just going to max these things out like crazy. And, to lower my taxes now while my tax brackets high. And then that eventually led to doing a lot of research and trying to get money out of those accounts early because I reached a point where I invested a lot of money into that that was going to fund my standard retirement. And I was like, oh,

I don't want to just put so much in this if I can't get it out. So that was a whole other area of research, which I know we're going to talk about today, hopefully. Yeah, that's really what I want to talk about today because I had made a comment earlier that Scott hasn't been investing in his 401k, I was chiding him. And I hope that, so Scott and I are friends and Brandon and I are friends. And any, like, chiding that I do is in good fun. Scott actually did some pretty horrible stock investing in the beginning because he, you know, you don't know what you don't know. And you're like, oh, this sounds great. And then you put money into it, you know, like on Enron level. Like he bought Enron and then the next day it tanked. Like that is the level of his stock losses.

And when you get bit like that right in the very beginning, you're going to shy away from that. It was a Chinese fruit juice company and they had more cash in their bank account than their whole market cap, right? And they're dead. Of course it's going to go up, except everyone else knew about me that Chinese companies are not well known for having incredibly audited financials that are accurate. Oh, inaccurate financials. That can be detrimental to your investing career. So, and Scott is younger than I am. and he's got a really long way to go.

Instead of investing in his 401k, he's purchased real estate, which is still an investment. So it's not like he's just spending every dime that he makes. He's purchased real estate that is now paying money. He's earning money like a dividend on a stock. He's earning money every month. And he buys properties that are cash flowing from day one, right, Scott? Or close to day one, you were house hacking for a while. Yeah, the house hack was really what I kind of started with.

And it was meant to become eventually in a real estate investment, but it was really meant to just defray housing expenses at the start. But yeah, like my thing was I wanted to have the cash accessible in case opportunities came up rather than putting it into retirement accounts. And I now go back and I'm like, hmm, is that, you know, is that the right strategy for everyone? I don't know. It seemed okay for me, but I think that there's a lot to learn from how you can, you know, really the big thing is if you're using these accounts for early financial freedom, How do you at least come up with enough money outside of that or access to that money so that you can withdraw it and spend it at your age, you know, rather than at 65? And I think that's exactly what you're going to explain to us, right? I think there's a number of strategies that you can kind of harness to access that money.

And if you're passively investing in index funds, that's a much better way to do it. It seems like than doing it in the regular old after-tax brokerage account. Right. Absolutely. And before I get into that, I want to say I read your book. and I know you're doing fantastic. So despite your stock problems, you've obviously killed it with many other things in your life. So well done.

And also before I get into like sort of those strategies, I just want to share like how I think about this. So because that could help you in your position where you're like, do I really want to tie this money up? And you mentioned earlier, you're like, well, what if I'm going to be an entrepreneur after I retire and I'm going to still have income coming in? Or what if I have these rental properties and I'm always going to have the income?

how does that change things? So the way I think about it is I always just want to optimize as much as possible with all the known information that I have. So give you an example. It's like some people email me. They're like, well, I don't want to invest in my 401k because I think in the future I'm going to have a higher income. And what I always say to those people is, okay, that's the future. You can't predict the future. All I know is I want to take advantage of every single tax break that I can right now. maximize that for all the 100% truth information that I know now. And then 10 years down the road, I'll figure out a way to maximize. And if I'm earning more income, then, you know, maybe that was the wrong choice. But I don't want to look back on 2015 and say, oh, man, I really wish I could

have taken advantage of that $18,000, $401 contribution, because that would have really saved me like $4,000 that would have now grown to whatever. And because you can't go back. you can't take advantage of the past. You can't take advantage of those 2013 limits and things like that. So I always just optimize for today with an eye towards the future. Obviously, you don't want to just be doing crazy things that, you know, you know are going to happen in the future. But optimize for today, worry about tomorrow, tomorrow, and just have faith in yourself that you're going to be able to optimize your situation then and lower your taxes. And if you end up in a situation where you're earning so much money that you're going to get taxed to high heaven, you know, there's

Definitely worse problems to have, I think so. So in this article, how to access retirement funds early, what you just said was like so perfect. You said the government only gives you one shot to deduct a big chunk of your current year's income. So you can't change your mind in 2021 and say, hey, I'd actually like to contribute to my 2016 401k now so I can lower my 2016 taxes. I was talking to Carl about this. I'm like, yeah, he comes to the conclusion that it's always best to max. out your 401k and Carl said, no, don't say always. Don't say always. Because if you're making $30,000 a year, then it's maybe not the best choice to max out your 401k, which is $18,000, unless you can live

on $22,000, $12,000, which is probably going to be a little more difficult than you think. Yeah, I definitely agree with Carl. Yeah, never say always because, yeah, if you are in a situation where you're not going to pay tax anyway, then the last thing you want to do is put it in a 401K because then you're just postponing, you're trading zero percent tax for some unknown future tax. So if that's the case, if you're in a low income right now and you're not going to pay tax anyway, then the best option in that case would be put it into something like a Roth where you're locking in those tax-free years because a Roth is like the flip-flop. You pay tax now.

It grows tax free and then you don't pay tax when you withdraw it. So if your tax rate now is zero percent, you pay that, but it's not. nothing and then it grows tax-free and then you can withdraw tax-free. So yeah, so yeah, always is definitely a bad word to use in finances, I would say. Just for the listeners, kind of so that they can follow what's going on here, you know, the debate here about whether to use a 401k or a tax-deferred account versus something like a Roth where you contribute after-tax dollars is based on, again, your level of current income and your level of expected future income. So if you have a high income now, the general concept is you contribute to a 401k if you expect

your income to be lower later in life. For example, if you're retiring, you don't have any income, right? And now you can defer taxes in a high income year and pull that money out in a low income year. And then vice versa for in the case of a Roth. But I think what you're saying, Brandon, is, okay, even if you have a high income, contribute to the 401k and defer those taxes now. And if you happen to have a higher income later, oh, okay, you lose a little bit.

bit, but that's a good problem. Your life is good. So don't worry about it at that point because you're taking advantage of the known information, which is that you're doing well now and you may or may not be in the future. Exactly. And in the amount of positive changes you can make in your life when you have some money saved up is just incredible. Like I have an article, it's the power of quitting. And I didn't realize how powerful quitting was until I quit a few jobs. And I was in a position of strength because I had this high net worth. And so I think deferring those taxes to later gives you that confidence earlier allows you to make those positive changes in your life because you're looking at a bank account that has maybe whatever 10, 15, 20% more than it would have otherwise. And you're

like, wow, I'm actually doing really well. I could survive for longer if I needed to. And then you start taking a little bit more chances, which I know you talked about in your book as well. And you start living this better life. So so yeah. So even if it's, you know, one or the, even if it's a wash at the end of the day, the decision, just having that money, more money up front, I think is incredibly beneficial. Awesome. All right. And one thing that's interesting about these, you know, tax deferred accounts as well is that you can actually contribute a lot of money to them. I think this year the limit for an employee contribution to a plan is 18,000 or 18,500. Then you can stack on a match,

which can go into that. But the IRS allowable limit for contributing to these types of tax deferred plans is actually much higher. I think it's, I can't remember the exact number, but I think it's in the 50 or 50,000 plus range. 54,000. Yeah, 54 plus, yeah. Can you tell us a little bit about how someone would go about deferring that much money when maybe your plan only allows you to contribute 18,000 or 18,500? Sure. So when I realized how powerful these types of accounts were, I started looking into every way that you could put as much money into these types of accounts as possible. So, so yeah, yeah, you're absolutely right. So for like a 401k, an employee can put into up to 18,500 for an individual.

Obviously, if you have an employee employer match, then that's on top of that. But the actual upper limit is somewhere around 54,000. It may have increased for 2018. And what that space allows you to do is if you want, there's a very popular strategy called the mega backdoor Roth. So anything above the employer match and the employee contribution can be funded with after tax dollars. So what that means is like you've paid tax on it. It can go in there. It'll grow tax free, but you also get taxed on the other side of it. So that's why it's not as good as like a traditional or a Roth because it's like taxed on both ends.

But it does grow tax free in the middle. So that makes it better. But the trick is you can put all that money in and then you can immediately roll that over to a Roth, which then allows it to grow tax free and withdraw. without paying taxes either. So this is like really advanced strategies. And there's an article on my site called after tax contributions and that goes through all this stuff. But, but yeah, you're right. The actual upper limit is 54,000 plus. So by understanding, and I could be wrong in this, because I came in with thinking that that upper limit, you could actually defer almost all of that by using something like

a SEP IRA or something like that as a self with your self-employed income. And then that was, yeah, there's even, yeah, exactly. There's even more Seps. Seps. or if you have a self-employed and if you have a business income, you can contribute to that. A solo 401K is even better if you don't have a workplace retirement plan because then you can put in 25% of your profits as the employer, and then the employee can still put in 185 as just like a normal 401K. But yeah, even if you don't have a side business,

you can still reach that upper limit with that mega backdoor Roth strategy that I talked about. That's awesome. How would you find out more information about the mega backdoor Roth? Because I think that is going a little bit more into the like in depth than this will necessarily want to discuss. Is that something that your CPA will help you with? Or is there like how do you set that up? How do you how do you do that?

Yeah. So I've never actually personally done it. But I wrote a big detailed post about all the theory behind it and other people have executed. it with their CPAs and their tax attorneys and things like that. So it would definitely be something you'd want to talk to them about. And yeah, you're absolutely right. This is way too in the weeds for a podcast episode to get into. But yeah, the first step I guess would, yeah, you could check out the mega backdoor Roth posts on my site. And then from there, you would just like send that to your tax person and hope that they had heard of it before because

you don't usually have a lot of people beaten down the doors to try to contribute as much as possible. so they probably may have not come across it. Okay. Yeah, and we will link to that in the show notes. The show notes can be found at biggerpockets.com slash money show 18. So walk us through some of the early FI options from a 401K. Let's say that I am a medium to high income earner. I've been maxing out my 401k or at least contributing to it every year.

I've hit my FI number. I've quit my job or I'm considering quitting my job. You know, what's my first step? Sure. So after you leave an employer, you can roll your 401k over into a traditional IRA. And, you know, there's benefits of doing it and then there's downsides as well. So I haven't done it for mine yet. But that's because my 401k had good investment options. It had low fees. And it's with fidelity, whereas most of my other money is with Vanguard. So I just like having them separate just might as well. So the first step, if you were wanting to access that early, though, is that you would open up a traditional IRA, just open a new one, even if you have a traditional IRA that you've been contributing to already, just open up a new one. And then you can just do a transfer from the 401k into the traditional IRA. And if you do it properly, you know, if you're using Vanguard or something, you can just tell them to do it and they'll tell you everything you need to do so that you don't get taxed on it. because if you just transfer it between those two accounts, then it's not a taxable event.

So that's the first step. Yeah. If you take all of your money from the 401K and you have to have the check written out to the new account, if you have it written out to yourself that constitutes a taxable event and you're hit with a penalty and a tax and it's a terrible thing. So I wanted to reiterate, make sure you transfer it between the two or you have like the one 401k account is going to have to be closed out. they will have to write a check, but it has to be written to the IRA account.

Yeah, no, definitely. Yeah. And like I said, whoever you're dealing with, hopefully they'll be able to hold your hand through it because they do this a lot and you have to get it right. Yeah, I've had great experience with fidelity. Oh, good. Okay. So you make the IRA, the new IRA, you transfer over your money without triggering in a taxable event.

Exactly. So then from here you have a few options. So the first strategy that I came across, which was a huge, like a complete game changer for me, this is when I made the decision to just go full force with all these taxable tax advantage accounts. It's something called the Roth conversion ladder. So the way it works is you have this money sitting in your traditional IRA and say, say you live on 20,000 a year. And you know that your early retirement, you're going to want to live on something like 20,000 a year. So what you do is you transfer, you convert 20,000 from your traditional IRA into a Roth IRA.

So since you're converting from a traditional to a Roth, that's a taxable event because you won't have to pay tax on it in the Roth when you take it out. So that's when you pay your tax on it. And hopefully at this stage, maybe that's your only taxable income because you're potentially living off of long-term gains and qualified dividends, which, you know, you could have up to $70,000 worth of those, depending on how much you're converting and still not pay tax on it. So you could be living off of these tax-efficient income sources like long-term capital gains or qualified dividends.

And you can do these conversions. So once it gets converted into the Roth, it has to sit there for five years before you can touch it. But once that five years is up, then you could take that out penalty-free. And obviously, you pay taxes on it when you did the conversion. So penalty and tax-free when you actually take it out. and you can build this ladder. So if you know you need 20,000 every year, then every year you convert 20,000.

So then after the first five years, then you can potentially just withdraw that money from the Roth every year until you hit standard retirement age. So that just changed the game for me. Yeah, that was when I read your article, it was like eye opening. Oh my goodness. Wait, I can get at my retirement funds early. This is fantastic. And my big thing, I struggle to get over the whole penalty because I don't want to pay,

what is it, a 10% penalty? 10% early withdrawal. Yeah, that's a lot of money. 10% early withdrawal. Yeah, the early withdrawal penalty. I just worked all this time to save up all this money. I don't want to pay a penalty on it just to access my money. But this is still five years out, but it's so fantastic. Now, when I convert it from the IRA to the Roth IRA, I'm paying taxes at my, whatever

that tax. is. Exactly. Yeah. So if you've already retired at this point, then potentially you're not paying any tax on it. So this is great for someone who's a meticulous planner who knows they're going to have very little income or very highly a tax efficient income. But I was wondering, like, again, from the entrepreneurial side of things, suppose you go out and you're planning to start businesses or whatever. What if you have a year where you have a big loss from one of your businesses because you have a big write off or whatever? Can you roll over a ton of money in that year to kind of fill this out. Absolutely. So that's if you're taking a gap year, if you're taking the sabbatical,

if you're trying a little mini retirement, if you go out and just spend a ton of money and you have a lot of business expenses that lowers your income to a loss, then yeah, these are all perfect scenarios for just computing and just doing the math, talking to your tax person and being like, okay, I want to use all this tax free space or maybe even, you know, just the low tax bracket space to just convert as much as I want, as much as I can. And then that way I just lock in those gains forever and I don't have to worry about paying tax on that money ever again. So that's exactly. That's a perfect strategy for people who may not be retiring early in the traditional sense where they're not earning any earned income anymore.

Yeah, this is the meticulous planning part is why I wanted to talk about this. Because this, like five years ago would have been a really great time to know this. I didn't have any income. I was a stay-at-home mom. And now my husband doesn't have any income. So this is a really great time for us to start planning things like this. Well, it just sounds like this whole thing is like the goal is, I came into this years ago thinking, okay, the Roth seems to be the better option all like from a very basic consideration.

This is not exactly how I feel now. I'm learning things even now as we talk about this. But the Roth, the advantage of the Roth is that you can, you know, pull out your contributions, tax and penalty free. It grows tax-free. It's good if you think you want to have a good career, acquire lots of investments and properties over the span of 30, 40 years, while they hit 65 and hopefully be pretty well off. But it seems like, and it seems like that's not necessarily disagreement. That's what everyone in this community thinks, or at least what you, who, you know, are kind of pioneer in this kind of thought space feel. The goal is just, hey, we can get to the Roth.

We're just going to go about it a little bit more roundabout way so we can save money huge on both sides. of this equation, both before tax and after tax. And the way we're going to do it is deferring it in the high income year and then rolling it over in the low income years. Yeah, this was, this is like mind-blowing to me. I was so excited because I was just like, we are the, this early retirees, people were wanting to just step away from the daily grind. This is like the perfect people to take advantage of this.

And you could potentially have tons of completely tax-free income if you work it out correctly. And Mindy, you mentioned the 10%. early withdrawal penalty. And you also mentioned that article of how to access retirement accounts early. So for that article, I actually did some analysis and showed that for early retirees, even paying the penalty could potentially be more beneficial just based on the whole income spending differences between early retirees and standard work till you're 65 people. So it's really that powerful. Yeah. No, I read that article and I was like, wait, it's still okay.

In many situations, it's still better to contribute to your 401K and then just pay the penalty if necessary to get at your money versus not contributing at all. Just the amount of tax that you're deferring during your high income years is so much better to not pay that and pay the 10% penalty on the back end. I have a couple of questions about the Roth conversion ladder. Can you have a Roth IRA and a traditional IRA at the same time? Yes. And although for a conversion, what I would recommend is you would open a Roth IRA just for the conversion. So you can have as many Roth IRAs as you want. You can have as many traditional IRA as you want to make the record keeping cleaner. If you're going to do a conversion, if you already have a Roth IRA, I would open up a brand new one and then just use that for conversions from the traditional IRA. But yeah, you can have both.

And what is the limit that I can convert from a traditional IRA to a Roth IRA? Because I know the donation or the contribution limits are like $5,500 a year or something. It's pretty low compared to the 401K and the IRA. Yeah. There's no limits on conversions. It's treated completely differently. So if you wanted to, you could convert a million dollars tomorrow and into your Roth IRA from your traditional. obviously you wouldn't want to do that because you would get hit with a lot of tax because that

would be considered income. But yeah, you could do as much as you want. So it's really, you can tailor it to your lifestyle. So if you're like, I'm happy living on $30,000 a year, so I'll just do $30,000 every year. This is fiance. This is such fiance. He blinded us with finance. That's my goal. That's what I try to do every day. Tax season is one of the only times all year when most people actually look at their full financial picture, including income, spending, savings, investments, the whole thing. And if you're like most folks, it can be a little eye-opening. That's why I like Monarch. It helps you see exactly where your money is going, and more importantly, where your taxed refund can make the biggest

impact. Because the goal isn't just to look backward, it's to actually make progress. Simplify your finances with Monarch. Monarch is the all-in-one personal finance tool designed to make your life easier. It brings your entire financial life, including budgeting, accounts and investments, net worth, and future planning together in one dashboard on your phone or your laptop. Feel aware, and in control of your finances this tax season and get 50% off your Monarch subscription with the code pockets. What I personally like is that Monarch keeps you focused on achieving, not just tracking. You can see your budgets, debt payoff, savings goals, and net worth all in one place. So every decision actually moves the needle. Achieve your financial goals for good with Monarch,

the all in one tool that makes money management simple. Use the code pockets at Monarch.com for half off your first year. That's 50% off at monarch.com code pockets. You just realized your business needed to hire someone yesterday. How can you find amazing candidates fast? Easy. Just use Indeed. When it comes to hiring, Indeed is all you need. That means you can stop struggling to get your job notice on other job sites.

Indeed's sponsored jobs helps you stand out and hire the right people quickly. Your job post jumps straight to the top of the page where your ideal candidates are looking. And it works. Sponsored jobs on Indeed get 45% more applications than non-sponsored posts. The best part? No monthly subscriptions or long-term contracts. You only pay for results. And speaking of results, in the minute I've been talking to you,

23 people just got hired through Indeed worldwide. There's no need to wait any longer. Speed up your hiring right now with Indeed. And listeners of this show will get a $75-sponsored job credit to get your job's more visibility at Indeed.com slash bigger pockets. Just go to Indeed.com slash bigger pockets right now and support our show by saying you heard about Indeed on this podcast. Indeed.com slash bigger pockets.

Terms and conditions apply. Hiring. deed is all you need. When you want more, start your business with Northwest registered agent and get access to thousands of free guides, tools, and legal forms to help you launch and protect your business all in one place. Build your complete business identity with Northwest today. Northwest Registered agent has been helping small business owners and entrepreneurs launch and grow businesses for nearly 30 years. They're the largest registered agent and LLC service in the U.S. with over 1,500 corporate guides who are real people who know your local laws and can help you and

your business every step of the way. Northwest makes life easy. for business owners. They don't just help you form your business. They give you the free tools you need after you form it, like operating agreements, meeting minutes, and thousands of how-to guides that explain the complicated ins and outs of running a business. And with Northwest, privacy is automatic. They never sell your data and all services are handled in-house because privacy by default is their pledge to all customers. Visit Northwest Registeredagent.com slash money-free and start building something amazing. Get more with Northwest Registered Agent at Northwest Registeredagent.com money free.

Marvel television's Wonder Man an eight episode series now streaming on Disney Plus. A superhero remake. Not exactly what we'd expect from an Oscar winning director. Action! Simon Williams,

audition for Wonder Man. I'm going to need you to sign this. Assuming you don't have superpowers. I'll never work again if anyone found out. My lips are sealed. Marvel Television's Wonder Man. All eight episodes now streaming.

only on Disney Plus. So I guess my issue with the whole retirement account contribution thing in the first place is I think that most people go through life without having a specific plan, specific financial plan perhaps. And they contribute to these retirement accounts, maybe actively managed mutual funds with high fees and don't really think about what they're going to do with them or how they're going to harness them. And that kind of just doesn't really do anything for them except provide something of a nest egg

for them when they do enter retirement because it's still better than nothing. if you're going into it with a plan like this to harness your contributions at an early age for in early retirement or just have access to that money in case you want it, like these really do provide an incredibly powerful way to defer, again, defer taxes and get huge returns on your investments relative to what you could do with anything basically after tax. So, I mean, yeah, I'm coming around on this line of thinking. And I think you mentioned you, I think you mentioned, you, I think you mentioned, mentioned, like maybe some of these accounts don't have great investments and they have high fees

and things like that. And that was some other analysis that I did. My buddy J.L. Collins, who wrote this about Path of Wealth, he was wondering if it was worth it with if you have these terrible investment options and if you're paying ridiculous fees. And we did the math and it definitely turned out to be the case. But in that case, what you would want to do is as soon as you leave that employer, you would then make that conversion instantly, you know, from 401k to a traditional IRA at Vanguard or something because there's no use paying those fees when you're not with your employer, but you're locked in until you leave your employer. Hey, Brandon, is there any way you can find out what kind of fees you're paying?

Yes. There's loads of different ways, and I'm not sure what kind of, yeah, I personally use personal capital. Yes, exactly. I love the fee analyzer because that tells you exactly how much you're paying. And not only that, it extrapolates that for you. If you stay here for the next 25 years, you're going to pay $76 million in fees. Here's an option to, like, here are some lower managed, lower fund fees, lower fee funds.

I'm not sure if they actually give you options, but they do break it down per fund, which I think is awesome. So you can see every single one and you're like, okay, this is because it makes such a difference. And that's why that fee analyzer is so powerful because it's like, yeah, it doesn't, 0.6% doesn't seem like a lot, but when you extrapolate that out until you want to actually tap into that money, it's just massive. So, yeah, I love that thing. That is amazing. I will link to that in the show notes as well, the personal capital fee analyzer because that is just, it'll change the way you invest.

Absolutely. Are there professional services, you know, there seems like this is very straightforward from the first part of it, but during the working part of your career, which is max out your 401k. If you're going to invest in index funds for the long term, that's your primary means of investing, that this makes a lot of sense as an approach for you to consider as, you know, to take all these tax advantages. But once you do decide to begin making the leap to early retirement, where can I go to find a professional that would actually walk me through the nuts and bolts of these decisions so I don't screw up on the paperwork or, you know, get hit with the fee? Do they, do that exist? Do I call an accountant or an attorney? Yeah. Yeah, I would talk to an accountant, but, you know,

it's hard to, it's hard to find a good accountant because, like I said, these, strategies are not many people are doing this stuff because like I said, we're so different than normal career track people and most people are normal career track people. So the two things when looking for someone who could help you with this would be one, make sure they're fiduciary so that they're always going to be acting in your best interest and then try to find a fee only advisor if you can just so that you know, you're not paying some crazy asset under management like percentage of your portfolio. So I know Michael Kittes from Kitsis.com. I know he has like some pinnacle advisory firm and there's an XY planning network that I think

are fee only advisors. So those are maybe two places to start. I don't have any first hand experience with it, but I trust Michael Kitsis and he's a really good guy and really smart guy. So I'm hoping that the advisors that he works with are the same. But yeah, those two things are the big things to keep in mind. But yeah, it may be, it may be difficult to find someone who is familiar with this stuff right off the bat, but I'm sure they can learn it. Well, let's link to this guy. Michael on the show notes or whatever, just if we can, to make sure that folks have at least a starting point for the research there. Because I do think that's an important part of this is, and I've never considered it. I would want help walking through that in not getting hit with a 10%

penalty. Yes, if you're trying to avoid that. Is Kitsis.com, I know him from Nerds Eye View. Yeah, that's the name. So, yeah, Kitsis.com is the URL and Nerdside View is the name of the blog. Oh, okay. Okay. So we've talked about the Roth conversion ladder. I've read through your whole article and it talked about the SEP. The SEP is used too much in early retirement in retirement planning because this one means substantially equal periodic payments. So let's talk about this. You don't want to do the Rath or you don't want to wait five years.

How long do you have to wait if you do the SEP? Well, first, what is the SEP? And then how long do you have to wait? Sure. And we can say 72T instead of SEP because, yeah, I agree. Sep is always overused because there's SEP. IRAs and things like that. So 72T is like the IRS code for this. So that's people reference it by that as well. So yeah, what the 72T is is you say you know that you're going to need $10,000 a

year and you know, that's your bare minimum spending and maybe you have a side business or something and you're going to have some other additional income. But you're like, I know I need at least 10,000 from my traditional IRA every year. And I don't want to wait for the five year Roth version ladder to kick in. So I'm just going to set up this 72T. And what it is is you can calculate and the calculations, there's only there, I think there's like three options for how do you calculate this. And it's way too complicated to get into here. But that's something you'd want to do with a tax attorney. But you make this calculation and then every year you can take that amount out with no penalties and no waiting. So you pay the tax on it when you take it out because as I said,

you know, it wasn't tax going into those accounts. So you just set up this thing. It's a certain amount. Some of the, some of the calculation methods change. So it means that you can increases every year based on inflation and things like that. But anyway, you can take out the set amount, which is a percentage of your portfolio. And you can take that out every year. No penalties. And you don't have to worry about waiting five years. The one thing to keep in mind is you have to continue that. So that's the downside. So if you set this up and then 10 years down the road, you have this incredible, incredibly successful business and you're like, I don't need to be taking 10 grand out of my traditional IRA every year. If you stop it, then you'll get penalized on all

those previous withdrawals and you don't want that. So this sort of thing is like, it's a lot less flexible. But if you know you need a certain amount of money every year, it could be very useful. So you're paying taxes based on your current income. So if this $10,000 is your only current income, you're just paying taxes. So it's possible to not pay any taxes on this money as well. Exactly. Yeah. Yep.

Exactly. So the same principles apply as far as like when you're early retired, your income is probably lower. So any tax you're going to have to pay on these distributions is going to be quite low and potentially nothing depending on the amounts. Okay. And then it's, I mean, it's another, a lot of these problems are good problems to have. You have so much money that you don't need the $10,000 anymore. Can you take that $10,000 that you're continuing to take out and put it back in?

Yeah, you could, yeah, if you're able to contribute to a traditional IRA, then yeah, you could put $5,500 in that year. And if you make too much and you can potentially put it into a Roth IRA or if you have a solo 401K, you can put it into that. So yeah, what you do with it after, the government doesn't care. it just makes, they just want to know that you're still taking that out and you're still paying taxes on it as you take it up. And this strategy is probably more appealing, I would imagine, to someone who's a little closer to the traditional retirement age of 59.5th, then it would be to someone that's retiring in their 30s, right? Because there's so much uncertainty in the 30-year period

between, you know, now and retirement age versus, you know, the five to 10 years for someone who's just getting ready to leave work maybe a decade earlier. Exactly. Yeah. I would, I would say So and that's why it has an appeal to me because I want more control. I like the Roth conversion ladder allows me to control it completely. So if I have a if I have a year with high income, then obviously I'm not going to do my conversion that year because I don't want to pay a bunch of tax on the conversion. Whereas the SEP, you have to do it every year no matter what the life situation is at the time. So yeah, you're right.

If you're older, it may make more sense. Just like I know I need this much of money every year until retirement. But if you're younger, then yeah, it's going to be a bit more pain to. to deal with for every year and you don't know what the future holds. So do you have to make a decision to do this 72T right when you retire? Can you choose to do this like starting, let's say you retire at 30? Can you choose to start this at like age 40 or 45? Yeah, absolutely.

Yeah. And you don't have to ever start it. So yeah, you can just decide. Yeah. So you can decide 10 years down the road and you're like, okay, I know my income's leveled out. And I mean, my spending is pretty much normalized. And I know this is what I'm just going to be spending. And I know I need that money from my traditional IRA.

So I'm not going to screw around with the conversion ladder anymore. I'll just do a step 72T and just get that money every year. So outside of the 72T and the Roth conversion ladder, are there any other ways to get the money out of your retirement accounts early? Or is that pretty much it without paying a penalty? Without paying the penalty, that's the main one. Those are the two main strategies. But like I said, paying the penalty, that gives you a lot of flexibility.

And it still usually works out to be beneficial. But obviously, if you can plan ahead, then one of these other strategies is going to be better. But yeah, those are the big ones. Okay. In your article, you mentioned the ultimate retirement account. Do you want to talk a little bit about that? Sure. So, yeah.

So like I said, when I realized that I could tap into these accounts early, then it was just like a mad dash to see how many of these accounts I could find. And so the HSA, the health savings account, is something that came onto the scene a few years before I started researching it, I think. And again, it's pre-tax. So you don't pay tax on the money going in, which is exactly what future early retirees want. And it grows tax free and then you pay tax on it coming out or you don't pay tax on it if you use it for medical expenses. So right off the bat, it's already the best of both worlds potentially. because if you use it for medical expenses, then it means that you never pay tax on it ever at any stage of the game. And you don't have to even worry about any of these more complex

strategies. But if you build up a huge HSA balance, which is what I attempted to do during the last five years of my career, you can invest it just like you do a normal investment account. And the beautiful thing is, so this is an actual, this is a real life scenario. So I had an appendectomy, I don't know, three years ago. I just came down with appendicitis. I had to get my appendix out. And I think my out of pocket max was like $2,500 or something. So I had to pay $2,500 because obviously the appendectomy was way over that. So I had some decisions to make. So I could either pay cash for that, I could use my HSA to pay for that. And like I said, if you use your HSA for medical expenses, that money isn't tax. So you can take that out of your HSA tax free and pay for the medical

expense. But there's no rule in the tax code that says you have to take that money out immediately. So what I did, since I had already, I was already maxing out on my retirement accounts and I had money that I wanted to invest. I paid for my appendectomy just with my normal. checking account. I took pictures of all the receipts. And now I have $2,500 that's growing tax-free in my HSA. And I'm just going to leave that there until I need it. So potentially that money is going to grow tax-free for next 30 years and then say I want to buy a boat or something, which I never would, but I'll just say I would. I can take that $2,500 out of my HSA to buy the boat because I have the receipt to match it up with a medical expense that I incurred after setting up the HSA. So,

it's like I'm getting all this free tax-free growth that, you know, I wouldn't otherwise have had I just paid for that appendectomy straight out of my HSA. Okay, let's talk loopholes on this one. Whoa. Yeah, yeah. That's why I wanted them on the show for all of these ridiculous, like I would never even think of that. I would have been like, oh, my appendectomy is $2,500 here.

I'll just pay for it. I wish I would have had an HSA when I was having babies because they're expensive. and I could have saved up all of those receipts and put them in. I'm not going to have any more babies. Don't make that suggestion. Oh, that was not what I was going with that. I was about to chime in, but that was not what it was going to be. What I would like to say to the person from my company who chooses what sort of health care options we get,

I would like to say, please listen to this part of the episode. So the HSA is. That's Scott. Let me walk you through our thinking, which is now wrong for why we did not offer an HSA at bigger pockets to bigger pockets in place was because we have a good health care plan with a very low out-of-pocket. You know, premiums are paid for. There's very good coverage, very good network, all that kind of stuff. And so because our out-of-pocket axioms are so low, no one qualifies for an HSA. And we did not realize that people would want these as a big group.

You know, I know that if there's an HSA and that's what I have, I max it out because that's just good, you know, good finance. I didn't realize all of the stuff that you're talking about right now. I don't know what I do for a living. But I don't realize that. And so, yeah, we just, we came up with a good health care plan. And, you know, I think next year we're going to really look into trying to give everybody a HSA that wants one as. But of course, the downside to an HSA is that you do have a plan that has a little bit of a higher out of pocket maximum and higher deductible. Right.

Yeah. You have a high deductible health plan to qualify for it. But yeah, and yeah, what you're doing is good, too. You're like having a great health plan is great. It's a lot. Well, and here's a different way to think of it. So I am not a sick person. I go to the doctor very rarely.

My children are not sick. They go to the doctor very rarely. So for us having great health insurance is always great. I mean, I'm not, it sounds like I'm complaining that we don't have an HSA, but the reason we don't have an HSA is because we have this really awesome health care plan. I mean, I've got great health care and that's a concern that we're not going to get into in this show. But I am looking for it. somebody to talk about healthcare. But yeah, for this, for this episode, I have great health care.

It's wonderful. I would have preferred an HSA because we never go to the doctor. Because we don't use our health care very frequently, having the ability to save a lot of money in this account is better for me. But if you do have chronic illnesses, if you have, you know, these, these high doctor bills all the time, having the HSA maybe isn't the best choice for you. We have an FSA, which I believe is tax deferred as well? That's a pre-tax. Yeah, that's a very different account. So you can't do this strategy with an FSA. I think an FSA is like use it or lose it in a year. So that's a, I'm glad you brought that up because that's always something I need to make sure I say whenever I'm talking about an HSA, because if people try to do this with an FSA, that would be a disaster. Especially if they're not sick.

The FSA program works like you pay a couple, like a hundred bucks or something a month into the plan, and then you use that within the calendar year. So you start in January, suppose you're of $1,000 that you want to spend on health care in January. Well, you could spend it right then, but you'll be contributing the, you know, $88 or whatever, like whatever $1,000 divided by $12,000, you'll contribute that throughout the year. And then if you use it in December, you know, you could be the same way. But if you don't use it, you just lose all of that contribution, although it is, again, tax deferred. Yeah.

So what we do in December is buy a lot of Band-Aids and Saline Solution and things on the list that we'll use the next year because I don't want. want to lose that money. But I also, because we're really healthy, we're a really healthy family, I don't put a lot of money into the FSA because it's a use it or lose it. So the HSA just continues to roll over forever. What are the contributions to an HSA? I think for an individual somewhere around $31 or $3,200. And then for a family, it's about double that. I don't know the exact ones for 2018, but yeah, somewhere around $3,100. So even like it's smaller than an IRA. So you're not going to be having insane crazy high balances in these, unless you have a very long career, I guess,

or you have really good investments in there. But yeah, and that's worth noting, too. You can invest the funds in there. Obviously, it differs based on the custodian of the HSA, but a lot of HSAs have good, low-cost index fund investment options. And sometimes you have to keep a certain amount in cash, but you can invest the rest, which is obviously what you'd recommend because if you treat it like a super high, A, then you want to obviously have some nice tax-free growth in there.

And it's good business because it's much cheaper to offer a health care plan and an HSA than it is to offer a really, really expensive health care plan with low premiums and low deductibles. There you go. With low deductibles and low out-of-pocket maximum. Sorry. Yeah. And that's the thing to look at is the big thing. The out-of-pocket maximum is the number you really need to look at when you're looking

and thinking about do I want a high deductible health plan so I can take advantage of an HSA because if you can't, if paying that out-of-pocket max is going to put you under, then obviously that's not the plan for you. And like with my appendectomy, I would have never expected that because I hardly ever got a doctor either. But luckily, the out-of-pocket maximum was low enough that it didn't really matter. I also am San's appendix. And yeah, that's an expensive.

All of a sudden, like I'm fine. Blam, I'm in the hospital. And they're like, yeah, we're going to go do something. surgery in 10 minutes. You're like, wait, what? So that's, yeah, you know, and having an HSA now that you're allowing to grow tax-free forever, or, well, not forever until you need it, is a really great backup plan for somebody who's not a sickly person. I think it goes without saying, though, that all these strategies that we're talking about the HSAs, these, you know, tax-deferred retirement accounts, all that kind of stuff. You know, this is stuff that is really good, useful advice that can help to save a lot of money,

but the foundation does not mean that you should start from a position of credit card debt and not having not having any emergency fund set up or not be able to handle the ordinary expenses of life you got to have that stuff in order prior to really think about how to optimize your tax advantage early retirement absolutely yeah exactly and yeah and you don't want the tail to wag the dog either you don't like like you said yeah fSA contributions are tax deferred but if that just disappears at the end of the year, then there's no point in that yet. You saved on tax, but then you just threw a bunch of money away. So you, yeah, I couldn't agree more. These are higher level optimizations for people have the basics and they're just wanting to like juice the things a little bit more and be even more

optimized. But yeah, have those core things in place. And then yeah, never sacrifice a good investment just so that you can save taxes or things like that. Yeah, the taxes, the secondary concern. Even you, the mad scientist, you had a six, seven year career, five, six, seven year career that you were, that you were applying the basics on very, very systematically prior to really beginning that sounds like this optimization, or at least understanding all of the potential of these optimizations. Yeah, and I wish I was that young. I kindly, I'll take that compliment. My career was sadly a bit longer than that, but yeah. Oh, no, I was trying to do that. 2004.

Do the Matt. Yeah, I also graduated from college in 2004. Scott, when did you graduate from college? 13. 13. Okay, so that's, yeah, Scott's like nine. But that's really important to look at what, when you graduated from college and what the stock market was doing. For the whole time you were in college, the stock market was in the toilet.

And, you know, you're, I'm assuming that you, Scott, trench, became. became conscious of money and finances and all of that in high school? No? Basically immediately after college, I had a job that it was labeled the meanest place in America to work. I didn't know necessarily have the whole ordinary four-year career. So my advantage was more not having a big head start, but really wanting to look toward financial freedom from almost within three or four months of starting my career. And then I didn't have to figure any of this out.

I had, you know, mad scientist and Mr. Mereda Mustache and early time Extreme and all these other guys that tell me exactly how to do it. So it wasn't, it's not like it's, yeah, it's easy to follow once it's laid out. It'll be interesting to see what happens the next fair market, though, because like it's been since this whole fire resurgence has just exploded online since, you know, like I started in 2012. And that was four years, three, three years into the, the bull market and three years away from the financial crisis. And it's like, it's been a crazy ride since then. So like I was an investor in 2007. So I like, I know how that feels. Luckily, it was a lot less money and I didn't like freak out.

But it'll be interesting to see the next spare market with what that does and how people react. I think the only people that are going to be worse off than people who have invested heavily in the market and built a large personal net worth are the people who didn't. Yeah. Oh, absolutely. And that's the, that's the beautiful thing of having a blog. Like in 2012, people were like, oh, The market's gone up like crazy. I can't invest now.

What should I do? And it's like, you don't know what's going to happen. You invest. Yeah, you have to just invest. And then 2013, more people are like, well, now it's really gone up. And it's been going up for so many years. And I can't invest now. I have to wait until the dip.

And it's like, no, you don't know what's going to happen. And here we are in 2018. And it's just been crazy ever since. So it's like, yeah, you're exactly right. It's the people that have been waiting on the sidelines or took money out after 2008 and just haven't had a chance to put it back in, really. Yeah. No, they've had chances. They haven't done it on purpose. Exactly. That's...

Again, it comes back to you have consistently, it sounds like, contributed, spent less than you earned and contributed in a tax advantage way and done so consistently over a long period of time. And that's the rule of thumb. You can do these tax optimizations or not. They sound like these are absolutely things that anybody who's considering passive index fund investing as a primary wealth building source should really consider But at the end of the day, as long as you just have that high savings rate and contribute

consistently to an investment of your choice, you're probably going to be able to achieve financial freedom sooner than later. Absolutely. And that's an added benefit of these types of accounts, too, that I didn't even talk about, like a 401K, like that's usually much easier to set up an automated investing plan for because you sign up to a new job and they're like, all right, what do you want to do here? And then you just sign up and you're like, all, whatever, 10% or we have max it out up to the match.

and you automate that. So if I was able to look back onto my portfolio and compare my tax-advantaged portfolio performance to my taxable account performance, I would bet that the tax-advantaged account is way higher because those automated investments were happening every month no matter what. And yet in my taxable account, it took me five years to set that up. And I was always trying to like, not in and out of the market, but like trying to go in at opportune time. So I'd wait until a dip and then I'd put money in. But then, you know, I would miss these big increases and then I would just get in on the next dip, which if I was smarter, I would

have just put it in the beginning and would have had a lot more money. So yeah, I think that automated investing that's inherent with these tax advantage accounts like a 401k even makes your investment performance much better than it would be otherwise. It sounds like you're saying don't try to time the market, Brandon. Is that what I'm here? I am. I am. I am. trying to say that, but I am saying that to myself too, because I still struggle with it. Like, I'm sitting on too much cash now and I haven't deployed it because I'm like, oh, it feels really high. And so I've started setting up. I've just increased my automated taxable account investing. So hopefully I'll get through it. But I know better. I should just put the whole lump

I'm in right now because time in the market is much better than trying to time the market. And yet I can't because that's the thing. This personal finance stuff, this investing, It's all personal. And psychology is the thing that drives returns the most and influences them the most. Like we understand the math. We understand the mechanics. It's our stupid brains get in the way. And my stupid brain still gets in the way, even though I write about this stuff and I know better.

I can help you with that cash. Just send me a check. You probably could. I would trust you. I think you would invest it very wisely. I will invest it in a new car, in a new house. I've got some retirement, some rental property I want to buy. So I guess we should probably get started moving on to our famous four here.

Are there any other final kind of thoughts you want to leave us with on the subject of either your backstory or these retirement accounts? Yeah. So I would just say, don't let this overwhelm you. Like this stuff can be super overwhelming. And like we talked about earlier, we don't want this to detract from the core investing principles and stuff like that. But if you're someone like me or someone who just wants to get to financial independence quicker, you know, this is a fantastic avenue to explore. And it's, it's a way to do it that doesn't negatively impact your quality of life much. It's not like you're cutting out your favorite coffee in the

morning or something like that. It's a way to optimize with money that you weren't really having fun spending anyway. Love it. Not having fun spending. Again, send me that cash and I will show you. I will have a lot of fun with it. Okay. So in the past, I have taken over Brandon's podcast.

And in the last episode, I had a rap. I performed a parody rap. So this is a new rap for you that I wrote just for today's show. Got to dance. Have an IRS problems. I feel bad for you, son. I got 99 problems. Texas ain't one.

I saved my money. I put it away into my pre-tax accounts, my 401K. Need to access it early? That don't matter. Mad Scientist showed me a Roth conversion ladder. I got 99% percent. Don't like the ladder. There's more to see.

Substantially equal periodic payments. 72T. SEPP. Hit me. Oh, fantastic. You're ridiculously talented. I am. That was awesome.

Ridiculous in any way. I made this all worthwhile. Oh, come on. This was all worthwhile before the wrap. This is just bonus. Okay. Now, let's move on to the famous four. Let's do it.

Brandon, what is your favorite finance book? Favorite finance book? I would probably say G.L. Collins, the simple path to what? that's really everything you need to know to be a good stock investor. So I would say that. But I would also pitch another book, which isn't technically a finance book, but it is exactly what you need if you're going to try to do this like alternative early retirement lifestyle.

And that is how to obtain freedom in an unfree world. And actually the guy who recommended that is J.L. Collins, the guy that I mentioned first, the simple path to wealth. And it just, it changes your mindset. it just makes you realize that you're completely in control of your life and anything that you thought you had to do or what direction you needed to go in. You don't need to do that. And some of it's a bit more controversial.

You don't have to agree with everything in it, but it is a mindset shifting book. Just like when I stumbled upon earlier, retirement extreme changed my financial life. This changed my just outlook on non-financial life. Yeah. And, you know, mindset is. such a huge part of it. We had a guest on episode 12, David Green. And the way he thought just about being a waiter was not the way that I thought about being a waitress at all. And it like raised his success level. Just small little tweaks made him so much more successful at his job and put

more money in his pocket, which is ultimately the whole reason why you're waiting tables. Right. Yeah. No, I couldn't recommend it more. It's definitely a book. Everyone should check out if you're wanting to live a less conventional life. Definitely checking that out. I've been reading this new book about anti-gravity, and I just can't put it down. Ugh. So what was your biggest money mistake? Oh, God.

I just sorry. I wasn't, I wasn't cute up for the joke around yet. So I completely, it took me a second to get that one. That was all day, every day at work. Okay. Scott, I don't think he even heard that question. Do you ask it again? What was your biggest money mistake?

So, yeah, my biggest money mistake. So like I said, I moved to Scotland right after graduating from college in 2004. And like I said, I was always into money. So I was so excited to be an adult. So my girlfriend, now wife, we bought our first house. We did it up. And in two and a half years, we sold it for over 50% more than we bought it for. So we were just like, yes, this is amazing.

Like, we're so good. This is in 2007. So the day, the week we sold, the week we were closing was there was a bank run on one of the big UK banks. And that's when like the whole world was starting to show signs of it falling apart. But anyway, we sold it. It was great. And we had this big hunk of cash that we never had expected and never had that much money. And I was so excited to manage my money that I just looked online.

for a financial planner, picked the top one, no referrals, no reviews, nothing. Pick the top one. He came over. He started giving it all the talk like, oh, yeah, well, you know, I'll get you out on the golf course with me and all the, like, just playing up to the fact that he obviously saw that I just wanted to be a big shot with a big portfolio and all this. He put me into the funds that had performed the best over the last five years. They all had ridiculous fees.

He made a killing off of it. of us. And then all of our money was tied up into these accounts for five years. And if we had withdrawn it early, we would have paid insane penalties. And it was so stupid because I just wanted to invest so badly that I didn't do any research. And I didn't think I could. I guess there was a part of me that was like, oh, I just need to learn. Somebody has to tell me what to do. And from that point on, I never trusted anyone else with my money and I did all the research myself. And really, it's not that difficult and it's not that complicated. So it turned out to be a good thing overall, but it was very painful lesson to initially have to face so early in my investing career.

Did you lose money during that time? Did your ending balance was smaller than your beginning balance? Yeah. So pretty much within six months. Yeah, yeah. So within six months, it dropped 50% or less because of the financial crisis. So that, that was painful with itself. It wasn't, and this is how I knew I was okay to be an investor because that wasn't the thing that really scared me or worried me. Like I was like, okay, it dropped 50%. That's terrible. But, you know, I'm not going to take it out. So it'll go up, hopefully. It was when I learned about the fees and then learned about the fees that I would face if I took it out. So it was something like if you took it out a year early, you paid 2%. If you took it out two years early, we'd pay four percent or two. What did I say two? It was like two, four, six, eight, something crazy like that. So that's what really angered me and felt like, okay, I just got taken for a ride from these people because then the fees obviously were just dragging on the portfolio. So even though the portfolio and the investments themselves recovered after the crisis, the fact that I was paying so much in fees meant that we didn't get all our money back

by the time we withdrew it. And I ended up withdrawing it one year early and paying the 2% because I was like I just want to be done with this guy and I just want to be in some sensible investments because by then I had learned like what's important. The things you can control what your fees and just going low cost. Okay. That's that's a good lesson to learn. Was there, I don't want to like make you feel bad, but did you ask about these fees? Did it just not, you didn't know to ask about the fees or did he like try to hide them or?

Didn't know. Okay. No, I didn't know. He showed a chart. I don't even know if the chart had him on there. just showed like, well, this one's up 15% over the last three years and this one's up 14.9% so I'll put you in those two because they're the best. Fees didn't even come into my mind.

I don't think at that stage. And it wasn't until, like I said, three years later probably that I was like, what are we in? What are we even in? And how much are we paying? And then that's when I looked into it and was obviously shocked and not happy. Okay. Moving on, what is your best piece of advice for people who are just starting out? it's to align your spending with what you want out of your life, which is super difficult.

And I didn't do this until after I already achieved financial independence. I was just so tunnel vision to get hit FI as soon as possible that I just made myself miserable in the process. And after the fact, I realized like that's so stupid because you need to know what you're going to be doing after you achieve this goal. and if you're not working towards that while you're saving up, then it's going to be a very difficult transition. So I would really think hard about what's your perfect life look like. What would you want to be doing with your days if you had all the freedom in the world? What do you want to leave behind?

What do you want to accomplish in your life? And these are like super big questions and really hard to answer. And you are pretty bad at knowing what you want. So you have to try things out and realize that, hey, maybe I don't want that. Like for me, like I thought that I would travel full time after achieving financial independence because I was like, I wouldn't have a job. I can just go all over the world. And I did it for three months right after I quit my job.

And I realized I don't want to be on the road that much. I liked being home and getting stuff done and making progress and projects that I'm working on. So it's things like that. It's like trying things out, not just assuming that life's going to be better once you hit FI, trying to figure out like what your ideal life is and then tailoring your spending just for that. So like I don't have cable because it's not important to me. I would rather be making something than just consuming cable TV and just making those sorts of spending decisions allows you to then feel like you can spend as much as you want on everything because you're only spending it on a certain few things that make you really happy. So now I feel like I can just.

to my heart's content. And I just know that spending more or spending more on different things aren't going to make me happy. So I don't, it's not even like I miss it. It's like I'm just like completely optimized. But that took a long time. So start that now, no matter where you are in the journey to that, to financial independence,

just start that and try to really figure out what you want out of life and how to make your spending align with that. That's really awesome. Just like general life advice. Like yeah, like I've, like I made the same mistake where I just, went way too hard for a couple of years. And I, you know, for those couple of years, I was unable to date, unable, you know, I just biked.

I made, like, I would have perfect days. I wake up in the morning and I would a healthy omelet, bike to work, leave it like nine or 10 o'clock and spend no money throughout the entire day. And it was like, financial freedom is not worth that. No, no. Align you're spending with what your actual, what I actually like. And I'm much happier now with a little bit more spending that I get all the things I want. I was just going to say that, you know, I've met people who, like I said, you're bad at knowing what you want.

So try before you buy and experiments with little cash outlay because like I've talked to people who've, you know, sold their house, bought the sailboat. And then 10 days at sea, they realize they're miserable. They're not sleeping. The dishes are bashing against everything and everyone's seasick. And it's just like not the life that they thought they wanted to live. So yeah, I was just going to interject there and say, yeah. experiment and try before you actually, you know, spend a lot of money or make drastic changes in a lifestyle that you may not actually want. We dangle the partying by the beach or, you know,

relaxing and playing video games all day in your underwear as like the carrot for a lot of people that want to achieve five. But really, that's not, that's not the purpose of this. The purpose of this is you might, maybe you do that for a couple of months, but then you settle down and get to work on something that's your unique passion that you really can't do in a, true corporate setting, or maybe it is, for some individuals. But the fact that you can then do that means that your ability to or potential to maybe have a positive impact in your own unique way in the world is exponentially increased. You're just so much more potential once you do this, if you're doing it right and are not depriving yourself of the basic happiness that you deserve

and want. Absolutely. Yeah. If I had to sit around and play video games in my underpants, I would work forever. That is not my ideal. But Carl went and bought the little Nintendo, two Nintendo's just came out, which has like every game on it. And he's like, oh, do you mind if I play? No, please. Go and play. Has he actually played it though? He's played it like four times. The girls play it more. And now he's back at work, like working harder than ever because I know the type of guy he is. Yep, yep, yeah. I could go on a tangent for that forever. But it's not my show, it's your show. And Now, Scott is going to ask you the question. All right.

What is your favorite joke to tell at parties? So Mindy knows me and Scott, you know me. Not as well as Mindy. We've had some quite wild party nights at certain conferences and things. I'm not usually one to tell jokes. So I'm trying to think back to the last time I probably told a joke at a party. I've always known you as the joke guy. No, definitely not.

He's really funny. So when I tell the joke, you'll realize what era it was probably told in. But why do girls wear makeup and perfume? I don't know. Why? Because they're ugly and they smell bad, which. So I love the simplicity of it. Obviously, my outlook on women has changed dramatically since when I told this, which was probably in third grade.

There's a beautiful simplicity of that joke. You win, you win, you win, you win. Oh my goodness. That's a terrible joke. I know. I have a beautiful wife and she's not ugly and she does not smell bad. So my thoughts have changed since second or third grade, whatever that joke came into my brain. I will let the listeners know that there's a little bit of explicitness at the end of the episode when you tell you a joke.

So I think I can listen to that at the beginning. Brandon, where can people find out more about you? Madfcientist.com, which is M-A-D-F-I-E-N-T-I-S-T-I-S-T-com. It's a word I made up and lets you get the domain name whenever you want it. So I have everything's there, like the podcast, the blog, have written some software over the years to, like, help you track your journey to financial independence and stuff like that and all that can be found there and then yeah like on Twitter and Facebook but I'm not too active on either of those so the blog's the best bet yeah you have to tag him on Twitter if you

want them to talk to you show him a picture of really good beer from a really great microbrewery yeah that'll always get a love for a like or whatever the heart icon is all right Scott shall we get out of here we should wrap this up this went really long today because brandon just had so much fabulous information. Yeah, this was great. Thank you so much for coming on, Brandon. You mean, you're a thought leader, I think, in this space. And it's just fantastic to hear what you had to say on it.

I mean, you're so knowledgeable at every aspect of this. It's great. Thank you. But, yeah, thank you for having me on. It's been a pleasure. And the wrap, you know, highlighted my day. So thank you for that. All right.

That was an amazing episode with Brandon. I love talking to him just on a regular basis. But all of that information is really much. blowing. I just learned about this Roth conversion ladder and the 72T separate but equal payments thing I kind of knew about but not really. I encourage you to take a trip over to his site and read through that whole entire article how to access retirement funds early because he lays out so much information that we didn't even get to today and today's show ran really, really long. Yeah. I love this kind of episode because we really get a little bit into the details about

some of these things that can save you tons of money over time. And again, this, I know that a lot of this information was really more applicable and really more kind of mind-blowing and maybe the potential to really be a game changer for you once you get into that position of being, you know, having a strong savings rate and being able to contribute large amounts of money to these retirement accounts. That's the point you have to get to. And if, if you're not there yet, use this show as motivation to get to that point. Because once you do, there's a lot of opportunities to save a ton of money on taxes, a lot of chances to really invest efficiently and get access to those funds. Right. And I think that a lot of people don't go into the depth that Brandon does

when you're thinking about these retirement accounts and, you know, oh, I'm saving taxes on the front end. Well, yeah, but you can also save taxes on the back end, especially if you've got several years to be planning this out, you can start, you know, start planning your choices. Maybe you're reducing the amount that you're putting into your pre-tax accounts now that you know you can take that out at the end. It's just, wow, so much great information. I'm so glad he had the time to share with us today. Yeah, absolutely. And I'll add on it. You know, I thought I mistakenly came into this episode thinking that you had to be a fantastic planner to get active, be able to pull this off. But what he showed us with the Roth conversion ladder is that in a bad year, or depending on how your life goes, you can

take out a bunch of money and roll it over in a bad year where you have low income or very low taxed income or you can not contribute at all if you end up having in a year where you earn a lot of income. So there's a lot of control that you can have over this even if you're not a planner. And that was my big fear, I think, or my big reservation about having to go through this is I'm, I kind of go through life as an opportunist, I guess, in a lot of ways. And I want to have access to my money for quality opportunities. But it sounds like this kind of Roth conversion strategy really marries well with that line of thinking because you can in good year or a year with low income make a big move and in a year with high income, not make any moves

or make a small move. Right. And you can still be an opportunist while planning your retirement. Now you have this in your head. You know, this isn't something that you can just take and go do right now. But it's something I think this is a great seed to plant into people's heads. especially if they've got a few years left for early retirement. I mean, obviously, if you have already retired, you can take this and start your Roth conversion ladder, especially if you're not close to your 59 and a half retirement fund, withdrawal age, whatever they call that. That wasn't at all ham-handed. So this episode ran really long.

I want to get out of here and let people get back to their day. But thank you very much for listening all the way to the end. The wrap was worth it, right? Yeah, of course. It was for me. Okay, from episode 18 of The Bigger Pockets Money Show, this is Mindy Jensen over and out.