BiggerPockets Money Podcast - 54: 6 Ways to Reduce Your Taxable Income with Eric Brotman

Episode Date: January 7, 2019

Preparing For Retirement By Reducing Taxable Income & Saving More. In today’s episode, we chat with Eric Brotman, CEO of BFG Financial Advisors, who discusses his top 6 ways to reduce taxable income. Eric dives deep into each of these 6 methods,... Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome to the Bigger Pockets Money podcast show number 54 where we interview Eric Brotman. Correct. And you don't pay taxes every year as it grows. You don't pay taxes for transactions or capital gains along the way. And you don't pay income taxes when you withdraw. 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.

I'm here with my co-host, Ms. Mindy Jensen. How you doing today, Mindy? Scott, I am doing fantastic. It's a brand new year, and I'm so excited for everything that's coming around this year. What is going on with you? I am doing great. Got new goals, all that kind of stuff. I'm one of the guys who around the new year gets everything ready for the new year

with my goals and all that kind of stuff. So a huge nerd about it, but excited. Yeah, you're a huge nerd about that, Scott. And I am learning from you, taking some tips from you. I have a goal this year to run a half marathon. And I am going to participate in a bicycle ride called Ragbri, which goes across the state of Iowa, which if you've never been, might sound boring, but it is the most fun bicycle ride you will ever do in your whole life.

And just trying to, you know, get my physical self in shape now that my financial house is in order. Sounds like a pain in the rear. Oh my goodness. Let's talk about Eric Bradbid, though. Eric is a financial advisor who has a pretty large financial advisory firm, and he's come on today and just giving us a boatload of information about how to shelter money from, you know, from the government, how to set up a tax diversification system, and really think through some things and their consequences, both over the course of your wealth accumulation lifetime, and as that pertains to kind of passing money through to the next generation. So very, very Very excited for this show.

Yes, I will give it a caveat. He legally shelters money from the government through taxes and tax planning. You said how to shelter money from the government. I want to make sure that everybody knows before they listen. This is all legal methods. So we did actually record this episode at the end of last year. And there are a couple of guidelines that weren't released yet at the time of recording. But we will update all of the show notes, which can be found at biggerpockets.com

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Eric Broughtman, welcome to the Bigger Pockets Money podcast. How's it going today? It's going great. Thank you so much for having me. Well, thanks for making the time to talk to us today. Absolutely. Yeah, so you have a lot of experience working with people who have built large amount of wealth and then maintain that wealth throughout a couple of generations.

So I thought, you know, hey, that's pretty common goal amongst people that are listening to Bigger Pockets Money Podcasts. They have a lot to talk about there. Let's start off with this. Can you kind of define what you mean by retirement and like what the concept that people should have kind of have in mind when they're thinking through that term? Absolutely. Retirement is a terrible idea in its traditional sense. In fact, when retirement was created, it was created as a way to put old people out to pasture and have them essentially recognize that they were no longer useful.

And that sounds terrible. So to retire is to withdraw or retreat or to disappear. And I don't know anybody willing to sign up for that. So to me, the idea of retirement is not the absence of work. It's the absence of needing to work. It's hitting that moment of financial independence where you're working for yourself, you're working for fun, you're doing things that move the needle and that matter to you. And so I see retirement as a graduation from punching a clock for a check to doing the things that empower you that are important to you. And what needs to happen in that? How do you kind of define that numerically? I mean, there's a combination of numbers and probably mental how you feel about those numbers. But what's that definition to you? Well, the numbers are going to be different for everybody. Some people, you know, I heard Chris Rock joke one time that if Bill Gates woke up with Thoper's net worth, he'd want to jump out a window. So wealth is pretty relative. I would say that financial independence is really about perpetuating the income that you've enjoyed adjusted for inflation forever. And so if your income is $100,000 a year, it will require $2 to $2.5 million or some other income sources to do that. And that's just with a reasonable withdrawal rate. And that is simple math. Now, you're right there. A lot of non-quantifiable things to go with that. But in terms of building a nest egg and figuring out your number, somewhere between 20 and 25 times your income, gross income is the right number. And you can adjust that gross income by whatever you're saving.

So in other words, if you live on $100,000 a year and you're putting away 20, then what you really need to replace is 80 because you don't need to replace that which you were saving or investing. You only need to replace that which you were consuming or paying taxes on. So that's really the math that is the back of the envelope calculation that can be done by anyone in a matter of minutes. And then the question is, well, how do we get there? And then the harder question is how do we stay there? So the absence of needing to work, right, is the key thing there. I've pulled a couple of people in the financial independence community, and a remarkably small sliver of the community is actually achieved their fire number,

achieved this 20, 25 times their income, and stopped work in any capacity that produces income, right? So your situation is going to be exaggerated because you're working with people that are a little higher net worth than maybe even just bare bones financial independence. What do you see a lot of people doing after they've retired professionally from a business? business or wealth building's perspective. Sure. I think once you have gotten to that level, it allows you to chase the things that really mean the most to you. And sometimes that means consulting. Sometimes it means entrepreneurship. Sometimes it means supporting being an angel investor or doing venture capital

or crowdfunding or all these other kinds of things where you can participate in other people's opportunities. I see very few people who retire and put their feet up and play shuffleboard. It's not good for you. So for the most part, I think the most successful people have that mindset and that attitude. And when you're earning because you're producing something or you're moving the needle, you're making a difference for people, you're going to earn by accident. I mean, it's not even income that you need at that point. It's going to happen. And then you'll have a tax problem instead of an income problem. And then you'll complain about taxes instead of income. Typically, there's always one of the other. You either have an income problem or a tax problem.

I love it when people complain about their high tax bills. So a million dollar tax bill. You know, That's like, hey, it's good problems or have it happened it from this, right? Well, listen, for anyone who thinks, oh my gosh, if you're paying a million dollars in taxes, imagine what you must have earned. There's still that guy or gal paying a million dollars in taxes who lives next door to somebody paying half that because they have better planning. And so they're irritated, not necessarily at the number, but at what the number could have been. So is that a central kind of consideration in one's financial picture after financial independence, in your opinion, Is tax managing changing income streams away in certain ways so that they become more tax advantaged?

Absolutely. In fact, anytime you can take some of your assets and put them in a place where they'll never be taxed again, you have done yourself an incredible service. And at some point, there's an opportunity to put money where it will never be taxed again, at least under current rules. And usually there is what I refer to as the Tinstoffel premise. Have you heard of Tinstoffel? If you spell it out, it spells there is no such thing as a free lunch. It is never, it is never free. However, there are ways to defer or delay or eliminate taxes, income taxes, or capital gains taxes. There are really creative ways and legal ways. We're not talking about pushing the envelope and move money offshore or something. For almost any American taxpayer, there are ways to save future taxes by doing smart things today. So what's a good example? What's something that maybe

that someone can relate to? They've just got, they're trying to approach that one, million dollar net worth 20, 25 times you're spending, getting ready to do this. What's something they should be thinking of for like a typical situation or some people can relate to? I'll give you a perfect example of something folks either don't know or aren't doing to the best of their ability and that's health savings accounts. HSAs are the greatest tax invention ever to the extent that number one, you can put money away and it's deductible at any income level, right? Number two, you can grow that money indefinitely. So unlike a flexible spending account where it's use it or lose it and you wind up with four pairs of glasses in December you

didn't need because you were going to throw the money away. With the health savings account, it can roll forever. And once you're 59 and a half, you can choose to take that income, just like an IRA, which would be taxable, or you can save it, invest it, and grow it for the rest of your life and eventually use it for medical costs when you're 85 or 90 years old. I mean, half of the medical expenses that we have in our lifetimes happen in the last six months of our lives. So you know you're going to use it. Build it, grow it. And if you're blessed to be healthy and playing tennis at 93, use it like an IRA. Question about that. Relative to the size of, I guess the HSA, it seems to me like a great tactic. It's a great, like a no-brainer. If you've got one and

that's your plan, it's a high deductible plan that qualifies for an HSA. Go ahead and contribute and obviously invest it. Because you know you're going to use it at some point in your life. But it seems like the upper bound there is only a couple thousand dollars a year in tax deferred savings, right? Well, today it is. And so you take the HSA and you ladder on Roth IRAs or Roth four Oman-Ks or other places where you can put potentially more money where it will never be taxed again. And then you throw on $529 plans or other monies, whether it's for your kids or your grandkids or your great-grandkids who you might never meet. And you build money that's tax-free forever so long as it's used at some point for education. And, O'Ber.

by the way, it's still under your control, but it's not in your estate. So there are other ways you can save taxes. And then you throw on things like whole life insurance or other things where you can have a complete tax saving. And by the time you've done all of those things, it really adds up. And you could wind up putting $20, $40,000 a year away or more in a place where it will never be taxed again. Okay. So we got to go into detail on a lot of these things in a minute. I'm trying to think of what's the next kind of helpful way to think through the situation. So maybe let's start with this. What's a story or what? one or two or three stories of someone you might have worked with who's gone on to create

a large amount of wealth and then retire in some sense, at least stop, move away from whatever they were working on, and then begin to employ these strategies. Can you give us like a story of that person? Like, who is this person? What do they look like? How do they get to that position? And then how do they begin taking advantage of all of these things? Maybe that's a way that will help me at least think through it. Sure. I think everybody should be using tax diversification, which is something people don't think about. And so as you get closer to retirement, we've had clients who at 50 or 55 or 60 have started positioning themselves to transition significant wealth to the next generation and start doing

things that are for income but aren't necessarily for need. And they start doing it in a way that allows them to maintain control. No one likes to give up control. I know some really wealthy people who think they're going to run out of money. They're not. But they think they are. And it's an incredible fear. And I think as you get older, we have to remember when you're young and you're hungry and you can go make more, it's a little less scary than when maybe you're not in a position to make more the way you could. And so having losses at that point is very scary. So who are these people? These are sandwich generation folks. These are folks who are working 50 and 60 hours a week and sometimes side hustling. They've got their parents getting older and they're worried about them. They've got kids to educate. And they'd like to retire themselves before they die. And ultimately, they're being pulled in lots of different directions.

So how can you leverage those generational opportunities? Well, one way is you can start funding Roth IRAs for your kids. As soon as they're old enough to get a W-2. You can buy insurance on your parents and create tax-free, income tax-free or estate tax-free dollars down the road. It's creepy, but it's an investment. I mean, there's lots of different ways to do that. And so I think perpetuating wealth means using all the

the strategies at your disposal and starting early. You start at 50, which may not be early for your typical listener, but in the grand scheme of things, you know, hopefully you're only at the 50 yard line. Love it. Okay, so we just unpacked a bunch of stuff. The HSA plan, the Roth IRA, a 529 plan. Whole life insurance is not something we've talked about on the show before. I've heard the concept, but I don't actually know with that.

Like, there's term life and whole life, and I don't know what's better and why. So this is the first episode of 2019. Let's look at the HSA plans, which is the high deductible health insurance plan, the savings plan. What are the 2019 contribution limits? Actually, the 2019 limits have not been established by the IRS yet. The limit currently is $6,900 for a family. And if someone is over age 55, if they're 55 or older, it goes to 7,900. Okay.

And that's for a family plan. If you're in an individual plan, the limits are cut by 50%. So they're cut in half. there will be a 2019, a potential 2019 increase. It had not been announced as of this recording. Okay. So $6,900 a year for a family plan is $575 a month that you can contribute to your HSA plan. Over the course of the year, you get your $6,900.

And you don't have to use that in 2019. Is that correct? That's correct. You get a tax deduction for the contributions, regardless of your income level. There's no phase out. And you don't have to use the month. In fact, you can grow the money indefinitely. HSA accounts, which you can set up at any bank, basically, or any financial institution, also allow you to invest the funds over a certain limit.

So most of them have a threshold where you have to keep at least one or two or $3,000 in cash, and they're in basic savings accounts. But everything beyond that, you can buy mutual funds or other investments in them, and you can continue to grow them such that there's no capital gain. Okay. And our friend, The Mad Scientist, shared this. on show 18 of the Bigger Pockets Money podcast, that he calls this the best retirement plan there is. I would agree. It is dangerously close to perfect, almost bordering on accidental.

Okay, we're going to have to quote that, dangerously close to perfect. The Roth IRA has a limit of 5500. Is that correct? It's 5,500 in 2018. It is 6,000 in 2019. So in 2019, the Roth limit is $6,000. And for anybody age 50 or older, or who's turning 50 in 2019, it's $7,000. Okay.

And that is $500 a month that you're putting away into your Roth IRA. Now, that's after tax. Correct. That is not deductible. Okay. But it will grow tax deferred. You don't get $10.99s on it every year. And then when you make withdrawals, so long as you're over $59.5.

It's not taxable. Well, the beauty of it. non-taxable income is it doesn't go on your 1040. It doesn't go on your FAFSA. It doesn't go to create increases in your taxable income. I mean, I don't know about you guys, but the federal government and just about every state you can name is borderline broke. Income tax rates are unlikely to go down. And if they're higher later, even if your income's a little lower, you could be paying a higher percentage. So the Roth IRA is a panacea. And what the government's done with Roth IRAs is they were set up originally to be.

savings plans for relatively modest earners. They weren't supposed to be playgrounds for the so-called rich. However, there were some mistakes in the way this law was drafted. And in order to not admit those mistakes, the government has now said, oh, no, that's what we meant. It's okay. And here's what I mean. Have you heard of the backdoor Roth IRA? Yes. Yes. Okay. The backdoor Roth IRA is the greatest tax accident ever. And what that says is that while you're not allowed to contribute to a Roth IRA if you have an income over a set threshold, and that's set whether you're individual, how you're filing. But if you're, let's say you're making a quarter million dollars a year, you're not allowed to contribute to a Roth IRA. However, you can contribute to a traditional IRA

regardless of your income level. Now, some people say, well, wait, but I can't deduct my IRA contribution if I'm over an income level, and that's true. But you can make what are called non-deductible contributions to traditional IRAs. And when you do that, you then have the ability to do Roth IRA conversions, which is to convert a traditional IRA to a Roth IRA regardless of your income level. So essentially what the IRS has said is, yes, you can put $6,500 into your, I'm sorry, $6,000 into your Roth IRA. And once you've done that, you're allowed to convert it. And so by converting it, you would pay taxes on your full IRA, except that to the extent that you have basis, that's non-taxable. So on your tax return, there's something called the Form 8606.

The Form 8606 is an IRS tax form that goes with federal funding that allows you to declare basis in your IRA such that that amount is not taxable when you convert. And so right on and the 2019 tax returns are going to be different. In fact, the 2018 tax returns are going to be different. But in 2017, it was line 15 and 15A of the 104. that said declare what's come out of your IRAs and now declare what portion of that is taxable. And it had to be pro rata. So if you don't have an IRA and you make a non-deductible IRA contribution and then you convert it, 100% of the account was basis.

It's non-taxable. You just made a Roth contribution. So legally. Okay. This is where the backdoor gets a little bit confusing. I know that the Roth IRA, you can only contribute up to a certain income level. What is that income level? You know what? On the top of my head, I don't know. It's around $190,000 for a married couple.

Okay. Okay. So that's still, that's a nice. It's a significant income level. Yeah. Okay. So let's say that I get a raise and now I make $200,000 a year. I can contribute to my, I have a regular IRA. I contribute $6,000 to my regular IRA. Then I tell the government, this is non-deductible. Right. Then I pay no taxes when I convert it to the backdoor. Roth. Now, I did pay taxes on it when I earned it. Just like you would have with a Roth, you functionally used after tax dollars into your traditional IRA. Okay. So that you could move it to a Roth. Okay. So it is still after tax, but now it's in the Roth. So it'll grow tax free. And when it grows really, really big, I pay no taxes. Correct. Okay. You don't pay taxes every

year as it grows. You don't pay taxes for transactions or capital gains along the way. And you don't pay income taxes when you withdraw. Mindy, both of our minds are blown, but I think Mindy. Yeah, I'm like, ooh. Now, here's the caveat. Here's the caveat, and it's an important one. If you already have an IRA with balances that you've deducted, let's say you have a, you had a former employer's retirement plan and you have $60,000 in your IRA and you roll

it, I'm sorry, in your 401K and you roll it to a traditional IRA. If you have that account and you convert it, you have to pay taxes on the full $60,000. If you make a non-deductible contribution to any IRA, and let's say it was $6,000, just for round numbers, now you have a $66,000 balance and six of it is basis. When you convert, you can't just convert the non-deductible. You have to convert it pro rata. So if you already have an IRA, the backdoor doesn't work very well because you would only be able to deduct 10%, essentially to waive 10% of that piece, you'd have to pay taxes on

the rest. But if you're looking to retire, for example, let's say that you're making 150K a year household income and you stop working that year. You might have very low income if you haven't taken out any distributions. So you can roll that over in that year. If you have a year where you're planning to have low income or even a loss on a business or something like that, that's a good year to potentially roll all this stuff over into the rock. Absolutely. Absolutely. Which is why sometimes it's advantageous to get your last formal paycheck before you elect Social Security and before you're subject to the requirement.

distribution rules on IRAs, which is 70 and a half. There are strategic reasons to take a year or two off. Huh. Can you have more than one IRA? Yes, but for the purposes of this, they aggregate in terms of that process. You can't open a separate one and then just move it. All of your balances are aggregated, but here's what you can do. Let's say you do have that $60,000 in a traditional IRA, but now you're working for a different company. Most 401ks will let you take your IRA money and put it into the 401K it's your new job. If you move the money into your 401k, now you have no IRA. Now you can do backdoors. Okay. So I take my old IRA, I put it in my new company's 401K. What if my new company doesn't have a 401K? Can I take my old IRA and put it into like a

self-directed 401k or some other option? No, unfortunately that doesn't work. You'd have to work for an employer that had a plan. Okay. Okay. That's good. I'm just asking because I want to like when I'm listening to podcasts, I'll be driving down the road. Wait, ask this question. And they don't. So I when to ask all these questions. Okay, no, that's fair. What's the limit on a backdoor Roth? It's the same as traditional Roth. So, say 18K. No, that's a 401k. Yeah, the 401k limit in 2019 is 19,000. Okay. And if you're over, if you're over 50, it's 25,000. So that's an increase also over 2018. That's on the 401K. And by the way, the Roth 401K allows that same limit and doesn't have an income barrier. Now, the thing about doing that is you're waiving a tax deduction

a year you might need it. So we don't see a lot of people with high incomes do Roth 401ks, frankly, because they really do want the deduction, especially since the tax bill that passed January 1st of 18 left a lot of people scratching their heads and trying to figure out where their deductions went because most of them are gone. So the limits for the Roth, what we see people do is we'll see somebody in January make, and it's January now. So you have an opportunity in January to make a backdoor contribution or a non-deductable IRA contribution for 2018 and for 2019 simultaneously and then do the conversion. You just doubled your contribution to a Roth instantly. So if I want to go and take action based on what we're talking about here, right,

it might be a good idea now or come January to go in and talk to my financial advisor and put together a situation where I contribute, you know, I max out my 401K. at work. Great. Then I make a non-deductible after-tax dollars contribution to my IRA outside of that and ask to backdoor that into a Roth. Correct. And I can do that for both

2018 and 2019 at those two limits, perhaps early on in the year. Whenever I contribute to an IRA, I like to do it at the beginning of the year, so it has all year to compound. Of course. I never understand why there's not a huge line outside of Scott trade or whatever, you know, wherever you hold your IRA

on January 2nd out the door for everyone to try to deposit the vaccine of them into their IRA right on day one. But that's another story. Was that rhetorical or no, that's procrastination? It's, oh my gosh, what's the deadline? Can I still do this? Yeah, why isn't there a huge line of people doing that? If you try to do this, that should be your plan, right?

Is you backs it out day one, boom, 80. But it feels like a bill. Yeah. And it's on the heels of the holidays after people are just going overboard. So it just doesn't work that way. Fair enough. I have a question really quick. So I have my IRA.

I put my $6,000 into it or my $5,500 for 2018. And then I turn it into a Roth. I backdoor it into a Roth. What happens to that IRA? Can I then take it? It's closed. So then the next year I can do the same thing. Correct.

Okay. Every year, every year you open an IRA. You have no IRAs. You open an IRA. You fund it non-deductibly. You convert it to the Roth and you close it every single year. Okay. most cases, as long as you're with the same custodian, as long as you're with the same firm,

converting an IRA does not cause like an account closure fee or any of the nonsense that you'd have to deal with if you were closing an account. In most cases, if you're with Fidelity and you move a Fidelity IRA to a Fidelity Roth IRA, they don't charge you to do that, typically. Okay. Another question is I am trying to reduce my taxable income so I can sell some stock. So without hitting the capital gains, I would prefer not to pay. that. Can I do any of this with that? I'm making the non-deductible IRA. So that's not going to help me at all. Is it better to make the deductible IRA? Or I wonder this year I'm kind of not going to be able to hit that limit. Well, I think that, sorry to chime in here real quick,

but it sounds like your question is how do you defer more income so you're not paying taxes on it, right? And that brings us to the third point that you were going to talk about, which is 529 plans. Is that? Yeah. I mean, 529 plans are truly amazing. in terms of ways to use them. But is that a reasonable transition in there? Is that like, Mindy, are you asking like what other ways to shelter your income? So you're not paying taxes on this year? I think Mindy's looking for tax deductions.

This is not a deduction. The 529 plan is not a tax deduction. It can be depending on your state of residence at the state level, but it is not at the federal level. Okay. Then, yeah, we'll get to that in a minute. Is it better to fund your Roth? or is it better to try to reduce your taxable income?

And if you can't, I mean, there's only so much you can reduce it to. I think I'm not going to be able to reduce it enough to hit that. So I would be able to sell stock without paying capital gains taxes on it, in which case doing the backdoor Roth would be better. Well, I don't have to do a backdoor Roth. I don't make $199,000. Well, so let me ask you this. Since now I'm providing personal financial advice,

are you in a position where you're charitably inclined? I am charitably inclined. Do you give money away every year? I'd like to. Okay. Let's say yes. So have you ever considered holding some of that stock and giving the stock to charities such that there is no capital gain?

Instead of writing a check out of your checkbook, instead of selling the stock and paying taxes, why not gift the stock? Because then the charity can sell it. They get carryover bases, but they're a 501c3. So they pay no taxes at all, and the capital gain goes away. So how does that, do I get? that is a loss or is that a deduction or is that just giving it away? Well, you may get a deduction if in fact you deduct your charitable contributions,

which now as of 2018's tax filing, a lot of people, 95% of Americans aren't going to deduct anymore, which means even charitable contributions won't be deductible for 19 out of 20 people. Okay. And there's some strategies involved in that. If you're giving away a lot of money, there are some strategies around that. If you're just trying to be thoughtful and you're giving away modest amounts of money, and everybody's got different definitions for that. But if it's a modest amount of money, you may not deduct it anyway,

but at least you can avoid the capital gain. Why pay taxes? Give it to the charity. If you have $5,000 worth of stock, but your basis is $1,000 and you're going to pay taxes on $4,000 of it, and you make $2,500 annual gifts to charity, I'm making this numbers up, give some of it in December and some of it in January.

It'll be two different tax years. You will have satisfied your charitable itch, and you will have paid no taxes on the $4,000 gain, and neither will that. Okay. Well, that is certainly something to think about. And yeah, I could ask you personal questions the whole time we're here, but I think I'm going to send you a bill, Mindy. I think we should teach other people things too. So let's move on to the 529 plan, a brief description. And then how can I use that to benefit me? Sure. 529 plans were set up under IRC or Internal Revenue Code for Section 529 to be a college savings vehicle, mostly for parents or grant. parents to save money for their kids higher education, which, as you know, is an extremely expensive

thing. I don't know if you have children, but it's an extremely expensive thing to consider. The way 529s have evolved, however, is they have become an estate planning strategy, they have become a tax saving strategy, and they have become even a strategy for things like private schools, whereas of this year, up to $10,000 of private school tuition K through 12 can be paid through these plans. The plans have the same annual limit for contributions as the limit for gifting without gift tax, which right now is $15,000 a year per donor per donee. So a married couple can give $30,000 each to any human being they want, including each of their kids, right? If you put money in a $529, depending where you live in your state of residence, you may be able to

deduct the contribution from your state taxes. You can't do that from federal. However, the accounts can be invested and they can grow forever. There is no requirement to ever pull this money out. And as it grows and it grows tax deferred so long as the money is later used for higher education of some kind, and it could be K through 12 or college or grad school, it's non-taxable. You don't pay capital gains. You don't pay ordinary income tax. It is also for very wealthy people, it's outside of your taxable estate. So even though you still control it and you could still say my great grandkids are rotten and I want my money back, it's still not in your taxable estate so that you can alleviate part of that from a tax burden as well. So if you don't have children,

these may not be practical unless you're still coveting that PhD you were thinking of going back for. But if you have children and or grandchildren or great-grandchildren, this is a way to perpetuate wealth, even if it's not used for 100 years. I love this. I think that this, let's talk about this. Let's go into the concept of, you know, you're listening to the show, you're listening to Bigger Pockets Money, and you're attempting to build a significant personal wealth portfolio early in life in order to sustain early retirement, right? not stopping work, but the absence of needing to work, right, as we talked about. There you go.

That means that a good chunk of you listening will have reasonable odds of producing a pretty large estate throughout your lives. So if that's the plan, you know, hey, I'm going to retire with a couple million dollars net worth in my 30s or 40s, right? How do I go about, and let's say my goal is to pass that on to the next generation, how do I go about using these things to pass along a large estate in an effective way to, potential errors. Is that something we could talk about here? Of course, absolutely. You're talking about in each of these cases, in each of these four cases, you are creating opportunities for the next generation. HSAs are passed by beneficiary. 529s are passed by successor owner. You never want to name the kid as a successor owner. You always want someone, your spouse or another adult to be the successor owner, because if the kids ever own it, it becomes custodial, it becomes an irrevocable

gift, and it creates tax issues for them. So you never want the kids to own their own plans, even when they're of majority age. If they're 25 and you have a plan for them, it's still not their money. It's never their money until and unless you die and want them to have it. And you can change the beneficiary once a year, so you can name your grandkids and then leave it to your kids for their kids and type of thing. So that's got the level. The Roth IRAs can be inherited and the next generation that receives them won't have to pay income taxes on the withdrawals. See, if you leave your kids an IRA, the whole darn thing is still subject to income taxes. And if your kids are in a higher tax bracket than you are, you just cost your family money. If you've got a kid who's a

plastic surgeon, don't leave him or her an IRA because they're going to be taxed at 50%. Leave him a Roth. Leave them a Roth. Or don't leave them anything of those rotten kids. No. So you have that. And the same thing's trolling the life insurance side, which we haven't gotten to, but Mindy He's very curious, and we're going to have some fun with that one, too. But there are ways to perpetuate wealth and not to perpetuate tax bills, for sure. Now, what about real estate and all this? Real estate's an interesting hot potato, and I know you do a lot of real estate investing on your show and have a lot of guests who are fond of real estate.

To me, real estate is something that you either decide you're doing or you decide you're not doing. You should never dabble. To me, having two rental properties is like owning two stocks. You're under-diversified and you're subject to one really bad tenant. So either decide you're going to be in the real estate business, whether it's commercial or residential and buy properties every year and leverage them appropriately and make that part of what you do for a living or don't. Don't dabble. Don't have one random real estate property in Virginia somewhere. And it's for the same diversification reasons that we would talk about with any other asset class. That said, because real estate qualifies like other assets where you get a step up in basis upon death, if you leave the real estate to the next generation, they no longer are subject to capital gains if they have to sell something. So it actually creates a very nice gift if it's appreciated, which we all know prior to 2007, it always goes up.

It can only go up. Once 08 hit, we learned that that's not always true. But real estate can be a very helpful thing. And if you decide you want to be in the business with the cap rates and the cash flow and the rental income and so forth, it can be a very good business to be in. But to me, it's not a hobby. It's a business. Oh, I think that's great. And I think that many of the people that are listening to the bigger pockets money will at least want real estate as one significant part of their portfolios over the course of a lifetime. So I believe that's the intent. But just remember if you live in it, it's not an investment. It's a nest. Your personal residence is not an investment. It will never, ever make you money. I know there are folks in San Francisco who would argue with me right now

because they've made $2 million in two years on a townhouse somewhere. That's not normal. I like where you go with that thought. Mindy actually has a way of producing wealth from these types from your personal situation. So there are exceptions. Mind, do you want to tell them real quick? Are you renting rooms or running a bed and breakfast? No, I live in Flip. So I buy an ugly house. I live in it as my private residence, as my personal residence, primary residence. I make it worth a lot more money. I sell it for a lot more money and then I pay no capital gains taxes on it because it was my primary residence. So that is brilliant from a tax perspective if you don't mind living in squalor. That is a very good statement. That's an

excellent quote. I make a lot of money. Month three is tough. Oh, yeah. I mean, if you don't mind having dust in your kitchen 24-7s, then go for it. It's a great strategy. I don't know that that's a lifestyle choice everyone would choose, but it's a great strategy from a tax perspective. Yeah, most people don't choose it, and that's fine. That makes those ugly houses for me. But yeah, it can be overwhelming. If, you know, my first one wasn't this, gut it to the studs house. And now I move in and I got it to the studs. And I'm, washing dishes in the tub. If you don't want to wash dishes in the tub,

maybe this isn't for you. I make crock pot meals for a month's solid. But this is temporary, right? But it's temporary. Now you live in a beautiful house that is wonderful and you have another couple of years to live in it, right? You know what else is permanent? That big fat check that the government gives me when I say,

well, that I get when I sell the house that the government takes no part of. But again, not a strategy for everybody. I like where you're coming from. That takes ingenuity and some drive, as well. Plus, you have to have a good eye for like porcelain and finishes and whatnot. I don't have that. Well, one of the things that, you know, you mentioned a step up in basis, right, is kind of central to this concept of moving wealth between generations, right? Which is kind of where it seems like we're heading with the show. You know, we have a lot of ways to defer taxes and all that kind of stuff.

Real estate, what that means, basically, is if I buy a property for 500K and I put a 30-year note on it, and 30 years go by, I pay off that note, and the property is worth $2 million. dollars and I set things up appropriately. I die. I pass it along to my errors. They can go and sell the property for $2 million, price at which it was valued at and pay no taxes. If I had sold the property previously, I'd pay tax on $2 million because I would have depreciated the property over that holding period, right? Well, you wouldn't have depreciated it if you lived in it. But yes, if it was, yes, if it was commercial, then absolutely you'd pay taxes on the full amount. So what other assets are along those lines. This is a very effective way, for example, to pass along large amounts of wealth

to the next generation is through real estate. What are other assets that are like that, that have that step up and basis? Any non-qualified investment portfolio, which means any investment that is not in a retirement plan, that is not in an IRA or a Roth IRA or 401ks or 403Bs, if you own it, whether it's individual stocks or mutual funds or bonds or precious metals or commodities or other things, if you own it and it's not in a retirement plan, it qualifies for a step-up and basis when you die. Of course, you have to die to win. It's not, not everybody loves that strategy. No, it's not my favorite. Okay, you made a statement just a moment ago. Your primary residence is not an investment, but your primary residence can still be inherited by your

children at the stepped-up basis, right? It's not only investment plans. It's any or investment properties. it's any real estate that you own at the time of your death? Anything that you own that is not in a retirement plan or in any kind of entity, which for one reason or another would eliminate that. So, for example, you may not want to own property jointly. You may want to own it individually so that the step up is on 100%. Because if a married couple owns it, for example, well, married couple's a bad idea. The two of you guys own a property together and one of you dies.

depending how it's titled, if it's titled as joint tenancy, the survivor of the two of you receives the full property. And you get that half step up in basis. But it's only half. The survivor of the two of you can't then go and sell it without paying taxes on the half that you would have. Does that make sense? What a lot of people do, especially people who aren't related, is they own property as what's called tenants in common. Tenets in Common is where each of you owns, let's say, 50% of the property, but you own it, you own each piece outright and can will it to someone other than the other owners.

So let's say both of you have kids. You could leave your 50% of that property to your own children. That's called Tennis in Common. Now, you have to be real careful because one of you becomes business partners with the other's children, and not everybody wants that. So all joint accounts are not created equal. There are lots of different ways to title joint accounts. There's joint tenants with rights of survivorship.

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Visit northwest registered agent.com slash money-free and start building something amazing. Get more with Northwest Registered Agent at Northwest Registeredagent.com slash money-free. I think this could be a whole discussion is going down into how to kind of these types of strategies and how to figure out how to set up partnerships and all that kind of stuff. Let's see if we can get something a little more practical here. If I'm looking to do this, right, I'm working toward financial freedom. I'm a few years away. What do I need to be doing right now to start taking advantage of these things and thinking,

like, what do I need to go set up right away? We've got, we talked about maxing out the 401K. We talked about the backdoor Roth. We talked about can I set up a 520? I assume you have to have children to set up a 529. No, no, you can set up a 5.29 for your neighbor or for yourself. Or for my children? Or yeah, you could set them up for Mindy's children.

She appreciates that a lot. So why would I set up for myself if I was, and planning to spend it on myself. Could I pass that along somehow? Absolutely. It would pass to another error or generation or someone else. And it would pass with the same character. Absolutely.

So if I don't even have kids yet, right? I'm not even married. But I could set up a 529 plan for myself. Yeah. And then if I were to have kids, that money could then, I could change that so it would go, they would be the beneficiaries. So I can start this right now. Yeah.

I mean, you can go throw $15,000 in a $529 for yourself and it can grow until you procreate, my friend. All right. If that's in fact your plan. Yes, he's going to have eight little trenchlings, he said. Oh, then you better put away more than 15 grand. Each kid will cost between one and two million dollars to raise, so there went fire. People with eight kids don't fire.

Yeah, if I'm thinking about it from like a checklist perspective, right? If I got an HSA and I qualify, contribute there, boom. Like that's a no-brainer. We all are on the same page. And I don't think anyone we've talked to is recommended not maxing out an HSA as long is you've got like reasonable situation with the other personal finances and are working towards this, right? Backdoor Roth is a great tip. 401k is another way to shelter taxes if you have one through work. The 529 plan, if you have kids or are thinking about procreating as we just decided.

Or want to put mine through school. Real estate, real estate can be a shelter way to go about this. What else? What else can I be setting up? Maybe this is time to talk about a little bit of life insurance. We can absolutely talk about that. There are two fundamental kinds of life insurance, term and permanent. Term insurance is rent. It creates no equity. It creates no wealth for you unless you die. And again, it's not death insurance for a reason. It's life insurance. Whole life insurance has a component to it, which has some guarantees in it, which will create cash that you can use during your lifetime. And there are a lot of practical applications, but just from my own personal story, I used my life insurance to buy my first home. I also used

my life insurance to start a company. So the amount at which my life insurance has created to my own wealth building, and I'm still here alive and well, it's still contributed an enormous amount to my own wealth building and done so completely tax-free. So there are strategies involved. They're great for married couples to consider because all married couples have a pay cut ahead, even if they are financially independent. And that pay cut is in the form of one social security payment going away when one of you is widowed. So now you and Mindy are married. Congratulations. I'm happy for you both. You have to raise your children. But you're both married and you're both 62 years old. And in the next eight years, you're going to at some point claim social security and we're

going to figure out when is optimal and yada yada yada. You both claim social security and at 71, you dropped dead. Mindy's still here. What happens to your social security? Well, she keeps the higher of the two and loses the lower of the two. It's an absolute pay cut every time a married couple has a widowhood. So you can use life insurance to offset that. And what you do is you insure both of you because neither of us know who goes first. Usually the guy goes first. We can do a whole show on why that is, but I think it's because we get married and it kills us. But that's a whole other story. But I digress. So nonetheless, if that's the situation, you each own enough life insurance that when one of you is widowed, now Mindy is still alive, she's collecting

the larger the two Social Security payments. She gets the death benefit from your life insurance, but she also has the cash value in her own, which she can begin to draw on with no income taxes for the rest of her life if she chooses. So she can take, let's say, a four or five percent withdrawal. Let's say there's $100,000 in cash. She takes $4,000 or $5,000 a year out of that for the rest of time and it's non-taxable income to her. And again, there's no free lunch. There are always, there are flaws in any plan, but done properly, as long as you never surrender the contract, it's never taxable. And it's like a Roth IRA with a death benefit. And if you do it right, it can build enormous wealth. And that's why we see clients doing that for themselves and for their kids and for their

grandkids. And you get life insurance. It's just like borrowing money from a bank. When do you borrow money from a bank? You borrow it when you don't need it. Otherwise, they won't lend it to you. So you have to get life insurance when you're young and healthy. Maybe I could wrap my head around this with maybe an example.

Can you give me a like who's someone that maybe started this in their 20s or 30s and had a massively positive result of this? And can you kind of walk us to that story maybe anonymously? Well, I'd rather tell you my personal story if you're okay with it. That's worked. When I was 14 years old, my parents bought life insurance for me, not because they were planning on my demise, but because they recognized it was a good tax shelter. Okay?

They bought life insurance for me. And when I was about 24 years old, they transferred it to me. And that is not a taxable transfer. That is a variation of the transfer for value rule, so it's an exception. So they transferred it to me. It became a gift to me that wasn't taxable. That was kind of cool. I then had this insurance policy, which had cash in it. I had the ability to continue that contract or to surrender to do other things. I chose to continue it. And then when I was

ready to buy my first home, which was in my relatively early 20s, now geographically speaking, I bought a two-bedroom, two-bath condo in the Baltimore metro area for $91,000, which is ridiculous to think about. But that's what I did. And it was great. And I used my life insurance for the down payment. So I took $15, $20,000 out of that, bought the house. I later sold that condo for $225,000. And to Mindy's point, paid no capital gains for it. It was a personal residence and so forth. So not only didn't I pay capital gains on the home, I took that and I actually used

some of the gains to repay the life insurance to refund it so that I'd still have all that cash in it. I then started a company in 2003. And when you start a company or an entrepreneur, I'm 31 years old, I want to start a company and every bank you go to will laugh you out of there. You don't have enough collateral. You don't, we're not lending you money to start a company. There's no cash flow. Show us two years of tax returns. Show us two years of your P&Ls and what's your balance sheet look like. I said, well, here's my business plan. Isn't it fancy? MBAs helped with this. And they say, get out of our office

until you've been around two years. So you can't borrow money. So where do you borrow money? I borrowed money from everywhere to start the company. I bootstrapped 15 years ago almost to the day. and some of it was the life insurance dollars that I could use and leverage as collateral. Do you mean if we asked? When no bank would lend to me. How significant was this that was this collateral? Was it like 10,000, a hundred thousand? Oh no, it was about $100,000.

All right. That's awesome. No, it's real money. I may have half a million dollars in cash in my insurance right now that's growing tax-free. So what happens to that? Can you pass that along? Is there a benefit there that can, you know, how does that work? Well, if I drop dead, there's a death benefit because it's life insurance.

Yep. Right. So the death benefit is reduced by any money I've already accepted. So let's say I have $100,000 in cash in the policy, but it's worth $500,000 if I die. If I leverage the $100,000 while I'm living, my death benefit becomes $400. Okay. So you're not double dipping. It's not that you have both. But you are creating that the ability to use your own funds as collateral, no questions asked. And it is a non-recourse type of thing. So you're not making a withdrawal. You're making a loan. You say, well, why? Why in the hell would you borrow your own money? And the answer is because you don't actually make a withdrawal from the account to borrow it. Imagine this. Mindy, you've got $100,000 sitting in the bank and you want to use the money. But you want to ask the bank to continue to give you, say, 5% interest on the money while it's on deposit. Make sense?

Yeah, they don't do that. Why won't they do that? It's still there, right? Until I get rid of it. Until I use it. Okay. Right. So with a life insurance contract, that's the same $100,000.

you can utilize the money and it becomes a lien against the future death benefit. So you're using the money. There's a note against it, but because it wasn't actually withdrawn, it's still earning its interest. So let's say the loan cost you 8%. But the policy is earning five and a half. You just got net two and a half percent money. Now recently, interest rates have been so low that that sounds normal. Well, 30-year mortgage is. are back to 5% now. They're about 4.94%. They'll be back at 7 and 8 and 9%. The house I grew up in was financed at 14 and 3 quarters. It's like buying a house with a visa card. So if you think about it, it is a way to create collateral for yourself. It's a way to never pay income taxes on that money.

And it's a way to leverage it and use it and use it and use it during your lifetime. And then you leave it behind and it's amplified by the death benefit and it costs you nothing. There's no tax. To borrow from your life insurance policy, is that similar from borrowing from a 401K getting a loan from a 401K? Do you have to pay it back at a set time? Borrowing from a 401K is one of the most expensive decisions you can ever make. And in fact, I cannot think of a good reason to do it most of the time. Because what happens is if you borrow money from a 401K, that money actually is withdrawn. It's no longer growing for you.

You're paying interest on it. You typically have five years to pay it back. And you're paying it back with after tax dollars. you have to earn the money to pay it back only to then pay taxes on that same dollar when it comes out. A 401k loan is a disaster financially. However, with the life insurance, you're not actually making withdrawal from the policy. All you're doing is using that policy as collateral to utilize some of the insurance company's general fund. So no, you never have to pay it back. There's interest every year, which you can choose to either pay or to allow the policy to pay. But there's no term where you must pay it back.

If you die with a loan on the contract, then it just comes out of the death benefit at that point. Done right, it is never taxed. How do I get the money? I just call it my life insurance policy and say, hey, I want $100,000? And they send it to you. And it's not taxable. And you can use it. And then if you decide you want to pay it back, you can.

But even if you don't, you're still earning that five or so percent on it while it's borrowed. And you're paying 8 percent typically on the loan. So it's still got a net cost to you. But that net cost is incredibly low. And this is all money that you're paying into the plan. Absolutely. Right. You're paying for insurance as you're doing this.

So the insurance companies make a profit on your premium that you're paying on a regular basis. So you're not like netting more money than the insurance company on average. Well, it's a good insurance company. The insurance company has fountains in their lobby for a reason. They know how to play this game. But the biggest reason insurance companies are profitable is because of term insurance. Because people outlive it and then it goes away. And you just paid premiums for 30 years and collected.

nothing. I mean, think of term insurance like renting an apartment where you get a set rental rate for X number of years. You rent an apartment for 20 years when the 20 years is over and you never had a rent increase. That's great. When the 20 years is over, you have to move. Even if you're not ready to move, it is rent. Now, that's not to say term insurance is bad. I own some, but you have to own it for the right reasons because it's purely rent. So let's transition here and think about, Is there anything else that you want to kind of mention in addition to life insurance? We touched on real estate that wasn't really a big that, you know, I love your comment on go big or go home. Yeah, absolutely.

We talked about 529 plans. We talked about the Roth, backdoor Roth. We talked about HSA. Anything else that you want to kind of cover here before we move into our famous four and close out? I'm excited about the famous five. I mean, four. Here's what I think we ought to consider. Tax diversification matters as much as asset diversification.

So that's number one. And number two, avoid absolutely avoid bad debt under all circumstances. There is no good reason to have consumer debt basically ever. I do not consider a mortgage bad debt so long as it's favorably structured because it's leverage. You have an asset tied to it. But if there's something that's either becoming less valuable a la a car or that set of skis that you just threw on your visa card that you're going to pay for for three years till you've decided you don't ski anymore, those are bad. should never ever have them for any reason. And financial independence is hurt more, I believe, by borrowing than anything. The next big crisis in this country is student loans, hands down. That is a non-collateralized obligation that can't be restructured due to bankruptcy. It is a disaster waiting to happen. And these young people are making huge decisions. They're making quarter million decisions before they're allowed to legally have a Budweiser, and it makes no sense.

I completely agree on that. We can get down that rabbit hole. But yeah, the student loan situation is absurd. And I think that you nailed it with one something you said there, which is the fact that it cannot be relinquished due to bankruptcy protection is what's really driving, I think, this enormous bubble, you know, if you want to call it that in the higher education system and with student loans in general. So imagine the day when a legislative body decides, to change that bankruptcy provision. College tuition drops by 80%. And look how many people declare bankruptcy.

Everybody on the planet. And look what that does to financial lending institutions. Sally Mae becomes the next Fannie Mae. I mean, really, if that ever happens, first of all, if that loan forgiveness or the change in bankruptcy laws were ever to happen, the ripple effect would be massive. You're talking like a trillion and a half dollars. This isn't some small thing.

We've had folks come to our office with as much as half a million dollars in student loan debt. We had a couple, they had put themselves through undergraduate and graduate schools, completely, both of them, completely on loans. They have what is like a $3,500 a month payment for 30 years. That's a nice house, but there's no house. Yeah, I'm completely on the same page here. I think that the question is not if it's when you can declare bankruptcy to get rid of student loan debt because too many people are going to, you can't have indentured servitude or slavery, you know, in America.

So at some point, that will change. I don't know how it will work or what it will look like if they use the word bankruptcy or not. And you know, you can declare it. But somehow portions of those are going to get forgiven and people are going to stop lending to people. Somehow the debt can go away and things are going to change. I think it's going to be a very scary and interesting situation. Yeah. And the fact is we all see it coming and none of us know what's going to happen.

Yep. or how or exactly when. We just know it's big. Yeah. So until that happens, though, we have to deal with these student loans the way they are. And we have an episode coming up in a few weeks where I interview a guy named Zach Gautier. I really hope I said that right. It's a French last name I'd call him Gautier, but I know he doesn't pronounce it that way.

He is going to tell us all the things you can do at the different levels of your child's education to start planning for student loans and student loans. student scholarships to help reduce that burden to begin with. Yeah. But that's not this show. And one more plug there as well. We also interviewed on episode 41. We episode Kyle Mast.

And he had some great tips about how to navigate very, very large amounts of student loan debt. So if you're a doctor with hundreds of thousands of dollars in loaner, you know, just clearly have a situation where you cannot really recover from it. It's not like 30 grand. That would be a good one to go listen to. And he's got a lot of great tips around that. Yep.

And all of these links will be in the show notes at biggerpockets.com slash money show 54. But now it is time for the famous four questions. These are the same five questions or four questions and a demand that we ask all of our guests. Eric, what is your favorite finance book? My favorite finance book is called The New Financial Advisor by Nick Murray. And the reason that I love it so much is because it is not only a blueprint for financial success. It's a blueprint for financial success for financial advisors. And it became a really interesting read for me when I started my career 25 years ago.

And to me, it's still as practical today as it ever was. Awesome. That's not one that we've had before. But I don't know, Scott, have you read that book? I'm not a financial advisor. No, I haven't read that book. But it sounds like that could help anybody, even if they're not a financial advisor. Yeah.

In any business, particularly if you're building a business that has the potential for recurring income, recurring revenue. It's a model for that. And it's a great model for. Love it. All right. So what was your big, what was your personal biggest money mistake? Wow. There have been so darn many. How do I, how do I pick one? No, I think the biggest financial mistake I ever made was divorce. It's one of the big uglies. When you go through a divorce and you lose half or more of your assets and have to start over, that's hard to recover from. And I think a divorce is a little bit like a death in the family that keeps dying. What is your best piece of advice for people who are just starting out?

Best piece of advice for people just starting out is to immediately, immediately start putting away at least 15 cents on the dollar you make and avoid adverse debt and stick to it. And don't ever listen to the financial news or financial media, traditional media at all, because you will be on a roller coaster you don't need. It's not good for you. Yeah. I mean, I think that's fundamental. Start saving a bunch of it.

Yeah, I mean, it's boring, but it works. And time value money's on your side when you're in your 20s, so why not? And that and avoiding, avoiding knee-jerk reactions, understanding the behavioral finance portions of it and monitoring your own behavior in emotional times is real, real important. Yeah, I was going to say, don't listen to the financial media is a very, very important part of that. So on Facebook, you scroll through and people are like, oh, I'm buying, I'm buying, I'm buying, and buying. then when the market dips, just this massive catastrophe, oh my goodness, what am I going to do? Leave it. Well, and unfortunately, we are wired. We're hardwired to do exactly the wrong thing at exactly the wrong time.

Some of its biological basis of behavior, which is a whole show in itself, and you ought to have somebody on for that. Daniel Crosby would be a great guest for you, a PhD who writes about behavioral finance, amazing guy. In fact, a great finance book is anything he's written will help you understand why people do what they do, not just what they do. But in my opinion, we are our own worst enemies when it comes to this. And the world deserves better than Jim Kramer and Susie Orman. And I think I'd like to participate in that.

Oh my God. I have nothing further to say about that. Scott, you're up. What is your favorite joke to tell at parties? I try not to tell jokes at parties because I'm profane and offend people very, very quickly. And I actually heard your last episode somebody you had to tell the joke for somebody. and it was like a parent joke. It was so clean.

I actually don't have one. I try not to tell jokes because somebody somewhere is going to get upset about it. Okay. My friend. You can't not offend somebody anymore. So I try not to. My friend Eric Otto has a joke for you. What do you call a deer with no eyes?

What? No idea. Okay. See, you could tell that at a party, but I encourage you not to. Not if you want to be invited back to those parties. I wouldn't tell that at a party. my friend Eric's joke. Okay, fair enough.

And he's not at the party anymore. I get it. That's fine. I see. It was a birthday party for a three-year-old. There you go. Yeah, that's fine. Okay.

Eric, where can people find out more about you? Two spots. One is at our company website, which is at brotmanfinancial.com. And one is, if you want more information about these tax deferral strategies, I published an e-book. It's free, a free resource, and the website for that is lowtaxbook.com. And you can download it, and it has all kinds of information about those strategies, including personal stories and ways to lower your tax bill right away. Awesome. We will link to those in the show notes. Again, you can find those at

biggerpockets.com slash show 54. Eric, thank you so much for your time today. Happy New Year. And we will, I'm sure, talk to you again. I hope so. Happy New Year to you. This was a ton of fun. Take care. Yes, it was awesome. Thank you. All right. Yep. Bye-bye.

All right. That was Eric Brotman. What did you think, Mindy? Oh, my goodness. Knowledge Bomb after Knowledge Bomb after Knowledge Bomb. I really enjoyed this episode. I love the energy he brings. Clearly he's passionate about his topic.

And, you know, just breaking down all of those ways to shelter your income from taxes, to defer your taxes, to completely eliminate your taxes. It's just very, very helpful. I pulled a Brandon Turner. and asked personal advice, but that's why I have my own podcast. Yeah. If you want to ask personal advice, go get your own podcast. No, I thought it was great.

I thought you can leave here with kind of like a couple of kind of steps that you can take to really maximize the benefits in terms of your tax strategy and overall long-term wealth planning plan. Again, HSA, we talked about how you should max that out if you have one. And, you know, obviously this is all if you have your other basis covered, right? You've got a strong financial position. You're scaling towards financial freedom. then start doing this, take care of business ahead of time, you know, pay off bad debt,

all that kind of stuff. But if you're there, you know, consider maxing out that HSA. Consider maxing out that 401K. Consider to making the backdoor Roth contribution, which I got to look into. I really haven't thought about that nearly enough and really kind of need to take advantage to that. It seems like a no-brainer at this point for me. The 529 plan, not sure I'm going to do that entirely in advance of what we called

procreation for future trenchlings that are unborn, unconceived. But that is a great way to talk about. And then obviously with real estate, we've got some tax advantages there. I liked what he said about don't dabble in real estate investing. I think that there's some wisdom behind that. I think that, you know, if you're going to buy one property in your lifetime or one or two duplexes and get $400 a month in cash flow and your plan is to earn six figures for the most of your career, that portfolio is going to be much more of an annoyance to you than a real contributor to your long-term financial position. So I, you know, I buy consistently and aggressively. I think that there's some thought to be put into that

statement. And then I'll have to look into more whole life insurance stuff. I thought that was interesting. I haven't really considered it from that angle before. Yeah, I haven't either. And back to the real estate thing really quick before we jump into the whole life. I really do think that what he's talking about, real estate in little piddly amounts can just be a distraction. Because when you have one property, you still have to deal with the tenant that's terrible if you've got a tenant in there, whereas if you've got a whole mess of properties, one terrible tenant doesn't just ruin your whole day. So I think that's a really great, that's a really great piece of advice that we don't hear very often here at bigger pockets, money. But it's, you know,

it doesn't make it less valid just because it's not the most popular opinion. If you want to invest in real estate, jump in with both feet. Smartly. And I think if you're listening to this show, obviously one, one component of your future portfolio, I think, is probably going to be real estate. You're here on bigger pockets. You're thinking about that as at least one of the techniques that you may use in your portfolio as you build wealth every time. But I also think, you know, hey, it's perfectly fine to not use real estate at all and build a huge fortune. You know, there's a lot of ways to do it that you can go about it. And I think that it's really not the best place to dip your toe in the water one time ever. But I think there's obviously

huge benefits to doing so if you dive in. Otherwise, it would be here. I totally agree, but I also agree that real estate can and probably should be a large portion of your portfolio. It's about 50% of mine. And I'm okay with that. Me too. Okay, Scott, shall we get out of here? Let's get out of here. Okay, happy new year from the Bigger Pockets Money crew, Mindy and Scott.

From episode 54 of the Bigger Pockets Money podcast, we're gone.