BiggerPockets Money Podcast - The "Middle Class Trap" Is Real—But We Need a Better Name

Episode Date: July 24, 2026

What is the Middle Class Trap, and how can high earners avoid it on the path to financial independence? In this episode of the BiggerPockets Money podcast hosts, Mindy Jensen and Scott Trench explain why maximizing income isn't always enough and how smart tax planning can dramatically improve your after-tax wealth. They explore how strategies like Roth conversions, maximizing your 401(k), and thoughtful tax planning can create more flexibility in early retirement. Along the way, they explain how real estate, liquidity, and focusing on your after-tax net worth can play a critical role in reaching financial independence. Whether you're pursuing FIRE or simply want to retire with more flexibility, this episode offers practical strategies to keep more of your money and build lasting wealth. To go beyond the podcast: Kick start your financial independence journey with our FREE financial resources - https://biggerpocketsmoney.com/ Subscribe on YouTube for even more content- www.youtube.com/biggerpocketsmoney  Connect with us on social media to join the other BiggerPockets Money listeners - https://www.facebook.com/groups/BPMoney We believe financial independence is attainable for anyone no matter when or where you’re starting. Let’s get your financial house in order! Learn more about your ad choices. Visit megaphone.fm/adchoices

Last week, my episode with the Money Guys came out. Actually, mine and Carl's episode with the Money Guys came out. And in the beginning of that conversation, I said that Carl and I had fallen into the middle class trap. And that sparked quite a bit of discussion in the comment section of that video, with some listeners agreeing and others questioning whether we were using the term correctly. So today, we are going to unpack what I meant, whether the middle class trap is still a useful concept and whether you'll be hearing us use that phrase going forward.

Hello, hello, hello, and welcome to the Bigger Pockets Money podcast. My name is Mindy Jensen. And with me as always is my not middle class or trapped co-host Scott Trench. Thanks, Minnie. That was a great socioeconomic intro. Really appreciate it. I'm excited to talk about this today. It was an awesome episode. And the money guys were really, really fantastic. I mean, they both did a great job. But Brian in particular was just outlining the tax advantage he was proposing from a Roth conversion strategy, and he just crushed it. It was so eloquent the way he described it, you know, talking about, you know, or in today's tax code, you know, smoothing out the tax brackets. I was listening to the episode. I couldn't see the YouTube for that particular part, and it was just so clear the way he visualized

it. I mean, they just do such a great job over there at Money Guy. But the top comment was, ah, yes, the $10 million middle class trap. So I think we have a problem. with this terminology as it applies to your situation because clearly $10 million is top 1% or very close, almost certainly top 1% for your age bracket. And it's not a middle class problem. This is a high achievers, as they called it, or a larger problem. Yes. I like somebody said, oh, this isn't the middle class trap. This is the achievers trap. And then somebody else chimed in, do you mean the blind achievers trap? They should have seen this coming. So all valid comments. When I said that Carl and I found ourselves in the middle class trap, the middle class trap in air quotes, is a phrase that Scott and I have coined, which describes a situation where you have done everything right. You're contributing to your 401k. You are not paying down your super low interest mortgage if you don't want to, et cetera. But now the bulk of your net worth is in your pre-tax accounts, in our

our case, the pre-tax 401k, and your home equity. And this is true. The numbers are not middle class, but the middle class trap, as I just described, is exactly what we find ourselves in because the bulk of our net worth is in our 401k and our home equity. And yes, we do have money in our after-tax stock portfolio. We do have money in our Roth. But where this, This quote unquote middle class trap comes to hit us. And the whole reason we wanted to go down and chat with the money guys in the first place is in the future. We have RMDs that are sitting there just waiting for our 401K to continue to grow so that they can come and snatch out a lot of money from the 401K. So we want to avoid that as much as possible.

The reason why this term, the middle class trap, aside from it being, you know, perhaps incorrectly applied to a $10 million portfolio, is so controversial is because people are right in a general sense that an optimal approach to financial independence often involves maximizing these pre-tax accounts, firing and stopping working, and then harvesting them in lower tax brackets. And that works for a lot of people. I mean, that's a real appropriate strategy. And where it doesn't work, though, is a-

is when you overshoot that fire number. I think that this really triggers a good section of the financial independence community. And I got no problem triggering that section of financial independence community because they're wrong to be this dogmatic about what's right and wrong, right? For a person who's going to retire at 40 with a one and a half to two and a half million dollar portfolio, stop on the nose and begin withdrawing at zero income at that point. They're absolutely right. You should max the 401k the entire time or as much as possible and begin withdrawing, and you're going to be able to do that for a good chunk of that, right? You're going to have a heavy balance there, but you're going to be in those low-income tax brackets, and I think you're

going to get that arbitrage. I'm going to argue if you retire at 40, how are you going to get into your 401k balance, Scott? You do the Roth conversion strategy or your 72Ts, right? You can do that, right? As long as you have some balance, you know, it can't be literally everything in there, but as long as you have some balance in your tax broker, you're going to be able to do that. And And there's a real case to be made that it is tax optimal to go that traditional route and then pull it out at lower tax brackets after retirement. I completely agree with that. And to me, it's not really a debate in that sense.

But I want to get to the debate point here because it is too rigid for people to just say, max out the 401k at all costs because it's not how life works for a huge percentage of the people who listen to Bigger Pockets money. Okay. So you just outlined two strategies, the 72T and the Roth conversion, assuming our retiree is age 40, the 72T is less enticing because you have to take that for a minimum of five years or until you turn 59 and a half, whichever is longer. So your 40-year-old retiree is signing themselves up for a 19-year 72T. That's going to be more of an issue. The other option is

the Roth conversion. And when you convert to a wrong, that money is not available for you for five years. So a 40-year-old retiree still has a five-year gap between when they can access their Roth converted money and also I don't think is a good candidate for the 72T. But like you said, having the money in an after-tax brokerage is great. Again, I wanted to highlight what happens when you max out your 401k. I'm 53. I've been maxed out my 401k since I was like 24. Well, actually, okay, I didn't have earned income for the eight years that I was a stay-at-home mom. But other than that, and Carl has been maxing out his 401k for the same amount of time. So that's a lot of money that's sitting in the 401k. We also have after-tax brokerage.

We also have some Roth money. But if we would have been a little more forward thinking, when I started at Bigger Pockets, they had a raw. 4-1K option. I think that would have been a better choice. And another comment in that video, Scott, was somebody saying this really highlights the importance of having a financial advisor or having a CFP or a CPA look at your specific holistic position so that they can make suggestions. I have always been under the assumption that a financial planner just helps you with your investments. I don't need any help with my investments. We're doing it. okay. But that's not all that they do. They also do tax planning. They also just are a wealth of

this specific knowledge and they can help you look at the bigger picture. You know how the change in seasons hits and suddenly you just want to declutter the garage, clean out the closets and get everything all organized? That same feeling hits me with my finances every spring. I used to have accounts scattered everywhere, making it hard to stay on track with my money goals. Let Monarch do your financial spring cleaning for you. One dashboard that gets your entire financial life organized. No more clutter, no more mess, no more scattered logins, just accounts, investments, property, and more all in one place. One thing that really surprised me was pulling up the cash flow view and seeing what percentage of my income was quietly going to lifestyle creep. Dining out and

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products, but life insurance isn't one of them, at least not term life. For the vast majority of you listening, term life is simply the right answer. And the smartest way to buy it isn't one big policy, it's a ladder. Your need for coverage isn't flat. It declines over time. You've got a 30-year mortgage, a couple of young kids, maybe a spouse, mid-career. In 15 years, the mortgage is going to be smaller and the kids are almost launched. So instead of buying one giant 30-year policy you'll overpay for, you stack a few, say a 10-year, a 20-year, and a 30-year layer. So your total coverage steps down as your actual obligations step down. You only pay for what you actually need when you need it. Ethos is a platform that helps you find life insurance 100% online. You can get a quote in seconds

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You know, we're not some of these other shows. We are creating this show to help people who want to reasonably aggressively pursue their version of financial independence early in life. We presume that many of the listeners here want to retire in their 30s, 40s, 40s, or 50s, and get there very rapidly. Some, some want to do it in their 20s in there. And for that population, you're going to have a high savings rate. And I think that there's a real possibility that a third of you listening are going to want to start a business or continue working in your version of early retirement or financial independence. Another third are going to be open to it.

And a third of you don't want to do anything after you retire and have no intention to make money at all. And so the pure phi strategy of maxing out the 401k throughout your career and then retiring and stopping earning money and really being in that lower income tax bracket, I think the deferred approach works really well for that cohort. That's not arguing that that's not an optimal approach. I think I'd recommend that approach for many of that group because the 72T is less impactful for that group because they're locking themselves in correctly because that's their goal to that level of spending across that entire duration. And they're likely going to need a fairly low income, so they're not going to come close to those magi cliffs for ACA subsidies, that kind of stuff. And or the Roth conversion works because, again, we have a very long-term worldview. We knew we're going to work.

We knew we were going to stop and we knew we're going to spend at this level for the rest of our lives. I think that's not for me. That's not for a lot of people. I wanted flexibility that expanded across my lifetime from age 25 to at age 30 to age 35. And that's why I prioritized the brokerage account first, my after-tax position first, my house hacking and that kind of stuff, because I thought. thought that would give me options across my life. And then after those first three to five years, I started maxing the 401k. And that has produced those options for me. And I think the advantage I see now

that I didn't see at 25 when I was doing this approach is that I'm probably going to continue to make money through various ventures. I got real estate. I got, you know, I continue to do this podcast. I may advise companies in the future. So that income would make it very hard for me to do Roth conversions or 72 Ts or those other types of things, right? How many people have we talked to Mindy who have a spouse who continues to work while they're living the financial independence lifestyle? That's going to make it hard to do 72T, right? That's going to make it hard to do, you know, a Roth conversion in those instances. And you can argue that that's a good problem. And there's just padding the win and it is. But it also creates this feeling of trapped liquidity

that constrains your thinking. And that money is really not as easily accessed as we thought. You can pay the taxes, but I find that that to be very rare in practice. And I think the advantages of liquidity are great for a much bigger portion of the financial independence space than I think the purists who have their tax-deferred account, tax-optimized approach would argue. And I also will posit that this is like kind of semantics here, right? So even if you dig through and just pay to taxes in various points, you're not really talking massive percentage differences in post-tax net worth,

regardless of which path you choose. You're talking about much more muted outcomes because it all is getting taxed one way or the other and you're just arbitraging these brackets. In some cases, it can be really big, but in most cases it's actually not like this huge outcome. Your girls are getting a big inheritance if you go option A and they're getting a big inheritance if you go option B according to the plan that we talked about a money guy. Yes, you're not wrong. I do want to say that plans change. So in the beginning, 13 something years ago, when Carl and I first discovered, this concept and started working towards it, our plan was he was going to retire. I wasn't working at the time. I was raising the girls. We're going to retire and then we're going to live off of $40,000 a year

forever. And then I became a real estate agent. And then I became kind of a successful real estate agent. I sell as many houses as I want to. We have a lot of income currently. Some of our investments took off. And then some other ones took off. And we have had a lot of success. So our plan completely changed. And like, I think that that's something you got to be open to as you go down this journey, right? You might win. You might not be dependent on winning. But if you might win, that's going to change the tax calculus to some degree if you factor that in as a probability assessment here.

And I think, you know, at the point that you're talking about Roth conversions and you're needing to do that even while you're continuing to earn income because you're still going to have an RMD at that point, then you know it's time to stop digging. So if we can concede that point by stop digging by continuing to contribute to the 401. And so if we can concede that point, then yes, there comes a time when we've over-contributed to the 401k by definition, and we should have stopped before then. And if we can concede that point, then we probably shouldn't have contributed to the 401K earlier in our journey when our income was at lower tax brackets. That's my argument there. And I'm very happy with my decision to not max it out for the first few years. Again, this is not like, don't max out the 401K. It's like there's a prioritization here about going through this tax advantage to stack.

I think that that liquidity building that first after tax provides that whole lifetime of optionality at the lowest opportunity cost from a tax optimization standpoint. That's my argument. And I'm standing by after all this time for many. I think it would be a very interesting exercise to look at what our obligations would be if we had been maxing out a Roth 401k over the last 10 years. But then also I don't want to do that math and be like, ugh, because I can't go back. can change it. So what's the point? And again, this is not a middle class. The middle class trap, I think,

is polarizing, and we're kind of stuck with it a little bit here. We called it the Lafoth, the liquidity first optionality framework, and that is not caught on yet. So the middle class trap, I think we're kind of stuck with for a little bit here. But the Lafoth, or the middle class, it's a problem that begins when you're in the middle class, right? So many, households who are doing everything right with money in the middle class contribute, and then 10, 20 years of discipline saving go by, and you're no longer middle class, but your wealth is locked up pre-tax. And unless you stop earning money and actually five, which some people want to do and some people don't or the life looks different at that point and they're not sure, then it's

actually quite hard to access that money. And that's where the challenge comes from why people feel like they got hundreds of thousands of dollars or even maybe a million bucks in net worth, but still feel like they're stuck in their day to day. That's a real feeling. This is not like, you can debate whether it's technically you can access it or not. No, this is how people feel, millions of Americans in this country feel. And so the challenge is, what do you? you do there. And again, my, my first point is stop digging for a little bit to build the balanced portfolio across these different accounts. Yeah, we have stopped contributing to the 401k. Another point here, Mindy, is Bo had a really good point in the show with the money guys where he said,

you know, this is casually thrown in there in like minute 32 or something like that, where he was like, you know, at today's tax bracket, you're going to have this, this amount of tax liability here. And I think that that sentence is doing quite a bit of work in your situation because I believe that Uncle Sam, one day the political spectrum will shift and voters will come after the Jensen's 401K. That's an easy target. What do you think? Am I being too hyperbolic with that statement or is that something that you worry about? Not at all. If you look back and take politics out of the equation, if you look back to 2020, the government wrote checks to every American or almost every American for a while. Those checks need to be cashed. We're in a...

a deficit, then we're spending money on upkeep and upgrading the DC area. Those checks need to be cashed. There's all of this money that's going out of the government that will need to be funded, because you can't operate at a deficit forever. I mean, contrary to government spending, somebody is going to have to pay for this. And I hope I'm not the only one that's paying for it. But I absolutely believe that tax brackets will go up in the future. Maybe not the next administration, maybe the administration after that. But tax rates are going to have to go up because it's not sustainable the way that the government is spending right now. Let's talk about some of the things not covered in the money guys show.

They had a great advice with the Roth conversion here. But I want to call out, I don't know if you're going to do this, you and Carl, but I want to call out that real estate, I think, is a potential lever in your. situation that we can pull to get out of this, this particular track. Now, there's pros and cons with this, but I think that in your situation, let's say that you had rentals, right? You had my portfolio rentals. The year of the Roth conversion would be a very good year to be particularly active as your real estate agent in your real estate business, if not earning a lot of income, at least, you know, doing a lot of hours to get your real estate professional status. And then that's when I would hire the cost-sag person and run a big depreciation year across all the portfolio,

including anything I bought in that year. That might generate a nice big loss. That would be really compatible with a big conversion event in the portfolio. So either a real estate purchase or just using that one-time big tax hit to take a big loss and then still go up to the 22% bracket through the 20% sprint back with a conversion.

That would make a big dent in a rollover like yours if you're willing to put in that year of work. That might be more than several years of salary for many people if this has been a lifetime and accumulating it. What's your thoughts in response to that as a tactic not discussed on money? guy, but maybe appropriate here on Bigger Pockets Money. Hey, Scott, you want to sell me your portfolio for a couple of years?

Gift it, depreciate. Yeah, I think then we'll have a real talk with the IRS. That won't be fun. Yes. That'll make a great podcast, though. Yeah, live from prison. Bigger Prison podcast. Yeah, the Bigger Prison podcast.

I had a conversation with Carl about this. Like, hey, here's an idea. And he said, I don't want to own real estate. I don't want to put in the work. And I'm like, well, hold on, you won't have to. I'll have to do all the work. And he's like, I don't want that. We're trying to simplify our life.

And that is not simplifying our life. And ultimately, I think that we have decided that we are just going to near the end of November or December of every year, look at our income streams for that year, look at what we own and Roth convert up to the top of whatever tax bracket we're in and just say, we saved all this money when we put it into the 401K and now we have to pay because I do appreciate having roads to drive on and having public services. So, you know, that's kind of nice, not driving down dirt roads all the time. Another conjecture here is if you have a self-directed IRA, which I know you do to a certain degree. And you have private assets, like a syndication investment or a hard money

note or a private company investment that is illiquid at this point. And you get those revalued. They may be valued at a lower basis than what you invested in them. And you can then use that in your Roth conversion years. And if, for example, the loan is valued at something less than it's par value or repayment value, the principal balance, and it gets paid back into your Roth, Now you've exhibited a larger Roth transfer. So that may be another item there is if there's a component of your portfolio that's going to be in these kind of alternative assets or syndication space anyways, it might make sense to do that in the 401K and then consider, you know, hire somebody to value this.

This is a kind of real technical tax challenge here. But there may be an opportunity to roll those over at a favorable valuation for you that results in less taxable income in the year of the rollover. So that is an idea that you floated to me, Scott. And I thought, that's interesting. I need more information. So I went over to Long-angle. I asked in the Long-angle group.

And I was actually surprised I didn't get a ton of responses on this specific, very niche idea. So I've got to do a lot more research. But again, when I floated this idea to Carl, he said, that doesn't sound like we're simplifying our life. And I believe this is a huge red flag for the IRS. Yeah, you got to definitely hire professionals and do this by the book. But like you have that impulse company, right? This rocket company with the guy who's only worth $50 billion because he didn't own SpaceX or whatever.

That may be a candidate. I don't know. But that may be one of those things you'd ask your tax pro about whether that is you already own it. So if it was in your 401k, you would just value it and say, hmm, okay, it's valued here. Let's roll it over this year if we're going to do the Roth conversion. Yeah, I think that's in a special purpose vehicle and you can't sell it. like I couldn't transfer it over. But that is something that I really wish we would have put in a Roth account.

We did make two SpaceX investments pre-IPO and one of them was in the 401K and one of them is in a Roth IRA. And even like to jump through all the hoops to get it into the Roth was kind of annoying, but I'm glad we did that. Okay. So it sounds like Mindy's going to pay the tax man. Thank you for your contribution to the national debt here. I think the Roth conversion up to those brackets is absolutely the right answer from the money

guy. in your situation there was looking for those other opportunities. Doesn't sound like they exist, but those are areas I would be poking around in. If I were in your situation because I own real estate, I'd be thinking, can I use the one-time benefit of that cost saying to offset me in a particularly advantageous year? Yeah. And these opportunities do exist. We don't want to take advantage of them. Of course, yeah. So let's talk about another component here, because I've been talking to real estate investors, and I think that this middle class trap, we're going to call the Lofof, the liquidity first optionarily framework also applies in the real estate investor world. So I don't think you get a free lunch either way. So here's here's this concept. Right. I've talked to a lot of investors. How many investors you talk to that have like three to five properties that are levered with like a three percent interest mortgage fairly lightly, let's call like 50 percentish in that world. And they're not really producing that much cash flow. It's not nothing. It's certain it's positive. It's not really draining them. But it's it's not really like that meaningful relative to the rest of their financial position. And they're kind of stuck in the portfolio because if they were to refinance and

bulk cash out, they're going to take their 3% rate and swap it for like a 6, 6.5% rate. If they 1031 exchange, they're going to have to do the same thing and get new debt. Otherwise, they're going to pay taxes. So they're kind of stuck in this portfolio. They also have the same problem in the 401k wealth situation where there's a lot of wealth on paper and now accessing it and actually spending it on my life, I have a tax navigation challenge for this. And so I have a framework here for getting one property, which is you cost seg, the other

ones, you clean up your losses from the past few years. and you use that in the year you sell your loser in the portfolio and harvest that cash. That gets you out of one. But I think eventually you have to pay the tax man here, too, unless you defer for the rest of your life and then your heirs inherit the property at stepped up basis, which is what some people do, but not for me. I would like to enjoy the wealth or have access to it to some degree. That's another problem, I think, in the space here.

And I think the hard answer I have, aside from getting out of potentially that one property with a relatively low tax bill, is you've just got to stop digging there, too. You can't keep buying properties with max leverage and then, you know, cost-saving them and taking the tax benefit in year one. Or you're going to have a huge net worth on paper. But if you were to if you were to compete your after-tax net worth, it's not nearly as big as you would talk about. I actually talked to a listener a while back who had this problem. And this person had a well north of $10 million equity position in these rentals. But we computed as like if after sales and after tax and depreciation recapture, if you were to liquidate this portfolio, your net worth closer to $5 or $6 million, which is still great.

It's a wonderful outcome for real estate, but it's not the same as what your actual after-tax wealth is. And I think optimizing for that after-tax wealth past a certain point, maybe that should be reframing the goal. That's the new goal that we have after we've clearly hit our five number is, no, I'm going to start maximizing for post-tax net worth instead of pre-tax net worth and going after that. Yeah. So anybody who owns a property that they no longer want to own should sell the property regardless of the interest rate. I don't think it's that simple. I think it's that simple. If you have a property, Scott, let's say one of your properties is just a dog. It doesn't generate much income. You've got the super low interest rate, but it's always filled with problems. You just can't get a really great tenant in there. Everything breaks. It's just a headache and it takes too much mental space. Get rid of it. You don't have to own it just because it's a 3% interest rate. I agree, but the problem is at what price do I get rid of it?

right so that's that's the issue right it's like life is not as simple as get rid of the things you don't like if i could part with this property at 400 i do it right now but at 330 i'm not parting with this property because it's worth more than that and it's worth more to me than the next buyer because i have that debt on that property and that becomes the problem so like my this property is a pain in the rear i would love to sell out this price but below that price it's better for me to keep it and i think that's the real issue that hangs up a lot of real estate investors and i also think that think that the tax, but the tax thing is another thing that they have in the back of their minds, but haven't quite modeled out in all cases if they were to sell it in that year.

That's where this example is me saying, yeah, I totally hear myself saying this and I should just sell it, sell, you know, the stocks and be done that I don't want to own anymore. You know, do the Roth conversions and then sell after tax stocks to fund the tax sale on the Roth conversions. You're right. It's not that simple. I make it sound so simple because I I currently own zero real estate that isn't primary residences. And I say primary residences. I'm building my new primary residence. I live in my current primary residence,

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Like, I got this one property, Mindy, you know this one. You actually helped me list it and I tried to sell it. And we couldn't get interest in the property, you know, at the price plate. We could have lowered the price and lowered the price and lowered the price and sold it. And it was like, no, we're not going to do that because it's not worth it. And so we put it, tend it in there. It's cash flowing and comes back. It's still kind of a pain in the rear.

this particular one, but it wasn't worth it for us to sell at the price that we probably would have had to trade it at in there. So we'll just relock, reload. We did the work to get the property back in shape, put the money in, and now we're going to ride it for a while. And I think that was the right answer in there. You know, it wasn't as simple as just sell it. Would you advise us to take a $100,000 price cut to sell it? If you don't want to own it anymore and you need to sell it. At this price, I would have rather sold it. At this price, I'd rather keep it. So why is there the disparity between what you think it's worth and what someone's willing to pay for it? It's what it's worth for me to sell, right?

So what it's worth is what someone will pay for it. So it's worth less than my asking price, right? But to me, it's worth more because I have a low interest rate debt on it. If I were to take the money out and 1031 exchange it into another property, I'd get a worse deal. Even if I got a better deal on levered, I'd actually have a worse property that I'd own because of the debt, the debt difference I'd have. And it's not worth it to just sell. A simpler way to explain this is we've got this house in this family neighborhood. And there are people that, they're empty nesters now.

There's no kids in the house. And they still live in this neighborhood. And there's no real reason to live in this neighborhood if you don't have kids. I mean, it's good. It's a nice neighborhood, but it's not. I would imagine many of them would have moved on. But they can't because for them to downsize, they would have a higher payment on the new place that they're buying because of the mortgage rate. If they were to downsize, they have more rent than their current payments plus maintenance costs because of the way the mortgage lock-in works.

Yes. And I remember one of our former co-workers at Bigger Pockets was locked into a similar situation. She didn't need as big a house anymore. And she couldn't move to a different house because it would just cost her more. So she's just staying in this big house. Bringing this back to the middle class trap, the liquidity first optionality framework, this concept of I'm wealthy. I'm building wealth, but it's pre-tax. I need to harvest it. And in real estate, I'm going to probably have to do that in one big shot, right, selling the problem. property, that's going to trigger my gains unless I 1031, for example. And in the 401k, we can do it with Roth conversions up to a very specific amount. So the 401k has some serious advantages in there. The real estate investor's advantage is that I've got these, this dry powder in offsetting my tax bill, at least in the real estate sense, especially if I'm going to go into the real estate professional status, where I can run those cost sags or that purchase in the most advantageous year. And then I can manipulate my tax brackets. I can stay in that low-income tax bracket in the year when I have other offsetting income and smooth out that ride. And I think that's the

right answer is it's not a formula. It's knowing where my dry powder is from a tax perspective and using it in the right time periods that are the best guesswork. And my bias, and I think this is where people disagree very reasonably with me is my bias is to pay the tax man earlier in life rather than later in many of these cases. I especially want to pay this when I'm in the 10, 12, 22, and 24, even in the 24% tax brackets because those are relatively speaking, if things go well, I may find myself many years above that. And so I'm actually happy to pay those in those brackets for my situation personally and would rather do the Roth or the post-tax stuff for that. And so I actually did max the Roth most of my years. Yeah. And that will probably be the smarter choice for you. The Roth 401k

specifically at work. Yes. So Mindy, after this conversation, does the middle class trap still exist? Yes. And I am going to say that based on the commentary. I am not going to call myself middle class, although I have been middle class my whole life, so it's hard to make that change. The middle class trap, as we describe it, Scott, still exists because there's so much personal finance content out there saying get the match, then contribute to your HSA, and then continue maxing out your 401k. That's like top of the list of almost everybody's financial order of operations. And I think that people need to really look at their specific situation and ask themselves, is this the right choice for me? Based on what you said,

Scott, you think you're going to have higher income down the road than the Roth now is probably a better choice for you because your withdrawals from your 401k stack on top of whatever income you have. Ten years ago, I didn't think I was going to be such a successful real estate agent. And now I am and I can't go back and change to a Roth designation 10 years ago. I completely agree. I think this problem exists. The middle class trap is the wrong term to describe it. We need a new term. I don't think we're going to come up with that term today here on Bigger Pockets Money Podcasts. I think we should crowdsource this. Please go to YouTube and tell us what the name for this problem ought to be. Something catchy that we can refer to it as and then go up the one that you like the best in the comments section here. And we can go with that. I would love to remove the word trap from it. And I'd love to remove the phrase middle class and replace it with something that is. is post-tax network, those are the themes I want to go with because it's a real, this is a real issue facing lots of people. And you're just wrong if you think that this doesn't exist. And like it does. It's clearly a problem for people that have this. And it is

dependent on your worldview. So it doesn't exist if your worldview is I'm going to retire with a million and a half dollars and withdrawal at zero percent, effective almost zero percent rates by using the standard deduction and the zero percent long term capital gains tax bracket and pay very low taxes, then you're right. It doesn't exist for you, but it exists in a very real sense for other people who are not going to follow this prescribed early retirement path where they're truly withdrawing their portfolio entirely with no other income. And for those people, this is a real problem, how we move from pre-tax to post-tax efficiently in a way that gives us that optionality early in life instead of at a traditional retirement age. And so we're going to ignore

you if you tell us this exists, because it does, the thousands of people that have said this exists, but we will acknowledge where and when it doesn't apply and how to think about it, because it's different, different concepts. Yeah. Is it really a trap? No, but middle class conundrum doesn't sound so catchy. The middle class conundrum. The middle class head scratcher, the middle class problem that isn't really a problem. Optimizing for post tax network. That's the goal that we want to do here, I think, in the financial independence world, reasonably early in life, right? So we can spend it on the things we want. I did. like the achievers trap that someone said. But I would love to hear from other people. Let's see if we

can crowdsource, like you said, Scott. Let's crowdsource a really awesome new name for middle class trap. Let's do it. All right. Scott, this was a lot of fun. Thank you so much for chatting with me about my episode with the Money Guys. If you have not watched the episode, please go back and watch it. I got some really great information. There's a lot of tax planning and tax strategy information in there for people at any net worth. And it was really a lot of fun. I learned a lot. Carl learned a lot. We had a ton of conversations after we finished recording. It was a really, really great episode. So definitely go back and check that out if you have not yet. All right. The end of this episode is now, but we have a website filled with information for you.

Go to biggerpocketsmoney.com or biggerpocketsmoney.com slash resources to find templates and calculators, spreadsheets, all sorts of things. Scott has been working with our technology team to create really, really awesome free resources for you to help you on your FI journey. So that's BiggerPocketsmoney.com. All right, Scott, should we get out of here? Let's do it. That wraps up this episode of the Bigger Pockets Money podcast. He is Scott Trench. I am Mindy Jensen saying, don't let lifestyle inflation derail your destination. When the change in season hits, some people suddenly just want to declutter the garage,

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