NerdWallet's Smart Money Podcast - Seven Steps for Prioritizing Money as a High Earner (from Your Next Dollar)

Episode Date: September 7, 2026

Learn how high earners could prioritize their money across seven steps, from income growth to backdoor Roth strategies. Your Next Dollar host Andrew Giancola and NerdWallet Wealth Partners CEO Ryan Sterling walk through the seven-step Your Next Dollar Blueprint — an order of operations high earners could follow to prioritize their savings across accounts, from growing income and building an emergency fund to maxing out an HSA, 401(k), mega backdoor Roth, and more.  Download the Your Next Dollar Blueprint at nerdwalletwealthpartners.com/blueprint  Interested in working with a financial advisor? Visit nerdwalletwealthpartners.com NerdWallet Wealth Partners, LLC (“NWWP”) is an SEC-registered investment adviser. Registration does not imply skill or training nor does it constitute an endorsement by any securities regulator.  The content presented by NWWP is for informational and educational purposes only and is not intended as personalized investment, tax, or legal advice to any person. The views, strategies and examples discussed are intended to be general in nature, may not reflect the experience of any particular client, are subject to change at any time based upon market or other conditions and may not be suitable for every individual. All investments involve risk, including potential loss of principal invested. Investment past performance is not a guarantee of future results. Before making any investment decision seek advice from a qualified investment, legal or tax professional. Subscribe to Smart Money’s free email newsletter for bonus content and more from our hosts at https://smartmoney-nerdwallet.beehiiv.com/  To send the Nerds your money questions, call or text the Nerd hotline at 901-730-6373 or email [e-mail]. Like what you hear? Please leave us a review and tell a friend. *The show notes were created with the assistance of AI. They have been reviewed by our editorial team for accuracy and quality. Learn more about your ad choices. Visit megaphone.fm/adchoices

Today's episode is brought to you by Vinted. Sean, do you have clothes in your trunk that you've worn but have no idea what to do with? You know what? I do not because my car is super clean right now. But I'm betting that you do, Elizabeth. I sure do, Sean, unfortunately. And I've been wondering what to do with these clothes. And then I found out about Vinted. So they're like this secondhand marketplace app and their mission is to make secondhand your first choice.

Yeah, Vinted helps their members find great deals and easily. sell the clothes they no longer wear, and that helps give quality items a second life again and again. And it helps the planet, too, and we care about the planet, don't we, Sean? We do. Well, Elizabeth, whether you're clearing out a bag of clothes in your trunk that's been sitting there for months and months, or you just have pieces in your closet you don't want anymore, Vinted makes it super simple to refresh your wardrobe, earn extra cash, and give your clothes a second life. Plus, there are no seller fees, so you keep what you earn from every sale. And also, the app is free to download. I think that's a great perk. Vinted makes listing items quick and simple, and once an item sells,

Vinted creates a pre-paid shipping label for you, which takes out a lot of the burden of sending your items. See what's hiding in your closet, or like me, your trunk, and you might be surprised how much you can earn with Vinted. Download the Vinted app for free to start listing with absolutely no seller fees. Are you confused about where to save your money to get where you want to be in your financial life? Well, what if you had a blueprint? Welcome to Nerd Wallet's Smart Money Podcasts, where you send us your money questions, and we answer them with the help of our genius nerds. I'm Sean Piles. And I'm Elizabeth Ayola.

Happy Labor Day, everyone. We hope you're celebrating your own labors today and not laboring if you don't have to. Sean and I certainly are, Sean. Will you be gardening today? I saw all those tomatoes. Yes, I just harvested so many tomatoes because the rain finally came back to Portland, and that means got to get the tomatoes before they split. Rain makes tomato split in case you didn't know that. So yeah, I will be out in my garden. Also, I'm going to be going out for a run because in case I haven't talked about it enough on this

podcast, I'm running around Mount Hood in just a matter of days. And so I'll be slowly gearing up for that today as well. What about you, Elizabeth? So exciting. Well, what am I going to be doing? I am going to be going to a concert. So one of my favorite Nigerian artists is in town. So I'll be attending that concert. And then a childhood friend has decided to join me. I usually go to concert solo. But anyway, I'm also going to take IOL to a pottery class because he's been begging me to do an arts and crafts activity outside the house. What a great weekend. I love that for you. I'm looking forward to it. Thank you. So we're bringing you a special episode of our sister podcast, Your Next Dollar, for you guys to listen to while we're away.

But before we go, I have three quick plugs for you. Count them. Three. First off, send us your money questions because this show runs on them. Second of all, if you aren't following Smart Money's newsletter, please do so. We have a little. link to sign up to that in the show notes. And third, follow Elizabeth and me on social media. We're posting more content about our tastes on personal finance topics, behind the scenes, clips of smart money, and also just things about our lives so we can deepen this beautiful parisocial relationship that we have going on. You can find a link to my handle, which is Sean Triple underscore piles in the show notes as well. And Elizabeth, what's your handle? It's the, so T-H-E-U-U-S-E-U-E-E-E-E-T-H, and then underscore my last

name, A-Y-O-O-L-A. And, you know, you guys are going to hold me accountable. I know that's not your job, but if I see you following me, that I'm going to post more. So let's keep it going. And for what it's worth, Elizabeth, I always read it as the Elizabeth Ayola because you just have a certain dignified air to you. I know that's right. Thank you very much. All right. We'll see y'all on social media. For now, here is your next dollars host, Andrew Jane Cola. So today, we're diving into the Your Next Dollar blueprint. So if you follow standard advice, you may end up with a bigger tax bill than you ever anticipated. Or you may have a suboptimal plan that leaves money on the table. So we built something specifically for high earners that you can follow step by step.

We built these for people in the 30s or 40s who are high earners but are not rich yet. And really quick, as a reminder, we will have the your next dollar blueprint linked down below in the show notes or you can go to nerd walletwealthpartners.com backslash blueprint and get it there. And today, I'm joined by Ryan Sterling, who is a financial advice. and CEO of Nerd Wallet Wealth Partners. Ryan, I'm really excited to dive into this episode because this is one of those episodes that I think could be one that people come back to over and over and over again. Absolutely. So excited to be back on, Andrew. And I will say that the first conversation that you and I ever had was actually on this topic. So really excited to get into it today. So before we dive in, I want people to understand why we created this and some of the reasons why we have this step-by-step guide.

Because this is something I think a lot of folks need to hear and a lot of higher. may not have something available to them like this. Yeah, and actually, in a way, it's almost there's too much availability where, you know, you go on social media today and everybody has an opinion and they typically throw out just one account at a time. So, you know, in my social media feed, for example, I'll see, you've got to do the mega backdoor Roth. You're missing out on something. And someone else will say, the HSA is the number one strategy to use. You have to be using this. And someone else will say, no, the taxable broker's account. Like, that's the one that.

it's hiding in plain sight. And the truth is, they're all important. And they all matter. But there's so much confusion there. And I can tell you in my practice, you know, people come to me all the time saying, hey, like, I just, I saw the social media piece over the weekend and like, gosh, should I be putting more money into my mega backdoor Roth? Because I feel like I'm missing out on this.

And the answer is it depends. And I think going back and having a guide to say, hey, like how, how just broadly speaking, should we prioritize these different type of accounts? and be able to put it in kind of one piece of content that someone can refer to and say, oh, got it, that's where the HSA plays into it. Oh, that's where the mega backdoor Roth comes into it. I think it is really helpful and very much needed. And the reason why we want a lot of people to understand how this works is that this is a blueprint.

What can you do with a blueprint? Well, you can make tweaks to that blueprint in order to optimize it for your specific situation. And so for us specifically, we want you to know that you can make tweaks as we go through this, based on your situation and based on your own financial plan. And so the first one that we're going to dive into is step one. Now, this is one that I absolutely love talking about. And many high owners who are listening to this podcast know all about this. But this is one of the most powerful levers, in my opinion, that you can pull,

which is growing your income. Ryan, can you talk about why growing your income is so important? It starts there because I, look, I say all the time that an HSA, a backdoor Roth, a mega backdoor Roth, a taxable account. none of these accounts or entities are going to make you wealthy. None of these accounts in and of themselves will take you to financial independence. They are great vehicles. They are great tools.

There's a place in a financial plan. But I always say this, a Roth IRA is not going to make you rich. It's just not. So everything starts with your ability to earn income. It all starts there. And I will say, too, that, and look, it's easier said than done. However, by increasing your income and really focusing on increasing your income, whether it's upskilling, whether it's exploring new job opportunities, whether it's maybe doing a transition from one job into another that pays more, by increasing your income, that's an ROI that's almost impossible to get anywhere else, whether it's investing or any one of these other vehicles. So the foundation of building wealth starts with income.

And in reality, for most people, you know, looking at this, you can increase your income infinitely, but you can only cut back so much. And we want you to enjoy life. We want you to spend more on the things that you love. And so increasing your income is the easiest way to do that. Why? Because you increase the difference between your income and expenses and that gap you can invest over time. Now, obviously, at the time we're recording this right now, we want to be sensitive to the fact that, hey, it's really difficult to find a job. You know, the job market is, you know, changed a lot over the course of the last couple of years. And so one of the things that we want to help you focus on is, hey, how do I increase my income? What are some of the areas that we can do

this with? Well, one of the easiest ways is to focus on your skill stack. What specific skills do you have currently right now that you can focus on in order to increase your income? Maybe you're working a corporate job and there are some things that you can go out and do. Maybe there's some additional certifications that you can take where you can increase your income that way. Or Maybe you want to increase your ability in sales or negotiation or all those different areas are really important. Now, another area I like to talk about is learning how to increase your salary. And negotiating your salary is one of the most powerful skills that I have seen people utilize. We've done studies in the past where we have looked at people who actually ask for a 3% raise every single year.

And if you get 3% more than your other peers, you can have millions of dollars in differential just by learning how to negotiate your salary. So it is literally a multi-million dollar skill. but it is one of those skills that you have to master over time. And then some of the other things, Ryan, that we could talk through is things like equity and compensation and thinking through how people can increase their income through things like ESPs or things like RSUs and kind of thinking through how they can utilize some of those areas to increase their income when it comes to their corporate job. Is there anything else that you know of or ways that people can focus on increasing their

income? Well, this might sound kind of silly, but knowing how you get paid, I can't tell you how many people come to us and say, gosh, like, there's a gap between my W-2 and on actually making. And it goes back to you, you reference RSUs. I can't tell you how many times we've seen people who get compensated in RSUs and don't know how that factors into their compensation. We're literally, sometimes there's $50, $60,000 in RSUs that are accumulating that they never actually go in and sell and realize the value of those RSUs.

So I think it goes back to just knowing how you're compensated, know the different components of it, because there might be little nuances that you're missing. And that I think is really important to point out because there are things like that where, hey, you can negotiate things like extra comp. You can negotiate things that are going to actually factor into the overall amount of income that you're making. And in reality, those are going to be big, huge deals. Now, one other thing that I would say is as you start to develop ways to increase your income, you need to have a plan in place on what you're going to do with this money.

A lot of people let this just do. just go into their checking account, it gets commingled in their checking account, and all of a sudden they spend their raises and bonuses. But if you have a plan in place on where to put this extra income, this can help you build wealth over time. One of my favorite ways to do this is to look at something like the 50-50 rule. Now, we've talked about that on this podcast a couple of times already, but what are the things that you can look at is, hey, 50% of your income goes towards future you and your financial plan, and 50% of your income goes towards you being able to spend more on the things that you love. And then you can tweak this and you can adjust to this, where at some point in time,

time, maybe you say, okay, well, I'm really saving enough for my retirement. I feel a okay about it. So 70% I want to go spend on things that I love and 30% is going to go towards future me. But you got to have a plan in place when it comes to saving your income and where it's going to go. Otherwise, it's just going to disappear. And that's the last thing we want to happen to you. 100% agree. You need a roadmap. You wouldn't go on a road trip without putting in ways or mapping out the route before you go on the road trip. Why do people do that with building wealth? think about it as a journey and you have to map out that journey. So if you're someone out there, you're a high earner.

The stats show that a lot of high earners out there are still living paycheck to paycheck. Look at your income. Look at where your income is and see if you can increase your income to help develop that gap, to try to relieve some of that stress and then take some of that extra income, put it towards your financial plan, but also have a plan in place in order to grow it and use it for things that you love. Now, step two is going to be build your emergency fund and capture of your 401k match. Ryan, why do we have both a both of those?

of those in step two instead of just, you know, separating those out? With the emergency fund, life happens. Life has a way of revealing itself. And you have to be prepared for the worst possible scenario. So having that emergency fund, that's really, I see it almost as like a moat, right? It's a moat to say if the car breaks down, if pet needs to go to the vet, you know, those moments happen that you don't expect it and they happen at the worst possible time, that you don't have to go into credit card debts, that you don't have to make choices that

potentially could be dangerous or harmful. So that emergency savings fund, like that is super important to build the foundation for your wealth. And like I said, it's kind of the moat around everything else. Okay, so why do we pair that, though, with the 401k match? Well, the 401k match is extra compensation. It goes back to growing your income. And it's right there. So if a company, for example, says, hey, if you contribute 4%, we're going to match you on that 4%. It's really important to get that match. So that's where when we think about kind of the building blocks of saving and of building wealth, that emergency savings fund really does have to be paired with not missing out on extra

compensation through the 401k match. And this is one of those things where capturing your match is just one of the most important things that you can do early on. And for a lot of high earners, we believe that, hey, you can do. do both. You can start to build up your emergency fund, but also make sure you capture that 401k match. And one of my favorite numbers, Ryan, is free. And you get free money by capturing your 401k match. And I want most people to understand this. This could be a 100% rate of return, depending on what your plan is. And so looking at this is one of the most powerful ways to grow your wealth over time.

Now, for folks out there who are asking themselves, well, how much should I have inside of my emergency fund? There's a system that I love to talk about when it comes to this, especially for high earners. I call it the one-three-six method. Whereas you save one month of expenses first, and you get that saved up. That's going to protect you against anything that happens in life while you're focusing on some of your other wealth-building activities. Then you pay off that high-interest debt. So for me specifically, Ryan, I classify high-interest debt at a 6% interest rate. Anything outside of your mortgage that's above that 6% interest rate, I want you to start to pay that down aggressively. Why? Because for the most part, if we look at average market returns,

you can see it anywhere from 6 to 10% depending on what rate of return or what you're investing in and what your plan is. And so when we're looking at some of this stuff, we want to make sure that we are optimizing, you know, paying off that high interest debt. Then you're building up to three months of expenses once you have that high interest debt paid off and then you finally get to six months of expenses. I believe that high earners need to have at least six months of expenses saved up, especially in the day and age where if you get laid off, it is much more difficult to go out and find a job than it used to be. You could go through a few months of sending out your resumes, then finally landing those interviews. Once you land a couple of those interviews, you still have to go through the process of maybe multiple rounds of those interviews. This can take months and months.

And so you want to make sure that you have cash on hand because of job loss. And so for me specifically, I always want to have that six months on hand. Now, some people may say to themselves, well, honestly, I would feel more comfortable with even more than six months on hand. And so what I would say to them is find what we call your swan number, your sleep well at night number. This number is going to tell you, hey, maybe you want nine months on hand because that helps you sleep while at night. You feel more comfortable with having that cash on hand. And so this is kind of one of the ways that I think about the emergency fund to build it in full,

especially for high earners. You need to protect your income so that you can go out and find a job that actually fits what you want instead of taking the first job available because you didn't have cash on hand. Yeah, one of the things that I'm seeing a lot. And, you know, unfortunately, look, we've seen a number of clients get swept up in the layoffs over the last couple of years. It happens. It's not fun. I can tell you 100% of them have landed and are in a good place, but nonetheless, it's very hard to go through. But I can't tell you how many conversations I have when someone goes through that layoff and they're like, I have three months of severance or four months or five months of severance. And they say, I really kind of want to enjoy this time, though.

I don't want to rush into the next opportunity. You know, I don't know when I'm going to have three, four, five, six months off ever again. And that emergency, fund allows you that time and space where, yes, it still produces a lot of anxiety when you're looking for a job. But when you know that you have that runway, when you know that you have that buffer, it makes the process less anxiety producing, which probably makes you a better interviewer. But also, it allows you to have that time and space to say, you know what, maybe I want to take a little vacation and kind of, you know, enjoy this time because I don't know when I'm going to have this free time ever again. So, so again, it's one of those things with that emergency

savings fund. It helps get you through a storm, but it also provides you time. And what a powerful testament to the flexibility of having cash on hand. Cash gives you power. Cash gives you freedom. And a lot of people are saying, well, I want to put that cash to work. I want to make sure every single dollar is optimized. But in reality, this cash is going to reduce your stress and anxiety. And for most people out there, removing that stress and anxiety from the equation is going to allow you to make better financial decisions. So I love that. It's almost like having a mini sabbatical on hand, even though maybe it's the worst situation that could have happened to you. You have this mini sabbatical on hand. You can take the time to find the job that you love. And again, like Ryan said,

this is going to allow you to perform better in interviews. It's going to allow you to find the job that actually works for you. So cash on hand is something that we absolutely love. So the next one that we're going to talk through is step three. And step three is maxing out your HSA and actually investing in. Now, the HSA, for those of you who don't don't know what that is stands for health savings account. And many of you, if you haven't looked into this before, maybe saying, well, this is a health care account. Why would I utilize this for retirements or why would this be in the order of operations? Ryan, can you talk about the powerful benefits of the HSA and why we have this as step three? The benefits are number one is you get a tax

deduction when the money goes in. You can then invest the cash in an HSA so you can get a return on that money. The big power to the HSA is that you don't have to use it in a year. So if you have a five-year stretch, for example, where you're contributing to the HSA or maybe a 10-year stretch, and you don't have any health emergencies or any need to tap the HSA, that money is growing tax-free. You get the tax deduction, it's growing tax-free. And then when you use it for health care in the future, that money comes out as tax-free. So it is a way to get a tax deduction. It's a way to grow your investments on a tax-free basis.

But the big key is for people who want to retire before traditional retirement age, the HSA can be an amazing tool to bridge that gap for health care costs between when you retire and when Medicare kicks in. And one of the cool things about the HSA is that you could break your leg at age 25 and reimburse yourself at age 55 for that same exact expense and not have to pay taxes on those dollars. Now, one big key note when it comes to the HSA for those listening is you must have to have. a high deductible health plan. If you do not have a high deductible health plan, you are not eligible for an HSA. And so you want to make sure that first you have that. If you don't have that in place, just skip on to the next step and move on. Some years, you may have a high deductible health plan and some years you may not. For example, when my wife was pregnant, I actually went off of the high deductible health plan because I knew we'd have a lot of additional medical bills

and it was much better for us to shift insurances. Whereas the years where, you know, we know we don't have as many medical bills during those given years, I'll go back to the high deductible health plan. So there's a lot of really interesting things when it comes to the HSA on how to utilize this. For those of you out there who want to know what the limits are for 2026, the self-only coverage is $4,400. The family coverage is $8,750. So that's how much you can contribute to an HSA each and every year. And the 55 plus catch-up is $1,000. So if you're over the age of 55, you can actually do a catch-up contribution there. Now, the key that Ryan stated here, and I want people to note this, is to invest those dollars inside of the HSA.

If you want to use this as something in early retirement or even bridging the gap between, you know, 50, 55, all the way up to 59.5, when you can actually access these dollars, it's a really powerful way. But one other cool thing I love about this, Ryan, is that when you turn age 65, it almost turns into something like a traditional IRA,

where you can actually use it as a retirement account after the age of 65 as well. Now, step four is to max out your 401K. I love this one. This is obviously one that many high earners probably already do or are considering. So talk about Ryan why the 401k is so powerful for high earners. The power of the 401K comes into, again, depending on where you are in terms of your tax brackets, it's a powerful tax deduction.

Now, that said, 401K is coming to two different flavors. You can do a Roth 401K or you can do a traditional 401K. Now, for a lot of people, and I see this all the time, they are hooked on the Roth. and maybe when they started working at the age of 22 or so and they were in a lower tax bracket, you know, somebody told them, put money into a Roth. This is so powerful. And they were not wrong about that. However, I start to see people creeping into the 32%, the 35%, even the 37% tax brackets

and who live in places like New York and California where they're still contributing to the Roth. And I'm looking at this. I'm like, gosh, like, you. get almost a 50 for New Yorker in New York City, you can get almost a 50% tax deduction for putting money into the pre-tax 401 portion. So the money goes in, again, assuming you do the pre-tax, the money goes in as a tax deduction, so you're not paying taxes on it right now. And then that money grows tax deferred. Now you could say, okay, but when you take that money out, you're paying taxes on it. Yes, but there's a butt. And here's the but.

Let's say, for example, that you're a high earner in your late 30s. and you live in a place like New York, and you're getting that 50% tax deduction when putting it into a 401K. Yes, you do have to pay taxes when you take the money out, but for a lot of people, there's a window where you can do Roth conversions, and you can do that when you're in a lower tax bracket.

So you get the deduction in a super high tax brackets, and then you do the conversions at a much lower tax bracket. So that's a very powerful strategy for people to use. I'd say another powerful feature of the 401K is you don't really see it. Right? So there's a power when you just have a go straight from your paycheck to the 401K. You don't ever see the money. So you don't fall in love with the money in your bank accounts.

And it's amazing to see the power, the psychological power of that. It truly is. That is one of my favorite things when it comes to the 401K where I have a lot of friends, for example, they know I'm a finance there. And for some reason, because of that, they like to tell me all about their 401k. And one of my favorite things that happens to them is a lot of times if they're not checking in their account very frequently, they'll log in after two or three years. And all of a sudden, the balance is way larger than they ever thought it was going to be. And this is the power of automation. It's automatically contributing every single month. And for those of you out there, no, we love automation here. We want you to automate your money as much as possible. So you can spend more time doing the things that you actually care about or focusing on things like growing your income and those types of things. And so the 401K is a great example of this. It allows you to, automate those contributions and allow them to grow tax deferred so that you can get that tax deduction. And for a lot of you out there saying, well, why is this before the Roth or backdoor Roth or

whatever else is out there? This is why? Because there are a lot of great tax benefits to the 401k. And when we think about this, in 2026 right now, you can put $24,500 per year inside of your 401k. And if you're over the age of 50, you have access to that catch-up contribution, which is $8,000, which means you can put $32,500 into your 401K. And now there's a super catch-up contribution, which is very cool from age 60 to 63. And so you can get an additional 11,250 into your 401K based on that. And so, Brian, is there a tax bracket that you tell people to start to consider the traditional

over the Roth 401K when they start to kind of think through this process for their own financial planner? What are some of the considerations they should have when to switch over and how to think about that? Yeah, I mean, typically speaking, I see the break even at the 24% brackets, but then you also have to consider what state you live in. So again, if you're in a place like New York or California, you have to add in state and local taxes as well. So, you know, but I think that 24% bracket, generally speaking, is where we typically see that break even. That's perfect. And I think for a lot of high earners out there, look at your own situation.

This is really going to be dependent on your financial situation, on which one you do and how you think about this. And that is really, really important. By the way, if you're getting value out of this episode, make sure you leave us a five-star rating and review on your favorite podcast player. It truly does help us with the show and help us spread this message. More of your next dollar in a moment. Stay with us. Now, step five, this is one that Ryan and I both absolutely love, and I can't wait to dive into this. This is opening a taxable brokerage account.

And when we think about a taxable brokerage account, Ryan, why is this an account that's important to put into these steps? Why is this something that I think a lot of people out there actually miss out on? This is actually my favorite accounts. And the reason this is my favorite account is because this is the one that has the features of long-term growth. It's helping me get to financial independence. But at the same time, I have that flexibility that if I ever needed it, I could get access to it. versus these retirement accounts where if you want to get access to it before you retire, before the age of 59.9 and a half, you have to pay a penalty. This is an account where I can

put money in, I can let it grow, I can not touch it until I'm in retirement. But if I needed to, I can, I can access this. And it goes back to what I said before about life has a way of rebuilding itself. And I like having optionality. I like having flexibility. In addition, and this is happening with more frequency. We're seeing more and more people who kind of reach that millionaire status in their 40s. But there's a butt. And the but is all of their wealth is tied up in their home and their retirement accounts. So they actually can't pay for an emergency. They actually, if they lose their job, they don't have the flexibility to get through that storm. If they wanted to do a mini sabbatical or do a mini-retirement, they actually can't because they don't

have the liquidity, or if they wanted to reach financial independence, called in their late 40s, early 50s, and fully scale down, they actually can't because they can't access the money in the 401k without paying a penalty. So this taxable brokerage account is another way to save for financial independence, to save for retirement, but it gives you maximum flexibility. And the last thing I'll say is that there are also some tax strategies that you can use inside of a taxable account, like tax sauce harvesting that you can't do in the retirement accounts. So yes, when you sell in a taxable account and you sell it a gain, you pay taxes on that game. But it works the other way as well, where if you sell something at a loss, you can use that loss to offset gains. And if you don't have any gains

offset, you can actually use $3,000 a year to offset your income. And that's the ultimate way to prove the flexibility here, because there are so many different options that you have with a taxable brokerage account. Let me give some people, just some examples of some things that I've done with my taxable brokerage account. And some of these were planned and some of these weren't planned. So, for example, we talked about the emergency fund earlier. Well, anything outside of six months in my emergency fund, I actually just invest those dollars because I'm comfortable with having six months on hand, even though, you know, I'd rather have, you know, nine, maybe 12 months. I'm comfortable with those six months and I will invest the differential there. But in addition, a couple of things

that I also do is I have bought a business with the liquidity inside of my taxable brokerage account, where a business opportunity came up. I had to close on this business in a month. And so if I didn't have that liquidity, I would have missed out on this amazing opportunity. So I had the liquidity available in my taxable brokerage account. I utilize it to buy a business. I utilize my taxable brokerage account for other fun things as well. For example, I have a taxable brokerage account that allows me every month. I put money in there and I'm growing that money over time so that every 10 years my family and I can take this lavish, big, giant vacation that we want to do every 10 years. And so we have these cool different ideas of what you can do with a taxable brokerage

account, how flexible it can actually be, and you can use it for so many different things. But the other powerful thing, for a lot of high earners out there, there's no contribution limits. You can continue to contribute to a taxable brokerage account. There's not a ton of parameters that are going to stop you. Hey, you put $24,500 per year like a 401K. No, you can put as much money as you want inside of your taxable brokerage account, especially if you're making really good money. But it's also much more tax efficient than people realize.

Ryan alluded to tax loss harvesting, a really great strategy that you can use in tide of your tax and brokerage account and you can work with your advisor to make sure you optimize that for your specific situation. But there's also a ton of different benefits as you start to retire. Maybe you're not making as much money as you thought you would in retirement or maybe you're not making any money whatsoever. Well, you really get tax efficiency. For long term capital gains, you're paying 0%, 15%, or 20%. And for a lot of folks out there, if you file married filing jointly, for example, you can not have to pay any taxes on up to $120,000 plus just by utilizing the tax brokerage account. So there's so many different really cool ways to use this that you can figure out

how it works for your specific situation and find that flexibility. Flexibility is the name of the game when it comes to this account. A couple other points on this too. From an estate planning perspective, let's say you never need to use this taxable brokerage account. And let's say you have massive capital gains and you want to pass on something to your kids. Well, when your kids inherit the taxable brokerage account, they get what's called a step up and basis. Okay. What does that mean? So let's say you bought something at $1 a share and it's gone up to $10,000 a share. Well, if you were to sell it, you would pay capital gains taxes on that.

But if you pass it on to your kids, they get what's called a step up and basis, which means when they sell it, they actually don't pay any taxes or very little taxes on it. So there are some estate planning advantages to a taxable broker's account that a lot of people don't realize. Exactly. I think that's one of the most important callouts out there because in reality, that's one of the most efficient things that we can utilize this for. Now, one other thing is for those of you who listened to our episode talking through early retirement and if you retire at 50, some of the

things that you need to think through, the taxable brokerage account was a big portion of that. Why? Because this is your bridge account. This allows you, if you want to retire early, to bridge between the years that you need access to money before traditional retirement age or 59.5 like the 401k and the Roth IRA when you access those dollars. Ryan, when should someone and look at this and potentially move the taxable brokerage account up on the list based on their specific situation. Should this be shuffled around if somebody wants to retire early? Yeah, the answer depends. But the answer could be yes. That's what I'm saying like the HSA, like this actually could find itself above an HSA. I would say it would not find its way above a 401k match.

That's free money. So you definitely want to do that match first. It would not be above the emergency savings fund because you need to have that moat. You need to have that safety. Now, steps. six, and this is a fun one, is using the mega backdoor Roth if your plan allows it. Now, the mega backdoor Roth is obviously only an option for a lot of folks who are high earners because this requires more capital than what most people have on hand. But I want to make sure that people note two plan requirements when it comes to doing a mega backdoor Roth. Number one is you have to have after tax contributions in your 401K.

So this is one thing. You can go to your HR department or look at your 401k plan and ask him that question. Do they have after tax contributions? And then number two is you need in-service Roth conversions or in-service rollovers to even be able to have access to this strategy. So not everyone is going to have access to this strategy is one thing we want you to note before we dive into this. But Ryan, can you talk through the mega backdoor Roth IRA and how you think about this

for maybe clients or people who you are talking to about this? And this is a great tool for high earners to be able to put more money into a Roth IRA. As we alluded to before, a Roth IRA is money that you don't get a tax. tax deduction when it goes in, but it grows tax-free. And when you take it out in the future, it comes out tax-free. So it's an amazing savings strategy and investment vehicle. However, as I said before, for high earners, that tax deduction that you get for a traditional 401K, that is super valuable. So the mega bathdoor Roth allows us to get the benefit of both. We get the tax deduction for putting money into the traditional 401K. But then we're also able to get

money into the Roth IRA through this mega backdoor Roth. So it's a way where high earners can get the best of both worlds. You can get Roth money grown for you tax free and when you take it on the future, it's not taxable. And you can get the tax deduction for the traditional 401k. And depending on your plan right now in 2026, you can get up to $47,500 of additional Roth contributions in 2020. So this is a big deal for a lot of folks out there, especially if you want to fill up that Roth bucket, you get those two benefits. And I think this is a really, really cool thing. But again, you got to reach out to your HR department. Make sure you even have access to this before you go through this process, because it is one of those areas that I think a lot of high

earners could take advantage of if they have this available to them. And if you're willing to really save heavily, if you're in that mode of accumulation and you were trying to build wealth over time, this can be something you can consider moving forward as you start to think through this process. Is there anything else you would add to this, Ryan, in terms of how people should think through the mega backdoor Roth or is it pretty cut and dry. Hey, this is one of those things where if you have this available to you, try to take advantage of it and, you know, try to see if this is part of your financial plan. I would say, I just want to touch upon one point that you made that's super important is that you have to be able to do the in plan Roth conversions. The worst case scenario

is you contribute to the after tax portion and you don't convert because what that means is you pay taxes on the money earned and then you're going to pay taxes again in ordinary income coming out. So only do it if you can do the implant Roth conversion. That's a super important note. And this is why you do this wrong and you could end up, you know, having a huge problem on hand. So making sure you talk to your visor, I think is really, really important as you start to think through this process and making sure that this fits your plan. Now, the last one, step seven we have is the backdoor Roth IRA and the 529 plan. So, Ryan, let's talk through the backdoor Roth IRA first.

This is one that I love to do every single year. The first thing I do in January of every single year, it is one of my favorite ways to get money into a Roth IRA. But can you talk through the backdoor Roth IRA and why it's so important? Yeah, so the backdoor Roth IRA is basically a way for high earners to be able to get money into a Roth IRA. So this is how it works mechanically. So you put money into a traditional IRA, which the max right now is $7,500. And you have to do what's called an after tax contribution. So you're basically telling the IRS, I am not getting a tax deduction for,

contributing money to this retirement accounts. Then you immediately do a conversion to the Roth. So you put after tax money into an IRA and you convert to a Roth. This allows high earners to contribute to the Roth through a back door because if you contribute directly to the Roth, you're not going to be allowed to, again, if you're above certain income thresholds. This is a great way, again, for high earners to get money into a Roth and to have money be growing tax-free for you. And ultimately, when that money comes out, you're not paying taxes on it. Now, there are some rules that are really important, some tripwires in place. So, number one, that contribution to the IRA has to be an after-tax contribution. So you have to

code it as such. What you don't want to have happen is have after-tax money, money that you're tax on, put into this account, and then you're paying taxes on the conversion. The reason you're not paying taxes on the conversion is because it's after-tax money. So I can't stress that enough. Number two, is there's something called the pro rata rule, which means if you already have money in a traditional IRA, you have to convert the entire amount, not just the recent contribution. So, for example, if you rolled over money from a 401k years ago and you have $100,000 balance and you put the $7,500 in and just want to convert that $7,500, the IRS is going to say, uh-uh, the bulk of that is going to be taxable.

It's a really helpful tool, and we have a lot of clients utilizing it. However, there are a couple trip wires in place that you need to be aware of. Those are all important callouts because the pro rata rule is one that trips a lot of people up that I have seen in the past as well. It is one where you got to make sure that you understand how this works. Otherwise, you could end up with that tax bill like Ryan said, where it is not fun to make sure that you have that. And this is one where a lot of people will say, well, why is the backdoor Roth IRA, you know, further down this list? The reason is it's just a smaller drop in the bucket. It is $7,500.

And for hirers, we want you to focus on some of the bigger ticket items early on. And then you can kind of get to this as time goes on. But for many high earners out there, this can be a consideration, especially if you qualify to do the backdoor Roth IRA. Now, the next one is the 529 plan. This is an education account that a lot of people save, especially if you have for kids. Ryan, can you talk through the 529 plan and how you think through this with clients? Yeah, so 529 plan is a savings vehicle specifically for higher education. So money goes in, depending on what state, you can get a tax deduction for money going into a 529 plan.

it grows tax-free. And so long as you use the money for higher education, it comes out tax-free. So it's a really good tool for a family to use to pay for college expenses. Now, it's not for everybody. And the reason it might not be for somebody is if they think their kid might take a different path. We have a lot of international clients who say, my kid might go to school in Europe. And we don't know if we're going to need this. Again, it's geared for higher education.

That is the intended purpose. And I think a lot of people are concerned what education is going to look like. I still think it's really important to put money into a 529. However, there is a risk of overfunding the 529 plan. So the key is to find that right balancing act. And there's a lot of tools and calculators out there that can help you determine what's the right amount for you. That's an important call out because most people worry about overfunding it and what if they have too much cash on hand in there. One cool thing that you have available to you now is Instagram.

Cure Act 2.0 that basically allows you to roll 529 funds into a custodial Roth IRA for your children. But the caveat here is you have to have the funds in the 529 plan for at least 15 years. So you can do up to $35,000. So that is one exit strategy that you have on hand. If you are worried about your kids not going to college or not knowing what education is going to look like in the future, or if your kids get scholarships, those are things to consider as well. But like Ryan said, the 529 is not for everybody. if you are worried about a lot of those different things,

maybe you find a different vehicle to save for college where you can have more flexibility with those funds. But it is a great option if you want to save your kids' college and utilize that long term. Ryan, is there one big thing I know a lot of people will come up and say about the 529 plan is, is this a good account to save for my kids for their financial future and for a lot of folks out there?

I know we say this is an education account. It's not really something that you want to just save going forward. Is that something you agree with? Oh, absolutely. And, you know, we're seeing more and more people utilizing something called custodial account. So custodial accounts work in a very similar way in the sense of you put money into the account as for the benefit of your child. There's a couple different nuances, though.

The 529 account, one important side note is you can change beneficiaries on this. So if you have a couple of kids and one kid doesn't need their 529, it can be used for other children. Custodial account is different. When you put money into a custodial account, it is specifically for that child. and it is their money. Now, it can be used for school. We've seen a lot of clients use it for education, but it doesn't have to be. So, you know, one thing we've seen is people actually utilize both, where they utilize a 529 plan and a custodial account. The 529 plan is used for college expenses. And then the custodial count is a great tailwind for the child when they graduate college. It can be

used for a down payment for a home, for seed capital start a business. It's a great tailwind. Just the thing that to note is it is the child's money. So you have to be prepared to release it to them when they turn to the age of 21 in most states. So a quick recap of everything we just talked about on the Your Next Dollar Blueprint is step one is to increase your income or focus on your income. That's the number one lever that you can pull. Step two is to build out that emergency fund and get your 401k match. We believe high earners can do both at the same time. And so we want you to focus on those areas.

Step three is to max out your HSA if you have a high deductible health plan. It's going to depend on your situation. But looking to max out that HSA gives you those triple tax advantages. Step four is to max out your 401K. And we talked through what to consider when it comes to a Roth 401K or a traditional 401K, but it does have great tax advantages for high earners. Step five is the taxable brokerage account. And this is Ryan's favorite overall account and one that we want to consider if we want

that additional flexibility or early retirement. Step six is to use the. mega backdoor Roth, especially if your 401k plan allows it. And step seven is to do the backdoor Roth and look into 529 plans and other wealth building strategies. So if you have any questions about any part of this process, whether when to save for a house or when to save for a wedding fund or when to save for a vacation, email your questions to us at podcast at nerd wallet wealth partners.com and you may get your question answered on the show.

So thank you guys so much for listening to this episode. of your next dollar. We truly appreciate each and every single one of you being here. If you're getting value out of this podcast, make sure to subscribe to the show on your favorite podcast player and leave a five-star rating and review. It truly does help us reach more people with this message. Thank you so much for being here and we will see you on the next episode.