The Personal Finance Podcast - How to Finance a Starter Home In This Market! (Money Q&A)

Episode Date: July 19, 2023

In this episode of money Q&A of the Personal Finance Podcast, we are going to talk about how do you finance a starter home in this crazy market? How Andrew Can Help You:  Join The Master Money Newsletter where you will become smarter with your money in 5 minutes or less per week Here! Learn to invest by joining  Index Fund Pro! This is Andrew’s course teaching you how to invest!  Watch The Master Money Youtube Channel!  Ask Andrew a question on Instagram or TikTok.  Learn how to get out of Debt by joining our Free Course  Leave Feedback or Episode Requests here.  Thanks to Our Amazing Sponsors for supporting The Personal Finance Podcast. Chime: Start your credit journey with Chime. Sign-up takes only two minutes and doesn’t affect your credit score. Get started at chime.com/ Shopify: Shopify makes it so easy to sell. Sign up for a one-dollar-per-month trial period at  shopify.com/pfp Policygenius: This is where I got my term life insurance. Policygenius is made so easy. To get your term policy go to policygenius.com and make sure your loved ones are safe. Factor 75: Head to factormeals.com/pfp50 and use code pfp50 to get 50% off your first box. These are amazingly easy and nutritious meals.  Links Mentioned in This Episode:  Baby Proof Your Wallet: The Ultimate Guide to Preparing Financially for A Baby The Stairway to Wealth (Where to Put Your Money In Order!) The Stairway to Wealth 2.0 (The Order You Should Put Your Money in!) Connect With Andrew on Social Media:  Instagram  TikTok Twitter  Master Money Website  Master Money Youtube Channel   Free Guides:   The Stairway to Wealth: The Order of Operations for your Money  How to Negotiate Your Salary  The 75 Day Money Challenge  Get out Of Debt Fast  Take the Money Personality Quiz Learn more about your ad choices. Visit megaphone.fm/adchoices

Local news is in decline across Canada, and this is bad news for all of us. With less local news, noise, rumors, and misinformation fill the void, and it gets harder to separate truth from fiction. That's why CBC News is putting more journalists in more places across Canada, reporting on the ground from where you live, telling the stories that matter to all of us, because local news is big news. Choose news, not noise.

CBC News. Okay, when I sell my business, I want the best tax and investment advice. I want to help my kids, and I want to give back to the community. Ooh, then it's the vacation of a lifetime. I wonder if my head of office has a forever setting. An IG Private Wealth Advisor creates the clarity you need with plans that harmonize your business, your family, and your dreams. Get financial advice that puts you at the center.

Find your advisor at IG Private Wealth.com. On this episode of Money Q&A, how do you finance a starter home in this crazy market? Up everybody and welcome to the personal finance podcast. I'm your host, Andrew founder of mastermoney.com. And today on the Personal Finance Podcast, we are doing a money Q&A and talking about how to finance a starter home in this crazy market. If you guys have any questions, make sure to hit us up on Instagram, TikTok, or Twitter at MasterMoney Co. and follow us on Spotify, Apple Podcasts, or whatever podcast player you love listening to this podcast on. And if you want to hop out the show, leave a five-star rating and review on Apple Podcasts or Spotify

or your favorite podcast player. And if you want to watch the podcast, we have the podcast visuals on the Androgen Cola YouTube channel. You can check those out as well. Now, today, we're going to be diving into three different questions in Money Q&A. And we're going to be answering your questions that you have sent in. So the first one is how do you suggest finding a starter home in this market? Now, this is going to be one that we're going to be doing a deep dive on and talking about a bunch of different things and a bunch of factors you should consider based on where you are in your financial life. I'm also in that question going to be talking about some stealthy things and some stealthy costs that come up when you're buying your first home that a lot of people don't realize actually

happen. So you've got to have some extra dollars saved up for that. I'm going to make sure we cover that as well. Number two, and this is a big question that we get all the time is how do taxes in retirement work. So what we're going to do in this question is we're going to be breaking down each type of retirement account, talking about how those taxes work inside of each type of investment account. But in addition, what qualifies as income, what does not qualify as income? How does the IRS actually look at income when it comes to retirement when you don't actually have a W-2 job? So we'll dive into that. And then question three is somebody asked, based on the episode, where we talk about how to save up money when you have a newborn baby,

can you create a script asking for hospital costs about having a baby? So this is going to be one where I have a script available that you guys can download linked up in the show notes. And we will go through and make sure that we have that script available to you. And I will talk you through that script because there are some objections that come up at the hospital that I am sick of them having come up. And I will give you the script to actually overcome those objections. So those are the three questions we're going to be diving into in this episode.

Without further ado, let's get into it. All right, so question one is how do you suggest financing a starter home in this market? So first, let's look at the rule of thumb for people who are not financing their starter home. There's a reason why I want to look at this up front, but I want you to understand that if this is not your first home, this is the rule of thumb that you need to follow. The rule of thumb for us here at the Personal Finance podcast at Master Money is 20% down, 30% or less of your income every single month spent on your mortgage or housing costs, and then no more than three times your income on purchase price.

Now, I'm a little flexible on that third one as we talked about in the past, but no more than three times your income on the purchase price is going to be one where that's just going to help keep you wealthy if you can actually reduce that purchase price. But I'm a little bit flexible on that. Now, those three items are really important. The second one says 2033 rule. The 30 number is the one that's really, really important for most people because you have to make sure that your housing costs are less than 30% of your

income. This is going to be very, very, very important so that you not become house poor, unless you live in an area like New York City where you don't have a car and you can increase the amount of money that you're spending on housing and reduce your transportation expenses. That's the exception for a lot of people who live in big cities. Outside of that, if you spend more than 30% of your income, you are going to be house poor. So I do not want that to happen for you because that's really, really hard to build wealth once you get into that situation. Now, as we go into this, that is for people who are buying their second house. Why? Because they already bought their first house. And guess what you get to do? With that 20% down, this is right this is required is you get to roll that equity into your next house. So 20% down is required because of that. I don't want you paying PMI on your second house when you already bought a house and you can roll that equity in. Now, if you bought the house wrong or situations change, you have a decision to make there. But if you want to stay wealthy, having that 20% down is going to be really, really important for a lot of people. early on when this show started, I said, listen, if you put 20% down, then you can avoid PMI.

And that's still very, very true right now. If you don't know what PMI is, it's an additional insurance that you have to pay if you do not put 20% down that most mortgage providers require you to pay. And because of this, it's just added fees that you have to pay inside of your mortgage every single month that are not necessary if you don't put 20% down. So that is one thing that you can definitely do. But even for me, for my first house, I did not put 20% down. am much more lenient for people when they're buying their first house to put 20% down.

Guess why? Because it's very, very difficult to save 20% for your house if you're not doing it with an asset. When you buy your first house, it's going to start to appreciate. You're going to have that appreciation available. Not always. Houses go down in value too. But a lot of times you're going to have some equity inside of that house. So you can roll that equity in the next one. But if you're trying to save up 20%, so that you can have that down payment on a house, I've become more lenient as the market has gotten way, way tougher to find a house and have that 20% available as long as you still have 30% or less on your mortgage payment. That's what the key is here is 30% or less. If you want to keep it 30% or less and you want to buy your dream house and

you got to get the down payment higher in order to reduce the amount that you're spending every single month on that mortgage payment. So if this is you, if you're a person who is looking to trying to save 20%, you just can't get ahead of the market because the prices keep increasing. That means you're going to have to keep saving more and more and more. I am okay with you taking advantage of other opportunities. And we've talked about how I like the FHA loan for a lot of people if it still keeps your 30% or less monthly costs on those mortgage payments. There's a number of other things I like as well as we go through this. So the big thing I want you to focus on though, when you're buying a house is total cost of ownership. What is total cost of ownership? TCO. What does that mean? This is how

you actually run the numbers to see if a house is even worth it for you. When you do this, you're going to be running the numbers on not just the cost of the house and the purchase price, also all the fees associated with the house, which we'll talk about here in a second. In addition, though, what you're also going to be doing is running the numbers on all the other costs that come up with a house. Maintenance costs are massive on a house every single year. If you've never owned a house, you really need to factor that in. This is things like plumbing, electrical, roof, water heater going out, all these different things and small maintenance items. If something breaks, it's your responsibility. You're not calling up your landlord and they're going to take care of it for you. it is your responsibility and it is your wallet's responsibility to financially take care of that.

So this is a big, big difference from people who are renting and it is very, very costly if you do not run these numbers correctly. Now, I want to be very clear on this. Houses, when they are your personal residence, are not that great of assets. They do not appreciate as much as you think they do because of the total cost of ownership. There's a lot of other reasons to buy a house, some of which are to get in a good school district because you have kids or you want a place for your children to grow up. It's close to the places that you love. There's a lot of different reasons to buy a house, but an investment is not the reason to buy a house unless you're doing something like a living flip or you're doing something like house hacking. So when it comes to purchasing a house,

you got to make sure this is not where the majority of your net worth is going to go. You do not want that to happen because people with the majority of their net worth in their house are usually actually poor when it comes to building wealth and having time freedom. So this is something I want to make sure that we sit at front before we dive into this and make sure that you understand that. So there's a couple of considerations, especially when you're in a high interest rate environment like we are right now. There's a couple of considerations that I want you to think about. Number one is if you have a lower credit score, you need to improve that credit score before you buy the house because this is going to result in thousands and thousands and thousands of dollars if you can improve that credit

score. So take some time, improve your credit score first before you buy a house. Otherwise, you're going to have to pay a much higher interest rate. And if you have to do that, it's going to cost you thousands and thousands, if not hundreds of thousands of dollars over the course of that loan's lifetime, depending on how many points would be added to your loan amount. So that's something you definitely want to consider as you go through this. The second thing you can do is you can increase the down payment to reduce that 30% or less of your mortgage payment every month. But like we said, that's very difficult to do when you go through this process. And then I want you, when you're starting to look at loans and when you're starting to shop around, I want you to shop

around for the best rate. Don't just go to one or two people. I want you to contact 10 people. This matters a lot, especially if you're going to stay in this house for a long time, which you need to be at least staying in a house for at least this next seven to 10 years if you're going to buy a house. If you're not going to stay long term in a house, then you need to continue renting. That is the way that we talk about all the time here, because if the market takes a dip and you are in this house and then all of a sudden you need to leave because you're outgrowing this house, then all of a sudden what's going to happen is you're going to be selling a house at a loss. And there is nothing worse for your finances than selling a house at a loss, especially when we have

no idea what the market is going to do in the future. There's people that are saying, well, you need to buy a house now because the market's going to keep going up. I don't know that for a fact. And there's people that are saying it's going to crash tomorrow. I don't know that for a fact either. Nobody has a crystal ball and if people are telling you they know what's going to happen, do not listen to those people, write them off because that is absolutely not true. Nobody knows what's going to happen. There's factors we can consider, obviously, but at the same time, we have no idea when it's going to happen or what is going to happen. So you need to at least stay in that property for the next seven years, preferably 10, before you actually consider buying that house.

Now, once you shop around, you find that best rate. Unless you think interest rates are going to drop in the near future, I would lock in that rate. I've had people who do not lock in the rate, and then a month later, it goes up one and one and a half percent, which to buy down one, one and a half percent is tens of thousands of dollars depending on the price of the house. So you definitely want to make sure that you lock that in. That is tens of thousands of dollars mistake if you do not lock it in. So that's just something that I want you to consider as well. Now, one other thing that you can do is if you're in a high interest rate environment, you can pay for points. Now, you have to do the math on if this makes sense for your situation.

I will show you here how to do the math. If this makes sense for your situation, it has never made sense for my situation. So I've never done this, but this is an option that a lot of people have to pay for points. What is paying for points? This is also known as buying down your interest rate, meaning if your interest rate is really, really high, you can pay an upfront fee to reduce that interest rate down. And this fee is not usually cheap. It typically costs about 1% of the total purchase price of the house to buy down about 0.25% interest rate. So if you think you're going to stay in this house for 30 years, that may be a consideration. I'll show you the break even point on how to do the math here in a second. But that could be a consideration, hey, maybe I

buy down some of these points and get rid of that. But you can also refy the mortgage in the long run if you think that interest rates are going to be reduced, and then you just wasted money on reducing those points. So that's another thing that you want to consider. So that's why I've never done it because I don't know what interest rates are going to do in the future. But if you, for some reason, know something and you think interest rates are going to be reduced in the future, then don't pay for points. But if you think they're going to go up in the future, then paying for points maybe an option. Now, let's see how we can figure out if we'll break even paying for points based on our interest rate. So say, for example, you take out a 30-year mortgage, and that mortgage is $200,000. And your lender offers you

an interest rate of 4%, or you could pay $1.2,000 and get an interest rate of 3.75%, meaning it's going to reduce your interest rate by 0.25%. So you either have 4%, or you can pay one point for 3.75% for $2,000. So at a 4% interest rate, the monthly mortgage payment, principal and interest only, would be $9.54.83. But at 3.75%, your interest rate after buying that point would be $926.23. So by buying that point for $2,000, you're saving $28.60. So how long would it take to actually outweigh the cost for this is the question that you're really asking? So what you're going to do is you're going to take the cost of the point. So in this consideration, it's $2,000. That's what it cost to buy that down. And the monthly savings, which is $28.60. And you're going to divide the cost

of the point by the monthly savings. And that's going to give you the number. So approximately 70 months in this situation, or just under. six years. So you would break even six years down the road if you bought down that point. So that's why I'm saying if you're going to stay in this house for a long term, maybe you want to consider that if you don't think interest rates are going to drop and you don't want to refinance. That's your break even point. Or maybe you say, hey, I take it on the chin for the next six years and that's my break even spot so that I know that at least I reduced and saved that much for that time frame. Now, I want you to keep in mind it does vary by lender on how much it costs to reduce points and how

much it would cost you to actually pay that down. But in this scenario, that's how you run the number. So you're going to divide the cost of the point by the monthly savings. And that's going to give you the number, an approximate number of where your break-even point is. And then you can figure out, hey, does this make sense for me? And you can do this is negotiate the fees and the closing costs, because you're going to have closing costs. You're going to have fees. We're going to talk about here in a second. But you can negotiate these. And learning how to negotiate these is really, really powerful. If you guys want me to put a script together on how you can negotiate these, shoot me a message and we will do so. But negotiating closing costs and fees is a really powerful way

to save yourself maybe a thousand plus dollars just on the closing price of this house. Now, I want to talk about some unexpected cost that most first-time home buyers don't realize is associated with buying their first house. Number one is closing costs that we just talked about. So closing costs are costs that you pay to close on the house. And this typically costs anywhere from 2% to 5% of a home's purchase price. And they include a variety of fees. And they include a variety of This is loan origination fees. This is appraisal fees where they went out and did an appraisal. This is title insurance.

There's a bunch of other stuff factored in there, a bunch of little fees. When you close on the house and you get your HUD statement, you're going to see a really, really long list of fees that are there. Number two is home inspection. If you were buying a house and you do not get an inspection, I have no sympathy for you whatsoever. You have to go and you have to get an inspection if you're going to get serious and buy a house. A home inspector is going to uncover every issue inside of that house.

I have not purchased dozens of houses. These are rental properties typically, but I have not purchased dozens of houses because I've gotten a home inspection on those houses and they have uncovered some really, really bad things with houses that look really good. So you've got to make sure that you get in home inspection. They're going to go through the entire house.

They're going to comb through the house from the plumbing systems to the roof, to the electrical panel, to how the electric is working in the house, to how the windows are sealed from if the sinks are working, all the little small things. If the cabinets open and closed properly, they look at literally everything so that you can make sure everything is in the condition that the listing says the house is in.

So home inspectors typically cost anywhere from, in my area, at least, they cost anywhere from $400 all the way up. I've seen it to $7 or $800. And it depends on the size of the house. But they are something that is worth every single penny. The next factor is moving expenses because you're going to have to rent either a U-Haul and move yourself. If you're young and able-bodied, or if you have more money and less time, then you can hire movers. Movers are very expensive. They're thousands of dollars to move your house,

and they should be. That's a really hard job. So that is one where definitely want to make sure you're factoring that in. Then home repairs and maintenance is another big factor. So home repairs and maintenance is going to be one where you need to figure out what this is going to be up front. This is total cost of ownership. TCO. You need to know what your home repairs and maintenance most likely are going to be. So you're going to have to put this into your budget. You're going to be saving this amount every single month so that you can save up for this. Now, this is not only just direct repairs of your sink gets leaky or if something small happens or landscaping that you need outside of your house or the lawn care stuff or anything associated like that or if you have a pool, pool care stuff.

But this is not just maintenance, but it's also capital expenditures. What are capital expenditures you might ask? That is things like your roof, your heater or your air conditioning. The big ticket items, the stuff that really, really matters is going to come up. It's going to need to be done. You could even put, factor in stuff like painting into this. Painting has become really, really expensive. It's like $5 a square foot. So if you have a 2,000 square foot home, you're paying a lot of money to have your house painted and to make sure that it's maintained and upkept. So all of this stuff is to say that you need to make sure that you factor in these costs and make sure that you factor in what really matters. Number four is furniture and decor. If you buy a big house, if you're moving

from a small apartment into a big house, you're going to need furniture to fill up that house. You need to factor in and weigh in the cost of that. And a lot of people who buy new houses go into debt with furniture, which is a major, major no-no. So you got to make sure that you have that money in place. This is why you want to have extra cash on hand when you buy these houses. HOA expenses, make sure you factor those in. Utility bills. Your utility bills are going to change from your apartment or wherever you live now to your new house. A lot of factors are going to come into play here. For example, I built a brand new house. My brand new house is three and a half times the size of my last house. And with my brand new house, my energy bill is

actually less than it was in my last house because my last house was built in the 80s. So energy efficiency, when the house was built, all of these are important. Before you buy the house, ask for utility bills, things like that if you want to kind of get a good idea of how much is going to cost. Property taxes and homeowners insurance insurance. So call up your insurance agent, ask them what the homeowners insurance is going to cost. Property taxes, you can look at your county property appraiser, and they will tell you what the property taxes are on that website. So make sure you check that out. You can just Google your city and then property appraiser.

So if you live in Miami, just Google Miami property appraiser. PMI. So you've got a factor in PMI if you're putting less than 20% down. And so that is one that's very important. And then cost of ownership is another big factor. But the big question is, what are some loans that you can get when you're a first time home buyer? So if you're looking for loans that you can get as a first time home buyer, there's a bunch of them out there. My favorite one overall, because a lot of people can take advantage of this, is the FHA loan. Now, the FHA loan is going to be one where you can put as little as 3.5% down on a property. And so when you do that, that means that you can really get a low down payment down.

This is great for house hacking. If your house hacking, an FHA loan is awesome because your tenant is going to be paying down your mortgage. Or if you're going to do a live and flip, that's another great option, as long as the payments, obviously every single month are below 30%. But that is one great first option. Another one is conventional loans. Conventional loans still allow you to put a small amount down. You can put as low as 3% down with a conventional loan.

And now it might even be lower. I haven't looked recently. So conventional loans are still a great option if you don't want to deal with FHA loan. If you are active duty, you can do VA loans, which allow you to put zero percent down with VA loans. There are USDA loans if you are in agriculture or something like that where they give you really, really good benefits there. And you can also look for down payment assistance programs. If you do not make a lot of money, you still want to buy a house.

There are those available to you. And then Google other first-time homebuyer loans and programs in your area. There may be some with some really good terms. You've just got to see if there is any in that area. And then seller financing. We've talked about seller financing and all the real estate investing podcasts. But if you can find a house where somebody is willing to seller finance to you, meaning they're willing to be the bank, you can be really creative with structuring those terms. I love this option. I love seller financing so much because you can do whatever you want. You can be creative with this. So look at seller financing if you can figure that out where the homeowner is actually going to be the bank and they earn an interest rate. So it's a win-win situation for both sides and both parties. But conventional FHA, VA loans, those are really common ones out there that a lot of people take advantage of. Those are some of the best ones out. there if you want to do this. Just making sure that you follow the rules when it comes to 30% or

less of how much you're spending every single month is going to be really, really important. So lately, I've been noticing how fast things are changing at home. The kids are growing like crazy, clothes don't fit anymore, and routines are changing. And it just hits you. Life is expanding. And when your life grows, your responsibility grows with it. That's something I've been thinking about more this spring, making sure the safety net we have in place actually matches the life that we're building. And that's where PolicyGenius comes in. PolicyGenius isn't an insurance company. They're an online marketplace that helps you compare life insurance quotes from some of the top insurers in America, all in one place for free. And their licensed team

works for you, not the insurance companies. So they help you find the right coverage for your situation without all the guesswork. And they walk you through everything. Answer your questions, handle the paperwork, and help you get the coverage that actually fits your life today and where it's going. So protect your family with a policy that grows with your life. With PolicyGenius, you can see if you can find 20-year life insurance policies starting at just $276 a year for $1 million of coverage. Head to PolicyGenius.com to compare life insurance quotes from top companies

and see how much you can save. That's PolicyGenius.com. I remember when I needed to hire someone fast, but finding the right person quickly felt impossible. And if you've ever been there, you know how stressful this can be. That's where Indeed comes in. When it comes to hiring, Indeed is all you need. Instead of struggling to get your job post noticed, Indeed's sponsor jobs help you stand out

and hire faster. Your post jumps up to the top of the page, making sure it reaches the right candidates. And it makes a huge difference. Sponsored jobs on Indeed get 45% more applications than non-sponsored ones. And there's no need to wait any longer. Speed up your hiring right now with Indeed. And listeners of this show will get a $75 sponsored job credit to get your jobs more visibility at Indeed.com slash personal finance. Just go to Indeed.com slash personal finance right now

and support our show by saying you heard about Indeed on this podcast. Indeed.com slash personal finance. Terms and conditions apply. Hiring, Indeed is all you need. Let's talk groceries, specifically your groceries with Instacart. You want your groceries just the way you like them, right? Well, the Instacard app lets you do just that. They have a new preference picker that lets you pick how ripe or unripe you want your bananas. Shoppers can see your preferences up front, helping guide their choices. Instacart, get groceries just how you like.

Amazon presents Jeff versus Taco Truck Salsa, whether it's Verde, Roja, or the orange one. For Jeff, trying any salsa is like playing Russian roulette with a flamethrower. Luckily, Jeff's saved with Amazon and stocked up on antacids, ginger tea, and milk. Habaniero, more like habanier, yes. Save the everyday with Amazon.

All right, the next question is, how do taxes work in retirement? So when it comes to taxes in retirement, here's something I definitely want you to kind of think through you. I want you to ask yourself two questions. Number one is what does the IRS actually qualify as income in my situation? And then number two, does that income get taxed? Those are the two things that you need to ask yourself.

So here's what we're going to do. We're going to go through a bunch of different things here and a bunch of information on how taxes work in retirement. If you have any questions, you can reach out to me. But we're going to go through the various account types too and talk about that because that actually really, really matters, which is why we love the Roth so much. Shout out Roth IRA. Love you.

So this is one where we're going to go through this. So the first thing you want to know is the standard deduction and tax brackets. So when you're in retirement, you may still be eligible for the standard deduction. The standard deduction is very, very important. it comes to retirement because this reduces your taxable income and the amount of the standard reduction depends on your filing status. So your retirement income, including Social Security and pension and withdrawals from retirement accounts, is all added in to calculate what your taxable income is. Now, your taxable income determines the tax bracket that you fall into.

So when you start withdrawing money from all these different accounts, that is what's going to determine what tax bracket you fall into. And the core spragile, you fall into. And the core tax rates that are applied to your income in that bracket. So what is your income is the first question? Well, it's going to depend on the amount of money that you're withdrawing from these various accounts and how they are taxed, which I'm going to talk through each of the account types so you understand how they are taxed. So you can figure out what my income is actually going to be as we go through this.

Now, a couple of other things that you want to factor in is health care costs. So health care costs can sometimes be tax deductible, which can reduce short taxable income. So thinking about this, your health care costs are going to rise in retirement. So depending on, specific health care costs can be used to reduce your AGI or your adjusted gross income, subject to certain limitations, obviously. But that is something where you can kind of factor that in. Also, you want to think about required minimum distributions because RMDs inside of your 401K, for example, are when Uncle Sam says, hey, you can't keep this money in the 401K forever or you're never going to pay me my taxes. I need you.

to start taking required minimum distributions. It's usually at the age of 72, but if you're born before 1945, it's 70 and a half. And you must start taking RMDs for most retirement accounts, excluding our friends of the Roth IRA. And RMDs are generally taxable

as ordinary income. So when you have to take those RMDs, they are taxed at ordinary income and they're calculated based on your account balances and your life expectancy. And then you have state taxes. So you got to factor in state taxes also

and state taxes laws vary. So it's really important for a lot of people to be able to retire in a state that possibly has better state taxes if that matters to you. If you want to stretch your dollars further, or one thing you do is snowbird, but if you want to snowbird into a state that has better tax laws and you stay there for over six months, you could snowboard in one state and then the state that you originally live or where your family is or whatever, then you could stay in that state for the other six months or five and a half months. And then you'll be able to kind of take advantage of some of the state tax laws if your state tax laws are terrible like they are in places

like California. So those are some things just to consider as you go through this. And then here is how each account type is taxed because I want you to understand this. So remember, how you withdraw from all these accounts is going to dictate what your actual taxable income is or what your AGI is, adjusted gross income is so that you can figure out how much you're going to be taxed on this. So minimizing the amount is very, very important. And so here's how each thing is tax. is the first one. The IRS considers a portion of Social Security benefits as taxable income. So a portion of your Social Security is going to be considered taxable income. To determine the taxable portion, here's the IRS uses a formula called provisional income. That's what they call it as

provisional income. And this includes your adjusted gross income and tax exempt interest and 50% of your Social Security benefits. So depending on your provisional income, up to 85% of your Social Security benefits may be subject to federal taxes. So if you have really, really high income in retirement because you are a really good saver, you had a lot of money in 401Ks or other things, then up to 85% of your Social Security can be taxed based on federal income taxes. But the 85% is the max at this point in time. And that is where that falls into play. Most people don't have crazy Social Security numbers, but you could have a high number of that. And if you have a lot of rental properties or something like that, your income is going to be pretty high. Pensions and

retirement account withdrawals. So pensions are treated as taxable income. So if you have a pension available to you, those are treated as completely taxable income. And so when you receive distributions from these accounts, they are added to your taxable income for that year. That's how pensions work. So that is taxable income. That is income coming in that you will be taxed on. The same thing goes for pre-tax retirement accounts. So pre-tax retirement accounts, meaning your traditional 401k, your traditional IRA, those are also going to be taxed as income. So your RMDs, all of those are going to be taxed as income because you did not pay taxes on that money yet when it's a traditional 401k or a traditional IRA. This is why I like the Roth first and then you go

into those because once you hit retirement, there is a difference with your Roth because your Roth, you already pay taxes on this money. So guess what? When you withdraw money from your Roth, that money is not going to be taxed. That is amazing. It is absolutely amazing. Why? Because the growth of your money inside of a Roth IRA is going to be the majority.

So you're going to have a ton of tax-free money in that account if you've been contributing over the course of the last 30 years. So things like your Roth accounts, like your Roth 401K, love that account because you can get more money into a Roth 401k, $22,500. And the Roth IRA are generally tax-free. And since Roth contributions are made with after-tax dollars, they're not included in your taxable income.

Beautiful thing about a Roth. Why I love the Roth so much, which is why in the Starrath so much, which is why in the stairway to wealth, if you've never heard of the stairway to wealth, go get yourself a copy at mastermoney.com slash stairway to wealth. That is our order step-by-step guide on each step that you need to take in order to invest your dollars or to manage your money properly with our system. And in the stairway to wealth, that'll kind of guide you step by step,

and the Roth comes before the 401K for that reason. Taxable investment income. This is things like your taxable brokerage account. Where does this fall into play? Great for people who are going to retire early, and it's great to have some flexibility with a taxable brokerage account. This is going to be taxed. So things like your dividends, your interest, and your capital gains, those are considered

taxable income. But specific tax rates apply to this because specific tax rates apply to this. So this is going to be your tax rates when it comes to long-term capital gains tax and short-term capital gains tax. So you've got to make sure that you are taking advantage of long-term capital gains tax by investing your dollars for one year or more. most people in these accounts who are in retirement don't have short-term capital gains tax unless they're trying to day trade as like a side hustle or something. So for most people,

it's long-term capital gains tax inside of those. Rental income, another big one. If you own rental properties or receive rental income in retirement, the IRS considers this as taxable income. So this is where your income can really rise if you have a bunch of different properties. Now you will have some tax breaks and some depreciation benefits and some other things that happen when it comes to owning these properties. But at the same time, they are at... Cash flow is taxable income, and that is income that is generally subject to federal income taxes, whereas capital gains inside of something like a taxable brokerage account is going to be long-term capital gains, which is usually much less than taxable income. Long-term capital gains, depending on what you make

every single year, is going to be 0%, 15%, which is what most people fall into is 15%, unless you make less than $40,000, or you could be taxed all the way up to 20% if you have really, really, really high income. So if you have a bunch of rental properties, for example, and you have a taxable brokerage account, and you could be that 20% level, depending on what your income is. And so rental income is subject to those federal income taxes. And then any other income sources such as part-time work, business income, annuity payments, all of those are considered taxable income also by the IRS. So this is kind of how taxes work.

It depends on where the money's coming from. And it depends on how you set your accounts up. This is why it's really, really important to have a good plan on the tax buckets that you set up so that you can have all of this put together. properly. We will do an entire episode on how to set your accounts up for financial independence. Shoot me a message if you want that episode and we will definitely, definitely put that together. And we've talked in the past about a couple of loopholes like the Roth conversion ladder and all these other things where we talk on how you can actually make adjustments to that.

Number three, can you create a script for asking about the hospital costs of having a baby? So we did an episode. If you haven't heard it, you could check it out below if you're expecting or you want to have a child at some point in time and life. and we talked about the cost and how to prepare for the cost of having a baby. I have two kids. I've done this twice already. And so now we're becoming pros at how to do this. And so this is one thing where when we did that episode, we got a lot of feedback on that

episode, which I'm excited about because we've been in the trenches. We've done this a bunch of different times. I weighed out literally every single cost that I could think of and went back into some of our budgets and looked at some of the costs that are associated with having a child. And so this was one where we did a bunch of deep dives on there. But one of the things we talk about in there is to figure out how much it's going to cost when you go to the hospital to give birth and all these other things. Most people will hit their deductible. But how much is it going to cost you so that you can figure out what your out of pocket costs will be based on your insurance?

Now, there's a lot of objections that come into play. And a lot of people start to say, well, I did this. And the hospital told me they can't tell me because they don't know what my insurance is going to bill. That is not an acceptable answer for anybody to just say, okay, and then hang up the phone. So what I want you to do is I want you to look at this script that we did and we have that objection in there because that's the most common objection. That's most of the time actually what they're going to say. And then what you're going to do is go through this process. So here is how you do it.

So you're going to first ask them, hey, I'm planning on having a baby at your hospital and I'm trying to get a better understanding of what the total cost might be to help to help to help to help me budget accordingly. Can you help me with that? So you just call up the hospital that you're going to. A lot of times what they're going to say is, sure, I can try to help. but the cost can vary widely depending on a number of factors like your insurance or other complications. They could also be jerks and say, I can't give you that. I don't know what your insurance is going to bill. If they do that, that is the most common objection, I'm sure they're actually going to say that, to be honest. So if that's the objection, here's what you say. I understand that costs may vary, but can you provide me with a ballpark figure?

What are some common costs associated with a typical birth, as well as any additional fees that might come up unexpectedly. What you want is ballpark numbers. You want ballpark numbers of what? costs are going to come up. If they say, I don't know what your insurance is going to bill, say, give me ballpark numbers of what is the typical birth going to cost with this insurance provider. If they still for some reason won't do that, say give me ballpark figures on what this typically costs with all providers. You have to at least be able to give me that. I need to be able to budget accordingly. And if you cannot do that, connect me to someone who can. Now, the next question you can ask is if you're going to get a private room, somehow, like our hospital

that we went to, like, everybody gets a private room. There's no like sharing rooms or anything like that. I don't know what type of hospital you're going to go to. So if that is not the case. Another question is, can you include in your estimate the cost for both a regular room and a private room? And then what about additional procedures or tests that might be needed? Can you also provide some information about the cost of a C-section if that becomes necessary? Because if a C-section becomes necessary, now you have a surgery on your bill as well. And so you want to make sure that you understand, you know, what that cost is going to be. And then I'm also interested in understanding the cost associated with prenatal and postnatal care.

Can you provide me with some estimates for these? So this guide is just going to give you the questions to knock out right down the list on the phone. And then you can get some of those answers. And then they can also put that together for you. And then could you also let me know the cost for additional potential complications or emergencies that might arise? What are some common ones that might arise? For example, what if the baby needs to go in the NICU, for example? So what are the costs if they went to the NICU per week or month or day or whatever they kind of map out for you?

So you have that available to you? And then are there any other charges or fees that I should be aware of that we have not discussed yet? So you're going to have this discussion with all these different questions. They're going to give you some of those answers. And then what you want to do is just continue asking these questions until you're satisfied with the total budget available to you. And then could you possibly send me an itemized estimate with all these costs in writing is the last question you want?

You want to get that itemized estimate. And if they say, well, I can't give you the exact ones. Just say, give me a range for each itemized thing so that I have this available. I need to put my budget together so I can have the financial health of my future family intact when we prepare to do this. So in addition, you can also. also call your insurance company, talk about what's happening, talk about what you're going to be doing, and then how much they think you're going to be paying out of pocket. And you can talk about your

deductible. If you don't know what your deductible is, make sure you talk about that and what you're out of pocket costs are going to be so that you can get a really, really good idea of exactly how much this is going to cost. So hopefully that script helps. It'll be up in the show notes if you want to check that out with all those questions there. And we will provide that to all of you guys. All I got to do is just click the link below and you can get access to it. So hopefully that helps a lot of you and let me know if it does. And if there's any other objections that come up that we didn't talk about here, let me know and we'll add some scripts for that as well to try to help you out as much as we possibly can on this stuff. Because I know how stressful this can be. The last thing

you want to do is worry about finances. You want to worry about taking care of that beautiful newborn baby or babies that you have and want to make sure that you are doing everything in your power to taking care of those children. So hopefully that is helpful. And listen, if you guys have any other questions, make sure to hit us up on Instagram, TikTok, Twitter, at MasterMoney Co. And follow us on Spotify, Apple Podcasts, or whatever podcast player you love us in this podcast on. And if you want to help out the show, leave that five-star rating and review on Apple Podcast, Spotify, or your favorite podcast player. Thank you guys so much for listening to this episode.

I truly appreciate each and every single one of you, and we will see you on the next episode. Rosen lasagna, medium power, 15 minutes. Sounds like Ojo time. Let's play. Feel the fun with Play-Ojo. The online casino with all the latest slot and live casino games. What you win is you. yours to keep with no wagering requirements, instant payouts, and no minimum withdraws.

Hey, I just won. Woohoo! Feel the fun! Play, oh Joe! Honey, forget about the lasagna. Let's celebrate! 19 plus Ontario only. Please play responsibly.

Concern about your gambling or that of someone close to you, call 16-531-2600 or visit connectxontera.ca.