Q&A: Selling A Business for $1M, Acorns vs. Public & Investing in Texas from California
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What is the main topic discussed in this episode?
Hey everyone, and welcome back to the Rich Habits Podcast, question and answer edition brought to you by public.com. These are Thursday episodes where we put ourselves in your shoes, trying to imagine what you're going through and answer your questions, literally, if we were doing and going through whatever you are going through. If you have a question to ask us, you can DM us on Instagram at richhabitspodcast, or you can email us at richhabitspodcast at gmail.com. Our first question comes from Carl M. Carl says, Hi Austin and Robert. I know you guys preach the investing strategy of match beats Roth beats taxable all the time. But should that strategy change slightly for someone hoping to retire early?
My employer lets me contribute to a Roth 401k. I get a 5% match. So I've been maxing out that Roth 401k. and my personal Roth IRA every single year. I also max out my health savings account and any extra funds past that are what go into my taxable brokerage account. Since I can't touch my Roth 401k until I'm 59 and a half without penalty, would it make sense to contribute maybe slightly less than maxing it out and maybe more to my taxable brokerage account. That would provide me some flexibility if I plan to retire before the age of 59. I'm 38 years old. I make $130,000 a year with a combined half a million dollars now invested across all these accounts. Robert, our friend Kyle here is rocking and rolling.
Half a million bucks at 38 is nothing to sneeze at. That is incredible, incredible progress, Carl. no matter how it's invested right that is that's awesome Robert we talk about match beats Roth beats taxable all the time how that goes is we say up to the match because you want to get that free money from your employer then focus on maxing out that Roth IRA because you get all that tax-free gains and growth within your retirement plus you get to choose how that Roth IRA is invested so if you want to make sure it's invested in the S&P and the Nasdaq and the Dow Jones You can do that. You might not have that same autonomy in your 401k. So up to the match, max out that Roth IRA. And then if you do have autonomy over that 401k and you really want to turbocharge those retirement accounts, go back over to that 401k, max it out because you want to get as much money working for you, tax advantage as possible.
And then if you still have money left over, like our friend Carl here, then everything left over goes toward that taxable account. If you do not have autonomy over that 401k, then skip going back to it and just focus on that taxable account. Because Robert, it's so important for us to always remind everyone when you have autonomy over your investments, which means you can choose the ETFs, the index funds, the strategies, right? It's not just like... aggressive or moderate or target date fund, right? Like you actually get to choose it and you get to pick the right ETFs and funds with the lowest expenses, with the best track records that is going to compound for you so much better over a long period of time than just getting thrown into something because your employer doesn't really care about your retirement.
So, Robert, we talk about this strategy and our friend Carl has now alluded to saying, hey, maybe I should be focusing on my bridge account. Do you maybe want to take a moment here to explain why it's called the bridge account as well as how Carl could access and leverage that bridge account to ensure that if Carl does have enough money to retire early, he can do so?
How should early retirees balance Roth 401(k) contributions versus a taxable 'bridge' account?
Yeah, 100%. I think in Carl's situation and anyone that's considering retiring early, you always want to be building the bridge account along with these tax advantage accounts like the 401k and the Roth IRAs of the world. Because the bridge account gives you that autonomy Austin was talking about. You can do whatever you want with it. whenever you want with it. Just remember, though, that that account is going to have a tax liability later on, but it allows you to have that money building alongside the retirement accounts to give you that freedom if you want to retire early.
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Chapters
4 chapters
1
What is the main topic discussed in this episode?
0:00–3:28
2
How should early retirees balance Roth 401(k) contributions versus a taxable 'bridge' account?
3:28–17:49
3
What is a 'bridge account' and how can it fund early retirement before 59½?
17:49–25:34
4
How should I structure selling a profitable personal training studio and protecting my Airbnb income?
25:34–41:40
Speakers
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