Tax-Efficient Investing with Patrick Huey - 182

Welcome Money Buddies to this week's episode of Money Talk. This week we're talking about investing and saving on taxes. I'm your host, Skylar Fleming, and let's get talking. What is Roth traditional taxable brokerage? What are all these different terms that get thrown around? This is one of my biggest pet peeves when it comes to personal finance. Why in the world is it called a Roth 401k and not something simple like an after-tax retirement account? Or something even simpler than that, and I know it's named after the person who created the Roth structure and 401k is the tax code that it's in. But why do you need to know that? Why isn't it just named something simple that helps you understand what it is? Why does it have to be so confusing? Well, I don't really know, and I may never be able to answer that or get it changed right away for all of us. But I do have a fellow money buddy today. Who is here to help us break it down and help us figure out what these different options are and when they are useful. Because if you're anything like me or anyone else, you're looking at your work's, 401k or maybe even an IRA and wondering what option do I choose? Do I go Roth or traditional? Because it can all be confusing. But don't forget about the sneaky good taxable brokerage account, which we're gonna talk about today. But that's another confusing name if you don't know what a brokerage is. Anytime I tell somebody, go open up a taxable brokerage account, they're like, what in the world is that? What kind of scam are you trying to get me into with a word like brokerage? It just sounds fancy, confusing, and unnecessary. Basically, it's just an investing checking account. That's what we could call it, an investing savings account, something like that that allows you access to the stock market, but we're gonna break it all down today. I'm really excited for this interview. I think it's gonna be a fantastic one that you're all gonna love. So let's get to introducing today's money, buddy, the Money Talking points, and get into today's conversation. Today's Money Buddy is Patrick Huey. Patrick is a small business owner, author, and host of History Lessons for the Modern Investor. It's a podcast that you should probably go check out after you listen to this one. He leads Victory Independent Planning, LLC, helping families and nonprofits with investment and financial strategies. Under the motto Live Well and Do Good. A former Naval Flight Officer Patrick is a certified financial planner professional. With degrees in history and business, and he is active in philanthropy, sports, and the arts. The money talking points for this week are how can you use a taxable brokerage account, which I'm excited to tell you some tips and tricks of my own trading in that account. The second money talking point is how do you open an IRA? And the third one is, what should you invest in within your 401k? With those many talking points in mind, let's get talking and welcome Patrick to the show.

thanks. I appreciate it. I, I often think that, when we start talking about taxes, I feel like a dentist, where it's something people really wanna avoid as much as they can. They don't want to talk about it, they don't want to go to the dentist, but A little bit of, brushing your teeth every now and again. Keeps it from being a miserable experience. So, that's the way I like to look at taxes, a little bit of planning, a little bit of forethought, and you can, hopefully avoid some nasty surprises.

Yeah. We can, liken it to the normal flossing, whether you floss or not, if you don't floss, there's gonna be a little bit of blood when we start talking about this. So.

Exactly. So let's try to avoid that, shall we?

we'll avoid the blood. You can think about this a little bit ahead of time and make it a whole lot easier, but let's just dive right into it why do people need to be thinking about taxes when it comes to investing?

I think that, in general it just makes sense that it's not what you make, it's what you keep. Right. So you really need to think about the end game, from an investment perspective, which is keeping the most, not just making the most. as things get more complex, taxes, play a bigger role in your overall financial life. starting early and understanding that taxes make a difference, across the board with your investments, whether it's in an IRA, a Roth, or a non-retirement account, it makes a difference.

Yeah, there's a lot of opportunity there that I think people often overlook when you start thinking about it and it can be overwhelming. So don't try to consume the entire tax code all at once or else you're gonna just drain yourself. Maybe start with Recently in a trailer that I put together for the show, I mentioned that if you're a young adult right now, your financial situation probably doesn't seem too complicated. You're like, oh, how hard can this be? But you give it five, 10 years, you're gonna end up in a situation where you're like, what do I do with this money that I'm earning? People aren't sure what to even do, but then you start getting hit by taxes, higher tax rates that you're not used to, and there's just. A whole lot of opportunity that I don't think people understand or they miss out on. But let's start out with one of the pieces of that opportunity, and that's the traditional account. What does traditional mean for taxes?

So basically a traditional account, at its simplest level is you're contributing pre-tax dollars. So you get the opportunity to contribute money and not pay tax on what you put in there today. but the caveat is you're taking on a partner in that investment and that partner is the government. Um, so when you go to withdraw those funds, you will be taxed on the withdrawals, as income. I tell people this, in seminars that I give, if you were going to create a partnership and take on a partner. And that partner looked at you and said, I'm gonna take a piece, but you are not gonna know what it is You would tell them to pound sand. there's no one who would ever sign up for that type of partnership, and yet we all sign up for that partnership when we put money in a traditional IRA or a traditional 401k.

Yeah, that's a great way to look at it, that you're making a partnership with the government where they're saying at some future tax rate that you have no way of predicting, we're not going to give you some sort of a table of 30 year tax rates on traditional accounts only, which would be super useful that the math would completely change if we actually knew that information, but. That partnership is so unknown that you painted a good picture of maybe why we should avoid traditional a little bit. There's some unknown in that element, but can it be useful for people?

Sure it can. I mean, obviously it's going to reduce current taxes. so if you're in a higher tax bracket now and expect to be in a lower one later, the traditional makes a lot of sense. But what we've found. Is, after a generation of financial planning where we assumed that people would be in lower tax brackets when they retired, a lot of times it's not playing out that way. there are some structural reasons why, but we also have to look at the future and say. Our tax rates gonna remain as low as they are now into the future. I think that all of that is completely unknown and unknowable at this point. some of this is just. making sure that you are doing the things that you can do, that you're controlling the things you can control now. Do traditional counts, still have a place? I believe they do. I have them myself, so, it's just one of those things where you have to realize what you're getting into before you do it.

I love what you said there about control, what you can control, and to that means control, your contribution rate, actually making sure you're putting money in the account. these accounts don't do you any good if you're not putting any money in them. Like if you have that traditional 401k, but nothing is going in there, you're not getting the employer match or anything like that. Who cares about whatever the tax savings are? So that's kind of the first step that you gotta get started with.

I've, been kicking around an idea for a book for years now called, stoicism for the Modern Investor because that control what you can control, idea comes from stoic philosophy.

Well, it's a great one because when we start trying to speculate tax rates, we miss the mark, frankly, on what we can actually be doing now. it is not worth our time to speculate. Oh, tax rates will probably go up if this president gets elected or this one go doesn't, or

We did a lot of that over the last four to eight years. A

People are doing it right now.

Yep, absolutely. and I agree. it's really tough to know. we're almost, six months, halfway through the year at this point, and we still don't know what the tax rates are gonna be in 2026. it's kind of crazy, but we. Shouldn't be surprised. I know we'll probably get into this later, but it does funnel into the idea of converting money from, traditional to what is called a Roth IRA. there are some studies out now that suggest people who are doing that. Are not controlling what they can control because they're guessing at future tax rates. And what the studies are showing is that, for higher income earners, it may still make sense to do Roth IRA conversions. but for your average taxpayer, the benefits may be very minimal. So something we'll keep an eye on as tax law changes and these studies are updated.

Yeah. you mentioned a word that a couple new listeners might be saying, Roth, what does that mean? And to the investing professionals or some finance professionals? Roth is held as like this holy grail. Of investing, but what does Roth mean?

So Roth, it's a proper name. it was someone's name who proposed these type accounts, back in the late seventies or early eighties. And, the Roth really is the holy grail from tax planning perspective because

It eliminates that partner.

it eliminates the partnership. You don't have the government, sitting, watching over your shoulder waiting for you to take a distribution.

Or forcing you

They're forcing you to. Exactly, exactly. So it's a much more flexible instrument. Obviously there are drawbacks. You have to pay tax on whatever you put into it now, so it's not gonna save you any money today. but in the future it most certainly will. when it comes time to take those distributions because you're getting tax-free growth and tax-free distributions from a Roth. it really is, a win-win. And I tell my younger clients. the younger you are, the sooner you start as an investor, the more the Roth makes sense. You might do other things later on, but when you're just getting started, a Roth makes a ton of sense.

If you don't have a Roth IRA open and you're under 24, what are you doing? There's so much opportunity people will hear, well, I can't max it out. It's like, who cares? money in there. Because,

actually got accounts that the grandparents started for their grandchildren. For that reason, they knew the kids didn't have, the money to get it started, but they wanted them to get off on the right foot. So kind of cool. Yeah. Grandma. Yeah, grandpa.

Yeah. Well, the cool thing is the compounding interest that works on that. If you throw money into a child's account when they're zero or they are fresh, and just get a social security number so you can open it for'em. They only need like, I don't know the exact number, but it's like a thousand dollars or$2,000 to become a millionaire by the time they're 65. the amount of time that has to double and grow and compound is mind blowing because no one thinks about an investing timeline as 65 years. They think about it and maybe you got 20, 30, 40 years, but if you add a couple more doublings to that, it's just insane. What can happen and all of that being tax free is a big deal.

Yeah, it is. you start to bump up against, investor psychology there, right? human beings have a very hard time. projecting their lives, what they'll be like in 30 or 40 years. it's something financial planners deal with every day, trying to get people to look into the future and realize that your future self is not gonna look like your current self. trying to get younger people to understand that you are really passing up on an incredible benefit, that could make a difference in your life when you're 65 years old. It's really difficult to do.

Yeah, it is. that's definitely one of the hardest things. It's hard for our mind to fully comprehend what compound interest. Actually looks like it's easy once you start seeing it working and you're like, wow, that actually did work. But it's so hard for me to say a thousand or$2,000 can become a million dollars. that's just mind blowing and hard to wrap our heads around,

if you can get them to think about current. Problems versus future problems I just like to talk about money anxiety, right? Like, if you put money in a Roth, you're getting rid of tax anxiety for the future, right? so so why not give yourself the benefit of a good night's sleep now and in the future, with that tool.

Yeah. it's almost like you can take maybe that people probably just finished filing their taxes and you can look at that number and say, wow, I owed taxes. But if you think about it in 10, 15 years, when you're using that Roth IRA, that number's gone. take that anxiety that you're feeling now and apply it to the future. So I like that. That's a fantastic way to put

You're also training yourself in good habits. I've got, a client, I work with his son. I've been working with his son for years. his son went from, putting money into a Roth when he had no money, to now being, well above my average, client size. and it happened pretty fast. but he's got those good habits ingrained to where even though he's now making, a really, really impressive salary, he still puts money into Roth because he knows the value going forward. He's created those good habits. Yeah. Do we do some additional stuff tax wise? Sure. But he still wants to be putting money in his Roth 401k because he knows what it's gonna do for him in the future.

Yeah, and it just takes that headache away of the taxes. Like, why would anybody not do this? Is there ever a situation where we're pumping up the Roth? Is this kind of master plan, is there any reason why someone maybe shouldn't?

there are a variety of them. number one being, trying to reduce current taxes. high earners certainly want to at least look at that. the other is there are caps on income. you can only make so much money and still contribute to a Roth, particularly an ira. 4 0 1 Ks are, are much more flexible if, if your company offers a 401k option, with a Roth. so those are the two that jump to mind. there are. Time periods where you will not be able to use a Roth typically higher earners. Paying more taxes is usually a sign that you're making more money.

Yeah, it's not something to be scared of. if you aren't able to contribute to a Roth, it usually means you're making good money, which is an okay problem to

Yep.

but it's it's typically something that everyone should be doing. We talked about getting those behaviors going. If you're 20 or 22, that getting consistent,$200 automatic payment into your Roth. Is a way bigger deal in terms of your behavior than it is the actual money going into the account because then you have that as a staple in your mindset and you never deviate from it because it's just easy and automatic at that point.

It is the exact way I got my start, 200 bucks a month into, a Roth IRA When I was a junior lieutenant in the Navy, we didn't have the retirement plans back then that they have now, so you kind of had to do it on your own and that was how I chose to do it.

Yeah, it sticks with you and you keep it going, but there is this third option we're gonna talk about, and that's just a taxable account. This means that the money going in grows and there's taxes on the gains Taxes, when you sell it on gains and losses stuff like What is this taxable investing account?

Yeah. basically I would almost call it a bank account on steroids, right? it's got no tax, advantages. you're just putting money into a brokerage account with an investment firm, and you're buying stocks, bonds, mutual funds. and exchange traded funds. you get some flexibility, but you just don't get any tax advantage from it other than, when you take distributions from it or take money out of it, you're only taxed on the gains, So yeah, there are definitely some uses, for taxable accounts. You can put however much money you want to put in there. they're great for intermediate and long-term goals, beyond retirement. I've had folks, put money into taxable investment accounts and save money for a home, because they're gonna have access to it. that's the other thing you can access before age 59 and a half, which retirement accounts you're, you're kind of stuck in there until you're almost 60. it's almost like buying, a la carte at a restaurant, you don't get any discounts. there's no bundling, there's none of that. But you get the maximum choice and control over what you eventually eat.

Yeah. this episode is tax efficient investing. you mentioned the mutual fund right there, and then Why should we maybe avoid that in a taxable investing

I'm not a fan of them in taxable accounts because of capital gains. the story I tell people is, in 2008 I remember working with clients, when the market dove. Mutual funds had to start selling off their holdings to meet redemptions. they had all these gains from 2001 to 2008, embedded in the mutual fund. investors were getting capital gain statements on their taxes. In a mutual fund that was sometimes down 20 or 25%.

Everything's down and you're paying huge taxes. Yeah.

Correct. That is brutal. so you can avoid that by using things like exchange traded funds or individual stocks and bonds, which are much more tax efficient.

Mm-hmm. Yeah. There we go. That's a awesome quick little point on avoiding mutual funds in a taxable account. They can be very useful

I see it all the time. the word has not quite gotten out yet.

Well, yeah, there's a very big name that preaches mutual funds that at least I haven't listened outside of that in a while. But you you need to be aware of how these things actually work on a taxable. Front before you get too into'em. And that's an awesome place where a professional like you or people who are in this space can speak to it like, Hey, what kind of asset type should I choose? And you can speak to it a little bit of saying, Hey, these are just a word of caution that mutual funds aren't great in a taxable account, but there is a benefit. You mentioned long-term capital gains. You mentioned these, capital gains that you're only paying taxes on. I honestly think this could be one of the benefits of it. There is some tax. I guess optimization you can do on this front. What are long term or short term capital gains

so basically, to boil it down to its simplest level, it's a holding period. if you hold something for more than a year, it's gonna be a long-term game. If you're turning things over in the short term, it's a short term game. And, long-term capital gains are much preferable, too Short term. Short term is gonna basically be taxed at your income tax rate. Whereas long-term gains are gonna be taxed typically at either 15% or if you're in a low enough tax bracket. Zero.

Mm-hmm. And that's the magic

that's the magic number. Absolutely.

My wife and I did this recently, and I want to get your take on it as well, but this last year, my wife was just starting her job out of her master's program. our salary is starting to increase this year. But last year we noticed a bunch of gains in our taxable account towards the end of the year. So we did what I've heard called capital gains harvesting, which is that 0% where we were in a certain tax bracket, I think I sold everything that was a long-term gain and then just repurchased it as the same value to bring our cost basis up. What is that 0% rate and why can it be so, optimistic and optimized for people?

Yeah, I mean, zero is good. from a tax perspective, and we talk a lot about tax loss harvesting, especially, in my business, you are selling something to offset a gain in your portfolio You're selling something at a gain. Because you're not gonna pay any tax on it, and then you can reset the cost basis. Basically, you buy it again at a higher level so you have more of a chance to not pay tax on it in the future great strategy, quite frankly, and, I love those types of strategies where you're looking at. Your levels inside the tax code and figuring out what you can get away with, you know, sometimes it's topping off your tax bracket. if I've got somebody in the 12% bracket, which I do in retirement, it happens quite frequently. my clients don't live extravagantly. if I've got some room still left in the 12%. Bracket, you know, I might do a Roth conversion

mm-hmm.

because you know, they're gonna pay a very low, low rate on that and get all the benefits

Use the gap.

going forward. I love those strategies where you're topping off your tax bracket and figuring out, what you, are entitled to within it.

Yeah, you find that gap and you fill it and if you can go right up to it, that'd be awesome because then you're maxing out that 0% if you're using that capital gain strategy. And who doesn't love tax free? We call it a taxable investing account, but there is that one potential. Opportunity. And even then when you get over the 0%, I think it goes to 15% next, which can still be lower than your ordinary income rate. there's still a whole lot of opportunity in an account that you call taxable, but there's still a little bit of tax efficiency to it if you hold it for over a year. don't completely count it out just

I will tell you a story about 2024. you know, coming out of the, the market downturn in 22, we had two really good years, of growth in, in, in accounts and, in. Early 24, we took some capital gains distributions because we had to, take some of that stock market risk off the books for clients we booked some gains and hoped that, over the year we'd be able to. work those down. it never happened. it's not a perfect game. you are gonna have years where you pay capital gains, and you can get stuck with some capital gains payments, but it's still better than paying income tax rates. it all goes back to the three types of accounts We love to talk about asset allocation, where you put your money and the division between stocks and bonds. What we're talking about today is asset location, what type of account is best for your mutual funds? we've just said it's not a taxable account. hold that in your 401k where you don't really have a choice. asset location makes a Big difference when you get into retirement and you've got, you know, some different buckets to draw on.'cause you can really manage your tax bracket that way.

Yeah. And when it's all your money, and you can sit there and pick where to pull it from or do conversions like you mentioned, or take long-term capital gains. There's a lot of fun games that can be played with taxes when you set yourself up early with these different buckets, so that's fantastic. talk about one more potential bucket that is kind of this living in the background. I think this is the holy grail of tax efficient investing and it's the HSA. What is the HSA? How's it slightly different?

So the Health savings account, or HSA, as its name suggests, is Intended to be used, for health savings. it's one of those, tax free buckets that if you use it for medical care, it's going to, grow and distribute without tax phenomenal tool. even if you're just using it for healthcare. I recommend to my clients if they have the means. That they contribute as much as they can into an HSA and don't use it. Don't pay your doctor bills out of your HSA if you can afford to do it from your taxable accounts. Why? because this thing's gonna grow tax deferred if you don't mess with it. the power of compounding that, that you talked about, I. if you're just looking from a financial planning perspective, average person's gonna spend$120,000 on out of pocket healthcare costs in retirement. So having that HSA growing for you, can be a huge factor. once you get into retirement, the other hitch is if you don't spend it by age 65, it basically turns into an IRA. So you have the ability to take money out of it. you pay tax if it's not for medical costs. But you do get some flexibility later on in retirement. So yeah, it, it's a fantastic tool. I don't think most people really think it through. I think they use it like it's, a

A health spending account.

Exactly. Exactly.

And there's still some benefit to that, but not the maximum.

absolutely. if you need that benefit now. use it as you see fit, but if you can meet your medical expenses, and we're just talking about copays and, stuff like that for working people who have health insurance, think about trying to, not touch the HSA,

Mm-hmm. Yeah. My wife and I do that. I have a spreadsheet where I keep track of all of it. We keep track of, I call it our unreimbursed expenses. And'cause like you mentioned, you can reimburse yourself at any time for these amounts so your investments can grow and grow and grow. And then we had a couple procedures a year or two ago where we had let this account grow for a few years and we were able to, we needed some of that money back. Our cash flow isn't super perfect to be able to float how this expense was growing and we were able to withdraw from that. HSA solely from the gains. it's like we never really paid for it. The economy or the market, The gains paid for our medical expenses, and that's a massive benefit. It was all tax free. The money went in, pre-tax came out tax free, The tax was completely avoided. So if you really wanna remove the business partner, an HSA is a perfect way to do that.'cause you can go tax free from beginning to end for medical expenses.

Yep. I agree. It's, a very flexible, very underused tool. and you made a good point, which is, a lot of HSAs offer both a cash and an investment option. Make sure that you are maximizing that investment option, especially if you're trying to save this for the long term, if you're using it for current medical, you know, have some cash as well. But, you really want to maximize this asset for the future.

Yeah. And there are so many HSAs out there that just charge bogus fees. I like fidelity. I know there's a couple other ones that are good. Low fee. Like no fee options, but if your works, HSAI only contribute to my works HSA enough to get the employer match that they do into the

Mm-hmm.

and then I do it the rest in the fidelity and things like that. There's a lot of opportunity. I think people think the health savings account is this locked down crazy account that only certain people can access. Sure. There are some requirements, but it does have a lot of flexibility, like you said.

It does, and you can roll it over just like, with a work account. With a work IRA or work 401k, you've got the opportunity to roll over and consolidate, as your career changes. So yeah, incredible, flexible.

Yeah, let's wrap up here with maybe is there a couple other things that come to your mind? Any other tax opportunities that we haven't touched on that people need to be aware of while investing?

Ooh. Um, you know, I would more look at the big picture. I'm a big picture guy. I would. Tell people to step back and say there's two kinds of taxation, right? There's two kinds of tax planning. There's actual tax planning where you're looking into the future and trying to figure it out. And there's what a lot of people call tax planning, which is actually tax filing.

Yeah.

Um, I'm a big proponent of tax planning. tax filers kind of make me mad sometimes, because they're really not providing you with a whole lot upfront and you end up paying for. Virtually nothing.

For paperwork, yeah.

E exactly. as taxes get more involved, there is certainly work to be done. but I highly recommend that folks engage in proactive tax planning. looking ahead at what their income is gonna be, finding those gaps in the tax brackets where they can potentially take advantage of them. because it does make a huge difference once you get to retirement planning.

Yeah, that's a fantastic place to look. Make sure you're thinking about taxes before it's April 15th of next year. start thinking about it now. Your salary, if you're working salary, it's probably gonna be pretty consistent through the year, and you can begin to plan Say, oh, I know I'm gonna come in a good amount under that 0% capital gains bracket. Maybe I can start to use some of that now to supplement some income for a larger expense coming up. There's a lot of opportunity if you think ahead, so that's a fantastic place to leave it. I got two final questions to wrap us up here. First one's gonna be how can people connect with you? And then the second one what's one thing you wish you would've known sooner when it comes to taxes and investing? But first, how can people find you online?

Sure online, uh, my company is victory independent planning.com. they can go to the website. I'm on LinkedIn. I do a lot of, posting on LinkedIn as well. you can find me there. It's Patrick Huey, H-U-E-Y-C-F-P. they can also find, the podcast, History Lessons for the Modern Investor. That's, available everywhere you get podcasts, as well as the, video feed on

Awesome. What's one thing you wish you would've known sooner about taxes with investing?

this is kind of a no-brainer. but, I used to think, and I think a lot of people, are similar that, investing was just about picking the hottest stock or mutual fund The silent factor, the silent killer, the silent partner that sits with you. that's what separates an amateur from a pro. So learning to optimize, you know, taxes for clients. That's the difference between, you know, climbing a mountain or running on a treadmill. are you staying in one place or, actually making progress? it's not what you make, it's what you keep. And that, to me is all the difference in the world.

Fantastic. There's the quote of the episode to leave it on. It's not what you make, it's what you keep. Patrick, thank you so much for joining me.

Thank you. It's a pleasure.

Thank you so much to Patrick for coming on the show. I know that was a fantastic interview. I sure enjoyed it and I hope all of you did as well. But let's get into the money talking points today. How can you start a taxable investing account? And I didn't want to call it a taxable brokerage account, though you may hear those terms used interchangeably. I'm just gonna call it a taxable investing account, and basically it is an investing account that you are taxed along the way, or like we talked about in the interview, a traditional or a Roth. Depends on whether you're taxed at the beginning or after you pull the money out. It all depends when you're taxed, but this taxable investing account means you're taxed throughout the entire thing. Your tax, whenever you sell and there's a gain or a loss, your tax, whenever there's dividends, anything like that you are taxed on. Well, it's really simple to get started with it. You just simply start adding money. Of course, you have to go open one at somebody like Fidelity, but it's simple to start using it. Just start adding money. Like Patrick said, it's a checking account or a savings account on steroids. And I would recommend sticking to a broad based ETF index fund approach. I have had an episode before called Simple Investing. Go back and listen to this one. If you wanna know a little bit more detail about simply investing and keeping it simple so that you can get started today with actually investing some money into the market. Like we talked about in the episode, avoid mutual funds in your taxable account. Those will just end up creating a tax headache or tax migraine, or the worst kind of headache you can imagine down the road, just stick to ETFs, which stand for exchange traded funds, but you can even start simpler and start with an s and p 500. ETF keep it very simple. With something like VOO, that's the ticker symbol that you can type in. Think of it like a barcode or that fancy serial number or whatever they're called, that the store associate can type into the register if the barcode's not working. VOO is that sort of barcode. It's called a ticker symbol, and it's what you can look up to look how the stock's doing or the index fund is doing, but simply put it into an s and p 500 ETF. And let it grow over time. Give it a long time. And then here comes the fun part. Once it begins to grow, you're gonna have some gains in the account. Now you can take the next step to learn about harvesting those gains, or if it loses money, you can learn how to optimize those losses. There are some fun things you can do, but that is not what is key to getting started. You get started by simply adding money to an index-based ETF and let it grow over time. Here's the key thing. Learn one step at a time. You don't have to learn all of this before you even add money to a taxable investing account. I have not done any selling in my taxable investing account until about six months ago when we had a ton of gains that we needed to harvest, and you heard us talk about it in the interview where if there's a buffer between your current income and that 0% capital gains rate bracket. You can take out some of that gains at a 0% tax bracket and not pay any taxes on it. How phenomenal is that? But that is so overwhelming. If you are just adding money to the account right now and it goes up a dollar and you're like, oh no. Now I have to learn everything about this account. Don't worry about that. You do not have to learn this all at once. It's overwhelming to start thinking about that. I started this podcast nearly four years ago, and I have learned so much in that time. It is insane. So don't try to take my four years of knowledge and condense it down into four hours or four weeks, or even four months. Make sure you're taking time to learn all of this if you want to. If you don't, there's professionals out there that'll help you. There's other people you can ask questions to. There's a lot of people out there willing to help you. It would've been impossible for me to learn all that I know now in a short time in order to maximize my financial picture right away. So if you want to get started with investing, keep it simple with a regular taxable brokerage account, and it doesn't have to be so complicated, but let's get into the second money talking point here. How do you open an IRA? Well, an IRA stands for an individual retirement account. This means it's a retirement account that is just for an individual. There's no joints, there's no sort of anything like that. It's just in your name. But this is just as easy as opening a taxable account head over to any of the major investing companies like Fidelity or Vanguard. And I would recommend sticking to one of those two. And I personally really like Fidelity. Their website and everything is great. Their customer service has always been good. All my stuff is with Fidelity, and I've never had an issue. So take that with what you will, and I would recommend them. If you want to go start an IRA there, I think it's a great place to get started. Now, there are contribution limits for IRAs that you need to be aware of, and there's a couple other things that you'll need to know if you're a high earner when it comes to traditional or Roth IRAs, but those are not the things you need to know to open the account. You do not need to know the Roth IRA income limit to be able to contribute. To open the account, I'm stressing that here because I just want you to get an account open. That is the hardest first step, and then the next step is to get money into it. But if you're wondering traditional or Roth, which one do I start in? When in doubt, choose Roth. If you're a high earner, like I said, take some extra care to learn that contribution income limit situation there, but it's unlikely if you're in your first job. Or if you're not making a ton of money, it's unlikely that you're gonna have enough to worry about that, but it's still worth checking because you need to know your whole situation because I do not. So I don't wanna put you in a situation where you're not supposed to be contributing, because that's gonna cost some big headaches. So that's why I'm putting a pretty lengthy disclaimer here, is make sure to do some of your own research around this stuff. But when in doubt, choose Roth. The Roth account is gonna get rid of the evil, scary tax man, and it's gonna make your life easier and easier further down the road, not having to worry about taxes. What a dream. Sign me up. And that's why I have Roth IRAs is because I don't wanna worry about taxes. Imagine having your entire net worth in a Roth account. You've already paid taxes on it, and the IRS is not owed a single dime of what is in that account. So when in doubt, choose Roth. The Roth is held up in some pretty high regards, and it's for good reason. Make sure to remember, choose Roth if you have an option. It's a great option to go with. But I wanna talk a little bit here as we round out the money talking points with the third one, what should you invest in within your 401k? So here's something you may not know. Once money is in your 401k, you have to actually invest it. It may be sitting there in cash, which is terrifying to think of. If your 401k is sitting there in cash, or you don't know if it's invested, you need to go check it yesterday. Like right now, you need to go check what your 401k is actually invested in. Hopefully if you didn't choose anything, you at least got put into a target date fund. One of my previous employers, their 401k just went into cash, and I am sure there are people in that account with quite a bit of money in their 401k hopefully, but it isn't invested in anything but cash, which does them no good other than to lock up taxes and to lock up that money in that account until retirement age. How much does that suck? Like not only are you committed to this tax burden way down the road if you're in a traditional 401k, but also your money's not even growing for you and it's locked up till you hit a certain age threshold. So make sure it is actually invested. But let's get back into what should you invest in within your 401k. Well, you're gonna wanna make sure you're in broad based mutual funds and you can use a mutual fund here because you don't have to worry about taxes at the time of those capital gain distributions. You only have to worry about taxes when the funds are actually withdrawn, and it makes it so much easier. Like I said in the beginning, make sure your 401k is actually invested. And that can be a big deal. So make sure you're invested in a broad based mutual fund, whether it's an s and p 500 or a Total World, or a thousand biggest companies. There's a lot of different options in there. A target date fund can be a good approach if you don't want to bother with it, but you can do a whole lot better than a target date fund. But that's if you wanna learn more about it. But if you don't stick with the target date fund. But just a reminder here, the simple path to wealth of a total market index fund would do great in your 401k. Notice how all of these total market or broad-based index funds do great across all the different account types. That's because you should avoid investing in individual stocks unless you really know what you're doing and you like potentially gambling like that. And gambling is not a word I throw around lightly when it comes to investing because I don't believe investing is gambling. I don't now single stock picking and options trading and stuff like that can wade into gambling territory. It can wade into the hope. That a stock goes up or the hope that your Bitcoin goes up. That sort of stuff can be likened to gambling. But these broad based index fund total market type funds are not gambling. They're investing in the economy and investing in the companies of the world or the United States and knowing that they together collectively, are gonna want to see the economy and the financial situation of those companies. Go up, but I really hope those three money talking points will help you figure out how to start investing in a taxable investing account in IRA and A 401k. But that does it for the money talking points today. So we're heading towards the end of this episode. Let's wrap it up and as we wrap up here today, my main question for you is what are you going to do now? Are you going to open a taxable brokerage account, an IRA or a 401k? Let me know by texting me using the link in the top of the show notes. And I think this episode was fantastic. And thanks again to Patrick for coming on the show. I. Here are a few key ideas that really stood out to me, and they go beyond just taxes. First. Yes, tax efficiency matters. It is not about obsessing over future tax rates or memorizing the tax code. Please don't try to memorize the tax code. That sounds miserable. It's probably a form of torture, but it's about being intentional, thinking ahead and using tools like Roth accounts, HSAs, and even taxable investing accounts in smart ways. So that you can keep more of what you earn, what's the bigger message? Control what you can control. Control what you can now, including your habits, your contributions, and your mindset. Building wealth isn't about chasing the hottest investment. It's about creating consistent behaviors that compound over time, whether it's putting$200 into a Roth every single month, keeping track of your medical receipts for an HSA. Or automating good decisions. It all adds up and maybe the most important takeaway today. Is that it is not all about perfection, it's about progress. So start now and start small and build your foundation and build your knowledge because it's not what you make, it's what you keep and it's what you build. And it's that plan that you create and you learn as you go along. That creates financial freedom for you down the road. You're not gonna learn it all at once. So make sure you take small little steps like today. Take one small little step to go open a taxable investing account and put a hundred dollars in there. Invest it in a simple s and p 500 fund, like VOO or any one of those sort of funds, and just get started and then learn the next step. Learn how to set up an automatic transfer after that, and then set a reminder for a year to look into capital gain harvesting or tax loss harvesting to see if that's applicable for you. But just take it one small step at a time. Thank you for listening to today's episode. The best way to stay up to date and connected with All Things Money Talk is to subscribe to the podcast and sign up for my email list. Head over to the website Money talk.show and submit your name and email right there on the homepage. You can also use the contact page on my website to send me any questions if you're looking to get started budgeting. I have partnered with my Budget coach, a platform that connects your budget. Directly with your financial coach, and I'd love to work with you over there and help you with your budgeting. The link is in the show notes. Remember, the best way to learn from today's episode is to go and have a money talk about today's topic with a fellow money buddy. Thank you for listening to this week's episode of Money Talk. I'm your host, Skylar Fleming. Have a great week.