Your Money, Your Wealth guest Erin Lowry, Broke Millennial

Erin Lowry is a millennial personal finance expert, speaker, and author of the book, BROKE MILLENNIAL: Stop Scraping By and Get Your Financial Life Together. Based on the successful blog BrokeMillennial.com, the book is a step-by-step guide to go from flat-broke to financial badass. Lowry uses wry humor and hilarious true stories to keep readers [...]


Joe Anderson
ABOUT Joseph

As CEO and President, Joe Anderson has created a unique, ambitious business model utilizing advanced service, training, sales, and marketing strategies to grow Pure Financial Advisors into the trustworthy, client-focused company it is today. Pure Financial, a Registered Investment Advisor (RIA), was ranked 15 out of 100 top ETF Power Users by RIA channel (2023), was [...]

Alan Clopine

Alan Clopine is the Executive Chairman of Pure Financial Advisors, LLC (Pure). He has been an executive leader of the Company for over a decade, including CFO, CEO, and Chairman. Alan joined the firm in 2008, about one year after it was established. In his tenure at Pure, the firm has grown from approximately $50 [...]

Published On
March 9, 2018

Broke Millennial’s 16 money tips and mind tricks on today’s Your Money, Your Wealth. Erin Lowry shares her mind tricks for more effective saving and her clever tips for paying down debt. Plus, working the tax brackets with Roth conversions, some crazy options that may or may not work when you’ve contributed too much to your 401(k) to get the employer match, and how DIY investing can be like Joe’s bad golf swing.

Show Notes

  • (01:16) Working the Tax Brackets With Roth Conversions
  • (07:03) Erin Lowry – How Broke Millennial Got Started
  • (18:00) Erin Lowry – Clever Debt Payment Options and Savings Mind Tricks
  • (27:20) Email: I Contributed Too Much to My 401(k) to Get the Match – What Are My Options?
  • (32:18) Email: How to Start Trading for Income
  • (35:43) Email: How DIY Investing Can Be Like Joe’s Bad Golf Swing


Coming up, Broke Millennial has some great money tips and tricks to help you with saving and paying debt, so stay tuned. For little-known secrets about controlling your taxes and preparing for market volatility, increased longevity, rising healthcare costs and Social Security uncertainty in retirement, visit the white papers section of the Learning Center at YourMoneyYourWealth.com and download our free Retirement Readiness Guide. It won’t cost a dime to learn strategies to make your money last a lifetime. Download the Retirement Readiness Guide from the White Papers section of the Learning Center at YourMoneyYourWealth.com.

You have two options in life: either you control money or money controls you. And my goal is to make sure that you control your money. And even when you don’t have a lot of it you can still be in control. – Broke Millennial’s Erin Lowry

That’s Erin Lowry of BrokeMillennial.com fame. Today on Your Money, Your Wealth®, she shares 16 really clever tips and Jedi mind tricks for paying down debt and accumulating wealth. And to think, people give millennials such a bad time. Plus, Joe and Al talk about working the tax brackets with Roth conversions, some crazy options that may or may not work when you’ve contributed too much to your 401(k) to get the employer match, and how DIY investing can be like Joe’s bad golf swing. Now, here are Joe Anderson, CFP® and “Big Al” Clopine, CPA.

1:16 – Working the Tax Brackets With Roth Conversions

JA: Hey, I want you to start this email chain out, with that email that we received from a good listener of ours.

AC: Yeah that’s a good question. You want to do some content?

JA: Yeah, I want to do some content.

AC: Yeah this is from Bill. Bill writes, “Al, I’ve got a couple of questions on Roth conversions to the top of the 25% bracket.”

JA: So that was last year.

AC: Yeah, right. Now we’re 22, 24 and 12. “Most of my ETF fund dividends are qualified,” and so he’s talking about assets outside of retirement. “I used the qualified dividend and capital gains worksheet to calculate the federal tax due. The tax varies with the amount of Roth conversion.”

JA: Well, as a Roth conversion, you’re just an ordinary income tax on your tax return that year, by moving money from a qualified retirement plan to the Roth IRA. So he’s trying to maximize his tax brackets each year to get more money into a tax-free environment than a tax-deferred environment.

AC: Exactly. Thank you for that sidebar. “My goal was to convert to the top of the 25% tax bracket in 2017. For a single taxpayer, 1040, line 43. The goal is $91,900. That’s taxable income. That’d be the top of the 25% bracket. “The qualified dividend capital gains, however, are taxed at capital gains rates, typically 15% or less. The remaining ordinary income is taxed at the target bracket of 25%. Should my line 43 goal be $91,900 plus the qualified dividend and capital gains that I have? Or should line 7 of the capital gains worksheet be equal to the top of the $91,900?”

JA: Well let’s let’s paraphrase here.  What he’s trying to do, again, is move money into a Roth IRA, and he doesn’t want to breach that bracket of 25%. He doesn’t want to pay any more than 25% because he believes that that’s the right rate for him because he might be in the same bracket, higher bracket in retirement, or maybe he wants more tax diversification, where he could potentially put himself in even a lower bracket. So he found the number, he’s looked at the tax table, and he goes, “What’s the top of the 25% tax bracket for a single taxpayer?” And it’s $91,900. So that’s his target number. But now he gets dividends and interest and things like that, that are kicking out from his mutual funds. So he could control the amount of ordinary income, because he might have wages that is a fixed number, and then he’s like, “I’m going to convert X amount of dollars, and I know exactly what dollar to convert, to get me right at that $91,900. But, I don’t know what the dividends are going to be, depending on what investments that he’s in. So his question, I guess, is like, “if I break to that $91,900, but all of a sudden my dividends go up. Now I’m at $95,000, or should I convert less so when I add in my dividends and everything else, it equals that top line?

AC: Yes that’s correct. And the answer is, I got two answers. I’ll start with the easier one. Fist of all Bill this is one of the more astute questions I’ve had in a while.

JA: Ever. (laughs)

AC: And certainly in March of 2018. Anyway, so very good. This was a great question. So the answer is, the $91,900, you can actually add your qualified dividends and long-term capital gains to that figure. And the reason is that those will be taxed at 15% no matter what. So let’s just say that you got $10,000 of qualified dividends and capital gains, so now your taxable income can be $101,900 because the ordinary income will be taxed at 10%, at 15%, and at 25%, and the capital gains will be taxed at 15%, no matter what. So you’re not going to pay that 28% ordinary income tax because your ordinary income tax is actually if you get rid of the capital gains, is in that 25% bracket.

JA: Right. The capital gains, or those dividends, or if he sold stock at a capital gain sits on top of the ordinary income and would be taxed at that capital gains rate. The only time he would run into problems is that now if he breached like $200,000. Because then you’ve got the net investment income tax of 3.8 if it was on a capital gain.

AC: That’s right. That’s exactly right. There are two other potential issues. When you reach $100,000 of adjusted gross income, if you have rental property, you can’t deduct as much. And then finally, if you’re starting in the 15% bracket, you may only want to convert to the top of the 15, because those capital gains would be taxed zero, and when you add a Roth conversion, all of a sudden they’re taxed to 15%.

JA: Right. And then you can throw Social Security in the mix and then you can blow yourself up there too.

AC: Yep, so there’s a lot of variables.

“My question is more of a strategy question, I guess.” “Now I want to retire and preserve my capital. I want to invest in options.” “I’d like to get some information if I can regarding donor-advised funds.”  “Now I have a whole bunch of money in my IRA that, when I turn 70 and a half, it’s gonna kill me. How do I know how much money to move into a Roth?” Your Money, Your Wealth® listeners, it’s your turn! If you’ve got a burning money question, call (888) 994-6257 for your chance to have Joe and Big Al answer it live during Your Money, Your Wealth®. Whether it’s about retirement, investing, Social Security, taxes or preparing your portfolio for the inevitable market volatility, there’s a pretty good chance these fellas can give you the insight that will help you make better money moves. That number again is (888) 994-6257. If you’d rather email your question like Bill did, just send it to info@purefinancial.com. That’s info@purefinancial.com

7:03 – Erin Lowry – How Broke Millennial Got Started

Your Money, Your Wealth guest Erin Lowry, Broke MillennialJA: Alan, know what time it is?

AC: Yes, time for a guest.

JA: Who do we got today?

AC: We got Erin Lowry.

JA: She’s the author of Broke Millennial. We don’t want any Broke Millennials.

AC: She’s gonna explain how we’re not gonna be broke.

JA: She wrote a great book, BROKE MILLENNIAL: Stop Scraping By and Get Your Financial Life Together. She’s the founder of BrokeMillennial.com. Erin, welcome to the show.

EL: Thanks for having me.

JA: So tell us, why did you start Broke Millennial?

EL: You know, you would think five years later I’d have this epic elevator pitch, 30 seconds or less about why. And it’s kind of a long story, so I’ll tell it as fast as I can.

AC: That’s all right, we got 15-20 minutes. Lay it out there.

EL: So I moved to New York City right after I graduated college. It was my big dream. Even before I went to college I wanted to move here. And, like many people, I worked in entertainment in the beginning and so I met a lot of people who were interested in pursuing acting. And a year after I had lived here I went out to drinks with one of my friends and we were having a sober up cup of coffee, and I said to her, “you know, I’m a little confused about why you’re working the job you are.” Because she was complaining about being an executive assistant. I said, “you moved here to be an actress.” At the time we were 23. She didn’t have student loans, she didn’t have credit card debt. She had no kids, she wasn’t married. This was really the time. And I said, “you know, now’s the time to be waitressing, nannying, do what you gotta do to pursue your dream. Why aren’t you doing that?” And she goes, “money just really stresses me out. I only hope I have enough at the end of the month, and that’s how I handle money.” And this to me with a light bulb moment, which sounds incredibly naive, but I grew up in a household where we talked about money all the time. And it wasn’t until she said that to me that I realized most people don’t have that relationship to money. And my first year living in New York, I only earned $23,000. So not a whole lot to live on in New York City. But I still felt in control, because I knew how to manage my money, and I realized then that I wanted to do something about this. So I started Broke Millennial as a blog because it was 2013 and that’s what you did. But also, just because I figured storytelling would be a really easy way for me to get other millennials to kind of get tricked into learning about finance. So I would usually draw upon my own life experiences, and tell a story, and then at the end, you would know how to set up your 401(k), or how to do a budget, or whatever it was that I was writing about that day.

AC: So, your book. What are some tips on Stop Scraping By and Get Your Financial Life Together – so how do we do that?

EL: Well, the way the book is set up is, each chapter stands on its own, so the reader can really flip around based on where he or she is in their own personal financial journey. And the beginning of it starts with the basics, so we’re talking about things like budgeting. Understanding your credit score, even understanding your own emotional relationship to money, and how that can trigger you. And what that means for you and your financial life. And then eventually it gets into slightly more of the harder hitting topics, the investing, the buying the home, the saving more aggressively for retirement. And for me, the big part, in the beginning, is, one, really unpacking your emotional relationship to money is key, because you need to know why you’re spending the way you do, especially if it feels like money just comes in and flows out and you have no idea where it’s going. And of course, the dreaded “B” word. Setting that budget. I like to call it cash flow, just because it’s more palatable to people, but knowing how much is coming in and how much is going out, it’s really that simple in the beginning. But a lot of people don’t even take that first step.

JA: So when you grew up, were your parents teaching you about money, and having you save allowances? Tell us about how, because it sounds unusual too, where most families, I guess, are tight-lipped. We didn’t talk about money growing up. So tell us how did you get emotionally connected, I guess, with money?

EL: We talked about money so much that there was – there still is a game in our house that’s The Inheritance Game, where one of us does something to take off our parents, they will say, “you just lost 10%” or “your sister’s getting all of it,” or whatever it is. That is how open we are with talking about money and other taboo topics that people are usually uncomfortable with. And what my parents really did was, they made money tangible to us at a very young age. If I was in a store and saw a toy that I wanted and asked for it, my parents would say, “sure, if you will pay 50%, you can have that toy.” So one, I had to be figuring out, as a little kid how to make money. So I would babysit the neighbor’s cats. I would sell doughnuts during yard sales. I would do what I needed to do to try to earn money as a little girl. And then I was having to learn how to curb impulse purchases, and decide, “Oh, is this stuffed animal really worth $7 of my hard earned money,” because I had to work to get that money, so now I understand how much sweat equity I had to put in, and is that stuffed animal worth two hours trying to hawk donuts to people coming to my mom’s yard sale. And learning the lessons that 7, 8, 9 years old really kind of sets the groundwork for the rest of my financial life. And then, as I got older, that rule applied. When it was time to go to college, my parents said, “hey, we’re only going to pay for 50%. You have to come up with the other 50% of college.” So it was about applying for scholarships, and figuring out how I could come out of college debt free.

JA: So you were a small business owner at 7 and 8. Did you have any employees? (laughs)

EL: Yep. (laughs) My sister, I recruited her very early on, because I’m the older one, clearly. And actually, when we moved, we lived overseas for a good chunk of our childhood, and I created a little Babysitters Club, and I recruited kids in my grade, and I was kind of the point person and would assign people out on jobs. And yeah, I liked to run little businesses like that from a young age.

JA: Babysitting cats. I don’t know, I’ve never heard of a cat babysitter. Not like dogs.

AC: You have to have someone to feed them at least.

EL: You gotta feed them, clean the kitty litter out.

AC: See it’s a lot harder than dogs.

JA: That’s awesome though. That’s my side hustle from now on.

AC: It’s worth 50 cents a day.

JA: She probably charged 50 bucks!

EL: I wish I had been that greedy at a young age. But I just kind of took what I could get at that point, but the neighbors were pretty generous with the cat sitting money.

JA: You know, here was my financial experience.

AC: Were you an entrepreneur as well?

JA: Oh yeah, I shoveled snow as a kid. Mowed a couple lawns. But my parents would say, “Joe, we’re so poor it’s po’. We can’t even afford the “or.” So that’s why I committed myself to make a little bit more money than that.

AC: Does your Mom still say that? “Joe, I’m po’.”

JA: Yes, that’s why she needs a couple bucks. So the blog then turned into the book? I’m guessing that was the transition here?

EL: It was. It was a long transition. The book is all unique material, so it’s not just the reprint of the blog. The genesis of the book is that I started doing speaking gigs a couple of years into writing the blog. I ended up on CBS Sunday Morning, and a literary agent saw me on CBS Sunday Morning and asked if I’d ever been interested in writing a book. And I said, “I sure have!” And it just kind of came out of that interaction. So they’re still my current literary agent, and we came up with the proposal and shopped it to publishers and then I signed with TarcherPerigee, which is a Penguin Random House publisher. And that’s how Broke Millennial the book came to be, and I’m actually now working on an investing book, and then a third book -we’re still debating topics for book number three. But I will have three out by the end of 2020.

JA: So are you the type that saves 85% of their income?

EL: (laughs) Not quite at that level. In the personal finance blogging community, those are usually called FIRE bloggers, which is financial independence / retire early. I do live in New York City, so trying to save 85% in New York is really rough unless you’re making big, big bucks, and I’m not at that level quite yet, but I do save a hefty chunk. Haven’t indulged in much lifestyle inflation over the years. And another thing I did learn from my parents was spending on what I valued, and my partner and I both really do value travel, and that’s primarily where we spend our money. We don’t do a whole lot of eating out, or we live in an area of New York that’s a bit more affordable, and I’ve lived in the same apartment for seven years I’ve lived in New York, didn’t upgrade, and so that’s the way that I can funnel my money into things that I really do care about.

AC: So let me ask you because I think a lot of millennials – and actually this is probably good advice for any age, but a lot of folks, it seems that they’re spending everything that they’re making. And so you talked about kind of getting your life under control, you don’t like to call it budget, you call it cash flow, but I think a lot of folks, particularly millennials these days, with college loans, they’re in a lot of debt. And it just seems insurmountable, and I know you actually just did a video on some strategies for paying off debt – and what might you recommend for our listeners?

EL: Well, student loans are really the bane of the existence of the average millennial. As I mentioned earlier, I managed to graduate debt free, but my fiance did not. So I’m certainly familiar with student loan debt and it’s an inevitability I think in a lot of millennials lives. If you didn’t graduate with it, you might marry somebody who did. And the first step is to face the numbers. And honestly, that is the hardest part for a lot of people. There are plenty of folks that I know who understand what their minimum payments are but really haven’t looked to see what the full balance is of the loan. And the first thing you do need to do is write down exactly how many loans there are. Because for a lot of people it’s not just one or two, it’s more like 10 to 15. And you need to know exactly where they are, what the minimums are due, and then what the total balance is. And of course the interest rates. And then from there, you can start to create a strategy. And there are multiple ways that you can attack student loans – debt snowball and debt avalanche work on all forms of debt.

Speaking of student loan debt, next week on Your Money, Your Wealth, Robert Farrington of TheCollegeInvestor.com will tell us about the financial media blitz to eradicate student loan debt. Visit YourMoneyYourWealth.com to subscribe to the podcast so you don’t miss a minute. While you’re there, catch up on our recent discussions of a smartphone app that can help you pay off debt, 7 secrets to retirement happiness, and how to avoid hitting your “GMO point” – that’s when you want to scream GET ME OUT!” in the face of market volatility. If you don’t have time to listen, transcripts are available for nearly every podcast, so check it all out at YourMoneyYourWealth.com

18:00 – Erin Lowry – Clever Debt Payment Options and Savings Mind Tricks

EL: But the other thing to look into with student loans, is things like refinancing. If you’re not eligible for an income-driven repayment plan, you’ve got a really steady job, you’re making good money, maybe it makes sense to refinance. But just understand that you’re going to lose any federal protections because you’re turning that into a private loan. But if you already have private student loan debt and you can lower the interest rate from 6% to 3.5%, that’s a pretty good deal. Saves you a lot of money. And there are also other little tips and tricks that people don’t necessarily think of. Even as simple as paying more than the minimum due, and being sure that you tell your servicer that that extra money needs to be applied to your principal balance and not to future interest. I know a woman who paid just $10 more and shave a year off of her repayment plan with just $10 a month. So it’s about making sure that you’re starting to educate yourself on all these little tips and tricks, and how to apply those. But the very first thing you got to do is face the numbers, and know exactly how much that you have.

AC: And for our listeners: so debt snowball is looking at your debts and probably paying off the smallest ones first so you get some wins under your belt. Debt avalanche is paying the highest interest rate. Which do you think is better? What do you recommend?

EL: I recommend the one that’s actually going to work for you. And the reason I say that is some people are truly numbers motivated. For me, the avalanche would work, because the idea of mathematically paying off the debt as fast as I can with the least amount of interest rate would keep me motivated, but I’m not normal so much in that way. And if getting a small win and that psychological boost is what’s going to keep you motivated to keep trucking, then do debt snowball. But pick the one that’s really going to work for you, and be honest with yourself who you are. And at the end of the day, as long as the debt’s paid off. That’s the goal here. So whichever one works better.

AC: I think that makes a lot of sense.

JA: It’s so right just to face the numbers though. I think a lot of times people will just not face it. And then it continues.

AC: They don’t want to face it. They’re spending every penny, and they really don’t want to sit down and do that budget or that cash flow analysis, because it seems painful, but that’s a necessary starting point.

AC: And once it’s done you can actually make a plan. And that’s a big part of this is so often we feel out of control because we don’t know all the information. You have to get that information for yourself in order to take back control. In most of the talks that I do, I open up with a simple concept. You have two options in life: either you control money or money controls you. And my goal is to make sure that you control your money. And even when you don’t have a lot of it you can still be in control. You just need to have all that information.

JA: I want to go back to a point with the student loans because there was some really good information you said that I think a lot of times people don’t really look at. Which is, if you refinance your student loans, but if you have federal loans, you may want to look at – because you lose federal protection. Can you talk a little bit more about that?

EL: Sure. So, if you currently have federal student loan debt, you very well may have put yourself on an income-driven repayment plan. In some cases, you could also be eligible for a forgiveness plan. Usually, that’s if you’re working in the public sector somehow, maybe you’re a schoolteacher, maybe work for the government. It could be local. It could be federal. And at the end of making 120 payments, so at the end of 10 years, you can discharge your debt. The remaining debt is forgiven – which is great especially for people who want to stay in the public sector. But a lot of folks don’t have that option. So there are income-driven repayment plans, which most simply put is, the Federal Government acknowledges that you might have way more debt than you can afford to make your minimum payments on in a month. So they can make your monthly payment relative to your income. The problem there is your interest continues to balloon over time. You have to make payments for 20 to 25 years before any remaining debt is discharged. though. That is a very long timeline for paying down on your debt. And the other perk of federal loans is forbearance and deferment. So if something happens, you lose a job, a medical issue comes up, and you just fall on hard times, you can reach out to your student loan servicers and see if they can have you halt making payments, generally up to about a year. But you do have to qualify, you can’t just anoint yourself within forbearance or deferment. You do have to call up and talk to your servicer about that. Private loans are not as forgiving on any front. You owe them what you owe them. They want their minimum payments every month until it’s paid off. And if you fall on hard times, a lot of them are like, “too bad, we still need our money.” Not all, but a lot. So, if you are looking to refinance, what that does is, it moves your old debt to a new loan. You’re paying off your old loan with a new loan, which a lot of people think sounds very strange, but you’re moving it to a lower interest rate, which is the point. So then your money can go further. You can pay it off faster and you can save money over the life of the loan. But if you’re refinancing that federal loan debt, you’re turning it into a private loan. So there goes the forgiveness programs, the income-driven repayment plans, the forbearance, the deferment. So just make sure you’re in a very stable financial situation. You’re not at risk of losing your job, you have a very healthy emergency savings fund. If everything goes sideways for you tomorrow, it’s not going to be a big deal. You can find another job quickly. Maybe you’re even married and your spouse could be bringing in money, whatever it is. But you have to be very critical, and think through, worst case scenario is it still OK for me to turn a federal loan into a private loan.

JA: Erin, so we talked about, I guess, the debt side of the balance sheet. Let’s let’s flip to building the assets. What are some things or tips that you can share to help someone save? Al and I, we work a lot with retirees, and as you know, you’ve seen the statistics, most retirees are ill-prepared for retirement, a lot of them don’t have you know $50,000 to their name because there was procrastination or just a lack of savings. What are some tips that people can do to at least start saving, or saving in an abundance, as you do, or like the FIRE movement? Not that aggressive where you’re saving 95% of your salary.

AC: And alongside that, Erin, if you’re trying to balance, I need an emergency fund, I need to pay off my debt, I want to save for a house, I want to save for retirement. How does this all fit together?

EL: Well in that regard, you have to set your goals and prioritize them. So as paying off your debt is your biggest goal, and that’s where your money is going to go, then you need to have your goals outlined and crystalized first before you can really be deciding where to put your money. You can’t do everything all at once. But in terms of how to start saving, the biggest thing I have run up against is that you have to build the habit. And a lot of people feel so defeated from the beginning, and they just think, “I barely have enough to cover all of my expenses. What is the point of even trying to save? At most I could maybe save $5 or $10 out of a paycheck. I can’t even buy a good craft cocktail in a major city for that amount of money. So what is the point of even putting it in savings?” And I always encourage people to reframe it in their brain, is that the point of building the habit, think about it that if you go your whole 20s without saving at all, if that’s just not part of your process, what makes you think all the sudden at 35, when your debt’s paid off, and you’re making a good living, that you’re just going to be able to switch over? That’s just not going to happen. It’s just like anything to do with your health if you’re not instilling good eating behaviors and exercising behaviors when you’re young, the odds of you being able to reverse everything when you’re 50 is one to none. So even if it’s just five bucks, just start putting it away. And obviously, everyone knows the idea of automation, having it come out of your paycheck before it hits your bank account. Out of Sight Out of Mind is a great one. One thing that I love to recommend people do – this is more of a psychology angle on it-  is nickname your bank accounts. Especially your savings accounts. A lot of banks will let you go in there and change the name of your saving account. So if you very prescriptively have on there what it’s for, and the more specific you can get the better. Let’s say that you are saving up for a trip to Japan in July of 2019. Put “Japan Trip July 2019” instead of just “Travel Savings.” So then, any time you’re tempted to go in and raid money out it’s hitting you right there in the face what you’re saving that money for. That’s one of my absolute favorite things to tell people to do is nickname those savings accounts.

JA: We’re talking to Erin Lowry. Please go to BrokeMillennial.com. She’s got a great book out. Hey Erin, I really appreciate your time. I know you’re super busy and heading into the weekend. Got anything fun planned?

EL: No weekends really for the self-employed.

JA: Wow look at that. (laughs) And then your new book – the investing book comes out when?

EL: It will be April of 2019. So we’ve got a little time.

JA: So we’ve got to get Broke Millennial, get studied up on that, and when you get your other book out, we’ll love to have you back on.

EL: That would be awesome. Thank you so much for having me. This was great.

Southern California, preparing for a successful retirement requires more than listening to Your Money, Your Wealth. Our two-day retirement courses and our free monthly Lunch ’n’ Learn events can give you the tools and confidence you need to help you plan for the retirement you’ve always dreamed of. For dates, times and locations for our Lunch n Learn events and our retirement classes in San Diego, Orange County or Los Angeles, just visit The Learning Center at YourMoneyYourWealth.com or call (888) 994-6257. That’s (888) 994-6257.

27:20 – JA: This individual, he goes, “Joe, Big Al: I contributed $18,500 to my 401(k) account, and I mistakenly contributed too much already. This means that I can no longer contribute any more money into the account, and I will lose my company’s match of over $10,000. Can I withdraw some of the contribution I made to the 401(k)?” So first of all, let’s explain what he’s talking about.

AC: Yeah, because individuals can put $18,000 into 401(k) in 2017, it’s actually $18,500 in 2018, and then there’s a $6,000 catch up. If you’re 50 and older, $24,000 in 2017, $24,500 in 2018. And then as you make contributions, a lot of plans have an employer match, meaning that you make a contribution, they make a contribution. And sometimes Joe, when you when you front-load your 401(k) too quickly, you miss out on some of that employer match.

JA: So the goal is, let’s say if you wanted to max out the plan, every single paycheck that comes to you, you want to max it out at your last paycheck. Because if there are no dollars coming in, they’re not going to match you anymore. And so if you had a bonus or something like that and all of a sudden it was like, oh you fully funded it in two months, well you have 10 more months that you’re not going to receive that match. So just be careful with that, because it gets missed often.

AC: It does. And so the way you want to do this is, you take the $18,000, or this year, 2018, $18,500, and then divide it into the number of paychecks that you’re getting, and then figure out how much that you want withheld per paycheck. And maybe to be on the safe side, have it fully withheld by the end of November, just so you make sure you get it all in. But the concept is to go the full year. Now if you’ve overdone it already, no, I don’t know of any way to do that. That’s an irrevocable thing.

JA: Yeah I don’t see how you get the money out.

AC: Yeah that’s that’s a one-way street.

JA: With a 401(k) plan, it’s different than an IRA because a 401(k) plan has to come from your paycheck, from payroll. So you receive your check, and the money is already deposited in the account. An IRA works a little bit differently, where you’re cutting a check into your IRA. So if I wanted to make a $5,500 contribution to an IRA, I have until April 15th of this year even, to make contributions for last year. And if I did a larger contribution, I have the ability to take it out of an IRA, so I don’t have an excess penalty, because I over contributed, over the $5,500. But you don’t have to deal with, there are no matches, there’s nothing like that. So when it comes to a 401(k) plan, if you’ve already put in the max, good for you, first of all, for maxing out your plan. But he left $10,000 on the table.

AC: So the lesson here is to just do it a little bit differently next year. That’s really what it comes down to.

JA: The only course of advice I would give you would be to talk to HR. Talk to the plan administrator, say, “hey I made a mistake.” Maybe there could be an opportunity for you to – but I think that’s slim.

AC: Yeah I would be pretty surprised, but I guess it would never hurt to ask.

JA: So make sure you don’t miss out on the match by contributing all the way through.

AC: The reason I say that Joe, is once the payroll is made, and then payroll taxes are filed, the corporation would have to file an amended return. And to undo anything…

JA: They’re not gonna do that.

AC: I don’t think so. I guess I shouldn’t say never. So maybe that’s a reasonable thing, but I would be pretty surprised.

JA: Well maybe you go to your employer. And you say, “hey, I blew up, can you just give me a $10,000 bonus. You were going to give me the money anyway! Can you give me give me a $10,000 little bonus?”

AC: Yeah, but it’s it’s already in the 401(k) plan. I don’t know how you get it out.

JA: No no no.  He’s saying the $20,000 is missed because the employer was going to match him. But he’s already funded, so the match is no longer. So he’s gonna go to Big Al and say, “Hey Big Al, you’re the CEO…”

AC: You were going to pay me $10,000 anyway for the match. So why not just give me a bonus.”

JA: “Yes, I made a mistake, I screwed up, do you think you just wanna bonus me out there bubba?”

AC: I give that a 1% chance. (laughs) Anyway, it’s a good idea.

32:18 – JA: (laughs) Those are some of the options. I’m just trying to give options. Here’s another one. “I’m a stay at home mom. My husband and I have six children. My husband has a great job. However, I would like to generate some income without having to work outside the home. I’ve been learning about trading. I want to invest in the stock market. What is the best place to start?”

AC: That’s a good question, and I would say, honestly, we saw these kinds of questions – at least I did, you were just a kid, in the early 2000s, late 1990’s. (laughs) Before the dot-com bust. And it wasn’t women, it was women and men. Whoever was staying at home. The other spouse was working. It’s like, “oh, you know what, you just invest in the market. Buy a stock or mutual fund and it goes up, and this isn’t that difficult.” And when you have a huge bull run like we’ve had, I think people start thinking that, “oh, this is pretty easy stuff.” And I’m here to tell you, it’s not necessarily. I would actually look to almost any other means of making money. There are different kinds of businesses that have tasks, duties that you can do from home, via your computer. I think that’s a much better bet. When you’re trading, you’re trying to time the market. I’m not saying it can’t be done. I’m saying the probabilities are not necessarily on your side.

JA: So if the question was my husband has a great job and we make too much money and I’m looking to lose some of it… (laughs)

AC: (laughs) Then that’s a good way to do it. But you only get $3,000 capital loss.

JA: You’re thinking of a tax benefit. But yeah, if you want to buy a trading program for $10,000 to learn how to be a millionaire, you can watch the infomercials. You could go to a class and they’ll say, “this is all you’ve got to do. Follow the trends and then this is when you buy, and this is when you sell, and then oops. The most sophisticated individuals, if you look at the universe of investors:  Ph.Ds from Harvard, Yale, University of Chicago, whatever. The pedigree of finance. Maybe 5% of those individuals can add alpha on a consistent basis. 95%, they can’t. What alpha means is to add value, to beat the market, to outperform an overall index. I’m not saying that others, the 95 don’t do it, but just not on a consistent basis.

AC: Yeah. And even those 5% or whatever the percentage is doesn’t matter, that tend to outperform the market year after year, they’ll tend to have, at least based on history, they’ll tend to have a year that all the wheels come off the wagon. It’s like you might as well just have invested in an index fund.

JA: So when you’re looking at trading, I would be very careful with that. But you could go to a class, you spend $10,000. I’ve seen it at T.D. Ameritrade and whatever, Forex.

AC: Yes. I was going to say some of the brokerage houses have classes on options, and all I’m going to say about that is risk and return are related, and if you’re going for high return, there can be high risk, and just be careful.

35:43 – JA: OK. Let’s see do we have time for another one? I think so. OK. This one is, “I’m retired and I want to invest my money 401(k) and IRA accounts using the 50% stock and 50% bond asset allocation model. Do you suggest that I try the do it yourself approach when beginning to invest in stock and bond mutual funds, or should I hire a financial advisor to select a basket of stock options in bond mutual funds?” What say you, Big Al?

AC: I think when you’re first starting out…

JA: But he’s retired.

AC: Oh that’s right he’s retired.

JA: So I don’t understand his question. Well if he’s never hired advisor before, he has been doing it himself. I don’t get the question.

AC: Yeah it doesn’t kind of makes sense. But I guess let me answer a couple of ways maybe. Let’s just say he wasn’t retired, let’s start that way. So when you’re first investing, I think for some of you, a financial advisor is a great way to go. And there are human advisors, there are robo-advisers that you can get an allocation for. Or maybe you just simply go to Fidelity or Vanguard, and find a couple, two, three low cost index funds, one that invests in U.S. stocks, one that invests international stocks, one that invests in bonds, and just kind of do a third, a third, a third, or whatever you feel like makes sense. That’s where an advisor can sort of help you with that initial allocation. Whether you need one ongoing, you may or may not. A lot of young people find they do like advisors because they’ve got broader goals. I want to buy a house, I want to pay off debt. I want to be able to save for retirement. I want to put this all together.

JA: I think it holds accountability too. Because here, I started playing a lot of golf again. We started Pure 10 years ago, and I didn’t play an ounce golf for 10 years.

AC: Yeah. Because you’re busy.

JA: I was a little busy, but now I’m trying to find work-life balance.

AC: You are, I applaud that.

JA: Dr. Finkelstein told me I needed that. (laughs)

AC: (laughs) Good. How’s that working out?

JA: So for those of you that play golf, I hired a golf pro to help with my swing.  Because I could go out on the range and then just blow up. You have no idea what you’re doing. So I go up, I address the ball, and I’m just whacking away. I’m not seeing any improvement whatsoever. It’s like here, I spent eight hours on the range just practicing a really bad golf shot. (laughs) So I’m going to get even worse because I really got this crappy golf swing down.

AC: Because you got that muscle memory and now it’s in there for good.

JA: Yeah. Oh, my goodness. So I think it makes sense for me to hire someone that knows a little bit more about the game, to say hey can you help me with my swing. That makes sense to me. So if you’ve never managed money before, you’re like I want to save a couple of bucks, well you could continue to blow yourself up over and over again by not knowing certain fundamentals. I think when you accumulate wealth while you’re saving money into your 401(k) plan, I think you’re right on, Al. You could pick a target date fund. I’m going to retire in 25 years. Pick a target date fund 25 years from now, just save as much as you possibly can, throw more money at it. But once you get into retirement, I feel, and of course, I’m biased on this because that’s what I do for a living. But there are so many more applications that you have to look at. Social Security, taxes, sequence of returns risk, what are the goals, are you passing it on. There’s a lot more to it than, hey, let me just get a 50/50 bond/stock mix.

AC: And the people that we talk, a lot of times they’re very sophisticated. A lot of them are engineer types that have done a lot of homework. They’re very, knowledgeable, and they’ll tell us this after the fact. “I’m really glad I met with you because I actually missed a few things.”

JA: You only know what you know. You don’t know what you don’t know, and what you know might be really bad.

AC: Just like your golf swing. It was pretty good, but you don’t know why it was good sometimes, and not so good other times.

JA: Right, when you duck hook it or slice it every time you swing, there’s a problem. (laughs) That’s not how the ball flag should look. Or like you go to the gym. I go to the gym in the mornings. And then you see the people, I’m like, “you’re hurting yourself.” They’re using machines all in the wrong areas… just ask someone.

AC: And the trainers that are there, they must just have to roll their eyes day after day, minute after minute, because they know these guys and gals are using the machines wrong and hurting themselves.

JA: (laughs) Yes! I go to spin class and you can turn the knob, put a little bit of meat on the bike because their feet are just pedaling as fast as they can. I’m like, “she’s going to blow a knee out right in front of me. This knee is going to come right out of her leg and smack me in the face.”

Andre, you get what I’m saying right? Did you start that Roth IRA yet? Our producer here, who’s subbing for us today. There’s no water. I’m parched. I don’t got a chair. And Al’s just in a happy place.

AC: Yeah, I don’t care. I’m good.


So, to recap today’s show: Ordinary income and capital gains are taxed differently, so go ahead and work those tax brackets with your Roth conversions. And DIY investing and trading might be a good fit for you, or you might blow yourself up as Joe likes to say. Though I could have done without the gory visual from Joe’s spin class.

Special thanks to our guest, Broke Millennial Erin Lowry, for her great ideas on saving and paying debt. Why do we rarely hear people talk about refinancing their student loans or using Jedi mind tricks to save? And people give millennials such a bad time. Visit BrokeMillennial.com for more on how to stop scraping by and get your financial life together.

Subscribe to the podcast at YourMoneyYourWealth.com, through your favorite podcatcher or on iTunes, where you can also check out our ratings and reviews. And remember, if you have a burning money question for Joe and Big Al to answer on Your Money, Your Wealth, just email info@purefinancial.com, or call 888-994-6257! Listen next week for more Your Money, Your Wealth, presented by Pure Financial Advisors. For your free financial assessment, visit PureFinancial.com

Pure Financial Advisors is a registered investment advisor. This show does not intend to provide personalized investment advice through this broadcast and does not represent that the securities or services discussed are suitable for any investor. Investors are advised not to rely on any information contained in the broadcast in the process of making a full and informed investment decision.