Gid Pool took a standup comedy class 13 years ago at age 61 on a lark. He shares the story of his retirement hustle, traveling the US and 50+ countries as a standup comic, inspirational speaker, and the author of Act Two and Beyond: Making the Rest of Your Life Spectacular. Plus, Joe and Big Al follow up on ERISA protection for SEP IRAs, they discuss the Qualified Business Income Deduction for owners of rental real estate, and they offer financial tips and investing ideas for high school grads and college students.
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- (00:51) Standup Comedy is Gid Pool’s Retirement Hustle
- (18:53) Follow-up: ERISA Protection for SEP IRA
- (24:48) Can Rental Real Estate Owners Use the Qualified Business Income Deduction?
- (35:06) 8 Financial Tips for High School Graduates (video)
- (41:12) Where Should a College Student Begin Investing?
From financial tips for high school graduates and college students to exploring the retirement hustle of a 74-year-old stand up comic, Today on Your Money, Your Wealth®, Joe Anderson, CFP® and Big Al Clopine, CPA have a little something for finance nerds of all ages. Plus, the fellas discuss whether rental real estate owners can use the Qualified Business Income deduction, and they’ve got more on last week’s discussion of creditor protection for your self-employed retirement plan. But first, 13 years ago at age 61, Gid Pool took a standup comedy class on a lark. Since then he’s created a successful retirement hustle traveling the US and more than 50 countries as a standup comic, inspirational speaker, and the author of Act Two and Beyond: Making the Rest of Your Life Spectacular. He’s been covered in the Wall Street Journal and on the Today Show – as a matter of fact, Jane Pauley said Gid Pool could be the Pied Piper of the baby boomer generation. Here’s a taste:
“My son calls me one day, he says, ‘Hey Dad, we were wondering, do you have a living will?’
‘We wanna know what to do if you’re plugged into life support.’
‘I dunno, unplug me, plug me back in, see if that works! Reboot! Reboot! Reboot! Reboot! Reboot!’
And then he says the dumbest thing, he says, ‘well, what we really wanna know is what to do with the money that’s left over?’
‘I got a living will for that. While I’m living, I will spend it!’
I went over to a girl in the gym the other day, I said, ‘sweetheart, help me out here. Of all the machines in this room, which one could I use that would most impress these young women?’ She said, ‘Sir, in your case I would suggest the ATM.'” – Gid Pool
:51 – Standup Comedy is Gid Pool’s Retirement Hustle
Joe: That was pretty good stuff, my friend. How’s it goin’?
Gid: I’m in Florida. I’m above ground. That qualifies.
Al: (laughs) Wow, Gid. You’ve done a lot of things. I think from selling vacuums to being a financial – Now you’re a comedian. So, second career, third career, fifth career, in retirement?
Gid: Fourth or fifth. When Jane Pauley interviewed me for The Today Show for a piece that the AARP scheduled, she asked me about my career and I said ‘well it’s probably more like a road show’. You know, a little bit of everything right? I don’t know. You got the little tents on the side. What do you want to do today? But I’ve actually been a financial planner which is weird. I don’t know if people were really intelligent enough to understand what they were getting themselves into. But no I did that for a while. I worked for the Army. I sold vacuum cleaners, boats, insurance, everything except aluminum siding, I think.
Al: So you get to your early 60s and you decide ‘I would love to be a comedian’. How did you even come up with that thought?
Gid: Well my wife actually worked. I’d been a class clown all my life. My wife actually worked at a high school where the principal was taking a comedy class at a local comedy club and we got invited to his graduation show. So we went and did the show. The owner comes out and says ‘we’ve got another class starting in a couple of weeks’ so I signed up for it with just the intent of trying it because be onstage hear them laugh, hah, hah, and all that. And then I started working at it and the next thing I know I’m getting booked and getting little checks and wow. And that was 13 years ago and now I’m working as much as I want to work.
Joe: So if I get this right, you started at IDS, American Express, you were a financial advisor and then did you basically retire from the business and said ‘hey I’m bored, I’m kind of now in my 60s, I want a challenge? Because what we see as being a financial advisor as people approach retirement, they still need to find their purpose and yours was ‘I want to entertain the world and start being a standup comic’?
Gid: Well, I was with IDS when American Express bought them and they changed the model a little bit and I thought ‘Nah, that’s not what I want to do’. So I moved on. I became Chief of Command Information for the Department of the Army in Washington D.C. which was the Public Affairs Branch. But when I got down here in Florida, I was in real estate and that’s when I decided at age 61 that I wanted to go do comedy. And I’ve got a book called Act Two and Beyond: Making the Rest of Your Life Spectacular. One of the things that I began to realize is that at 61, I had probably 20 or so years, all things equal, to fill with something. And I remember my grandparents when they were 65 back in1950ish, people didn’t live that long and the world had beaten them up, medical care wasn’t that good. And so I said ‘well if I’m going to do something I might as well have fun at it’.
Al: So tell us what that’s like to be in front of a crowd and I assume sometimes you get lots of laughs it feels great other times you bomb and it’s like ‘what am I doing this for’?
Gid: Okay. There is no humility. There shouldn’t be. There should be. OK? But I think most comedians will tell you this that you go long enough, you get to the point where you realize if it’s not going well there’s a reason for it. Well, see, I don’t do many comedy clubs. I do mostly country clubs, retirement communities, cruise ships and stuff like that. So those crowds are much, much easier than the comedy club crowds because they appreciate the comedy more. So the bombing thing really is not……. I don’t care is what I’m telling you. (laughs) ‘If you don’t like it, I know what you paid to get in here and you got in free, so shut up’.
Al: Yeah that’s a good attitude. We do a radio show every week. We bomb all the time. So we’re very familiar with that feeling. So that hasn’t really happened to you.
Gid: Not really now. To be honest about it, there were times when I was coming up when I was on stage and I forgot what I was supposed to say. Which is really a nice little pressure point there, ‘like OK so what do you people want to talk about’?
Al: So tell me about the performing on cruise ships, that sounds like that’s a great way to get to your travel paid for.
Gid: Well yeah, in the cruise industry it’s called ‘enrichment speakers’. Cruise lines will put people out to speak on sea days to give the passenger something to do. And I’ve been doing that on Celebrity Cruises for about 10 years. I talk about obviously about comedy. I do a history of comedy. I do a whole thing about Robin Williams. I talked to a friend of his family right after he committed suicide and got some really good insight into what was going on with him and all that. Lucille Ball, some stuff like that. I do the Act Two and Beyond for people to help them find out what they want to do next in their life. And I do it in a private workshop for the passengers. You can actually try improv comedy.
Joe: With the book that you wrote, ‘let’s continue to live a spectacular life’. What are some of the tips? I mean everyone’s not going to be a stand- up comic. And being able to travel for free and do the things that they’re really passionate about. What are other steps that people can potentially make to kind of live that spectacular life that you’re living?
Gid: OK. And this is very key and I’ll tell people this all the time I don’t call it ‘motivational speaking’ because I don’t like ‘motivational speaking’ because that wears off by the time you get to the car. But I call it ‘inspirational’. When I say Act Two and Beyond, it could be something small. I have a gentleman in Sarasota, Florida who saw me on a cruise ship and he came up after my presentation. He said ‘you know, I’ve always wanted to have a rose garden. You know where they’ll take two different kinds of roses and splice them together and put duct tape around them or something. And they grow a third kind of rose and now he has this massive rose garden behind his house in Sarasota where he does that. So it doesn’t have to be something really, really big. One of the things that I always hear from people when I do my Act Two thing is like ‘geez I wish I’d thought about that’. And the Act Two thing came from the fact, I went to a local community theater years ago with a guy when I worked in Washington and it was a little community two-act thing, and I was ready to leave after 10 minutes because it was awful. And I said ‘well you can’t leave a little theater being seen’, so at intermission. I said to him ‘we need to go’. He said ‘uh-uh’. I said ‘why?’ He said ‘because never leave before the second act because that’s when the good stuff happens’. See here’s the problem with getting old. And you guys aren’t even near that yet, I got socks older than both of you. There are several things that older people get good at as we age. We corner the market. We’re good at being the martyr. We are ‘ah well, you go ahead take the last piece of cake. I don’t really want it.’ We’re good at being the victim. We’ve got that cornered. And we’re good at being the loser. ‘Well if I could I would but I can’t’. We’re good at acting stupid. We’re good at being the weak person. We’ve got that cornered. I mean I get all over some of my friends who don’t travel because ‘well my grandkids are in Cleveland and I’ve got to go up for their birthday’. They don’t care. They don’t. Spend their inheritance. But I tell people something small. Now I have a big one, I have a lady in England who saw me and was working for the equivalent of the IRS and went home and said ‘I’ve always going to be a life coach’. And she found a guy that trained her and now she started doing that. So sometimes it’s big, sometimes it’s small. The key is whatever it is you want to do you go do it. It needs to be something that you don’t want to go to bed because you want to keep doing it and you can’t wait to get up because you want to start doing it.
Al: So is that now after doing this a number years, is that still how you feel you can hardly wait to get on stage?
Gid: Last weekend I had four shows in Vero Beach, Florida. I had a show two nights ago near here and I’ve got a show this weekend or on the east coast of Florida and I’m like the horse in the starting gate. I can’t wait to get out and do it. I honestly can’t.
Al: So for someone that would like to follow in your footsteps, I assume there’s not a ton of money in comedy but how does this work? You get paid a little bit but then maybe you get something travel covered?
Gid: I think the kicker is this, comedy pays what you want it to pay. And here’s what I mean by that. Like I said, I really don’t do comedy clubs because there’s no money in that. But the country clubs and places like that, that’s where the money is. And if you work it like it’s a business then you can make a lot of money. What I do and you guys will understand this because it is still a job for me. It’s not a hobby, it’s a job. And everything I do fits it being a job. There are a lot of IRS rules that allow me to take deductions that helped me save on my taxes. As an example, when I go up to Kentucky during the summer, I will book two or three shows on the way up there. I will book two or three shows on the way up there then two or three shows on the way back. So it literally is a comedy run, but I get to deduct the mileage and the food and all the lodging and all that.
Al: So that’s near and dear to my heart. Tax deductions. Like it.
Gid: Well I have a friend and his position is you take what deductions you think you’re entitled to and let them tell you can’t.
Al: Yes, ask for forgiveness, not permission.
Gid: Yeah. Don’t do their job for them. And we’re making money at it. But more importantly, it gives me a sense of doing something decent and having a good time.
Al: So you’re married, right? So does your wife enjoy tagging along on all these things?
Gid: Yeah it’s interesting because she’s a retired guidance counselor and God knows it fits for me. She goes, but now what will happen is I’ll give her my set list and she will sit in the back of the room and make notes as I go through my comedy. So if something doesn’t work, there’ll be a little I didn’t do this or I did that or something like that. But what’s amazing is she still laughs at it, which is stupid because she knows everything I’m gonna say. I think it’s I think it’s one of those little things ‘just humor him, it’s his little skit’.
Joe: Tell me about your process. Is your act basically life experiences of everything that you’ve encountered in life or is it or how do you write your act?
Gid: OK. It’s all life experience. There are two kinds of comedy in my view. There is real life things that everything you talk about could have happened. And then there’s the silly stuff that it’s funny, but it’s – you know. So I tend to go with the real life stuff. And what happens boy. I can look at it and I see it as I see it hit. I see that the mother or the wife poking the husband or the husband poking the wives and all that stuff. It’s just all things they’ve gone through. I do I talk a lot about the kids today not being educated because machines do everything. Technology does everything for them. And I grew up in Kentucky and we didn’t have money for technology because the school was so poor, ‘how poor was it?’, that the sex education classes and the driver’s education classes were held in the same car. (all laughing) So I talk about that stuff. I talk about our toys not having been warning labels on and because our parents knew they didn’t kill us they’d make us stronger. It’s just everything. I talk about women and those darn pillows they put on the beds. All those pillows. One lady said to me ‘you looked like you were inside my house talking about that stuff.’ I found this out. I found if you go to that guest bathroom and wash your hands you’ll start a fight because you dry them on the show towels.
Al: That’s right you’ve dishes you can’t use, cups you can’t drink out of, you’ve got towels you can’t use.
Gid: Absolutely. I have one of the things I talk about is when I was in high school I had to take shop and I learned to take a peg board and put it on the wall and put the tools on it to store them. And my wife came into the garage not too long ago and she was headed over there. I said ‘what do you need?’ she goes ‘I need a hammer’ and just she reaches for a hammer. I said ‘you can’t have that hammer. That’s a show hammer’.
Al: (laughs) That didn’t go over well I’m sure.
Gid: No, it did not. She did not laugh nearly as hard. But it’s the whole process. I have a whole bit and I don’t have time to do it now, but my neighbor comes over and Pat will start telling a story but it never goes right to the point of the story. It sort of deviates. And then she’s talking about something else and then finally her husband will say ‘get to the point’. I wrote a whole thing about that and there was not a punch line in it. But when people relive that they start laughing because they’ve been subjected to it.
Al: You know laughter makes it young. So I would imagine that you’re going to continue to do this for the what, the next 20 some odd years.
Gid: Well, I told I told Jane Pauley, I said ‘I’m going to do it ’till I can’t remember what to say’.
Al: (laughs) That’s great.
Gid: Think about it. Seriously. Comedians, George Burns, 100 years old, still doing comedy before he passed. It keeps your mind active. See this is the thing I’ve tried to tell people. I don’t care what you want to do when you get older but pick something because it keeps your brain engaged. I told a guy one day ‘let me ask you a question’. ‘Yes’. ‘You’ve got investments here. I got investments’. I said ‘you check them out check on them regularly’. He goes ‘yeah’ I say ‘why’? ‘Well, I want to know what’s going on’. So I said ‘why don’t you have your brain doing the same thing. Why aren’t you doing something to check in into the world on a regular basis to keep your brain active’. He said ‘I never thought about that’. I said ‘well that’s my job’.
Al: That’s good advice. What are some final tips that you can give our listeners on how to kind of transition to that next stage?
Gid: OK. A couple of things. Number one, don’t be afraid of doing something and it not working. Just go try stuff. Secondly, don’t go out and tell everybody what you’re going to do because they’ll try to talk you out of it cause it’s not something they’re going to do. And the other thing, Kevin Spacey said this once, that if you’ve been lucky enough to get everything you’ve wanted out of life. It’s your job to send the elevator back down so other people can take the ride up. And that’s what I’m doing with Act Two and Beyond and the comedy. I tell people ‘just come on let’s go do this’ and they go ‘OK’. And I’ve got some aluminum siding stock I can sell you.
Al: That’s the only thing you haven’t sold so far.
Gid: But it’s all about taking control of your future. Period. And that’s where you guys come in. Because nobody thought you’re going to live this long. I mean I was surprised when I passed 50.
Joe: So Act Two and Beyond: Making the Rest of Your Life Spectacular. Hey Gid, where can people get your book?
Gid: It’s on Amazon.com. Just type in Gid Pool or Act Two and Beyond and it’ll pop up. I had them purposely price it at like $10 or $11 because I want people to buy it. I don’t want a $22 book. Just go buy the darn book. Give it to somebody for Christmas. It’ll confuse them.
Al: I know what Joe’s gonna get me for Christmas.
Joe: Yes, right. Gid, when’s your next act? When’s your next show? When can we see ya?
Gid: You can take a cruise. Celebrity, September 1st on the Eclipse in Alaska.
Joe: So when you go on these cruises, how long are they? I mean are they like a couple of weeks?
Gid: Normally they’re 10 to 14 days. We’ve been to like 55 countries on a cruise ship doing this.
Al: And do you perform like every night or every other night or how does that work?
Gid: I do my presentations on sea days and I do my comedy show one night during the cruise. That’s all I’m going to work.
Al: And then you relax the rest of the time.
Gid: I just walk around yelling at people get off my yard (all laughing)
Joe: Check him out folks, GidPool.com. His book is Act Two and Beyond: Making the Rest of Your Life Spectacular. Gid, it has been a real pleasure. Thank you so much for taking some time.
Gid: It’s been a delight. You guys have a nice San Diego day.
Joe: You too. That’s Gid Pool folks. We’ve got to take a short break. The show is called Your Money, Your Wealth®.
Gid Pool ladies and gentlemen, give him and his retirement hustle a hand! If you want to share your retirement hustle on YMYW, email me, Producer Andi Last – email@example.com. Check the podcast show notes at YourMoneyYourWealth.com for a transcript of this interview and links to Gid Pool’s website, his event schedule, and his book, Act Two and Beyond: Making the Rest of Your Life Spectacular. Now, the email inbox is near to bursting at the seams, so Juan, Michael, and MS listen next week for the answers to your questions. If you’d care to add to next week’s stack, go to YourMoneyYourWealth.com, scroll down and click “Ask Joe and Big Al On Air” and send the fellas a voice message or an email right through the site.
18:53 – Follow-up: ERISA Protection for a SEP IRA
Joe: We have a follow-up question from Ross. (laughs)
Al: This could take the rest of the show.
Joe: It could. From Ventura, California. And he was talking about his SEP IRA last week creditor protection.
Al: He wanted to know about if there’s a lawsuit or bankruptcy he’s got a SEP IRA, is it protected or what are the rules for protection, because I guess his feeling is living in California, there’s a lot of litigation going on here.
Joe: And we made a little joke and said ‘oooh, I wonder he’s probably up to no good’. So he writes back. ‘Gentlemen’. Gentlemen, thank you for calling me gentlemen, Ross. ‘The implication that I was up to no good as a job was not correct. I have a SEP IRA in Vanguard and as such, it has limited contributions. Whereas my accountant says I should get a 401(k) to be able to make greater contributions. I am also concerned with the potential of any lawsuit of any kind in the state where people get sued for anything. I did not know SEP IRA was protected and based on your show for general purposes it has limited protection of about $1.3M in most situations’.
Joe: That is false. A SEP IRA has unlimited protection for bankruptcy, Ross.
Al: That’s what we’ve learned since the show. Although, caveat we’re not attorneys. This is just what we’ve read from a reputable source.
Joe: ‘Al raised the issue that it may fall into a gray and I do not want my hard earned money up for grabs. Vanguard does not have a 401(k), so I need to know where I can get the same type of investments under the umbrella of the 401(k)’.
Al: Well stop one second – Vanguard does have a 401(k) so I’m not sure why he’s saying that.
Joe: But it would be a solo 401(k) Ross if you have a solo 401(k), it is not an ERISA protected plan. So again you would have unlimited protection just like the SEP IRA. In regards to bankruptcy. So it doesn’t necessarily matter. Depending on how much money you want to put in and how much money Ross makes.
AL: So let’s say you get sued and there’s a $2M judgment so you have to declare bankruptcy for any sort of protection.
Joe: But what I’m seeing here the difference between a SEP and a 401(k) is the same protection, a solo 401(k), the difference between a SEP and a 401(k), is your contribution limits where a SEP is based on a percentage of profits, where a solo 401(k) is just a defined contribution plan.
Al: And essentially it kind of works this way that the percentage that you can contribute is the same in either plan. It’s just the 401(k) you can do an employee portion as well, which is $19,000 in 2019 for under 50 and $25,000 if you’re 50 and older.
Joe: So Ross you might want to look at a solo 401(k) through Vanguard. You could put in $25,000 if you’re over 50, $19,000 if you’re under 50. Plus he could do a profit-sharing or an employer match and you could put up to roughly $56,000 in a defined contribution plan this year depending on your income. So that could be an option for you and all of that would be protected under bankruptcy. So, he goes on ‘I have a 500 index fund with all my funds which is only a partial diversification of stocks when the market crashes everyone crashed. The more you make the more you can risk. Many people get out of the market a while back when I went down 20% and lost at the present time is it gone up. I know no one can predict the future at least with continuity in private investors rarely can best the market. One very wealthy guy and they all sell books and memberships, you wonder which makes them wealthier, predicted all of the markets up and down and real estate bubble in all and went against the media direction and did tremendously well. He predicts a 401(k) Dow, a $40,000 Dow, a melt up as he calls it, anyways just sharing some thoughts. Wow, he just kind of threw up all over that at the end there, I wasn’t sure where he was going.
Al: Not really a question I guess.
Joe: But I think we gave him some good information.
Al: So there is protection. And so I guess the basic rule is if it’s a SEP or solo 401(k) it’s not ERISA plan, but you still get unlimited protection from bankruptcy. If it is an ERISA Plan, then there is unlimited protection.
Joe: Let’s say you don’t want to file bankruptcy is the issue. So then it goes to the state level and it’s like okay I don’t want to file bankruptcy. I don’t want to go through that. And then it really depends on the state level of what is protected or what’s that. Because in some instances they’ll say the courts will say ‘All right Alan your standard of living is X even though you probably want to spend more or you’re saved that could provide you a higher income stream the courts are going to determine what your standard of living is. And so they’re going to maybe shelter the amount of assets that would provide you with a certain standard of living and then everything else could be up for grabs if you did not want to file for bankruptcy. So there are different types of credit protection. So we’re just talking strictly bankruptcy protection. But if there’s other creditors or other things that are going after you, that is not under the bankruptcy code then it’s going to be on a state by state level. So check with your state, I guess.
Al: Wow. Look at you. Hey man, look at that. Closet attorney.
Joe: I’m not. This is not legal advice.
24:48 – Can Rental Real Estate Owners Use the Qualified Business Income Deduction?
Joe: So here’s Dennis from Coronado. Dennis the Menace. Our man Dennis.
Al: Yes we know Dennis.
Joe: Yes we do. We used to work with Dennis. ‘Joe, can you and Alan provide some guidance on claiming the QBI deduction for taxpayers holding rental properties. Like how he e-mails me when you were his employer.
Al: I know he worked for me for five years. He’s done with me.
Joe: ‘Joe, can you ask Al about the QBI deduction?’ So let’s talk about the QBI deduction, Alan.
Al: So it’s code section199A it’s new with the Tax Act, the Tax and Jobs Act of 2017. And so here’s what it is. It’s if you have a business, a small business, like a sole proprietorship or a partnership or in an LLC or an S corporation, something that flows through to your individual return, you’re allowed to take 20% of the net profits and take an extra tax deduction. So, in other words, you have $150,000 in revenue. $50,000 of expenses. $100,000 is your profit. That’s what you pay tax on taxes on. This Qualified Business Income deduction or QBI for short, lets you take 20% of that $100,000 as a deduction. And so now you only pay tax on $80,000 dollars. So that’s the concept.
Joe: So if you’re in the 32% tax bracket or lower this is where the QBI is pretty easy to understand, but if you’re in the 32% tax bracket or higher, then it’s a completely different ball game.
Al: That’s a good point. There are big phase-outs and roughly as a single taxpayer, it’s about $160,000 or less. You’re in the simpler system. And for married it’s double that’s about $420,000 and below you’re in the simple if you’re above that then it’s too hard to explain it’s too many variables but for right now anyway that’s it’s just the 20% it’s limited to your taxable income. And then the big question is does real estate qualify and as the code was first written in late 2017. It appeared that real estate would qualify. However there’s always been a question is real estate a business because for it to qualify, rental real estate would have to be considered a business. And I can honestly say in 30 plus years of doing this being a CPA there’s never been clarity on that. Most accountants take the stance that it is a business but it’s not clear. The IRS has never made it clear whether rental property is really a business and there are some ramifications which I don’t want to get into right now. But because the question is about QBI anyway so what happened was there was a new IRS Notice 2019-07, had just happened this year, Joe, and this is basically the IRS came out and said yes rental real estate is a business for purposes of this QBI deduction. But then they said this. They said we’re going set up this thing called a safe harbor. That if you follow these three steps then you’re gonna be able to qualify for this deduction. So that’s what a safe harbor is. Generally, it means that if you do exactly what we tell you to do then we’re not going to challenge you. That this really is a business and you can take the 20% deduction. So the three things that they came up with is number one you have to keep separate books and records for each rental property. Well, most people are doing that already. So that’s not a big deal. The second one is a little tougher for taxable years through 2022, at least 250 hours of services are performed each year for the enterprise or for the property. So, in other words, you would have to spend roughly five hours a week on your property. And here’s the unusual thing – it doesn’t have to be you. It can be a property manager. It can be a maintenance person that can be a gardener. All those hours count combined.
Joe: So I got a gardener that comes, I have a property manager, repair man or gal, whatever, you add up all them.
Al: And then as long as it’s five hours a week. It’s a little rich. And then the third thing is that you have to keep a contemporaneous record of the hours spent, so in other words, you have to keep a log. I’ll put it that way.
Andi: I think contemporaneous gives the impression that has to be done as it’s happening, you can’t do it at the end of the year right?
Al: Well you can look it up and tell us, I don’t know.
Andi: I’m pretty sure that’s what contemporaneous means.
Al: So you have to keep the records. So according to Andi, as you’re doing it, as you go.
Andi: ‘Existing or occurring in the same period of time’. Well, I guess there you go.
Al: So you got to do those three things. So when I read this it’s like well if I just have one rental property I don’t think I’m going to qualify probably unless there’s a lot of maintenance or something required on that property for that year because it’s year by year, the 250 hours. Now if I have more than one property the IRS says you can group them together you can aggregate them and for any of those that know the aggregation rules for passive loss which is I’ve lost 95% of our listeners maybe 99%. It’s a different aggregation rule. In other words if I’ve got four rentals I can aggregate them together as though I had one rental and as long as I have 250 hours collectively on those four then it would be OK as long as I keep separate records for all four I spend, or somebody spends 250 hours on the four properties and I keep a log. Up to date.
Joe: How many people do you think are going to do that. Keep the log of all the above. I mean we’re seeing tax returns now come through that took the QBI rental real estate. Yeah. I guarantee you.
Al: I’ll answer that question, but before I do this rule came out in 2019. So basically the IRS says we’re not going to worry about it for 2018. So just do what you will do and 2018 and they also came out and said you don’t have to do this. But then you have to prove under Facts and Circumstances that it really is a business. So I don’t really know what that means. They didn’t really specify. But the better the smarter thing is they actually do this now. How many people actually keep a log. I would say it’s like the contemporaneous logs that people keep those logs for mileage is probably under 2% now. Even though you’re supposed to keep it and even on the tax return it says have you kept the log and everyone always says yes.
Joe: What was your beginning odometer reading. I don’t know.
Al: Do they actually keep this as they go, I doubt it. But they’re supposed to. Will they assemble it after the fact. Probably. Even though they’re not supposed to.
Joe: If they qualify for all is I guess the short of it is that add up my gross rent minus my expenses. There’s going to equal a profit.
Al: Correct. Minus depreciation. So whatever you’re paying taxes on.
Joe: And then when do I take the 20% deduction?
Joe: Where? After all of that?
Al: Yes, it’s after taxable income. It’s not even on the Schedule E, which is the Schedule that you show rental properties at. So that QBI deduction is there’s a taxable income line after Line 10. You’re good on this right. And then there’s Line 11, is the QBI. And then there’s a basically revised taxable income after QBI.
Joe: So because the QBI deduction is going to either be based on taxable income or the profits whichever is lower. But with real estate. So if I had a business and my taxable income was $60,000 but my business income was $80,000. I’m gonna get the QBI deduction on my taxable income of $60,000. So 20% of $60,000. How about if the same thing was true. So they’re not looking at it like that. So let’s say I have 10 different properties or 8 different properties and it’s cash flowing pretty well so they’re not going to look at what that cash flow is from the schedule lead that flows over there I was gonna take it off taxable income.
Al: No, they look at both.
Joe: It’s always going to be it’s the same thing.
Al: One’s on Schedule C, one’s on Schedule E, but same calculation. But I will say if you have passive losses that are being carried over say where you don’t have to pay taxes on it this current year, then it would be no QBI. It’s lost and there’s no carryover on QBI, so it’s a year by year. It’s only what you’re paying taxes on that you could take the QBI on.
Joe: Got it. Mr. Dennis R from Coronado California. There you go. Helping you out.
We’ve got more free resources and information on the QBI deduction in the podcast show notes at YourMoneyYourWealth.com – we’ve got a giant blog post on Small Business Tax Filing and Big Al has an explainer video, both of which lay out the basics so small business owners can be sure they’re keeping all the money they should be keeping at tax time. And, if you’re a part of Gen Y or Gen Z or the parent or grandparent of someone who is, you’ll also find free financial resources for those just getting their financial lives underway, as is the case with these next two questions. Check it all out in the show notes for today’s episode at YourMoneyYourWealth.com.
35:06 – 8 Financial Tips for High School Graduates
Here’s the cheat sheet:
1. Learn about budgeting
2. Learn about credit, debt, and FICO scores
3. Learn the power of compounding
4. Save early
5. If you can’t pay cash, don’t do it
6. Build an emergency fund
7. Start investing to the extent you can – try to get to saving 20% of your gross income
8. Consider opening a Roth IRA
Joe: This one is from Andi. From…
Andi: San Diego!
Joe: Do you want to read your own question?
Andi: I have a very dear friend who has a daughter named Kiera. Kiera is about to graduate from high school. So I was wondering if you fellas could provide her some financial advice and some for other graduates as they are about to embark on the rest of their lives? What would you tell – high school, you get them real early on.
Joe: There’s so much that someone graduating from high school I think needs to learn in real simple terms. Budgeting is one. Looking at credit and debt and what really that means. FICO scores. Why is that important, when it’s not important? Or what you should do to make sure that you don’t fall into certain traps that maybe a lot of people fell into that didn’t have just proper personal finance information? Of course, the power of compounding is always really important too, to look at if they save $10 a month and then they increase that to $20, $30, $50, $100 a month, and they start at 18 years of age. What could that grow to? That’s really powerful things. So I think I would just start real at the basic level in our world. But I would say that’s fairly advanced in them and in the real world where you look at people in their 50s and 60s that still don’t understand the concept of budgeting or understanding ‘hey, spend a little bit less than what you make or pay yourself first’ or things like that. I think that’s where I would go in maybe just to have a simple type conversation in saying here’s the ABCs of what you should be taking a look at. My sister for instance when she got her first job, she’s a registered nurse in Minneapolis, and I ran a spreadsheet because we did this in some training and I’ve seen it in books now with Ric Edelman and things like that – like Jack and Jill, if they started saving $1,000 a year and they started at 18, but then Bill and Susan started at 30 and then so-and-so started at 50 to get to a certain dollar figure, how much more that each couple would have to save? So I kind of went through that example with her and they said have you maxed out a Roth IRA of… I forget the contribution limits back then, by the time you can save for 20 years and you would be a millionaire by the time you’re 60. So that motivated her. So then she’s like ‘oh I am done with my plan because you told me all I had to do is save this for 20 years. And I was like ‘No don’t stop’!
Al: And I think I agree with everything you said and I’m going to add maybe a couple of practical things. I think a lot of high schoolers and college age kids they don’t really quite understand what credit is and how it works and I would say this: if you can’t pay cash for something, then don’t do it. If you want to use a credit card to build your credit and FICO score, that’s OK. But just make sure you can pay off that credit card when the bill comes each month because that’s where people get into trouble. So that’d be one thing. The second thing I would say is we know that about half of all Americans can’t even afford a $500 car repair. So work towards getting $500 to $1,000 emergency funds as kind of a starting point. You want to add to it as time goes. But be responsible with credit. Have a have an emergency fund and then start investing to the extent that you can because of the compounding of money – and it is pretty amazing. And I think I think a good lesson for young people is to think about whatever you’re making. Try to get it up to – not immediately, but over time, get up to 10% of your salary going into savings and then 15% and then……
Joe: Net or gross?
Al: Gross. Then 15% and then even 20%. 20% would be sort of the gold standard. If you’re making $50,000..
Joe: Sabatier says 75%.
Andi: If you can get started early enough to be able to save 75%, yeah, you’ll be a millionaire by 40.
Joe: But it’s like you know when you said that if you can’t afford it in cash don’t put it on your credit card. I remember my dad saying that to me and I was like ‘Dad if I had the cash I wouldn’t use the credit card. This is stupidest thing I’ve ever heard in my life.’ And then now you kind of get a little bit older, you’re like, ‘yeah I guess it some made sense.’
Al: I think that it’s why people like Dave Ramsey do well because so many young people get in trouble with credit.
Joe: Dave Ramsey does well because he sells very high commissionable products. And he preys on the people.
Andi: I got one more question. Would you suggest somebody that is just getting out of high school, if they don’t already have one, should they open a Roth IRA, like, right away? If they’ve got earned income?
Al: Yeah, I would say yeah. But again it’s qualifying, because they may need the funds for college right? So it’s probably not for everybody.
Andi: But even if you just put $10 into it right? $10 per paycheck.
Joe: You always have access to the money so it doesn’t hurt you to do it on a contribution. So it wouldn’t blow you up. So if you put in X amount into a Roth IRA and then let’s say to two years later you need the money. That’s probably not the best place to go but if you needed it you got it.
Al: By the way, so you can pull out the contribution. You just can’t pull at the earnings and growth.
Joe: If you’re putting $10 there’s not gonna be a ton of growth.
Andi: So Kiera should basically watch out for her future self.
Joe: I would take a picture and put like a wig on it. Put some wrinkles on her face.
Al: There are programs that you can age yourself, just pretend you’re 65 and say I’m ready to retire and do you do a picture where you’re really sad and broke. And then a happy one where you’re younger you look quite happy.
Joe: You’re 35 and you’re living in a mansion.
Andi: Thank you guys for such wonderful advice.
41:12 – Where Should a College Student Begin Investing?
Joe: Let’s go to Julia from San Diego. So she’s a college student with ‘some money put aside that I intend to invest, looking for where to start.’ OK well Julia, what’s the money for? And what are you trying to do and how much is it? Investing is one thing but you invest toward a particular purpose or a goal.
Al: And let me elaborate. If this is for you want to save some money to buy a car in a year or you want to save some money so you can rent a better place when you graduate and you need the security deposit and the first month’s rent, you’re gonna buy some furniture. Well then keep it in cash because you have a short term goal. If this is for retirement then good for you because hardly anyone in college is thinking that, if you are and you have some earned income and you can set up a Roth IRA then go ahead and put that in a kind of a stock mutual fund, maybe an S&P 500, maybe a total market USA type fund, Vanguard has one.
Joe: Sure. I mean I think a good place to start is that there’s… this is such a tough question when you don’t really have a lot of information but if I’m a college student and I’m looking to start investing where should I go. I would look at a few different sites that are geared like Betterment, for instance. It’s an online robo-type advisor you can just kind of log on and set up an account. You could go to like Acorns. Have you been the Acorns have you heard of that?
Al: I’ve heard of it from you I’ve not been there. So that’s kind of a cool site. Personal Capital is pretty good. It’s the aggregation of your assets.
Joe: Acorns is I think is really good for starting for investors to start out because what they’ll do is they kind of round up your checking account things like that. So if I’m spending something and its constantly $0.78, they might round it up to the dollar, and then put that change into an account. And then every time you make a purchase, you can make parameters.
Al: So it’s got a kind of auto-saving. I’m sure everyone out there has some sort of coffee can/jar/whatever vase full of quarters and nickels and dimes and pennies. You have one of those, Al?
Al: I do. I don’t get cash much anymore so it doesn’t change too much.
Andi: Mine’s been in the closet for years and I’ve probably got $300 or $400.
Joe: And I’m like ‘OK well someday I’m going to buy one of these’ – before they had those machines, you would have to roll them. So I had to roll them like into the bank. So because it’s kind of that concept it’s like the change adds up over time. And so that’s their concept is that you can buy fractional shares of stock or whatever. So there are a lot of really cool investment platforms.
Al: And by the way some of the banks do that, of course then they wanted to put it into their own savings. And you don’t make a ton of money on those, but at least you’re starting saving.
Joe: So there’s a variety of things, you can always go to the Charles Schwab, TD Ameritrade. They’re very low-cost discount but I think if I am a college student, depending on what my knowledge is of personal finance, depending on what I’m really trying to do, how much I want to save, I might want to start at some of those easier sites to make you just automatic out of sight out of mind and then you can start with a very low amount. On the other hand, if it’s a little bit higher dollar figure who knows. I mean then maybe you go to Vanguard or a full-service advisor. Appreciate you hanging out with us today.
Why yes there are Derails at the end of today’s episode how, did you know? What’s that you say, because these fellas are so good at getting sidetracked? Well, you have a point there.
Special thanks to today’s guest, Gid Pool. Visit the podcast show notes at YourMoneyYourWealth.com for links to Gid’s website and his book, Act Two and Beyond: Making the Rest of Your Life Spectacular. Thank you for subscribing and sharing the YMYW love, you really have no idea how much it means to us and how much it helps us when you do. Find all the links you need – you know where they are, say it with me now – “in the podcast show notes at YourMoneyYourWealth.com.” Subscribe to the podcast on Google Podcasts, Apple Podcasts, Spotify, listen on YouTube or find it on your favorite podcast app. Click to subscribe to the podcast on any of the following apps:
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