Welcome to Hada Money. I'm Joel, I'm Matt, and today we're answering your listener questions.
We hope everyone had a fantastic weekend. Specifically, you buddy, a big old happy birthday. Today is Joel's.
Forty ninth birthday, though at this point, at this age, we don't acknowledge birthdays.
Matt right, Well, it's one thing to say that, Oh I'm forty one and a half as opposed he still celebrate your actual birthday though, But this is Monday, and I mentioned that because I want everyone to wish Joel a happy birthday. Thanks Pat. Okay, we do have those of their questions to get to.
Honestly, I'm not ashamed of my age, so you know, I think some people are.
I don't.
It's just a number who cares. And I'm gonna be like Brian Johnson to live forever, so.
You know exactly. It really is a number. Reference to that recently, but a listener is asking about direct index investing if it is worth the squeeze considering the benefits he's receiving from it versus the cost. We'll talk about that. Another listener is asking what he should do about this awkward family money situation. Things I think are going to get weird, but I love weighing in on awkwardness. Yeah, and another listener is asking for the easiest way for
his kids to spend their money. We'll talk through some methods of payment.
Sure, get to that more during today's episode, Buddy Quick PSA, Matt, My parents just came back from Houston. I have mentioned this on the show before. My mom is dealing with a kind of skin cancer and she's she's doing well, We're hopeful, but gosh, you just never know what this
kind of thing, right, And it's true. So but one of the things that I was looking up because they were they were going to get a second opinion in Houston at MD Anderson, of course, and the hotel rooms were quite expensive, and so I just had this hunch.
I was like, there has to be some sort of free place for people who have cancer who are going to some of these bigger cancer centers to stay, because there are a lot of people who I would imagine can't afford expensive hotel rooms near where they're getting treatment, right, So I just like did a quick search and found that, yeah, there is, in fact such a thing, and I'm sure there are even more resources that I'm completely unaware of it. If anybody is aware of them, please let us know.
We'll like maybe compile them, put them on our website or something like that. But the American Cancer Society runs something called the Hope Lodge, and it turns out it was all booked up. My parents only had like a week that they knew in advanced. They didn't have enough planning, so they did Unfortunately, they had the funds to work over for a hotel. But for the future when if they have to make a return visit or at other
cancer centers around the country. This Hope Lodge exists, and I mean it's kind of cool that there are resources out there for people. And I guess just don't assume that you got to go on a loan, you got.
To fork it out. Yeah. Well, I mean this is like the Ronald McDonald house right in the essentially does that still exist? I think he does, Okay, Yeah, I mean, which is I'm pretty sure for setting up families to have a place to stay if there are somewhere where there's a where there's a child I guess getting receiving treatment. So this would be the adult equivalent of that, right, less orange and red. Perhaps, No, I'm pretty sure they make those house you were chicken nuggets, sir, look look
pretty classy. But I appreciate your your outside of the box thinking when it came to trying to find a spot for them.
But yeah, I mean I was like, literally my first initial knee jerk was go to hot wire, go to price line, see if I can find him a good deal in a hotel. And then second line of breastoning was wait a second, what if there's something even cheaper than that?
Yeah, this isn't a typical vacation or you know, something like that.
And that is how my brain works, by the way, Yeah, it's like orders of magnitude of money saving.
So run on. A nice little quick tip for folks out there, Let's quickly introduce the beer that you and I are going to enjoy during this episode, Buddy, A Tiny S's, which is a sour ale with fruit candy flavor. And this is a beer by Prairie artisan Ales. Brew We've had on the show plenty of times, but not this one. Even though I know if I actually had this beer, oh really, we haven't had it on this I'm pretty sure.
I don't.
You're like the number one person I drink craft beer with, so I'm pretty sure it was with you, but maybe it. Yeah, But looking forward to enjoying and sharing our thoughts at the end of the episode.
Yeah, Prairie makes great beers. This one is very unique, so we'll give our thoughts in.
A little bit.
But Mattle, Prairie gold Oki. Uh, those are just a couple of the Prairie beers.
We've had a lot of, like big boozy stouts, but like some really great sours to funky mosaic I ever want to say? It was a good one?
Is it Christmas Bomb?
Oh?
Yeah?
That is that a Prairie total classic? Okay, yes, I remember that one too.
All right, man, let's mention how people can ask a question if they're so inclined. If you've got a money question, we would love to tackle it on the show. Just go to how to money dot com slash ask for simple directions. Really just recording your question on the voice memo app of your phone, emailing it over to us at how to moneypod at gmail dot com. Hopefully we can take it next week on the show. Matt, Let's get to a question specifically about awkward family finances.
Hi, Joe, this is move best. A couple of years ago, I signed a student loan for my great niece, which is my sister's granddaughter, and she graduated from Spilman College, and I think she's started to work and she's not paying on her student loan which I co signed for. Now, my backing institution was the Navy Federal Credit Union. They are going into my account and taking out payments without my permission. Is this legal? And what can I do to get my niece to pay off this student loan?
Thank you, Joel. He addressed you specifically, so want you kick things off?
Yeah, well, I don't know why. Maybe I maybe I'm more memorable Matt.
Well, that's because he probably heard you talking with your buddy Bill Handle out there weekly appearances indeed with Bill Handle every Thursday on KFI. Well, Murph, let's get to your question. So sorry to hear about this. The truth has met.
These kinds of things are financially and relationally frustrating. It's like a double way. I mean, it's like a gut punch and a face punch at the same time, which if you're like I'm thinking about Mike Tyson punch out when I say that, And the double combo can be really tough, tough to deal.
With the old one too, Yeah, and that's what they call it. That's right.
And the truth is like when you mix money with family, there are substantial pitfalls that can come about and often do come about. I feel like that's why our advice typically is like, don't mix family and close relationships. Most of the time it doesn't work out.
Well.
I guess you and I run a business together. We're best buds, so their pitfalls there too, right, and we have had to come up with certain guidelines to make sure that we are caring for each other well and that we're splitting duties properly. And I think the typical story we hear is that a family member lends another
family member money. They're hoping that they're going to get paid back in a reasonable timeframe and that's probably what the promise is, and when that doesn't happen, it sours the relationship.
And this merv situation is.
A similar one, but co signing on a loan instead of directly putting money into a relative's hands, and so at the end of the day they can be similar in the way that they work. And this is why we typically advise, you know, financial transactions to be considered gifts. If you do lend somebody money and then if you can't afford to give them that money, don't give them any sort of money at all, right, Like, if you can't just kind of completely write it off, it could
come back to bite you. In a Mervh's case, this co signing is going to come back to Biden sadly.
It's indeed, yeah, and it's worth saying as well. We're not lawyers, but yes, MERVH. The stay on a holiday and last night. The financial institution, it can legally take money out of your account, out of your account there with the credit union as a co signer of this loan, if your great niece isn't making payments. This is known as the right to offset. We are getting a little loyally, you know, a little more technical in the weeds here. Basically,
the lender wouldn't have given that loan to your niece alone. Like, the only way that they were willing to say yes is because of the fact that you signed. There's a reason for that, and it's becoming crystal clear to you. Now, I'm assuming like they were worried about her ability to pay and they wanted some additional recourse and you, in this case, specifically your money if she were to fall behind or if she were to stop making payments altogether,
which is you know what's led now to the sticky situation? Yeah, that you find yourself and makes you think of my nephew, Matt. He's fifteen.
If you wanted to go out there and buy a brand new Mustang or something like that, because you know he's about about to hit full driving age and he's like, let's go, let me get this forty thousand dollars car. If he shows up alone to the dealership, they're going to be like, sorry, buddy, you can afford maybe a nineteen ninety eight Mustang, right like you have like fifteen
hundred bucks from working on odds and ends jobs. But if I show up with him, not because I've got the deepest pockets in the world, they'll be like, oh, you just like put your name on this paper too, and we can can get whatever Mustang he wants, and you have an income right exactly, and we know that you're going to be good for it, even if he's not. But if I did that, then I'm putting myself at risk,
which is what happened here sadly with MERV. When you co sign alone, you've created a legal obligation for that debt, even if you never saw a dime of that money, which is exactly what happened in this case and exactly what happens in so many co signer cases, like you are on the hook for the thing and you see none of the benefits. And MERV, you said this was a student loan, but you co signers don't have a legal obligation if they signed for a physical item either.
So just because my nephew stop making payments, let's say on that proverbial mustang, well I have to pay for them, and I don't have the right to be able to go get the mustang from him either. And this is why co signing is something that we're just not fans of.
I get why people do it, right, being asked by a loved one for help, it tugs at your harsh strings and you're like, well, I want them to go to college, I know this is going to be good for the future, or I want to help them out and be able to buy this car that they might not otherwise be able to afford. And we should be willing to help our family members out, but just not by co signing for a loan. It's just too risky.
It's pretty much one of those don't ever do it things. In our opinion, I don't want to have my name on those loan documents. And so MERV, what should you do legally financially as well?
Here?
Like you're on shaky ground. The only thing you can do, honestly is just to have a heart to heart with your with your great niece. It's worth coming in with like without your guns blazing, and having a more kind of honest conversation because she might not even be aware of what's going on here. I mean, I think given all the talk about student loan forgiveness over the past couple of years, there's a chance she's like, oh, I thought that got written off. I thought the gut that
the federal government was gonna forgive that. At a point, there's a lot of people confused about the stack. It was just a constantly it seemed like every week there was something new.
So she might not even know that MERV is being like getting their bills now and getting money taken essentially actively exactly, So I would just reach out to her, just first put that under radar. I can't imagine though, that she's also not receiving requests for this money delinquency notices. Yeah, but uh, you know, try to have this chat in person.
I think that can go a long way as well as opposed to like shooting her text message or an email, but try and find out if she'll be able to resume making some payments, because the ability to show her how this is impacting you, right, Like, have a running total, show her how much you've paid, and let her know that, hey, it'd be great to receive that money back over time, maybe not expected all at once, but it's worth taking a more relational tact here because like I don't think you'd, like,
you don't really have much legal recourse because your name is on the loan and so she doesn't have to pay you back, like you would have to go into more legal territory, which I'm guessing you want to try to avoid doing. Like you could sue her if you can, if she has the ability to pay and she's not paying, you could see her in small claims but I'm guessing that's not something that you want to do, and that this is going to be able to be more eloquently
solved by y'all talking this over. Yeah, it's one of the and you can tell her personally, Hey, I co signed for you in an effort to try to help you out when you needed it, and now I feel like the tables have turned and I need you to help me out and pay what you owe, and we need to come to a solution here. I think the emotional peel that you're right, Matt, is really all that MERVH has here. I think it's important to note that late payments or a lack of payments being made will
impact your credit score as well as hers. So she's not paying that this could negatively impact her credit score.
She needs to know that.
I would highlight that for her. And then if you stop paying for some reason, you're harming both your credit and her. So this is one of those things where it's like lighting both of yourselves on fire at the same time, which I wouldn't advise. And because the truth is, if you do that and you say, let's say, try to prevent the credit union from taking money out of your account. That could prevent you from being able to buy a home or a car, or even rent a
place in the near future. It will impact her for a long time to come from a credit perspective too, you would also likely be sued by the lender for the outstanding debt. So it's not like you're going to be able to get away with it either. Right at some point they're going to come for you, come for the money, and so we can't sugarcoat it.
MERVH.
You're between a rock and a hard place here. We wish you good luck with that conversation with your great niece. We hope you're able to convince her to start paying in order to keep your finances, your credit, and your relationship intact. There's just a lot at stake here with this conversation. It's not easy, No, it definitely is not.
And hopefully this is a lesson learned without having to experience this firsthand. And I will say, Joel, this is one principle that we are in total agreement on with Dave Ramsey because I remember listening to him, like I don't know, fifteen twenty years ago, and he would always harp on folks not co signing for somebody else. It's a terrible decision, and this is exactly the exact kind of situation that you want to find yourself avoiding.
The truth is, yeah, if you help co sign for somebody, you're on the hook and there's a decent chance you end up paying for it, and the relational damage that often gets done in these situations can be severe. All right, Matt, We've got more questions to get to, including well, is there a way that you can actually help out a much younger member of your family when it comes to building credit. We'll talk about that. Get to a bunch more of your money questions right after this.
A right, Joel, we are now back in the break. Let's hear from another listener. This is a listener who has some crummy benefits from her employer.
Hi, Matt, Joel. My name is Vicky and I'm from Ohio. I work for an employer that offers a four oh one K and an HSA. There is no matching for either. I max out my AHSA every year. My FIOH one K I do not use because it's through an insurance company. They have high fees and the paperwork says that they can change the pricing for services at any time without
a learning the investor. I have some money in a brokerage account that I would like to put into a four oh one K, but I'm uncomfortable using this four oh one K, and I'm not sure what I should do. Thank you for your help by Matt.
All Right, there's good news and bad news here for Vicky, isn't there? And I'm glad that she has access to multiple tax advantage retirement accounts.
That's the good news.
Yeah, sounds like she's using her HSA properly. She's maxing that out letting it grow. Also good news, which is something we talk about regularly on the show. And we'll put a link to an article about HSA's and how good they can be in the show notes. By the way, just random note here, Vicky, you could always move funds from that HSA to Fidelity over time if the fees
are high on that account too. You didn't mention kind of what the HSA fees you're encountering are, but that might be the best move to avoid some of the fees that you might be encountering. But huge bummer about your four to one K being with an insurance company. That's the bad news. That is always a giant red flag.
Makes me frustrated for anybody out there dealing with that reality, because that means that the fees are significantly higher than what they would be if you are with one of the low cost broken terms that we talk about here all the time, specifically Vanguard, Fidelity, Schwab. Those ones are the those broken terms make costs essentially non existent for anybody who does business with them.
Yeah.
Yeah, there are small expensary shows, but they're infinteslaly small and they barely impact the return that you see. But if you're with an insurance company, they could be ten, fifteen, twenty times as high and they can massively eat into your returns over time. So this is yes, a big problem. And if you had a match offer to you, well, the advice would be to suck it up and get the match, even though the investment options are massively inferior.
But with no match, I think that four one k man, I think if that is like a it's dead to me, right, Like, yeah, totally, I don't need that four one k honestly if it's that bad and it doesn't come with any match either, well, and good on her for having looked at the fine print, the fact that it's with an insurance company, the fact that they can change the terms, you know, the price,
the rate at any point. Too many folks make a really important decision like this without having dug into the details, without any due diligence. And I'll say so, regarding the money that you have over there in your separate investing account, your brokerage account, what I would do here is to leave that money that you have in that account, like, leave it in place.
I would not. It sounds like you might be considering selling some positions, selling some funds, some stocks there where you would trigger capital gains tax in order to fund a very subpar for one k, again with no match, And that would be just a terrible situation to find yourself in. Like, if you have additional funds and you want to invest outside of that brokerage account, then we've got some ideas for you. But I would not be looking to pull that money from that in order to
get it within a four to one k somewhere else. Yeah.
No, the four to one k, I think is just I would ignore it, pretend like he doesn't exist. Essentially,
you're already funding your HSA quite nicely. You've also got money in the brokerage account, and VICKI, I'm not sure if you have any additional dollars in particular outside of the brokerage account that you would like to use to invest, but if you do, we'd love to see you contribute to a roth IRA with one of those low cost providers I mentioned just a second ago, because that's another tax advantaged account that we love, and you could stick
up to seven thousand dollars a year, thousand dollars more than that if you're over the age of fifty five, eight thousand dollars a year in total, every single year. If you wanted to write you're getting some tax diversification. You'd be stocking more money away for your future. Plus you're completely in control of the costs, potentially to the point of zero percent. Matt, Like we talk about with fidelities zero index funds like fz ro X, which is
their total stock market index fund. You could like, how much more fun is it to say FC rocks. Yeah, I mean, it's amazing the fact that the race to the bottom went to the legit bottom. Actually it is sometimes even better for some investors where we talk about the match that some firms like robin Hood offer. It's gotten incredibly competitive the individual retirement account landscape for individual investors,
and you stand to benefit. But it's all about opening up the roth IRA and looking at those options.
Yeah, and ross are great from the standpoint of pull, like ripping the tax band aid off right now and never having to think about it ever again. But I think it's worth mentioning if you know that you are wanting to invest maybe a little more aggressively of let's say the next five years, and if you know that you're going to be in the highest income producing years of your life, if you're basically at peak income, it might be worth considering.
A traditional IRA to be able to reduce the taxes owed because of your potentially higher income. But that's of course, knowing that these are your peak earning years. Sometimes we know we have more of an idea of what that's going to because if you're thinking, well, yeah, I'm going to go after pretty hard for five years, but then after that I'm planning to switch to part time. I've
got other things i want to pursue. Well, now's the time potentially to consider that traditional IRA obviously doesn't give you as nearly as much flexibility. It's hard to project those things perfectly, but yeah, most people have kind of something to think through of them. Yeah, career trajectory they're hoping for.
Totally, here's an outside of the box, maybe a less orthodox way of thinking. Let's talk about your actual job. Because so I just laid out a scenario where you're, like, at the peak of your career, you're making a sweet income. Maybe it's worth considering a different job at a different company. I wouldn't necessarily go hunting for a new job just because you're four to one k offerings are trash because
they don't offer a match. But if there are other reasons that you're unhappy with your job, like maybe it's just like the hours or the career potential. Maybe you've got more in the tank and you're thinking, I don't I don't see much of a future for me there, then I would consider this as a good reason to feel a job search. Great companies they should offer competitive four to one k's. It's almost like a non starter. Honestly, now, at this point for a company to not offer it's some kind of match.
It's table stakes. Yes, for literally to hire great employees. A match in a four oh one K is like, yeah, you have to have it in order.
To get the right people, it seems like, and it just doesn't speak well of the company if that's not the base, the bare minimum that they're looking to offer. And you know, you probably weren't expecting us to tell you to get your resume ready, but I think it's worth considering if there are other things that you're unsatisfied with at your current employer.
Agreed, Yeah, you don't want it to be the whole kitten Cammodle reason to leave. You might be unhappy if you did, but it is certainly one of those factors that you want to consider. And the other thing Matt I would at least think through is maybe your employer doesn't know any better, at least when it comes to the fees that this foreign K plan is charging to employees. You would think that they would know, but they might not.
I mean, think about the fact that employers often have to find health care plans for their employees and guess what the people in charge of that. They're not always health care specialists. They might not have the expertise to know exactly what's getting passed on to employees and what's not. So maybe give them the benefit of the doubt, and in that case, will petition them to help them understand
what sort of product they're giving to their employees. Right, let them know about the four one KA options that would save them and you money. Yeah, and that's right. It's not just about you and your fellow employees. It's about them too. There are lower cost plans for them to implement. In all likelihood, tell them about companies like Guideline, like Betterment that offer low cost four to one case for small and medium sized employers, and they massively minimize
fees for employees too. Maybe they'll be so grateful and they'll save enough that they can be more generous and start offering a four to one K match too. You never know, but it's one of those things where that's two birds one stone. Yeah, there's a kind of gentle way to let them know. Wait a second, Hey, look
what I found over here. This might be great for the company and great for everyone in it too, in order to minimize the crappy fees they're forking over so people can't actually utilize the account I mean the employer. I'm sure they offer a four one K they want their employees to take advantage of it hopefully. Yeah, you know, like I mean that's assuming the best. Like that's a good faith sort of.
Argument, the fact that they don't know better, and once you just provide them with the information, they're gonna change their minds and they're gonna want to treat their employees better.
But like I guess a bad faith sort of scenario would be like if they're getting a sweet trip out of it every year from the insurance company or somebody who always takes them to a certain golf course, and those are deals that still happen today, unfortunately, And if that were to be the case, then this could be again going back to the suggestion of considering a different company. If this is just one of many reasons that you are finding yourself unsatisfied, and.
You think those insurance companies are taking the HR people out to the.
Disc golf course or the real golf course, I'm guessing this thea's the latter. Yeah, But let's hear from another listener, Joel. This is a listener who has a question about direct indexing, which is not something I think we've talked about here on the show.
Hey, Matt, Joel Greg here calling from Lynnwood, Washington, and I have a question about direct indexing through an SMA. I'm thirty two married. We have about three hundred and fifty thousand income and our portfolios five hundred thousand, with half in retirement and half in a brokerage account. So with the brokerage account, I have an advisor. I'm not paying a fee. It's through Fidelity, and they make that available if you have more than two hundred and fifty
thousand invested with Fidelity. But he's suggesting a direct indexing approach opening an SMA. It has to be one hundred thousand plus and there's a point four percent fee, And just using easy math here, his suggestion is, you know we can we can donate the winners the top gains and tax loss harvest the losers. So out of one hundred thousand portfolio, say we grew to one hundred and ten in an ETF fund, you just have your holdings
grew to one hundred and ten. In a direct indexing approach, you might have stocks that grew by fifty percent and you have other stocks that lost fifty percent so instead of having, you know, just a plus ten thousand, you might have plus fifty and minus forty. And in that instance you could donate the ones that gained a lot and rebuy at a higher cost basis plus. Then you can tax loss, harvest the losers, and reduce your taxable income this year. So I think the math works here.
The point four percent fee is going to be more than turned with that tax efficiency. But I wanted to run it by you in case I'm missing anything.
Thanks so much, ooh man, I like this question and a lot of mass.
It does show that that actually some of the changes that have happened on the investing front are not insignificant when it comes to individual investors being able to save on taxes. And I'm glad that Greg is with Fidelity, by the way. I mean, although I have read that they regularly try to pitch folks on signing up for the more expensive account management services.
But yeah, I am not happy with the scenario that it sounds like Greg is finding himself in because when it comes to f Z Rocks and the other zero funds, yeah, that's great, But when it comes to some of these other services that they're offering, I think there might be some better options out there that we'll get to.
Although just the fact that he had this conversation and he's asking this question, I think it sounds like Greg has the ability to save money on taxes in ways that he hadn't really thought of before.
That's true. Yeah, So we're talking about tax lost harvesting right now, which is one of the things that direct and takes advantage of. And you know, this is kind of like how we talk about the need for folks who have more complex tax situations the pay a pro If the tax savings outweigh the fee that you're going to pay, well, you'd be shortsighted to not pay. And when it comes to tax lost harvesting, it's similar. So
it's define it real quick. Tax loss harvesting is when you sell an investment at a loss in order to offset other gains that you might have received, and if your losses exceed your gains, well, you can then deduct those losses. In a given year, it's up to three thousand dollars if you are married filing jointly for that given year, in order to reduce your ordinary income. If your losses are larger than that well, you can then carry those losses forward, claim those losses to offset ordinary
income in future years. And it's not an insignificant amount of money here, and a good advisor who is paying attention can help you to save on taxes buy selling and buying in a timely manner without changing your portfolio allocation all that much.
Yeah, I mean, think about this if you can even let's say, if your total stock market index fund has experienced some losses, you could sell in order to show a paper loss, rebuy an S and P five hundred index fund, and those are would not be subject to the wash sale rule because because they're dissimilar enough, and you can just reap tax savings because of it. And it's important to mention that the tax loss harvesting only
works inside of a brokerage account. You're not creating, that's true, a taxable event when you sell a fund inside of your four oh and k or your IRA. Also, tax loss harvesting is more effective for higher income earners. So you know, Greg, he was pretty honest about what he makes. He makes a lot of money, close to three hundred and fifty kyah, which means that his highest marginal tax
bracket is getting up there. He's not far from at least some of those dollars being taxed in the thirty two percent range if he continues to crush, which means the stakes are higher and that a tax loss harvesting strategy could have I would say, a not insignificant impact on his tax situation. Still the point four percent fee, it's not cheap, and tax lost harvesting is something you
can do yourself without an insane amount of effort. But this direct indexing approach, I would say that the fidelity rep is talking about does make it easier, kind of in the way that Greg outlined, making it easier essentially to call the losers and to grab those tax savings than if you're talking about owning just a couple of funds inside of your brokerage account.
Yeah, direct indexing it's a relatively new product. It's gaining steam, but it's an attempt to mirror the index strategy that you find with something like let's say an SMPF ETF for something similar, but you've got fractional shares, you've got zero commission trades, and both of these advancements in investing has made this method more widely available to investors in
recent years. So instead of just buying a simple index fund, instead, what's happening is you buy small amounts of individual stocks that make up that index, and then this offers the potential for smater tax moves are when there is volatility there in the market.
I am thinking of Matt. You know, you have a folder on your desktop and you have five hundred files in there, or you scatter shot them instead across the entirety of your desktop. That's what direct into indexing, at least in my mind, looks like instead of putting it in a folder inside an index fund, they're literally just all scattered all over. But Okay, what should Greg do here? And should he succumb to the Fidelity pitch go with their their separately managed account in order to have access
to these tax lost harvesting benefits. I don't think so, And I also don't necessarily think it means that Greg needs to Diyatt himself, although he could, but there are ways to actually, I think maybe split the baby and get the best of both worlds. Betterment is a robo advisor that we're fans of, and tax loss harvesting is included in the feed that Betterment charges, which is only a quarter of a percent instead of four tenths of a percent. And the bigger that portfolio gets, the more
that fee matters. So that's actually a s acial difference in price. And I think that's a big deal. Reducing taxes matters, yes, and I think it's important to highlight that. But Betterment has an automated algorithm that harvests losses without creating additional trading costs, while also helping you avoid running a foul of the irs, which is I guess from they perspective, that's the biggest potential pitfall is that you don't do it properly, either from a planning perspective or
from a tax perspective. And hey, it turns out you didn't tax lost harvest to its maximum ability. And while we love Fidelity, moving over to Betterment might be best
for Greg in this situation. Betterment also highlights on their website that seven out of ten Betterment customers have their taxable advisory fee their Betterment fee covered by the likely tax savings of tax lost harvesting, and Greg would almost certainly be one of them, especially when he ran the numbers and he's like, hey, I'm going to come out ahead with the higher fee from Fidelity, Well, then you're definitely going to come out more than a head with
the lower fee from Betterment. So I think you can maybe have your cake and eat it too, just by doing business at the right place.
Yeah, And I think more than anything, the red flag that gets raised in this scenario is the fact that it feels like a pitch. It feels like a pitch from Fidelity. And while there are many things that we love about Fidelity, specifically there's zero cost funds, it feels like they're trying to sell you on this and perhaps in order to gain more of your business and have you pay for slightly more expensive services that they're making slightly more profit on. And it's not that's the thing.
It's not a ridiculous amount. Point four really isn't that bad. It's not gonna a lot better than a lot of about other advisors other than one percent, for sure, one percent of assets under management. It's not predatory. And that's the.
Part that feels a little weird about this is that, like it's good enough for that to be folks who are satisfied with the services that they're receiving for that dollar amount. But what we're just saying is that hey, go with Betterment and you'll be able to get the same thing. Basically, you don't have somebody that you're talking to, but you're gonna get the same kind of service, the
same tax loss harvesting there within your brokerage. And he said that that Fidelity advisor was saying that, hey, by the way, for the ones that gain that have seen a lot of gains, you can donate those and so you're not realizing your capital gains there. Well, that's not a unique selling proposition of Fidelity. You can do that with any brokerage, any brokerage account that's like yeah worth their salt. You can donate stocks or funds out of those brokerages and so that's not You can do that
with Betterment as well. So in a similar way, it's like, well, you're getting all the benefit literally that you've mentioned with Betterment at a lower cost as opposed to going with you the same services that are being offered there at Fidelity. Okay, one minor downside actually to the zero funds from Fidelity. Matt, speaking of donation, I tried to donate some FC rocks last year and you can't actually donate that fund because it's a proprietary fund.
There.
You didn't realize that until I try to donate it. But so again, there are all sorts of tiny details you got to keep in mind. But in this case, I think the big thing is much lower price. You still get the tax loss harvesting. That's one of the things at Betterment. It does really well with their algorithm. So I feel very confident. If that's something you really want and you feel like it's going to help you come out ahead from a tax perspective, I'd go there instead.
Totally. We got more to get to you, buddy. We're gonna talk about Apple Watches, HSA's and more right after this. All right, Matt, we're back.
Let's get to the Facebook question of the week. This one comes from Chad. He posted this in the how to Money Facebook group. He said, authorized user or checking account. We got my eleven year old fifth grader and Apple Watch with cellular capabilities. Man, I'm pretty sure you didn't have any fancy technology like that in fifth grade.
Of course I didn't, Chad said, my current fifth grade. Well, I don't have a current fifth grader, but my kids, right now don't even have a fancy tech like that.
I get that. Sorry to interrupt, Chad says, I want to be able to give him the ability to use his watch to make purchases at the various events he attends bowling club sporting events, etc. Instead of having him use actually more like lose cash. Which do you think is better? I know that Chase has a checking account for kids, maybe it's for teens. I could fund that
and put his debit card onto his watch. I could make him an authorized user on one of my Chase cards and set a really low limit on there so he can just use the.
Watch to pay for stuff. Thoughts, Well, maybe I give it away a little bit. I'm not opposed to cash, and I will say I also, Chad, I've got an eleven year old who's a sixth grader, not a fifth grader, And over the past couple of years there have been numerous like basketball games, hangs with friends where they're out in public where they can like make their own purchases, And in all of those scenarios, she's taken her own
cash with her. Yeah, And I guess the way I think about it, I'm like, would I rather her lose an Apple watch or have like direct access to all of her funds there, or just the ability to at most lose the amount of money that she's taken with her. So personally, man for us, at least, the going with the old school physical cash method for us has worked out fine.
I can't imagine he's gonna lose the watch, right, but I don't. I think you can lose some loose money. So I get where Chad's coming from. And maybe his son has lost twenty bucks here or there before and he's like cash to day. Yeah, man, if you could just tap with his wrist, it's gonna make this a whole lot easier. And I totally understand what you're saying. And I think, especially for younger kids, cash makes the most sense.
Sometimes MO money more problems, you know, like you want to go digital, and okay, so now you've got something that you've got to provide service for. That's true because like not only is the cost of the device or the phone or the watch or whatever, but then I mean, it's not cheap to pay for the cell plans now for these individual device, although it's.
Gotten a lot cheaper. Actually we've talked about that is true US Mobile on the show and how you and I are US Mobile customers now for our cell plans, they're incredibly cheap. But they also have now service for smart watches. I think six dollars and fifty cents a month, which if that's what you want as it goes, it
is a fortable Yeah. If he's already got the Apple Watch and you're like, man, we just need to save money on that because it's costing us a lot more with one of the big guys, We'll look at US Mobile. That's the best price I've seen, and I think getting used to digital money, this is probably right about the right time. I'm getting my sixth grade or fourth grader kind of used to it right now. I did cash kind of thrown in the towel on that. Honestly, it
was mostly my fault. It's a pain in the butt. Yeah, I will say that that was not as good and dedicated to it as I should have been. So that's not my kids on my kids, that's on me. Although when we try to go digital too early that didn't work either, so it's a little bit of trial and error in our household. But yeah, we opted actually for free teen accounts from Capital One. They come with a debit card, and so now it's really easy for me to transfer money to them for my Capital One account
to theirs. They've got a debit card, they could take it with them, and that's actually been kind of the best solution for our family. They don't have fancy watches to attach that card to, but you could.
Yeah, I mean, if you do have that account, of course you can take that debit card, stick it in the wallet app and he could pay from his watch. You could actually you could even attach it to Apple's new Apple Cash feature, which exists within like the iOS framework, where you can even you know, you send your son money to his Apple Cash account via like text message. Not that this is something you should be doing on the RAG, but it's worth highlighting that it's even simpler
than like Venmo or cash app. If you're so inclined and if this is something that you do want.
To do, yeah, And I think the other thing Chad mentioned was, oh, sure I make him an authorized user on one of my credit cards so that he can use the watch to pay for stuff with that card. Well, I think you can and probably should make him an authorized user on your credit card that'll help with him building credit. Assuming you handle your credit well, he'll become a teenager and he'll have a score that many adults
can only hope for. And if that's the case, if you have a long, great credit history, But he wouldn't want you to give him access to pay with that credit card that's in your name if you make him authorized user, don't actually get him the physical credit card, but being an authorized user on yours and then having his own account like the Capitol One account that I mentioned that allows him to use his money that you have at least some oversight of seems like the right
balance to me. I just don't want Matt to have a credit card that's mine and my kids using that card. Way too young in my opinion for that, and I stand to lose more in that case too. So I just kind of like that, that separation of powers, Like I like them having their own card, their own accounts. You don't have them messing up your.
Stuff, not that they would, but I just, uh, there's.
Always the risk, right, yeah, there's the risk of them going and buying something that they couldn't actually afford and then on my credit card, whereas hey they've got a finite amount that's in there. It's in their you know account on the team account through Capital One, and.
So downside being if there is any fraud or something that happens, they're out their own money. I guess while you're trying to claw that back, because that's obviously one of the benefits of using credit cards that we like, there are those extra protections built in. If I ever considered using a credit card, it would be for those protections, not because I was looking to try to like completely optimize and to teach my kids about how to use
credit card cash back and rewards and points. Like if you're if that's what you're thinking, I think it's a little too premature, at least at this point in the game. I think, if you've got teenagers that are older like seventeen eighteen, hey, trying to start talking about points and cash back and how paying on time in fact ahead of time before the statement even hits at the end of the month, why not run that through the credit
card company. But at this point, at least at eleven years old, that would not at all be on my mind at all trying to teach my kid how to use your credit card like a pro.
Right.
Yeah, you're not ready to gain that system at eleven, Yeah, exactly. But I think this is like a perfect fora getting him the right account, attaching it to the watch, and making sure he has money at his disposal. He knows how to spend, he knows where the money comes from. It sounds like Chad is, you know, handling his money lessons with his son like a pro Matt. Let's get to another Facebook question from how to Money Facebook group.
This one comes from Megan. She says, given the benefits of HSA's health savings accounts, would you prioritize investing in an HSA over an IRA? Assuming funds are limited and it's not possible to fully fund both if you were forced to choose, that's what you're asking. If you have to choose a favorite child, Joel, which one.
Would it be?
Well, we all know that one. That's like playing Russian roulette. Man, that's a tough one. Yeah, it's difficult. Which one is superior?
And I'll say hopefully Megan's talking and talking about the roth IRA as opposed to an HSA. Imagining you've got a high deductible health care plan here, which gives you access to an HSA. I'm assuming here that your income is such that you are able to contribute to a roth ray. So which one first? And I would say, despite the roth ira being far more popular, if you were looking at the technical details, well, then you can't
beat an HSA. And that's because, yes, you can avoid a lot of tax when it comes to going with a roth ira, but you can avoid all the tax with an HSA. So I I guess I want to couch that answer in if you are optimizing for the absolute best rate, or not the best rate, but for the best accounts, Yeah, for the least amount of taxes paid as possible on your investments, then the HSA you literally can't beat that.
Yeah, And that's why we sing its praises often on the show. The triple tax advantage is huge, and if your contributions are coming out of your paycheck, you get to skip additional payroll tax on top of That's it's almost like a quadruple tax advantage, and technically it is. And that puts the HSA on top of our opinion. And it's not like you give up on a lot of flexibility by doing that either.
I think Matt.
Sometimes that's the trade off you have to weigh with certain retirement accounts is, well, how long is this money going to be locked away? And especially if I feel like I need access to those funds before I reach like full retirement age, gosh, I'm not going to be able to touch it. Well, the WROTH offers some flexibility in that regard to being able to claw back some of those contributions, but the HSA allows similar flexibility for
taking those funds out before retirement. So both of those funds have certain flexible withdrawal rules that are worth digging into, but flexibility on both first they can be helpful, right, I think the biggest trade off is, like, I think the question that someone needs to ask themselves is how committed are they to sticking with a spreadsheet? How organized can you be not over the course of months or years,
but like even decades. Yeah, because yes, one is much much better than the other, but it takes a bit more work, you know.
So in this case, the HSA requires more work. And it makes me think of something droll that we like to do, which is smoking meat. And you talk to anybody who's into barbecue, and you're gonna get a superior barbecue, a superior brisket or pork butt. If you go with an offset smoker where you've got lump charcoal, where you've got like white oak. Right, but guess what it takes my mouthwater. It takes more handholding, It takes a little bit more paying attention to that smoker to make sure
that you're doing it right. The vast majority of folks out there, I think, are probably like, man, I just want some nice barbecue at home to where I'm not paying out the nose by ordering takeout every time I
go out. And for those folks in those instances, guess what a pellet smoker a trigger because it's not quite as good of a product in the end, but dang it, you know what, it does a whole lot with a minimal amount of efforts, And for the vast majority of folks, I think that's going to be enough for them.
And so I think you just set it and forget it, and it's idiot proof. And that's kind of what the roth IRA is like. You got to be committed to the system if you're gonna take full advantage of the HSA. I think the other thing worth highlighting about the HSA is that it can become like in traditional IRA after the age of sixty five. So if you're incredibly healthy, you don't rack up a ton of medical bills, which
what we hope for you. Hey, it's not like that money is locked away because you didn't incur enough medical expenses.
You could also split the difference, right.
If if funds are limited, go fifty to fifty funding each account halfway. You know, hopefully further down the line you can contribute to both of those accounts in more meaningful ways. But why not go have these too? If you're kind of seriously split on which one is best. It's true, I think the HSA is a little bit better.
I like it's ten but from a financial standpoint, from an optimization standpoint, but it's a lot worse from how much attention do I need to give to this thing yep, over the coming years. So great question, Megan. We hope that helps Matt. Let's get back to the beer that we had on this episode. This one was called tiny S's.
It's like a fruited sour, I want to say, or I don't know, candied sour from the good folks of Prairie.
And I think they've like just annoyingly embraced that, because like it's got an illustrated chemistry and motif going on, and even like some of the things that are so called atoms, they just look like nerds. And I literally, like when I smelled it before we started drinking it at the beginning of the episode, I was like, man, this smells like nerd ropes and that is told. It spells like your kid's candy basket post Halloween. This is
exactly what it tastes like. I don't know if I've ever had a beer that was so sweet, Like I guess we've had some like big, boozy sweet beers, but I don't know. I don't know if I've ever had a sour that was this sweet before.
Right, Oh, you're right, like, because usually they're they're they're sweet with fruit, but this is sweet with candy, and so it feels.
Like sugary sweet. It's like Skittles sweet one hundred percent. It's like, as I drink it, I can kind of crunch my teeth together and I can almost feel the sugar. I can taste the rainbow, Matt, I can taste the rainbow. Yeah, like Sweethearts a little bit. It' art a little bit of sweet. This is just more sweet, less tart, for sure, And it reminds me of like country time lemonade as a kid, where you can like mix your own, because
it does taste like that. It's less lemony, it's more pink tasting, and you know in the big canister where you can like add your own, oh yeah, extra, and you can make it as sweet or as not sweet as you want. This tastes like the pink lemonade I was making in seventh grade, Like yeah, high coned to me.
This is a novelty beer and it's not really my style, but every once in a while it's fun to have a novelty beer and just see what people can create in the beer category. This one is very far afield, kind of goofy and very sweet, which is not my jam.
Very sweet, and it's almos. It's almost like it's marketed. Like what do you think of that pencil there with like the pencil grip yeah on there, Like there's certain it's like a throwback to like middle school kind of days. It makes me think about Founders Breakfast Out, remember when it had the baby on there and who was it the Federal drug No, somebody like shut them down and said, hey, you have you can't have the baby be on your beer anymore because of it's like you're marketing to kids.
What it's like an old school Norman Rockwell looking kind of picture as opposed to this talk about the different vapes getting marketing to kids. This is like totally something of nighth grade would see and be like, oh, but it tastes a good anyway, they might actually like this. I'm not trying to accuse Prairie of anything underhanded here.
This tasty beer, just a bit sweet, good stuff, unique, not one I'll probably ever pick up again. All Right, that's gonna do it, though, Matt for this episode. And by the way, if you have a money question, please do send it our way. We'd love to hear from you. Just record it on the voicemail map of your phone, send it over to us. Hopefully we can take it next week and we'll put links to some of the resources we mentioned up in the show notes on our website at howtomoney dot com.
You know it. So, until next time, best Friends Out, Best Friends Out,