The Prosperity Gap Podcast

If you've been listening to any of my previous podcasts, you know that we talk about a three bucket system. Today we're going to be talking specifically about the tax free bucket.

Here is a quick review to make sure everyone understands what these three buckets are.

1st Bucket - The Taxable Bucket: This should only contain anywhere from three to six months, my recommendation is six months. Six months of income to be available for emergencies. It's liquid assets. Biggest problem with this bucket. If you have too much money inside of it, you're not going to be able to keep up with inflation. If you don't have enough money when there's a crisis, you're going to have an issue.

2nd Bucket - The Tax Deferred Bucket: and the tax deferred bucket has the majority of most people's retirement assets in it at this time. But what we want to do is make sure we adjust that bucket down to the appropriate amount. So you don't have provisional income. And so you can also get your required minimum distributions out without paying tax on those that they are under your standard deduction threshold. If you can do that, that buckets filled up correctly, and then all the other assets that we have should go into the tax free bucket.

Now, why do we want to put money into the 3rd Bucket (the Tax Free Bucket)? because we're in an environment where taxes are expected to go up, in fact, we know right now, the data set at January 1 2026. And I get a lot of kickback from other people saying if administration's change in the government, that date may get sooner and that possibly could, but we know for now that the date that's been set as January 1 2026, when we talk to people about whether they'll go higher or lower after that, the majority of the people believe the taxes are going to go higher and they could go substantially higher because of unfunded liabilities such as Social Security, Medicare and the National Debt. So today I'm going to talk about the various assets that can go into the tax free bucket. And why you want to use as many assets as you possibly can to create as many streams of tax free income as possible. 

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The tax deferred bucket is an interesting bucket because this is where 95% of America's retirement assets are being held. There are over $22 trillion held inside of some type of tax deferred account. When you compare that to the tax free bucket or assets that are being put into Roth IRAs, or Roth conversions or Roth 401 K's there is only about 1 trillion dollars that's being put in these tax free bucket. So it's a bucket that's been filled for a long time. 

Now, why are these accounts getting funded so much? Well, a couple of reasons. One, because the government's pushing us to put money into these realizing that there is an asset that's being built inside of the governmental system for them to take advantage of at some future date. But also because many of our advisors that we've met with have encouraged us to make these contributions. If you sat down with the majority of CPAs, EAS or even professional Financial Advisors, they're going to tell you that you need to continue to find this tax deferred bucket. And why do they tell you that? Because you're getting a current deduction, and it's making them look good. 

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Now, in today's show, I will be talking about the taxable bucket. If you joined me on my podcast from last week, you may remember me talking about how there are millions of different investment options you can choose the fund your retirement, and that the planning process is a simple three bucket system. These three buckets are the taxable bucket, the tax deferred bucket and that magical bucket that I call the tax free bucket. Of the three available buckets the one you're probably most familiar with is the taxable Bucket. Why? Because this is the main bucket most of us have used during our lifetime. The bucket work something like this.  

A new month rolls around and some type of income is deposited into the bucket, and it starts to fill up. Then the minute the money clears the bank we start taking the money out to cover monthly living expenses, and the pocket starts to go down. Now if you're lucky. When you get to the end of the month, you'll have some money left in your bucket. The money left should then be used to help make sure your taxable bucket maintains a safe level of assets, which is six months of income. Or the money should be used to invest in your tax free bucket. But unfortunately, this is  not what usually happens. All too often, people decide to do one of the following with the money.  

The first group. They decide to completely empty the bucket. The second group, they decided to keep growing the bucket way beyond the amount it should contain. And the third group. They take the money out and invested in the tax deferred pocket, believing they're doing the right thing for their retirement. But unfortunately, all three of these actions can create major problems with your retirement. Let me start by talking about the first group who choose to empty the bucket. All we have to do is look around us and we realize emptying are taxable bucket zero is not a good idea. In life there are way too many economic ups and downs, and we need to make sure we have a reserve to cover ourselves when these times happen....

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Under the basics of the power of zero and how to transform your retirement by getting into the 0% tax bracket.

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So today's show is all about the fiscal health of our country. Now, it may not seem like this should be such an important topic. When we talk about retirement planning, why are we going to cover finance, debt, and those type of things? You will see as we go through this show why it is so important that we cover this topic? Because as you look forward to your retirement, it is going to be something that will affect your retirement years greatly. 

The first question I have for you is do you expect taxes to be higher or lower in the future? I go across the country talking about this topic. In fact, I do a number of large webinars for CPA groups. And every time I do, we talk about this question and the main answer that we get back is the taxes will be higher. In fact, many people believe that in short of a period of time, as 10 years from now, taxes could be substantially higher, maybe even double what they are now. So if this is the case, if this is what we're facing, are your retirement assets invested in the right place?     

One of the other things that we've learned as we go across the country is that 95% of people have their retirement assets placed in tax deferred accounts. Now what are these tax deferred accounts? These are your IRA, your traditional IRA. You're 401 K defined benefit plans, these are plans that you're putting together to allow you to get tax savings now but then have to pay the taxes at some future time. Now one of the important things that you need to understand about tax deferred investments is that is what they are. Many people, especially CPAs, EAs, other professionals. Will try to promote these to you as a tax deduction. Similar to maybe a home mortgage expense or property taxes, where you can take these off your tax return, reduce the amount of tax you owe and never have a future liability or the deductions that you taken. Well, retirement plans were not set up the same way. If you get a deduction on your tax return now for an IRA contribution, all you're doing is deferring that tax to a future period of time...

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Welcome to Season 2 where it is all about taking it to the next level. Season 1 was all about financial literacy, and now we are going to be talking about how you can bridge the gap in retirement. We realized that over 70% of Americans have not prepared themselves for retirement, and of those who have, 68% assume they're gonna run out of money before they die. 

So we wanted to focus on helping people bridge this gap to better prepare others for the future that lies ahead, and we realize that with good planning and solid information this can happen. We're gonna share with you some great tips, tools and tricks to help you get yourself prepared for the future.  

Today we are talking all about the CARES Act that was passed on March 27 2020. We'll start by talking about the two main programs we get asked about the most. This is the Economic Impact Disaster Loan (EIDL) and the Paycheck Protection Program (PPP). We will also spend the first part of the show talking about the business benefits. The middle of the show, we'll talk about individual benefits. And then at the end of the show, we'll talk about some retirement benefits that this act brought forth that you can take advantage of to help put you in a better financial position.  

Enjoy season 2!

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Episode 30 is right in the middle of this pandemic and so we brought on Financial Coach, Kendall Berry to help us figure out how to weather the financial storm that we are facing. Remember this time is very stressful and to be gentle with yourself. There is no one right way to handle this emotionally.

Since we are in the middle of the storm here are 8 things we can be doing. 

1. Remain Calm - Ride things out and don’t make any rash decisions with investments or savings.
2. Reduce Your Expenses - We are not going out and doing a lot. Expenses can still creep in by creating spending triggers. When we get frustrated, stressed, or bored this can push us to spend more. Cut back your expenses minus the 4 Walls: Housing, transportation, food and utilities. Make sure your 4 walls are covered and then make a list of the next most important things within your income. 
3. Increase Your Emergency Fund - We are in an emergency and you may be tapping into your emergency fund already. We also have the stimulus check, and tax returns coming. Cut back on expenses, because any extra money should be going to your emergency fund. The more in savings the more secure you will be. If you are getting money you don’t need, put it aside for your future. 
4. Stock Up on Essentials - Stocking up adds comfort to us and it is a security knowing we have enough. Put aside money in your budget to get the essentials you need because you might be sick, or might not be able to go to the store. 
5. Keep Cash on Hand - I normally don’t carry cash with me, but we don’t know what will happen.  If something happens and you can’t get to the bank or cards stop working it is important to have cash on hand.
6. Gather your important documents - This includes your passports, banking, and 401k information, wills, passwords, etc.
7. Know Your Company Policy - This includes: sick time, vacation, working at home, health insurance, and know your company policies.  
8. Create an Emergency Action Plan With Your Family -  This is your plan if an emergency happens. Make sure you are on the same page with everyone in your family even do to the finances. 

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Courtney from Modern FImily talks all about gamifying her financial life at home with her wife and toddler. She shares her love for traveling and how that started their journey and how life is raising a child, the costs associated with this and how she does all of this without missing out in life.

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Gabe Bult is a YouTuber, Real estate agent, house hacker, and Real estate investor. He helps young people figure out and get ahead on their finances and reach financial freedom and live a better. He also loves side hustling and you can find Gabes YouTube channel below https://www.youtube.com/channel/UC3F3zZFiRElw2GLwzndp05A/videos

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Jolie Viguers, Bean Counter & Financial Coach joins the podcast to share her story and to help us prepare our teenagers for a better financial future. 

Financial literacy is not being taught in the high school. If they do offer a class, many of the kids are so focused on getting their requited classes they have no time for actual classes that can help them, like financial literacy. 

If you can not find a way for your teen to learn about finance in school you need to do it somewhere else. Education at home or hire a financial/money coach. 

There are a lot of free resources out there also from books, to podcasts, to webinars, etc. Take time to research what is best for your teen. It may change for each child you have. 

"Don't decide on money, decide on what you value" - Jolie Viguers

We also talk about teens going to college. What advice Jolie has and how she makes sure every client of hers can get the exact help they need.

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