How W-2 Earners Can Save More Money On Taxes with Rachael Camp, CFP

Transcript:

 

On this episode of the Personal Finance Podcast, we're gonna talk about how U S W two earners can save more on taxes with Rachel Camp.

What's up everybody, and welcome to the personal. Finance podcast. I'm your host Andrew, founder of Master money.co. And today on the Personal Finance Podcast we are gonna be talking about how you can save more money on taxes at w to earner with Rachel Camp. If you guys have any questions, make sure you hit us up on Instagram or TikTok at Master Money Co.

And follow us on Spotify Up podcast or whatever podcast player. You love listening to this podcast on it. If you wanna help out the show, leave a five star rating and review on Apple Podcasts, Spotify, or whatever your favorite podcast player is. Now, today I am really, really excited to talk to Rachel Camp.

And Rachel has been someone I have been following for the last few months on Twitter, and she has some incredible stuff that she talks about, but she also has a very down to earth approach on money. So today we're gonna be talking about a number of different categories, and first we're gonna go into Rachel's story.

And she has a really cool backstory. Then we're gonna go into tax efficient investing, and we want to think about tax efficiency, which investments we wanna be looking at. How long do we wanna be holding our investments? And in addition, which accounts should we be actually allocating some of these investments into?

Should it be in a Roth ira? Should we be in a 4 0 1 k, a taxable brokerage account? All those different things. Then we are gonna be talking about how W two earners can save more money on taxes, and we go into a. Bunch of different ways that W two earners can save more money on taxes. And Rachel's also a C F P A Certified Financial Planner, and we're gonna go into when people should hire a financial advisor.

So this is an action packed episode and it's got a lot of items that you can take action on. And so I am so excited for you guys to hear this one. So without further ado, let's welcome Rachel to the Personal Finance Podcast. So Rachel, welcome to the Personal Finance Podcast. Thank you. We are really excited to have you because I have been following you on Twitter for the last couple of months, and you have a really down to earth approach to money, and I really love your approach on how you talk about various things, from investments to taxes, to all these different things.

So I am really excited to have you on today, but first, before we dive into the, some of the topics that I wanna talk about today, can you tell me more about your story and how you became a C F P? Yeah, of course. So it's funny because my dad is A C F P and he has been one for over 30 years, but that actually didn't have too much of an impact on me, surprisingly.

Instead, uh, when I went to college, pretty much anything in business was just the last thing on my mind. Um, and I did end up stumbling into taking some finance and accounting courses and then realizing that this is what I should be doing. Not only was I really good at it, but it was just something I I loved doing.

So after I graduated, I did go into wealth management right away. So I went to work for a huge corporation in Chicago where we worked with ultra high net worth individuals and families. And I was doing the operations for the team. So I wasn't in the advisor role yet. But at this time I was becoming really kind of obsessed with my own personal finances.

So I was getting really into the fire movement and tracking my savings rates and my expenses and all of that. Honestly, just really obsessively and uh, understanding that I did want to be a financial advisor, but I did not take on that role right away. I didn't go into the development programs for financial advisors for reasons.

Very sneaker swim. They'll chew up, spit you out if you don't perform like instantly. So instead, my idea was to just find the opportunity to learn, learn from the best team that I could find. So that's what I did in working with this team. Um, it was very sophisticated, especially with the clientele that we worked with.

Now, one thing you'll find really quickly if you love personal finance and then you wanna become a, an advisor, is that it can be a little bit of a disappointment because of the, uh, the stereotype with advisors that are really salesy or pushy or maybe even a little money hungry. And the reality is that like for many of these roles, it does kind of force you into that position because again, it's a very sink or swim role.

If you're not bringing in assets, if you're not bringing in clients, you just won't survive. So it can be disappointing to somebody who truly loves financial planning and then realizing that these people are spending all of their times selling. So that was difficult and I was constantly trying to think of the way that I could enter into the financial advisor role without doing all of that.

So like I mentioned earlier, my dad is A C F P, so during the pandemic, I ended up leaving that firm and partnering up with him. To kind of break into that, the financial advisor role. So I adopted his client base. He worked with retirees, so I started prospecting there and marketing to retirees and actually grew up my own client base really quickly.

And of course it was helpful that he had some things in place. So I think that really set the foundation for me. To be able to just jump right in. But there was always this nagging that I really wanted to work with millennials, always this nagging in the back of my mind. And again, just being really obsessed with the financial planning, especially my own personal finances.

So selfishly, I wanted to work with people who were kind of in the same position that I was in. That's just naturally where my interest was. So at that time, I started Camp Wealth and I started posting on Twitter. And just kind of seeing where it would go and seeing some of my advisor friends that were doing that were having some success with it.

So I told myself, I'll do this for one year and just see how it goes on Twitter, see if I can kind of get that client base that I want. And thankfully it's gone really, really well and I've now started to work with that client base and attracted that client base. And I'm in that position now with my firm Camp Wealth that I can really grow it and do the financial planning that I really love and intended to do.

What I love about your story is kind of the mission that you had. You had a goal in place to kind of, you know, be different than some of the other financial advisors out there where I went through the same process, actually. I had an internship in college where I interned at a firm and immediately realized all of a sudden that there was just so many different sales tactics that they wanted you to go through and sell through, like, you know, just high fee mutual funds, things like that.

So that part turned me off. But you figured out a way to kind of set this up where it also aligned with what your values were when it comes to personal finance and money, which I absolutely love that part about it. And I wish there was more people out there who would be doing this. And I think there are a lot of people that are up and coming, um, that I've seen in your network and, and some of people around there who are actually trying to help people, you know, actually build wealth and create financial freedom, specifically younger folks like millennials.

So I love that part about it and I think it's really, really cool what you are doing. And if people listening have not been following Rachel on Twitter, I. Highly recommend it. She has some great stuff out there. You have some amazing threads as well. And I think it's some really cool stuff that you're putting out there.

And you and I genuinely align on, you know, tailoring our financial plan towards, you know, what our lifestyle goals are instead of actually just putting together a financial plan and just blindly trying to follow it. So can you kind of talk through how we can put together a financial plan to tailor it towards our lifestyle goals instead of just trying to throw something out there and hope it sticks on the wall?

Yeah, this is huge to me because again, this is something personally that I went through. So I was somebody who, I guess you could say I had a scarcity mindset and sometimes I still do. And as far as income and net worth, like there was no limit to what I wanted them to be. I just wanted to increase my income, increase my net worth, and you can kind of get caught up in that when you become a little obsessive with your personal finances.

I mean, those numbers have to mean something. And that was my issue, is I had a high income goal, a high net worth goal, and no idea why. Because the lifestyle I was leading and what I was happy with was just not that expensive. And so instead, I decided to take a step back and just try to understand, okay, what do I want my life to look like and how much does that actually cost?

And of course, it costs a lot less than what I. Actually saving for. So what I like to do is just kind of think about my ideal day and what does that look like, and how much does that cost? Where do I live? What am I doing? And then my ideal year as well. 'cause you do have to account for those irregular expenses.

Like how often do I wanna go on vacation? What are some large expenses that could come up that I wanna make sure that I can cover? And so going through that exercise and that's what I do with these clients. Let's first define what your life looks like and what, what are you doing now that you enjoy, that you wanna do more of?

And then walking back and figuring out how much that costs. Because if you don't do that exercise, for many of us who are good with money, I put that in quotes. We will just get caught up. And that never ending cycle of just wanting more and more and not understanding why. And then of course, many of us get in, that money ends up just getting passed on and.

Exactly, and I think that is the perfect way to kind of think about it is, is create it around your lifestyle so that you have that available. Because just most people just don't think about that, and I think you really, really have to do that. Then you can get into the math and the numbers, and we've talked about the numbers a number of different times here on this podcast as well, but I think there's just so many different things that you can do with that, and I love how you approach that because you really, really have to think about it this way.

And one thing for a lot of people, To note is that it is okay if the goalpost moves a little bit, you're gonna tailor around your lifestyle. Maybe you start in your twenties and you're tailoring it around your lifestyle. The goalpost may move. Mine originally was I wanted to be Lean Fi and then eventually, now I'm, I'm pursuing fat fire for a number of different reasons, but it just shifts over time, lifestyles will shift and kind of the things that you want, and that is okay.

Now the hard part is getting the goalpost to stop moving. That's my biggest personal struggle. But at the same time, I think that's one really, really cool thing that you can do and have available to you, as well as how you set that up now. In this episode, I kind of wanna go through tax efficiency, 'cause that's one big thing I think CFPs really, really bring to the table is creating tax efficiency around investing.

And one big question we get on this podcast all the time, and you are the perfect person to talk through this with us as well, is you know how W two earners can save more on taxes. So first I want to kind of get into tax efficient investing, and then we'll get into the W two side as well. So the first thing to understand when it comes to tax efficient investing is, Your investments are taxed in two categories.

Can you kind of talk about those two different categories and how they impact us as investors? Yeah, the first thing you have to understand is these, these two categories. Um, one is ordinary income tax, and that's what your compensation, your salary, your wages, your bonuses, or tax. That's what most of us are familiar with when we talk about taxes.

Set federal income tax rates. The other one that's really important for investing in tax efficient investing is understanding capital gains tax. This is the tax that you pay for your investments when you have a profit, um, or you sell it for a gain, that's what you're paying is capital gains tax. And that can be further divided out into short-term and long-term capital gains tax, which I'm sure we're going to get into.

But the important part here is that you want long-term capital gains rate, because if you want the better tax rates, it has to be a long-term capital gain. That means you held your investment for at least one year, and then you get those lower tax rates than your ordinary income tax. Exactly. And when it comes to long-term capital gains, that's one of the biggest factors we talk about here too, is we are long-term investors.

Most listeners here are long-term investors on this podcast where short-term investors are gonna pay a much higher rate. Can we talk through some of those rates potentially? If you have short-term capital gains, what are some of the rates that potential investors could pay? And then what are some of the rates for long-term capital gains, just to show the benefit and the pros and cons here.

Yeah, so Shortterm capital gains just tax at your ordinary income. So let's say you're in 20% bracket and an investment,

now hold a year and. This is the rate that most investors are in. Um, there's a good chance you'll be paying that long-term capital gains rate of 15%. So for some of us who, if you're low income or if you retire early and you have those strategies for keeping your income low, you might be lucky enough to get in that 0% long-term capital.

But most of us are in the 15% capital gains rates. And then if you're really high income, then you're looking at 20%, so it's zero, 15, or 20. So what you have to do is compare what your ordinary income tax rate is versus your long-term capital gains rate to understand the tax savings. But just an example, somebody in the 22% rate would be in the 15% rate for long-term capital gains.

Exactly, and that is the most important factor as I think most, the majority of Americans fall into that 15% range, like you said. And so most people just kind of, kind of think through that process. I think if you're making somewhere it's like over $450,000 a year or something like that. I can't remember the exact number right now, but over that amount is where you're gonna be in that 20% range.

And the beautiful thing about this is, is still a much lower taxation than it would be on your income. So, um, whereas if we're in the short term capital gains, we could be taxed as high as, you know, 37%. I've seen some interesting stuff happening there too, but I think that is one where it shows the pro of long-term capital gains tax, whereas people who are day traders or things like that may have to pay that short-term capital gains tax.

So the next big thing is actually choosing the right investments, and most people don't realize that some are more efficient than others when you have these investments set up. So can you kind of talk through the difference between efficient investments and maybe some inefficient investments? So yeah, there's Summit Investments like you mentioned, are just inherently more tax efficient, and we can talk about it in the concept of stocks versus bonds or stocks versus REITs, things like that.

Stocks tend to be more tax efficient because they shoot off qualified dividends if they pay dividends and qualified dividends are tax at the preferential long term capital gains. Whereas if you compare that to bonds, bonds shoot off interest as you go, and that is taxed as ordinary income. So when we're looking at stocks versus bonds, stocks tend to be more tax efficient than bonds do.

And one thing we have to mention here is this really only matters when we're dealing with taxable accounts. So we're putting this investments in retirement accounts, whether it's a 4 0 1 K, which is pre-tax, or Roth I r a, which is tax free. The tax impact, you really don't have to think about because you could trade all day long and of course would not recommend that.

That'll have an impact on your performance, but it won't have an impact on your taxes. So when we're talking about the different investments, it's really important to understand where these investments are going. So stocks versus bonds, stock tax efficient. Those are tax inefficient because they actually pay non-qualified dividends.

And then municipal bonds are an example of a tax efficient bond investment because you will escape federal tax rate and maybe state income tax too if you buy the municipal bond within your home state. So those can be tax efficient as well. Active versus passive investing. And I know you're a fan of passive investing.

So am I. Um, and this is just one of many reasons why, and that's because passive investing is more tax efficient when you're talking about active investing, whether you are the active investor and you're the person that's buying and selling stocks within your account. Or there's a fund manager who's an active investor.

If we're talking about like an actively managed mutual fund and they're buying and selling stocks, this has a tax impact that you just can't ignore because it's the difference between those short-term capital gains rate versus the long-term capital gains rates. And if you're constantly turning over these stocks, then there's a gains.

By not holding the investments long term, and that's just a discussion on the investments. We can also talk about the impact to performance as well. But I love to think about taxes because there's so many variables in investing that we cannot control. Taxes are one thing that we have some control over.

So if you're

investor. Performance enhancements that you can control. Actually, I love that and I love that you brought up the active first passive management because a big thing that you can look at when you look through some of these funds is that actively managed funds, they are buying and trading securities all the time, which you're talking about there.

And one metric that listeners can kinda look up is the turnover ratio. And if you look at the turnover ratio on some of these funds, you'll be able to see how often they are buying and selling securities and a turnover ratio of low. 50% is typically what I look for, where index funds usually have like a four to 5% turnover ratio.

It's extremely, extremely low. And then you look at actively managed funds and there are a lot of times 50% or above, which is really gonna trigger more taxable events for you when you own these actively managed funds. So that's another big piece, like that's one thing I always look at when I buy new funds.

Now when we put these investments together, we are buying some of these investments. We wanna place them in the right accounts. And this is a big question that we get all the time, is, which accounts should I have for which specific investments and or if I wanna retire early, or anything along those lines is how do I structure my accounts specifically in my investment accounts?

So what are some good options that people may want to consider or think about when they're structuring some of these investments in specific accounts? Yeah, so I alluded to this a little bit earlier, but we have those, we have your taxable accounts. There's three buckets that we look at taxable. That's just your regular brokerage accounts.

You have your pre-tax, that's your traditional, and then you have your tax account. That's your Roth I R a, your H Ss A. Everything that's just growing tax-free once it's in there. And so once you've decided on your asset allocation and what all you want to include, you now have to place the investments and there is a tax efficient way to do this.

So, like I mentioned, a taxable brokerage account. You're going to be paying taxes as you go. So you want investments in there that are more tax efficient. Because if you're gonna be paying taxes, let's pay the preferential tax rates here. So in a taxable brokerage account, for example, you could put stocks in there 'cause they have the qualified dividends, which is a preferential tax rate.

You could put municipal bonds there. Portfolio.

The retirement account, so the pre-tax bucket and the tax-free bucket Here, we wanna put some of the more tax inefficient investments. 'cause like I mentioned earlier, we are not taxed as we go, and so there's no tax impact. While these accounts are growing, they get to grow completely in uninterrupted by pretax four.

Things like bonds in here. Again, bonds shoot off that interest bad tax rates, we wanna put that in there so we avoid that tax impact. You can also put REITs in here, like I mentioned earlier, if REITs are part of your asset allocation, because those pay non-qualified dividends, so again, a tax inefficient investment.

So tax inefficient investment goes into a tax efficient account. Now your tax free bucket, your Roth, I. This is also a tax efficient account, but what I like to do in these accounts is put investments with the most growth potential. And again, that's because everything in this account is growing tax free, so I'd rather not pay a tax on a huge gain.

So if we're looking simply at stocks and bonds, I'd rather put stocks in a tax account, so won't.

Gains as long as I meet the rules for taking money outta those accounts. So those are the different examples of how you can place investments in these different buckets. I do always like to emphasize though that asset allocation is much more important than asset placement. So if you're young, if you're just starting out, if you're in accumulation phase, You just have a hundred percent stock portfolio, then that might be what's best for you.

You don't necessarily have to introduce bonds or REITs because you want to try to create some tax efficient portfolio. It's more important at that point to think about what's my optimal asset allocation rather than tax placement. Exactly. Asset allocation is really the main, main factor, especially for folks in that accumulation phase.

So that is perfect. I love some of those tips and I love kind of thinking through how you can put together some of these investments inside of some of these tax efficient buckets. So I love that part as well. So I wanna shift gears slightly here into how W two earners can save more on tax, because I think one really big thing that we talk through on this podcast a lot is there is a lot of folks who have a nine to five and they don't have as many options as say, someone who is a business owner.

On how they can save on taxes. And so there's a lot of really high earners that listen to this podcast. We're trying to figure out ways to save on taxes in addition to folks who just work a standard nine to five who are making, you know, a standard average median wage. So this is one big thing that we also want to kind of go through on this episode.

So one of my favorite tweets that you have is, and I, we'll link it up down the show notes below, is how W two earners can actually save more on taxes. So can we kind of talk through some of these ways that they could save on taxes, starting with maxing out your 4 0 1 K or 4 0 3 b. Yeah, I mean, I really think, and if you spend any time on Twitter or social media, you might see that 4 0 1 Ks for some reason recently have gotten kind of a bad rap, and it just, it doesn't make sense to me because if you're somebody who is a high W2 earner, this is just one of the easiest ways to reduce your taxable income if you're doing traditional four Oh, traditional 4 0 3 contributions.

It's a tax deferral strategy. So rather than paying money today, when you're in that high tax bracket, you're thinking in retirement, I will probably be in a lower tax bracket, so I would like to defer these taxes rather than pay them today. I'll choose to pay them later. So to me, it's just a really easy way to bring down some of the tax impact in the current year and to defer those taxes to what is hopefully a lower tax year in.

Exactly. It is very, very powerful way to be able to just save on taxes for every W two earner. It's one of the best things to just go to upfront no matter what. Even if you can just get your employer match to start off, if you're just getting started, you're young and you're just getting started out, even if you can get that 4 0 1 K match, all this stuff is really gonna be beneficial for you in the long run.

Now the second one is one of my favorites overall. It's one we've had multiple entire episodes on, but I love talking about this. One is the Backdoor Roth I r a. Can you kind of talk through how that can save W two earners on taxes? Yeah, this is more of a lifetime tax strategy, so we can look at tax savings in the current year and decide on how we can bring tax impact down today.

And then we can say, how can we save taxes over your lifetime? And that's what we're doing when we're looking at Roth IRAs. Because it does not reduce your, your income in the current year. But what it does is it gets money into a tax-free account and from that point moving forward, you won't have to pay taxes on that money.

So I'm a big fan of the Backdoor Roth I R A as well. It's just a way to get more money into retirement accounts and of. Several things that you have to be careful here and pay attention to. This is one of those things that you do not wanna get wrong. Um, it's very important that you're not, you don't subject yourself to the pro rata rule, and this can get complex really quickly.

But finding a qualified c p a who knows how to do this and knows how to file it correctly is really important here. But the message here is getting more money into a tax free account will help you. Exactly. It is a really, really powerful method, and for folks who wanna retire early or looking at financial independence is another really cool thing that you can utilize over that timeframe.

Along these same lines is the mega backdoor Roth I r A, which we have an entire episode coming out in the future that we're gonna be talking about this on. But can you kind of go through this slightly too, and just how people can actually utilize this in addition to some other strategies that we talk about here?

Yeah, this is another one that you have to make sure you do it correctly. So for, uh, your 4 0 1 k, most employers will offer a pre-tax option. Your a traditional option, they will offer a Roth option, but some employers will have a third option for contributions, which is called after tax. And what that means is you can actually defer or you can put more into your 4 0 1 k on top of what you're doing with maxing out in the traditional and Roth buckets.

And what you have to make sure when you're looking into a mega backdoor option is that first you have the after tax contribution, which I wanna. This is different than Roth. It is after tax contribution, but then you want to make sure that you're able to transfer those after tax contributions to a Roth account in some form.

So it'll either go to a Roth 4 0 1 K with your employer, or some employers will allow you to transfer it outside to a Roth I r A. But it's important that you have both. You have both the after contribution ability and. To convert it to Roth. So it's a way that you can fill up your entire 4 0 1 K contribution on top of that limit, which this year is 22,500.

And, but the total contribution that you can put into a 4 0 1 K between employer and between employee is 66,000. If you so,

As long as you're taking out employer Match and things like that through the mega Backdoor Roth. So I know that's a lot of different kind of complex topics like you mentioned. I would listen to a really in-depth podcast episode or articles about this 'cause it does get a little bit confusing. But the idea here, the core idea here is getting a ton more money into a Roth bucket and then having that tax free growth from that.

Exactly. It allows you to just get a large, large amount into that, that Roth, so you can have that tax free growth, which I absolutely love. Now the next one is one, if you are a charitably inclined person, this is something where you can really utilize some tax breaks when it comes to that. And I truly believe that building wealth, one of the biggest things that we talk about here is when you build wealth, you definitely want to, one of my favorite things about building wealth is being able to give money away.

So this is one I would I love to talk about too, and we haven't had an episode on this, so this would be great. Can you talk a little bit about donor advised funds? I love donor advised funds, so it's a really flexible way to contribute, to donate to charity and receive a tax benefit for doing so as well.

So it's become more difficult to itemize instead of taking the standard deduction Ever since that standard deduction was raised. But one way that we can save on taxes is to try to itemize and increase above the standard deduction. And if you're somebody who is charitably inclined and you donate to charity already every single year, you might wanna consider bunching donations into one year.

So rather than donating in 2023 and 2024, maybe you bring that 2024 donation to 2023, and you do two donations in one year. The idea behind bunching is that we're trying to get above the standard deduction so that you can have the AOR fund is an account donations into, and you immediately receive the tax benefit.

When you do that in the year that you do that, but you don't have to disperse it to the charity in that year. Once it's in the donor advised fund, it is an irrevocable gift to charity. You can't take it back out, but you do have control over when it is actually sent to the charity. So if you like sending to charity every year and you don't wanna send it all in one year, you don't have to, you just have to put it into the donor advised fund in one year, and then you can send it to the charity at whatever timeframe you'd like.

I love that idea of bunching 'em together. Especially if you had a year for example, where you just crush it and your income is super, super high, you can kind of bunch two years together and then you hold it in that donor-advised fund. You can give one year in year one and then the next year in year two, after, once it's in that fund, but it'll just give you that tax break.

So I love that idea, um, of utilizing that. And there's some really, really cool stuff you can do with donor-advised funds too. So really, really cool tool to be able to utilize. So the next one is real estate. And real estate is a great one for a lot of people who are interested in saving on taxes as well.

Now it's not for everyone. There's more activity you have to do to invest in real estate, but can you kind of talk through some of the tax benefits that may come into play if you're interested in investing in real estate? I. So, obviously being a business owner brings on a lot of tax benefits, but real estate is another thing that can bring on a lot of tax benefits, but you have to do it in the correct way, I should say.

You can't just buy a rental property and then expect to get a ton of tax benefits from it. So there's one is the real estate professional status. The way that I typically see this is you have a working, um, spouse who's got the nine to five regular W two job. And then you might have a non-working spouse who can qualify as a real estate professional, um, because you do have to meet in our requirement to qualify.

But that brings with it a lot of tax benefits. And then short term rentals as well can be another option that bring with it. Tax benefits and with real estate, you know, there's accelerated depreciation. That's what a lot of people get really excited about and, and taking certain losses from real estate.

And again, this can get into the weeds and get complex really quickly, but to your point, it can be a great tax benefit, but, It does require work. It's not true passive investing, there is an active component there. So you have to think about the trade off. How much am I willing to do and spend time on for this tax benefit?

And if you do your research, you do your due diligence and you feel comfortable doing real estate investing, then you can move forward with it. But again, this is an example where I would bring on a C P A, A financial advisor maybe to kind of talk through and make sure that you're doing in a way to.

Absolutely. It really truly is, to your point, it's just not for everyone, but you gotta do the research and kind of go through the process because you can get yourself, if you don't, it's a skilled investment. So if you, you gotta understand kind of what you're doing as you go through this and make sure you weigh the pros and cons on that.

The next one is the H Ss A and the F Ss a and the H S A is obviously one of my favorite accounts. They call it the super retirement account a lot of times. But can we kind of talk through some of the tax benefits of both those accounts? Yeah, so same HS A is, I think it might be my favorite account. Um, it's definitely the one that I prioritize for myself.

It has a triple tax benefit potentially, and what that means is money goes in tax free. So when you contribute to an H S A, you do get that tax deduction in the year that you do that. And then money can grow tax free. So what a lot of people don't understand that if it makes sense for you, and if you can afford to do this, you can invest the funds within your H S A.

And again, you have to make sure you have the right provider and that they offer the right investments and things like that. But you can invest your funds and then those. Everything that's, um, happening from the investments will be tax free. And then once you take money outta the hsa, and this is where the third tax benefit comes in, it will be tax free for qualified medical expenses and qualified medical expenses cover a lot of huge range of things, so you just have to look into everything that it covers.

The great thing about an H s A, the way that I use it, the way that a lot of my clients use it, is that I pay for everything out of pocket. So when I have health expenses, I don't take from my H S A, I leave my H s A alone and I let it grow with the investments and instead I pay for things out of pocket.

But when I do that, I keep a receipt of what I'm paying for and I. A record of everything that I'm paying for because there is no deadline for reimbursing yourself for qualified medical expenses. So if I have an expense this year, um, say I have a $500 medical expense that I pay out of pocket, I will keep a record of that, keep a receipt of that, and then say in 10 years, I wanna take money outta my H S A, I can actually reimburse myself for that medical expense that happened 10 years ago.

So that's the way that it's currently interpreted, um, that there is no deadline with the H Ss a. So I like to use it and that way. And then the F ss a, uh, can be a good account. Two, it's a flexible. And again, just like an H S A, you receive a tax deduction for contributing to it. The downside of the FSSA compared to the HSA is that it is a use it or lose it account.

So the hsa, it rolls over every year. If you leave your employer, you take your H s A with you. There's no losing it for not using it. The F Ss A, you have to use it by a deadline in order to still have those funds. Otherwise, you completely lose access to those funds. Exactly. That's kinda the beautiful benefit of both those.

The H S A is great, especially if you have a high deductible health plan. It is fantastic. Like you said, it's probably my favorite account too. And then when it comes to the F S A, it's a use it or lose it thing. So if you can't have access to an H SS A for some reason, maybe you don't have a high deductible health plan, then you can utilize some other options there with the F Ss A, just to get that tax benefit, um, and get that money in that account.

Now the next one is a strategy that we talk about a lot here too, and it's one that I utilize is tax loss harvesting, and there's a bunch of different ways to do it, but can you kind of talk through how tax loss harvesting can help you save on taxes? I. Yeah, so in 2022, this was a really popular topic 'cause we were experiencing a down market.

And one benefit of a down market is that you can take advantage of this tax harvesting opportunity. And what that means is, and this is what people get really confused about, because they think. You sell an investment and you're capturing and you're out of it, and now you have this loss and you can't recover.

The idea behind tax loss harvesting is selling the investment, capturing the loss, and again, let me clarify that. The investment is at a loss, so you're selling it and you're capturing that loss, and then you're immediately taking those funds and investing back into a. Similar but different. It has to be different security.

And the way that I look at this is typically I just wanna make sure that it's in the same category, but it's tracking a different index. So for example, if you have an s and p 500 fund, you cannot sell the SS and P 500 fund and then immediately buy another SS and P 500 fund. That would be a wash. It should track a different index.

What you don't wanna do is sell the investment and on the sidelines, the idea is still invested the entire time. You just want to take advantage of those losses because what the losses do is they can either offset other capital gains. So if you have another fund and it has a gain, you can use some of those losses to offset the gain, and there's no limit to that.

The other way that you can use it, the way I use it, the way a lot of other people use it, is using some of those losses to offset your income. Now there is a limit to this right now offset. The great thing about it is that you don't lose these losses. So say you created 10,000 in losses from tax loss harvesting, you use 3000 to offset your income.

You don't lose that 7,000. That 7,000 will carry forward and you can continue to use it in future years to offset ordinary income, or you can use it to offset gain. Exactly. That is one of my favorite ways is to offset your actual income too, is in utilizing that year in and year out is one a really, really cool tool that W two earners have that I think a lot of them don't really know exist.

And there's ways that you can do this with, you know, robo-advisors, things like that. But I really, really like doing it, you know, with a strategic way instead of having it, you know, set up that way. So that's a perfect segue into the last one, which is 5 29 accounts. And 5 29 accounts are, you know, education accounts obviously, and they are something where, You can save a lot of money on taxes, especially if you are saving up for your kids or whatever for retirement.

Obviously though, what we talk about here on a lot in this podcast is you wanna make sure you're taking care of your retirement first before contributing to some of these 5 29 accounts, especially when you are in the wealth accumulation phase. So can you kind of talk about how 5 29 accounts can save folks on taxes when they are W two earners?

Yeah, A 5 29 is a little tricky because it can be a great account if your children go to school or if you need to use it for education expenses. It's a little risky in that you know, to receive the tax benefit in the future, you have to make sure that you're paying for qualified education expenses. So there is a risk of Overfunding 5 29 tax impact of it.

It really varies widely based on your state and what they're offering you for the 5 29 tax deduction. So for example, I lived in Indiana before the 5 29 deduction in Indiana was great. It was a 20% tax credit up to a certain amount. So tax credit is one of the best things you can have for your taxes.

Much better than a tax deduction. But most states do offer a state income tax deduction in the year that you contribute, and you just have to look at what your state is offering and if it makes sense. Again, some states won't offer anything or won't offer a great benefit, so it might not be worth it. But once it's in the 5 29 again, those investments will grow tax free and then they'll come out tax free for qualified education expenses.

Like I alluded to, there is overfunding a. Or whoever you're funding this education for, that end up not using it, not going to school, and now you're no longer receiving that tax benefit. So when we're talking about education savings, say, I agree with you, Andrew. First and foremost, we have to make sure that we're saving for ourselves for retirement.

I always tell people there are no retirement loans, so that should be your priority. But then outside of that, You have to be careful not to overfund five 20, and there are other accounts that might make more sense for education savings that allow you to save your children's education, but won't.

Perfect. I think that's a perfect explanation on it because I think there are those tax benefits available to you there. And then obviously what you could do is also fund that account up to the $35,000 and then transfer it over to your children's Roth if that's something that you wanna do. Also, if you're worried about that risk.

But there is a number of other factors there. But it definitely is an account that you wanna make sure that you're utilizing. For those educational expenses. So I wanna shift gears again here and kind of talk through when someone should hire a financial planner, a financial advisor. And one big thing that I've talked about in this podcast, long time listeners know, is I'm not a huge fan of hiring advisors with a large asset under management.

You know, 2% fee, 3% fee to handle your index funds or large stocks. But there are a lot of good reasons to actually hire a financial advisor specifically to put together a financial plan. And there may be some other reasons as well that you can talk about. So when is a really good time for someone to consider hiring a financial advisor or a financial planner when they're putting their finances together?

Yeah, this is, you know, this is always a tricky question to answer because there are so many different scenarios that could happen that would warrant a discussion with a financial advisor. And I've seen, you know, being a financial advisor and being in the room with a lot of financial advisors, I've seen the impact that.

Financial professional can have on somebody's finances just to talk through some of these decisions, make sure that there are things that we're covering all the bases, because often what happens is people don't know what they don't know, and there are a lot of blind spots. Personal finance is such a broad topic, and this is why it's so important to get a financial planner and not somebody who's just.

They go to a financial advisor and the entire time the advisor is just talking to them about investments and outperforming the market and things like that. And I like to think of that as like the dated old financial advisor. And I don't mean old as an age, but old as in what it was previously. And I like to think that there's this new emergence of financial planners who.

On financial planning and looking at your finances in a more holistic way and not just focusing on investment performance. I consider investment performance a very small part of what I do, but there are other things that some people, because they're not experts, just don't know about. So there's insurance you have to think about.

So many people are, are under earth. Uninsured, and that can be really risky to your finances. Um, there's estate planning, of course, making sure that your assets go where you want them to go in case of death or premature death. There's investments, of course, there's retirement planning, there's education planning.

There's so many of these other topics that. Many people don't realize that financial advisors do cover. So when you get to the point of thinking about these other topics or your concerns that maybe you're not covering all the risks in your financial life, it might be worth a conversation with a financial advisor.

And it could be a one-time engagement, somebody that you hire for a few months. They put together a financial plan and they just kind of look at everything and, and you can go on with that, or it could be somebody, if you really value somebody who you can talk to, you have a lot of different decisions that are popping up and you just want someone there to talk through these tough decisions that could have a large impact on your finances and on your family.

Then you might a financial advisor. One specific scenario where it makes sense because there's so many different ways. But I think for many people they, they kind of are aware of when they're at that point 'cause they're doing good enough with their finances, but maybe they feel like they're not optimizing it or maybe they're concerned that there's things that they're just not thinking about that an advisor could bring to their attention.

I love that. I think that's the perfect answer. 'cause there's so many other factors about people's finances outside of the investing portion that really financial planners can help them with. And like you said, from estate planning all the way to insurance, and then even turning around towards taxes like we're talking about here.

They can work with your C P A and really optimize your taxes, which is your biggest bill. Most people don't realize how big of a bill that is. And so that investment alone is very worthwhile to have like A A C F P in addition to having a financial planner is gonna be really, really beneficial there. So having a C P A in addition to having a financial planner is gonna be really beneficial.

So that's something that I think, you know, having that team available for you is really gonna help you, especially on some of your biggest bills, taxation, making sure you have the right trust and or will in place, all that kind of stuff as well. So really, really great answer there. I think that's perfect.

Now I wanna shift gears to a couple of different questions that we love to ask some of our guests that some of these go deeper, and then some of these are fun. So I love asking these questions. So what part of your work or life makes you come alive? Yeah, I, it's funny because I'm one of those people that my work is a large part of my identity, to be honest.

It's just, I've always been this way. I've loved to work, I've loved to, I want what I do to have an impact. And not everybody has to be this way. I just. I've recognized that I am this way and I've just embraced it. And I think that's why I've gone through so many iterations to get to this point. Um, because I really want my work to be optimized and for it to be something that I wake up every day excited to do.

And I do feel like I've gotten to that point because working with these clients and feeling like you do have a large impact, and that's why I wanted to work with millennials. I felt like, you know, retirees. You kind of, somebody comes in and it's like, well, I hope you did everything right over the past 30 years because then I can help you, but if not, I can't help you.

Right. So I wanted to move that point forward and talk to people that I could have a dramatic difference on their life and on their retirement, because we have enough time to cover that. So now that I'm at an earlier stage of their life, that really, it does bring me alive because I can see the impact I'm having and I can see the relief that they feel for helping them think through this.

And a lot of it is just that they never have to make another financial decision alone. Again, they have a partner, they have somebody who they can talk through every financial decision, and that's always been my. Goal is just to relieve that stress and take it off of their plate. A lot of people I work with are very intelligent, sophisticated, and have amazing careers, and I really want them to be able to think about those things and not have to stress about these other things.

So being able to take that off their plates for them has just been so rewarding. It's such a, a cool thing, what you can do over the course of someone's career, 'cause you can really create freedom for their lives. So I absolutely love that. That's gotta be one of the most rewarding things out there. The second one is, what is your biggest fear when it comes to money?

Yeah, it's so this is funny. I've often said I had, or maybe I still do at times, have a financial scarcity mindset. It's one of the reasons I think my kind of obsession with money is why I'm good at this job. And it's also brought a lot of awareness into the way that I think about money and then the way that I encounter this conversation with clients.

Money often represented control in our life. So when I was younger, I saw relationships and it, the way that I translated it was the person who has the money, who's making the money, they have the control. And of course that's not the case in a healthy relationship, but that is the way that I translated it when I was young and it did have an impact on me and the way that I viewed money and the career that I chose and the way that I managed my own money.

So I often had that. Fear of without money, I don't have control over my life. Now it was to the extreme, but there is some truth to that. Money does bring about a certain, um, sense of freedom. So if you're in a job that you don't like, having an emergency fund, having savings for six months means you have a lot more freedom than somebody that does not have my fears.

Not having that cushion, not having that savings that I can fall back on. And as a result, that's impacted the way that I manage my money, especially with starting a business. I really needed a comfortable savings, um, that I could tap into if I needed to fall back on that. So the fear is of mine has always just been do I not have enough to where if I needed to rely on this money, if I needed to get out of a situation, I wasn't happy and that I, I wouldn't be able to if I didn't have enough money.

And I can relate to that completely. 'cause just the enough question is always resonating all the time with me. My goalpost moves all the time, like I was telling you. It's just one of those things where that is a major, major factor. So how do you plan to level up your finances this year? So it's funny, as far as savings and investments and long term, I don't plan to level that up this year.

I am actually. Consciously choosing this is something really hard for me. I'm consciously choosing to scale back on those investments so that I can invest more in the business and think long-term with the business. This has been a mindset shift that has been so difficult for me, especially somebody who was really into the fire movement to shift money out of those retirement accounts and long-term investments and to shift it more into present day and investments like taking a.

Back to go forward for the long term, and it's a mindset shift that you have to realize that I am still investing. It's just a little bit harder to see right now. Rather than putting that money into the stock market and seeing it do its thing, now I'm putting it into myself, into the business with the expectation that over the long term, this will gimme an even better return than anything else can.

Exactly. It's one of the most difficult things to do is kind of reinvest in your business. When you're so used to investing in like traditional index funds or whatever else you do in the market, it is so hard to take those dollars and kind of shift them over to things you cannot really tangibly see right away.

But it is something that really, really can be a huge benefit in the long run. So if you could tell your younger self one thing about money, what would it be? I think it would be to give money so much power. And again, anybody who hasc. A shift we have to go through is not holding money on a pedestal and not giving it too much power.

It's something where you see somebody who has a really high savings rate and they're investing a ton of their money, and you think to yourself, that person is really good with money. And I've now come to realize that that is not necessarily the case. That that person can still be bad with money if money is controlling their lives.

So somebody who is in a ton of credit card debt and overspending, yeah, of course that person is bad with money, but so is the person that is over saving and has an irrational fear of never having enough. That is also not a healthy place to be with money. So it's always, of course, it's in the middle, it's in the balance.

We.

Define me. It is not my identity. I am not my income. I'm not my net worth. And so I would just make sure that I tell myself to just not give money, more power than it deserves, because that's a trap I've fallen into a lot in my life. I love that thought process and I love your philosophy around money and how it surrounds this because I think that's just one huge thing where early on I would follow like uh, Mr.

Money mustache for example. And that was a big thing that I was always like looking at. I was like, oh, maybe I should start biking to work and going through this whole process and realizing that I was just not enjoying life and I did had zero enjoyment. And so coming towards the middle, like you said, is more so a kind of a healthy relationship with money for most people, obviously it's very.

Specific to each individual, but it's something where if you can come to terms with spending your money on the things that you actually value, and then the rest of it putting towards your freedom is gonna be something that can really, really give you a great balance. So I love that thought process. The last one is, what does wealth mean to you?

Yeah, so I, I always wanna make sure, again, I'm not giving money too much power, so I don't like to define wealth by a number or an income goal, or a net worth goal. Instead, like we mentioned earlier, I like to define it by a lifestyle goal. So I tell myself I'm wealthy if I can hit these things. I'm wealthy if I can maintain my relationships and have strong relationships and make sure that I have time to show up for those relationships.

I'm healthy if I can live in the city that I wanna live in, which is, I just recently moved to Denver, so that has kind of hit my wealthy goal here, that I'm now able to afford to live here. So I consider myself wealthy to be able to do that. I'm wealthy if I can travel three to four times a year. That's something that's important to me.

I'm wealthy if I can lead a active and healthy lifestyle, and if I can eat healthy foods, all of those things, if. Then I consider myself wealthy. It is not a number in my bank account. It is not an income that I report on taxes. It's can I lead the lifestyle that I wanna lead? And if so, then I consider myself wealthy.

I love that thought and I love that answer 'cause it's surrounding your entire philosophy that we be talking about in this podcast. So that is absolutely perfect. Rachel, this has been absolutely amazing. Thank you so much for coming on. Where can people find out more about you, about Camp Wealth and everything else that you do, and then what is your kind of ideal client that you were looking for?

Yeah, so Twitter, like you mentioned, that is where I am most active. So that's Camp Wealth. On Twitter, I have Instagram too at Camp Wealth, and then my website is rachel camp wealth.com. Camp Wealth was taken, so I had to throw my first name in there. Most people that I work with, like I mentioned, are millennials.

They're still on that asset accumulation phase, and I do work with a lot of high earners. And solopreneurs. So a lot of my client base, they're very tax sensitive and like you mentioned, I consider that to be one of the most valuable things that I do is tax planning. So that's most of who I work with today.

Awesome. That's perfect. Well Rachel, thank you so much for coming on and we truly, truly appreciate it. Of course. Thanks Andrew. It was great.