NerdWallet ($NRDS) podcast mentions
Timestamped NerdWallet ($NRDS) mentions across our podcast corpus.
I think if you don't know what you're talking about in personal finance, then you move into the, what I think is absolutely the worst of these business models, which is the, the commission-based advisor model, right, where an advisor charges both an AUM fee in many cases and is very highly compensated if you purchase a whole life or permanent life insurance product from them or an annuity product from them. I think that model is terrible. I think it's a massive conflict of interest. As you learn more about the financial planning ecosystem and you listen to podcasts like BiggerPockets Money, you can very easily avoid the commission-based salesperson. To your point, Mindy, I think that from there, the fees have become a major target of personal finance media, including us. We've, we had a big debate with a fee-only AUM-based advisor who represented actually NerdWallet's financial planning practice. And I thought he had some good points there. I think we still, you and I, bias towards the flat fee or advice-only model. But I think we walked back a little bit of like, okay, there's a place for this. It's not all bad. You can find some, some folks there and there's some quality planners out there that charge an AUM-based fee model. That's not our preference. It's not something that we will promote heavily, but we're not— we're going to back off calling that a bad model. I think here at BiggerPockets Money, just not the one we prefer. Right. I think that's the way we'll phrase that. And this is supported by what, you know, you guys, the BiggerPockets Money audience, say you feel about financial planning, right? When you are looking for a financial planner, 88% of you say that you want a flat fee or advice-only planner. Love that. I think that's a great bias. 6% of you said that you're fine with AUM fees in the fee-only space, and I think that's also wonderful. And then 3% said you're fine with both AUM fees and commissions. That's where I'll disagree, but I'll support your decision. If you know what you're talking about, you understand that conflict, and you still choose to go with an advisor who charges that, that's your choice. We won't judge you. We'll have a different position.
Scott Trench · BiggerPockets Money Podcast · What to Know Before Hiring a Financial Advisor · 2026-08-18I think if you don't know what you're talking about in personal finance, then you move into the— what I think is absolutely the worst of these business models, which is the, the commission-based advisor model, right? Where an advisor charges both an AUM fee in many cases and is very highly compensated if you purchase a whole life or permanent life insurance product from them or an annuity product from them. I think that model is terrible. I think it's a massive conflict of interest. As you learn more about the the financial planning ecosystem and you listen to podcasts like BiggerPockets Money, you can very easily avoid the commission-based salesperson. To your point, Mindy, I think that from there, the fees have become a major target of personal finance media, including us. We've, we had a big debate with a fee-only AUM-based advisor who represented actually NerdWallet's financial planning practice. And I thought he had some good points there. I think we still, you and I, bias towards the flat fee or advice-only model. But I think we walked back a little bit of like, okay, there's a place for this. It's not all bad. You can find some, some folks there, and there's some quality planners out there that charge an AUM-based fee model. That's not our preference. It's not something that we will promote heavily, but we're not— we're going to back off calling that a bad model, I think, here at BiggerPockets Money. Just not the one we prefer, right? I think that's the way we'll phrase that. And this is supported by what, you know, the— you guys, the BiggerPockets Money audience, say you feel about financial planning, right? When you are looking for a financial planner. 88% of you say that you want a flat fee or advice-only planner. Love that. I think that's a great bias. 6% of you said that you're fine with AUM fees in the fee-only space, and I think that's also wonderful. And then 3% said you're fine with both AUM fees and commissions. That's where I'll disagree, but I'll support your decision. If you know what you're talking about, you understand that conflict, and you still choose to go with an advisor who charges that, that's your choice. We won't judge you. We'll have a different position.
Scott Trench · BiggerPockets Money · What to Know Before Hiring a Financial Advisor · 2026-08-18I think if you don't know what you're talking about in personal finance, then you move into the— what I think is absolutely the worst of these business models, which is the, the commission-based advisor model, right? Where an advisor charges both an AUM fee in many cases and is very highly compensated if you purchase a whole life or permanent life insurance product from them or an annuity product from them. I think that model is terrible. I think it's a massive conflict of interest. As you learn more about the the financial planning ecosystem and you listen to podcasts like BiggerPockets Money, you can very easily avoid the commission-based salesperson. To your point, Mindy, I think that from there, the fees have become a major target of personal finance media, including us. We've, we had a big debate with a fee-only AUM-based advisor who represented actually NerdWallet's financial planning practice. And I thought he had some good points there. I think we still, you and I, bias towards the flat fee or advice-only model. But I think we walked back a little bit of like, okay, there's a place for this. It's not all bad. You can find some, some folks there, and there's some quality planners out there that charge an AUM-based fee model. That's not our preference. It's not something that we will promote heavily, but we're not— we're going to back off calling that a bad model, I think, here at BiggerPockets Money. Just not the one we prefer, right? I think that's the way we'll phrase that. And this is supported by what, you know, the— you guys, the BiggerPockets Money audience, say you feel about financial planning, right? When you are looking for a financial planner. 88% of you say that you want a flat fee or advice-only planner. Love that. I think that's a great bias. 6% of you said that you're fine with AUM fees in the fee-only space, and I think that's also wonderful. And then 3% said you're fine with both AUM fees and commissions. That's where I'll disagree, but I'll support your decision. If you know what you're talking about, you understand that conflict, and you still choose to go with an advisor who charges that, that's your choice. We won't judge you. We'll have a different position.
Scott Trench · BiggerPockets Money Podcast · What to Know Before Hiring a Financial Advisor · 2026-08-18Welcome to Personal Finance for Long-Term Investors, Episode 135. I'm Jesse Kramer. By day, I work at a fiduciary wealth management firm helping clients nationwide. You can learn more at bestinterest.blog/work. The link is in the show notes. By night, I write the Best Interest blog and I host this very podcast. I also put out a weekly email newsletter, and all those projects help busy professionals and retirees avoid mistakes, and grow their wealth by simplifying their investing, taxes, and retirement planning. Today is our 15th AMA, Ask Me Anything episode. Before we dive in, we'll do a quick review of the week. New York Knicks 786 wrote a 5-star review on Apple Podcasts and they said, a refreshing take on personal finance. 5 stars. Jesse is the voice of reason in the personal finance podcast world. His takes are helpful and you can feel the sincerity when he educates about any financial topic. Subscribe. You won't regret it. Well, thank you very much, New York Knicks. I'd be happy to send you a super soft podcast t-shirt. So please drop me an email to jesse@bestinterest.blog so I can get that sent out to you. And now on with the Ask Me Anything episode. As a reminder, these are real questions from listeners just like you. So please don't hesitate to email me a question to the email address jesse@bestinterest.blog. I read every single email that you guys send me. On to the first question today, all about Trump accounts. Yogi and Nick and a few others, you all wrote in and asked me about Trump accounts. So first, I'm going to explain how they work. Then I'm going to compare and contrast to other similar accounts. And last, I'm going to tell you how I'll be thinking about the Trump accounts, not only for my own family, but, but also for the clients who I work with, who I'm kind of giving them advice on Trump accounts. So first, what exactly are these things, Trump accounts? So when the, the One Big Beautiful Bill Act, OBA, or some people call it BBB, when it was signed into law last summer, so summer of 2025, it created a new type of savings account nicknamed the Trump account, or maybe just outright named the Trump account. Which can be opened and funded beginning July of 2026. So the accounts will be open this coming summer, summer of 2026. In simple terms, a Trump account is a modified version of a traditional IRA. So that in and of itself, I think that should help us understand how to frame these accounts in our minds. They're most similar to a traditional IRA. However, it can only be opened and contributed to on behalf of children prior to the year of their 18th birthday. So for children under the age of 18, standard IRAs are only rarely used by children since they require the owner, the child, child to have earned income to be able to make contributions. But Trump accounts are different. They are meant explicitly to be funded by, well, for minor children with no income on their own. So the goal here is to incentivize giving children some sort of head start on their retirement savings from an early age. Trump accounts use tax deferral. So again, interest and dividends and capital gains inside a Trump account are not taxed until they're withdrawn from the account. So this tax-deferred growth. Very similar to other tax-free, tax-deferred growth or tax-free growth. It resembles traditional accounts and Roth accounts and 529s and HSAs, all those qualified accounts we're already familiar with. Trump accounts are also designed to accept contributions from many different sources, which is kind of interesting. So parents and other relatives, of course, can contribute. Employers of the parents or employers of the children, by the time they're teenagers, they can contribute. But even certain charities and government organizations can and will contribute to Trump accounts. Right now there's this Trump account, basically a pilot program going on, and it's for children who were born in 2025, 2026, 2027, and 2028. And those children from those 4 birth years will receive $1,000 from the government in their Trump account. Now, other children under the age of 18 can have the Trump accounts opened for them, but they will not receive the $1,000 unless they were born again in '25, '26, '27, or 2028.. And if you need to open a Trump account on behalf of a minor in your family, you can do so via a federal website, which we can throw this link in the show notes. It's trumpaccounts.gov or via a form that you can submit when you file your taxes. It's Form 4547. And an important note is that to open this account and to receive the $1,000 seed money, you need to opt in. And I'm pretty sure this is true because I've actually heard both. I've heard that no, no, the account will be open for you. But at least when I was doing all the research for this episode, multiple sources, including, you know, some of the big custodians out there said, no, no, you need to opt in. It won't be automatically opened for you. So you need to go to TrumpAccounts.gov and open the account or file that tax form. It's probably easiest, I would assume, to go to TrumpAccounts.gov, although I have to admit I haven't done this myself yet. Anyway, Trump account contributions are limited to $5,000 per year, but that number will be indexed for inflation, meaning it'll go up over time, much like you're used to with 401s or IRAs, those contribution limits. And the $5,000 limit does actually have two exceptions. The first exception is that initial $1,000 gift from the government. That doesn't count towards the $5,000 limit. And then the second exception is contributions from charitable organizations. And I believe I have this right where you might have seen there was a $6.25 billion— with a B— billion-dollar gift from Michael Dell and his family. He's a guy who came up with Dell computers. And I believe that's going through some sort of family foundation or just some charitable foundation that he set up.. And so his contributions to the Trump accounts of his choosing. So it's not actually going to all Trump accounts. His donation is only going to the Trump accounts of the children who live in particular zip codes that fall under a particular average income level. It's just kind of interesting how they, how that gets done. But those contributions will not count toward the $5,000 maximum. But when it comes to the contributions that maybe the normal contributions, the one that your parents will be making, your grandparents of the child. When it comes to the contributions that you're going to make on behalf of your kids, or even I have a feeling that some employers will start using Trump accounts as an employer benefit. It gets a little bit confusing because the contributions that you as maybe a parent or grandparent make, those contributions are made with after-tax dollars and they are not deductible. They're non-deductible. So that's a little different than what we would call traditional IRA contributions, because those usually are made with either pre-tax dollars or they are deductible. However, the contributions that an employer makes on, say, on behalf of a child, those are pretax. And what that means is that the Trump account owner is going to have to pay income tax in the future upon withdrawal of these pretax contributions that are coming from the employers. And then charitable contributions and the $1,000 from the government, those are also considered pretax dollars, meaning that the Trump account owner owes income tax on those contributions later. And so basically every Trump account out there, at least many, many of them, if you are going to be adding your own money to a Trump account, let me put it that way. If you're going to be adding your own money to a Trump account, it's going to contain a mix of pretax and after-tax dollars. And then any and all growth inside the account is also going to be considered pretax. So a quick kind of re-explanation there. Your contributions themselves are after-tax, but as your contributions begin to create investment growth, that growth is considered pre-tax, and that's clearly a negative feature compared to how most tax-advantaged accounts work. Most tax-advantaged accounts, if the contributions are after-tax like a Roth or a 529, then the growth is all tax-free at withdrawal. And if the contributions are all pre-tax and deductible like a traditional account, then fine, I'll take the tax break right now this year when I make the contribution, and then I'm okay with the growth being pre-tax too because you're giving me the tax break now. But the tax treatment here of the Trump accounts, it's kind of this logistical challenge. It's a bit of a suboptimal mathematical challenge because you pay tax on the contribution upfront. The money grows year over year inside this account, and it is sheltered from taxes year over year. So I guess in that way there is quote unquote tax-free growth. But the problem is that on the far end, all of the growth then becomes subject to income tax on the far end. And the way the taxes occur both on the beginning contributions and on the far end, that's different and suboptimal when compared to either a true traditional account or a Roth account. And then there's a logistical challenge because the account owner, well typically the parents if the child is under 18, and then the child themselves when they turn 18 and over, whoever the account owner is, is going to have to track, is going to have to maintain and monitor and track the pre-tax vs. the after-tax portions of the account on an annual basis. Now some of you might already be familiar with this practice if you're doing backdoor Roth contributions or Roth conversions and you're familiar with IRS Form 8606. This Form 8606 needs to be filed every single year, meaning we're asking parents to file this form from ages 0 to 18 for their kids, and then the kids are going to be filing the form from age 19 or whenever they're claimed— they aren't claimed on their parents' taxes, whatever age that is. Up until age 60, possibly beyond age 60, because it's a retirement account. They can't touch it until they're 59 and a half, except for a couple exclusionary reasons. So if one year of the Form 8606 is missed, then the entire account will be considered pre-tax and therefore the entire account will be subject to income tax upon withdrawal. And many of the dollars inside a Trump account, maybe not most, but many of them will end up being taxed twice. If this occurs. And from a logistics point of view, I do think there's a technical term that we can use for this scenario. The technical term that I would use is a dumpster fire. I really think the execution of this— they're either going to change the way this has to be tracked or a ton of people are going to be— are going to make innocent mistakes when it comes to the tax filings around a Trump account. So let's do a little interesting example here with some numbers. I'm welcoming a baby in March of 2026.. And when I look and see when this episode is going to come out on, I think April 1st is when this episode's coming out. Maybe when you're listening to it, I sure hope we have a baby by now. I might be out of pocket a little bit because of that baby. But yes, we are welcoming a baby ourselves. And this baby born in 2026 will qualify for the $1,000 seed money from the government. And let's just say that we also contribute the $5,000 maximum each year. And we know that maximum will go up over time based on inflation. And let me also assume for now an 8% rate of return. By the time our baby is 18, the account will be at, by my math, $250,000, about 45% of which will be our contributions and 55% of which will be growth. Now, losing track of the contributions in that case would be a major downside. That said, by the time this baby reaches retirement age, with the contributions still being $115,000, the growth might be in the millions. Thus, the growth will dominate the account, and therefore losing track of the contributions wouldn't be the most painful thing in the world. But it's still just— it's not great. You're paying tax on those dollars twice if you lose track. Now, these Trump accounts are designed to be long-term vehicles. Any withdrawals before the children are 18 are highly restricted. And then when the child turns 18, the accounts will likely be transitioned or actually rolled over to a traditional IRA. Maybe some of it does end when the child is in their 20s because the account could be rolled over to a traditional IRA. But some of those logistics actually are still being ironed out. For the most part, the Trump accounts, or at least the money inside of a Trump account, those qualified dollars cannot be touched until age 59 and a half, with very few exceptions, such as certain educational expenses. That's one exception. First-time home buying is an exception. Starting a business. And actually, you can also do substantially equal periodic payments, otherwise known as 72T annuity payments from a Trump account. Now, investment options are limited, I might say surprisingly limited, but certainly limited inside of a Trump account. Equity mutual funds only, stocks only. And they have to have at least 90% of their exposure to U.S. stocks. No leverage is allowed, which I'm fine with that. And expense ratios are capped at a 10th of a percent, 0.1%. And I'm fine with that too. But it's just interesting that if you have money inside of a Trump account, it is going to be invested in the US stock market. Pretty much the end of the story. But now, are Trump accounts the right or the best vehicle for your kids? Now, how do Trump accounts compare to 529 education plans, regular custodial IRA accounts, or these UTMA or UGMA, these kind of trust-like accounts that you can set up for your kids? The answer is that Trump accounts are not as good as a lot of the other options. For example, If your goal involves education funding, then 529 accounts are better on just about every single metric. You can save more, you can diversify more, you get much better tax treatment, and you can convert some of those $529 to Roth for free if you need to. Let's go on to another goal. If your goal involves simply gifting money to your kids, well, then I would argue that an UGMA or UTMA account is much better. You can gift more to them per year. You can diversify more. Even though those UGMA and UTMA accounts don't get tax-deferred growth, They do receive what's called KIDDIE tax treatment. K-I-D-D-I-E as in a small child, not as in a small cat. KIDDIE tax treatment. The KIDDIE tax basically says that the first chunk of investment income, about $1,400 this year, the first $1,400 of investment income for a child is totally tax-free. And then the next chunk of $1,400, the next chunk of investment income is taxed at the child's tax rates, which are very low and typically zero., and then only after that is additional investment income taxed at the parent's tax rates. And so practically, if we think about real numbers here, looking at the type of dividend income generated by some sort of broad ETF, you could probably have a $200,000 UGMA account generating $2,500 a year in dividend income and pay zero tax on that growth. And you could easily make the argument that the UGMA actually has a better tax treatment. Really, it's after-tax value. That it's certainly better than a Trump account's after-tax value. But before I tell you exactly what my plan is with my kids or my clients and Trump accounts, I want to address something that's kind of been making the rounds from some other personal finance creators and maybe some, some financial advisors, too, where they basically say like, oh, there's this amazing thing you can do with the Trump accounts. You invest in the Trump accounts for your kids, and then when they turn 18, you use Roth conversions to give your kids Roth dollars for the rest of their lives. And it's this just fantastic thing. And, you know, I've put some pretty considerable thought into it. And I don't think this is a bad strategy. I just also don't think it's nearly as good as people are thinking, or at the very least, it runs into many of the same problems that I've already talked about here. So again, the way the strategy would look like is you utilize the Trump accounts for your kids from now until they're 18 years old. When the child turns 18, at least according to our current understanding, the Trump account would kind of transform into a traditional IRA again at around age 18. And then you would probably want to allow the traditional IRA to grow until the child is no longer in college and thus not subject to any sort of financial aid monitoring. And you'd also want it to where the child is no longer a dependent and thus no longer impacted by their parents' tax brackets. And then once those two things are true, you can begin Roth conversions of this traditional IRA that used to be a Trump account you can do Roth conversions while the child is still kind of in their early career, low-income years. And again, I think this idea is fine in theory, but it's likely going to be messier in practice. And the main benefit here is that this young adult could end up with a 6-figure Roth IRA account in their early 20s in a way that otherwise simply wouldn't be possible. And that's pretty cool. But the main con, the big con that I've kind of been talking about with this whole answer is that this solution, if you will, still doesn't fix the tax inefficiency of the Trump accounts in the first place. And we'd be asking these young adults to do some pretty nuanced tax planning and pay extra income taxes when they might not be prepared to do that. So let's walk through a simple, simple example. Let's say the parents contribute $5,000 a year for 20 years. That's $100,000 in after-tax basis. The investments create $100,000 of growth over those 20 years. It's all pretax. So it's a simple 50/50 mix. And to make it simple, we assume no other dollars in the account. There's no government contribution, for example. So the child now post-college, and we'll presume they're filing taxes as a single taxpayer, they have a $200,000 traditional IRA with a perfect 50/50 mix of pre-tax and after-tax basis. And they get a job out of college. They're earning $50,000 a year. Uh, their standard deduction, $16,000 a year in today's dollars. It puts their marginal income pretty solidly in the 12% federal tax bracket. It gives them about a $34,000 AGI. The point is they have about $16,000 of space inside their 12% tax bracket to do Roth conversions, and they use that space. The pro rata rule applies, which is complicated, right? Many people don't understand the pro rata rule. They convert a total of $32,000. $16,000 of it is after-tax basis, meaning it triggers no additional taxes. The other $16,000 is pre-tax, triggering— it ends up triggering about $2,000 in federal taxes. The IRA, the traditional IRA, uh, now has a $168,000 balance. They need to file Form 8606, certainly, to track these changes year over year. And you know, they'd want to do some nuanced tax planning to get the numbers right on an annual basis to see how much of Roth conversions ought they to be doing in their current tax bracket. And just my gut suggests that few 23-year-olds are going to be excited about this process or excited about intentionally paying thousands of dollars in additional taxes every single year. And I think what's going to have to happen is that the smart parents, people like you listening who are creating this master plan in the first place, you're likely going to have to assist along the way. Or maybe a simpler solution that the parents would prefer just to rip off the Band-Aid altogether and convert the entire $200,000 traditional IRA all at once. Well, that's going to inject the full $100,000 of pretax basis into the child's income tax return. And for this scenario, what would end up happening is the total tax bill would come out to about $21,000. Now, the new college grad earning $50,000 a year is highly unlikely to do this without the bank of mom and dad helping out. So the whole Trump account to traditional IRA to Roth conversion plan, it certainly can work and it's not a bad plan. It's just tax inefficient. That's the only point I want to get across. It's tax inefficient. And the more I learn about it, the more I hear some people talking about it. You know, let's fast forward a few years. Maybe I'll, I'll do it myself. But on that note, let's talk a little bit about how I'm planning to use Trump accounts, at least for now. When it comes to my family and my clients? Well, I'm definitely going to set them up for my current and future kids and opt in to any free money that is provided, right? It's free money. If additional free contributions are made by charitable contributors like the Dell family that I mentioned earlier or by the government, okay, so be it. If one of our employers, my employer, my wife's employer plans on contributing, so be it. That's free money. But I'm not planning on contributing any of my own dollars to the Trump account. Unless both of the following are true: our 529 accounts appear fully funded or even overfunded, and then second, our UGMA accounts for our kids are overfunded, kind of above and beyond the kiddie tax threshold. Now, considering the cost of college and the fact that we don't even have enough spare money sloshing around to have opened or funded the UGMA account yet, you probably won't see me adding any dollars to my kids' Trump accounts anytime soon. So Nick, Yogi, and I apologize to the rest of you who asked about Trump accounts, I hope that answers your question. Free money is fine. Having another kind of semi-tax-advantaged place to invest is— it's better to have more options than fewer options. But I would put Trump accounts basically at the bottom of the different ways that you can, uh, that you can save qualified dollars for your children. So thank you for the great question. Here's a quick ad and then we'll get back to the show. Did you know my written blog, The Best Interest, was nominated for 2022 Personal Finance Blog of the Year, and it's been highlighted in The Wall Street Journal, Yahoo Finance, CNBC. I love writing, especially when that writing is to share financial education, and I usually write 1 or 2 articles per week. You can read them all at bestinterest.blog. Again, the web address is bestinterest.blog. Check it out. All right, the next question is from Paul Yu. Paul asks, should the owner of a large traditional IRA who plans to leave it to their heirs upon their death and who has a sizable taxable account too Should that person convert the entire IRA to a Roth IRA and use the taxable account to help pay the subsequent tax bill? By the way, this person is already taking RMDs, required minimum distributions from the IRA. Paul, interesting question. Great question. Now, as always, listeners, let's break down the question a little bit before we dive into the answer. We're talking about 3 different buckets of money here. We have an elderly person. We know that because they're already taking RMDs. This person has a large traditional IRA. They have presumably no or very few Roth dollars. That wasn't really part of the question, but I'm going to presume they basically have no Roth dollars and they also have money inside a taxable brokerage account. The first thing worth pointing out is we don't want tax fears, especially tax fears for our heirs, right? The fact that our heirs might inherit some taxes from us. I don't think we want those tax fears to change the lifestyle decisions we make today. I wouldn't want to tell this 75-year-old, hey, don't pull money from your taxable account right now. I know you want to take that trip to Europe. But don't you realize that this withdrawal is going to slightly negatively affect your taxes for your grandson who's going to owe taxes in 20 years on the inherited IRA he gets from you? Like, I don't think that's a good argument. It's a total failure of prioritization in my mind. But okay, let's assume that's not happening here. So first, I think we should ask ourselves, how do these different monies get taxed to our individual in question while they are still alive? That's the first question. So withdrawals from The traditional IRA, those are taxed as income. RMDs are one example of that, taxed as income. Roth conversions would be another example. Roth conversions are taxed as income. And then next, assuming some money does eventually end up in the Roth account, how is that taxed? Well, it's not, right? You're subject to the income tax on the conversion, but once it's in the Roth account, any and all future taxes there are zero. And last, how is the taxable account taxed to this person while they're still alive? Well, any capital gains that are withdrawn from that account are taxed at capital gains tax rates, which are better, lower than income tax rates. Okay, so now we understand there, that's how those 3 buckets are taxed during life. But now let's ask ourselves, how are those 3 buckets of money taxed when our individual dies, when this retiree dies? So first, I'm going to make an assumption that this individual will be leaving assets to a non-spouse heir. If it's a spouse, that certainly changes things. I'm assuming it's a non-spouse. So let's start with the traditional IRA, because again, if it's the spouse, Well, the spouse just assumes ownership of the IRA assets as is. But if it's a non-spouse who inherits the IRA through what's called an inherited IRA, that inherited IRA is subject to the 10-year rule, meaning the account must be emptied in 10 years. And those withdrawals over those 10 years would be subject to income tax. The Roth IRA is very similar. There's a 10-year rule, except those are Roth dollars, so there's no income tax on those. A taxable account is inherited at what's called a stepped-up cost basis, which effectively wipes out all of the capital gains embedded in that account. And therefore wipes out any of the capital gains taxes along with it. So now that we know that, we need to ask ourselves— this is a bit of a would-you-rather game— would you rather mess around with these accounts right now while the account owner is alive or after death? Well, the Roth dollars are easy. There's no difference. Besides, we're assuming that the Roth account is currently empty. So let's just get that out of the way. The taxable account is pretty clear, too. You would much rather leave behind the taxable account to your heirs than mess around with it during your life, because if you You mess around with it during life, you'll likely be paying some level of capital gains taxes. But if you wait until death, you leave it to your heirs, then poof, those capital gains taxes are gone. That one's pretty clear. That leaves the traditional IRA, which is the gray area. Technically speaking, if you're really digging into the math, you would want to ponder, "What are my current tax rates as a 75-year-old here in retirement? What level of income taxes am I paying on my withdrawals from this account?" versus what are my heirs' tax rates at whatever stage of life they're going to be at when they inherit this money, and then for the 10 years after, what level of income tax would they be paying? Now, every situation is going to be different, but most of the time I would say that a retiree's IRA withdrawals during retirement will be taxed at lower rates than their heirs' withdrawals after the retiree's death. And there are two reasons for this. And again, it's a general rule, Every single specific case is going to be different, but it is a good general rule. And the two reasons for that general rule: the heirs' withdrawals will be happening over a 10-year runway, whereas the retirees' withdrawals might occur over a 20 or 30 or 40-year runway. The 10 years naturally will tend— they have to be higher on average. Those withdrawals have to be higher on average and thus are more likely to be subject to higher income tax rates. And then the second reason: the heirs' withdrawals will likely coincide with their working years, when they already might be earning significant income. So those are two simple reasons why the retiree is likely to pay lower taxes. So if you have a retiree with a $1 million IRA withdrawing $50,000 a year in addition to $50,000 of Social Security income, and you compare that to a 10-year rule heir that their heir might have to abide by withdrawing more than $100,000 a year from the IRA in addition to earning their own income of $70,000 or $150,000 or let alone $300,000 a year, it's not even close., the retiree's tax status will be much better. So now going back to Paul's question, should the owner of this IRA who does plan to leave it to their heirs upon death, should this person convert the entire IRA to Roth and use taxable dollars to pay the subsequent tax bill? Now, if we're only looking at the retiree, not really caring about the heir at all and hoping to minimize the retiree's taxes, then I would argue that the withdrawal order of operations, which by the way was episode 121, if you want to go back and check that out, I would say that the retirement withdrawal order of operations would suggest that they want to pull on their taxable accounts first and their traditional account second. The reason is that withdrawing basis and capital gains from that taxable account is better than withdrawing pure income, pure taxable income from the IRA. But if this person does care about their heir's tax situation and one of their goals is to minimize the overall tax scenario between both of them, the living retiree and the future heir in their taxes, then we go back to what we just said a couple minutes ago. The IRA taxes are likely lesser for the retiree than the heir. The taxable account capital gains are definitely lesser for the heir than the retiree. So if the goal is minimizing total taxes, then the retiree would want to spend down their IRA and not spend the taxable money if they can help it. But then, I mean, I think there are other ways to analyze this situation too. Maybe the best way to frame it, mathematically speaking, is simply by asking, how do we maximize the total long-term after-tax portfolio? It doesn't matter whose it is. I mean, how do we maximize the total long-term after-tax portfolio? You know, in other words, qualified accounts grow tax-free. So even though, yes, we're paying income tax on those dollars eventually, maybe it's not ideal. The tax-free growth along the way usually more than makes up for the fact that you're paying income tax on the tail end. What we don't want to do here is run into a situation where we're choosing the proverbial 100% of a grape over 50% of a watermelon. Depending on the accounts and the tax rates in this specific situation, this question does involve the metaphor of different-sized fruits, so to speak, and the various fractions of those different-sized fruits. Often the taxable account would be the grape and the tax-deferred account might be the watermelon. And prioritizing the taxable account, ensuring we keep 100% of our grape, that we don't realize any capital gains during life, that might be too much grape and not enough watermelon. So Paul's question asked specifically about Roth conversions. We know that Roth conversions add taxable income into our life, and we always want to ask, is adding more taxable income, is that worthwhile? At what tax rate? And again, are we choosing to pay income tax so that our heir doesn't have to pay that tax? And is that really the right prioritization? Enough beating around the bush. Let's say this retiree really, really, really wants to make the Roth conversions so that their heir doesn't have to pay those taxes. In that case, the question would become, how do we best pay those Roth conversion tax bills? Do we use the taxable money to pay it, or do we make additional traditional IRA withdrawals to raise the money to pay the tax bill? Which, yes, adds even more taxable income into our life. I would bet that 95-98% of the time for retirees, this answer would be a no-brainer. You would use the taxable money to pay the Roth conversion tax bill. It does not make sense to make extra withdrawals from the traditional IRA to pay the Roth conversion tax bill. Paul, I hope that helps you out. The next question is from Steve from upstate New York. Fellow upstater Steve, how are you? Steve says, "I do significant charitable giving, let's say $25,000 a year, with my donor-advised fund. The DAF is mostly empty, so I'll add more to it using appreciated shares from my brokerage account." The question is, should I frontload the DAF with many years worth of charitable donations now, or should I only contribute to the donor advised fund, the DAF, shortly before I use those funds to donate to charity? Will the fees from the DAF outweigh the tax benefit? Well, this is good timing. I just yesterday, the day before I'm recording this, I gave a seminar to a group of nonprofits here in Rochester about how their donors can make more tax-efficient donations. So I think I'm prepared to answer this question for you, Steve. Let's break it down. A donor-advised fund, a DAF, it's a charitable giving vehicle administered by some sort of public charity. Fidelity Charitable, for example, is a popular DAF option. There's an upstart company called Daffy that I think a lot of people are using. I'm sure there are many other options out there. A DAF allows donors to make tax-deductible— nice— tax-deductible contributions of cash or assets. Donors immediately receive a tax deduction. They can invest those donations in some sort of fund for tax-free growth, which is nice— tax-free growth. And then later they can recommend grants to qualified nonprofits. Now, those last few points are really the important ones. Donors immediately receive a tax deduction and can invest the funds for tax-free growth to then later recommend grants for nonprofits. So to do a little compare and contrast, let's imagine Steve is making these donations without a DAF in place. Let's start with that one. He's just donating appreciated shares from his brokerage account directly to a charity. The charity receives the full value of the shares, which they appreciate. Steve does not realize any capital gains for his appreciated shares, which is good for his tax bill. If half of the investment was capital gain, that would mean that for a $25,000 donation like he's talking about, it would save him something like $1,900 on his tax bill. That's not nothing. That's good to know. Steve can also claim the donation as an itemized deduction on his income taxes. However, because he says he's donating $25,000 a year and depending on how he files his taxes as either single or joint, his standard deduction, if he's filing joint, would be north of $30,000 a year. So the $25,000 donation, which is also a $25,000 tax deduction, won't really count if he claims a standard deduction of $30,000 a year. It basically means like he doesn't get any tax benefit for this really large donation. At least he doesn't get an income tax benefit. I should say he gets a capital gains. He wipes away a capital gains tax like we just said. He just doesn't get an income tax benefit. And then with the rest of his shares, you know, Steve retains his shares inside of his taxable brokerage account, which is great, phenomenal for flexibility, but it also means that there will be future years' dividends and income taxes that he will owe taxes on then. Well, how or why does the donor-advised fund help here? As Steve alluded to in his question, Steve could quote-unquote front-load multiple years of donations all at once. So to keep the math easy, Let's look at 4 years worth of donations because 4 times $25,000 gives us a nice even $100,000. Steve could take $100,000 of appreciated stock, donate it into the DAF all at once, and right up front, that would wipe out about $7,500 worth of future capital gains taxes. Pretty nice. Okay, there's some tax savings. Over the next 4 years, he would make individual donations to his charity of choice. Now, the charity, they're not going to notice the difference. They're still happy with $25,000 a year. We already said Steve doesn't realize any capital gains on his appreciated shares. Check that one off. That's the same as before, but it's still good to know. But now Steve can claim the entire $100,000 donation as one itemized deduction in one tax year. So that $100,000 deduction will dwarf any standard deductions he could have claimed, meaning that Steve will truly see a really large tax savings from this charitable contribution. Now, the DAF, does charge an annual fee, which is a negative change from the old plan that we started with of donating directly from the taxable account. And then once the money goes in the donor advised fund, right, this is irrevocable. You cannot revoke it. You cannot change it. Once money goes into the DAF, it is not coming back out. Steve has lost his flexibility and his liquidity, but as long as he's sure he wants to donate this money, that should be fine because we also know the assets inside the DAF, they grow tax-free. But now instead, let's assume that someone uses the DAF, the donor advised fund. So they pack, they bunch $100,000 worth of donations into year 1. So boom, in year 1 they would claim $100,000 of itemized deductions. Then in years 2 through 4, they would just claim standard deduction, right? Even though they're not donating anything more. So they don't really have any itemized deductions in year 2 through 4. They just claim the standard deductions. So over those 4 years, whereas our first person claimed $25,000 a year for a total of $100,000, Our second person claims $100,000 in year 1 and then $16,000, $16,000, $16,000 in the next 3 years. So they get to a total deduction of $148,000. So by using the DAF, this donor indeed gets $48,000 more in deductions over this 4-year period. Now we have to assume a particular marginal federal tax rate. Who knows? 24%, 32%. Maybe it's one of those two. You take that percentage, you multiply it by the difference in deductions, which was $48,000.— and you get something between $10,000 and $15,000 in federal tax savings over these 4 years. You also get the small tax savings along the way, which is fine because the DAF assets grow tax-free. Now yes, the DAF does have fees, typically somewhere in the 0.5% to 1% per year range depending on the size of the DAF. For today's example donation, Fidelity's DAF would charge about 0.6% per year, resulting in something like $2,000 in total fees for Steve over the 4-year period. Now, the federal tax savings between $10,000 and $15,000 dwarfs the fees of $2,000. Now, there was a nice little magic combo that made it so advantageous for Steve that bunching made so much sense for him. One of the keys here is that Steve's individual annual donations are mostly, if not entirely, overshadowed by the standard deduction, but that if he bunched a few years of them together, now that would grow far beyond the standard deduction. So that made it very worthwhile for Steve to think, Maybe I just do 4 years of donations all at once. But as a counterexample, I'll use myself. We donated about $3,000 in 2025 to 4 different causes, and we file jointly, meaning our standard deduction is $32,000. Now, if we wanted to bunch many years of donations to truly get the advantage of itemizing our deductions, we'd want to do something like, I don't know, $60,000 in a DAF contribution. But I've got 2 problems with that because first, the question is, am I going to frontload 20 years worth of charitable commitments all at once? A DAF is irrevocable. You can't change it. And then second, the question is, can our balance sheet, right, kind of the cash we have on hand in the bank, can that support an irrevocable $60,000 contribution to the DAF? Now, for me, the answer there is no and no. So I'm not going to be using a DAF anytime soon. But based on the details that Steve shared with me, shared with us, he's making his donations using appreciated stock. He's totally fine with moving, say, $100,000 of that stock all at once into a DAF and giving it over 4 years. He is in a sweet spot where using the DAF, it's just fantastic. So thank you, Steve, for the great question. Here's a quick ad and then we'll get back to the show. Serious question: why do podcasters constantly ask for ratings and reviews? Yes, they do help highlight our shows to new listeners. They help strangers find us on Apple Podcasts and Spotify. It's totally true and a good reason to ask for ratings and reviews. But I have something more important, at least more important to me. I want to know if you like this stuff. I want to know if you like my podcast episodes, my monologues, my guests, the information I share with you and the stories I tell. I want to improve and make your listening more enjoyable in the process. So yeah, I would love to read your reviews. And sure, if you throw a rating in there too, that's great. If you like what I'm doing, please share it with me. It's such a great feeling to read your feedback. I'd love to read your review or see a rating on Apple Podcasts or Spotify. Thank you. And then last, a couple listeners, Greg and Lucy and then Steve, another Steve, 3 different listeners reached out to me independently and asked me some version, different versions, but I'll paraphrase some version of the following question. Jesse, did you listen to BiggerPockets Money Episode 717? We thought it was something you'd be interested in. What did you think? So listeners, I'm going to link to BiggerPockets Money Episode 717 in the show notes. I'll encourage you to listen to it too. The episode is a conversation about different fee models in the financial planning industry, something you've probably heard me talk about before. Hosts Mindy and Scott had on a guest. The guest was a CFP who works for the website NerdWallet's wealth management division. I didn't know NerdWallet had a wealth management division, but I get it. I understand why they do. So they had on a CFP, a certified financial planner who works for NerdWallet. Overall, I thought the conversation was very reasonable and fine, and I'm enough of a maybe a student of the industry, so to speak, to say that, you know, yeah, we know different fee models exist. Different conflicts of interest exist. We know that price is what you pay and value is what you get. And sometimes you just don't get enough value to justify the fee. I'm sure I listened to their conversation with, with some implicit bias. I know I did. But at the same time, I thought their conversation was totally reasonable and fair. But yes, you know, since some of you listeners were asking me, there were some things that I just didn't see totally eye to eye with them on. And there were 3 things in particular. So I'll just talk about them really quick here. So first, I found that Mindy and Scott, they talked about the certified financial planner. So again, the CFP credential in a way that I've really never heard before. And they spoke kind of on behalf of the FIRE community in a general way that I don't know, I consider myself part of the FIRE community, the financial independence community, and the way they spoke about the way that the FIRE community looks at CFPs, it kind of took me aback. So at one point in response to a comment about commission-based product sales like insurance products, which listen, I'm not a huge fan of commission-based product sales, but Mindy said, "That has historically been my anti-CFP stance, my anti-financial planner stance in general. I don't know why they're going to be recommending these things to me. Is this going to be a really great product for me or just another really great product for their pocketbook?" And then Scott backed her up and he said, "The CFP industry actually has now, at least in the FIRE community, that instinctive response, 'Oh, CFP.'" They're going to sell me life insurance. I think that's actually starting to get embedded in the instinct, the instinctual reaction to these type of services. So those were a couple of quotes from them that again did not put the CFP®, Certified Financial Planner® credentials in great, in a great light. But then I got confused about a minute later after those quotes. Scott said, I think that a CFP® is almost a required designation for someone that I consider hiring for financial planning services. So that kind of confused me. I think they both said that they look at CFP® with a lot of suspicion, But then they— Scott also said that a CFP is a requirement for hiring somebody in the first place. And that, that was more in line with what I'd always understood. Well, and then Scott ended by saying, so I both respect the CFP and my alarm bells go off when somebody introduces themselves and they say, oh, I'm Monica, CFP. So like I said, listeners, I don't think I've heard the CFP credentials characterized that way before. The way I've always thought about them, I go back to this Wall Street Journal article by the great writer Jason Zweig. It's the 19 questions you ought to ask a financial advisor before you work with them. And one of those questions is, tell me about the credentials of you or your team. Like who, who's going to be doing the work for me? And what Jason Zweig says is, listen, there are a million different credentials out there. It's kind of like alphabet soup, but the ones that matter the most are CFP, CFA, and CPA. CFP, Certified Financial Planner, CFA, Chartered Financial Analyst. So that's kind of the hardest, most rigorous exam license in investment research. Research, and then CPA would be a certified public accountant. So CFP, CPA, and CFA, those are the ones that I've always heard of as being the gold standard. So that was the first thing that I kind of found myself disagreeing a little bit with Mindy and Scott on. The second thing, Mindy and Scott both spoke about the business of financial planning because of course they were talking about fees, right? And so when you're talking about fees, you're talking about running a business. And they talked about the business of financial planning. In my opinion, I'm not sure they really put on their business owner hat for that conversation. You know, at different points in the conversation, they alluded to what they called full-service financial planning costing at one point, I think they quoted $900 a year. At another point, they quoted $2,000 a year. At another point, Scott quotes $7,500 a year. But then he suggests that that number is just way too high. I kind of want to pause and think about someone who is running a business. You know, if you want to provide a service to your customers, I think one of the first things you need to do is just make sure that your business survives to fulfill that mission that you want to do. So if you want to provide financial planning, you need to ensure that your firm survives. And if you're serious about running a financial planning business, you'd probably look at things like the industry research that Michael Kitces and his team puts out every single year. And his research is very clear and consistent. And one of the outcomes is that the bare minimum for a client relationship to be even slightly profitable is typically $3,000 to $4,000 a year. If you're trying to run a business, maybe you have a couple employees, you try to pay them fair wages. If your employees happen to be experts, you pay them for their expertise and then you have enough time to actually work with your clients, to dive into details for them. You need to charge them something where you can actually operate that business and be profitable, and you're probably going to charge somewhere between $5,000 and $10,000 a year. So the idea that you could just fill up your business with a bunch of clients paying you $1,500 a year in fees, that would probably be a really bad financial planning business. It's kind of like saying, why doesn't the grocery store sell me beef for $1 a pound? I demand that someone open a grocery store and sell me beef for $1 a pound. So I think if you did that, you would have two options. You would either have the most disgusting beef on planet Earth, or you would have a store that would go out of business in the next 3 months. Either way, you're going to have something that you as a customer are not going to be happy with. Now I get it. We don't want our grocery stores gouging us. We don't want our financial advisors gouging us either. I am on board with that. But I feel like this particular podcast conversation in question was too heavily influenced without necessarily understanding the economics of this business and this industry that they were talking about. And on that note, the conversation didn't really cover the service model that much. And maybe that's at the end of the day what was missing. So, and I get it, there's only so much time in the episode. And it's a little bit of a nuanced conversation. And when I say service model, what I mean is what are you receiving for the fees that you are paying? I think restaurants are a perfect metaphor here. Depending on where you live, you might actually have a Michelin star restaurant in your city. We don't here in Rochester, but we do have a few restaurants that everyone, I think for the most part, agrees are excellent tier 1 restaurants. And a couple of our tier 1 restaurants, there's one in particular I'm thinking of that is very well known for its hamburger. And the last time I was there, the hamburger there, I think was $35. McDonald's, though, less than a mile away from this tier 1 restaurant, they sell me a Big Mac for $7. So there's an obvious price difference there between the $35 really nice burger, the $7 Big Mac. And I would say that the service model, aka the quality of the burger, happens to be really obvious too. Now that said, I also know that at the tier 1 restaurant, I'm sure that baked into that $35 hamburger price, I'm paying for ambiance, I'm paying for aesthetics, I'm paying for things that don't actually change the flavor or the nutrition of the burger. I'm paying for things that maybe, maybe I appreciate as a patron, or maybe I just don't care about at all as a patron. And yeah, if we wanted to, we could strip out all that fancy stuff about the restaurant and serve the same exact burger with the expert chefs in the back for, I don't know, $20 instead of $35. That's totally fair. I know I'm probably paying for some fluff. And from my seat inside the financial planning industry, There are some McDonald's out there. There are some Applebee's out there. There are also some Michelin-star restaurants out there. And I think that the bad stories and the bad feelings, including what Mindy and Scott talked about in their podcast episode, they tend to come from when a McDonald's restaurant is charging Michelin prices and many of the customers, clients, they simply don't understand the quote-unquote cuisine well enough to recognize that fact. I think that is one of the roots of this entire issue. It's one of the reasons why Scott and Mindy had that bad taste in their mouth about financial planning. Going back to food, right? We have all eaten enough food, at least most of us have eaten enough food to understand, at least on some level, the difference between a McDonald's Big Mac and a Michelin-star gourmet burger. Right? You don't have to be a food critic or an expert to tell the difference because you've eaten enough meals in your life. But far fewer people have interacted with financial planning enough to understand which restaurant they're getting their financial advice from. Most people can't tell the difference between the McDonald's and the Applebee's and the Michelin-star restaurants. I do see that. I really do. But back to the topic on hand, if you're trying to run a genuinely helpful and beneficial and value-packed financial planning practice, but also you're selling your services for $1,500 a year, then all of a sudden you've become a— you're trying to be a Michelin star restaurant, but you're trying to sell your burgers for $7 a pop. And I'm sorry, that's likely not going to be profitable. And at the end of the day, you're not going to fulfill your mission. The business will likely falter and fail. So the first thing you have to do is run a survivable, successful business. And that explains sometimes why the fees are what they are. My third thought or critique of the episode, maybe this is a little unfair of me, I don't know. But I will say, you know, in this episode they put out that was— had plenty of honest and fair critiques about incentive structures and how people are getting paid. Sometimes I think they even went as far as to call into question the moral fiber of anyone who gets paid for advice because of the conflicts of interest that they pointed out. So in the middle of that conversation, whoever runs BiggerPockets Money, and it's probably production team or something like that, decided to run advertisements for their chosen budgeting app and also for their chosen trading platform, including the words, you've got your core holdings, you've got some recurring crypto buys, maybe even a few strategic option plays on the side. Stocks, bonds, options, crypto. It's all there. Okay. So when I heard that, You lost me a little bit. It's hard to criticize conflicts of interest during the show, but then encourage your audience to sign up for recurring crypto buys and strategic option plays during the ad break. That's all I'm saying is, is I think we do all get paid somehow here on this show. I try to be clear with you. I'm not here to sell you mattresses. I'm not here to sell you like nutritional powders or whatever it is. I also— I don't sell budgeting apps. That would at least be more in line in BiggerPockets defense. They're selling a brokerage firm or custodian. They're selling a trading platform. They're selling a budgeting app. At least it has to do with personal finance. And I've been tempted to do stuff like that here too, but I don't. I don't really want to sell you guys those things. At the end of the day, what I think about is I work as a financial planner professionally and I'm interested in doing more of that. I really like to do that. And my hope is if I provide you with really good education and I answer the problems and I make you realize that, huh, some of this stuff is complex, actually. And some of it gets more complex over time. And it's nice to have someone who can provide me answers that some of you will, just like many of you have reached out to me and say, hey, Jesse, I might want to come work with you. Can we talk more? That's the thing I'm selling here. I'm not going to shy away from it. That's what I'm selling here. So anyway, I thought to myself that we all sell something for the most part. Maybe there's some content creators out there who literally are selling nothing. I mean, more power to them. That is really, really awesome. But here on BiggerPockets Money, they were selling a budgeting app and a trading platform. And I get it. Everybody's got conflicts of interest in some way, shape, or form. You just kind of have to be aware of them. And if you want to call them out and let your listeners know about it, let your audience know. So I'll end with this. I just wrote an article called The Long-Term Investor's Order of Operations. I can link it in the show notes. And number 5 on my list of 10 things that I think people, long-term investors, 10 things that they should do, and I think they should do in order. Number 5 is to pay attention to cost control. I wrote, investing isn't free. Costs are vital to understand. Every small cost counts, and those costs compound over many decades. You should understand your expense ratios, advisor fees, commissions, and trading costs, and other places where you're paying to invest. But it's still true that price is what you pay, value is what you get. Cost is just one half of an important fraction. Value is far harder to measure, but equally important to understand. And listeners, I stand by that. If you decide to seek out professional guidance from an advisor, from an accountant, from an attorney, from a personal trainer, a plumber, a roofer, a mechanic, just remember that price is what you pay and value is what you get. And thank you, as always, for listening to Personal Finance for Long-Term Investors.
Jesse Kramer · Personal Finance for Long-Term Investors · Why Trump Accounts Fall Short (AMA, E135) · 2026-04-01