LIVE SHOW REPLAY: What's Changing in Your 401(k) in 2025—and What Does It Mean for You?

Podcast Announcer00:00:00

In a world where crushing debt keeps you trapped, where living paycheck to paycheck has become your new normal, and where the dream of retirement seems impossibly out of reach, there's hope. Join financial evangelist Ralph Estep Jr. A man who's walked through the fire of financial failure and emerged stronger on the other side. Welcome to Ask Ralph, the show where real world experience meets biblical truth to break the bondage of financial despair. Get ready to take control of your money, break free from the financial stress and align your resources with God's purpose for your life. This is Ask Ralph with Ralph Estep Jr.

Ralph00:00:38

Welcome to the show today. Are you in your 60s and are you wondering how the Secure Act 2.0 is going to affect your retirement savings? Or maybe you're curious about the form 8606 and whether you need to file it or perhaps, and this is the best part of the show. I think we're going to have a great time today if you're considering a side hustle but don't know where to begin. So we're going to explore these crucial topics to help you master your finances from a Christian perspective. So stick around and learn how to honor God with your retirement savings, understand the importance of form 8606 and discover the best side hustles for beginners. So today's show is going to be empowering and it's going to take you, help you take control of your financial future. So let's get started. Let me bring on Craig here. So Craig, thanks again for joining us this week. I'm going to show Craig's info here on the screen. Craig's got a podcast called AI Goes to College and Craig's been happy enough to join me every week, he's been a great addition to the show. So we are going to have a great time today. I'm going to jump right into the first question. I promise today's show is going to make a real impact on your financial journey. So let's get started with question number one. And this question comes to us. Now, this person didn't leave a name. We're going to answer the question either way. It says, "Hi Ralph, I've been hearing about the changes to 401k plans in 2025 under the Secure Act 2.0. I'm in my early 60s and planning to retire in a few years. Could you explain how the new catch up contribution rules work for somebody my age? Also, as a Christian, how should I approach retirement savings in a way that honors God?" Well Craig, I think that is a great way to start the day. I think that's a great question. And I just want to thank the listener for that question, because here's the truth. Retirement can be an exciting and it can be an overwhelming time. And when I talk to clients, a lot of times they're just concerned about what's going to happen. And this is a new change, a new regulation. So for the listener, if you're listening right now and you're feeling a little bit uncertain about that, you're not the only one. A lot of people, when it comes to retirement, they really have to be concerned about this and that's why I stress faith on the show. So today, i'm going to break down what those catch-up and it's not the ketchup you put on french fries, by the way, but i'm going to talk about what those catch up contributions are because it really is a way to make sure you're maximizing your retirement. So let's get started. Now I want to remind everybody before we get rolling, if you have a question, you can put it right into the chat. If you don't feel comfortable putting the chat, you can also go to justaskralph.com and we'll put your question on the screen. Now before we jump into that first question, the answer, I just want to share our today's Bible verse and it comes to us from the book of Proverbs chapter 21, verse 20. And it says this, and this is a perfect one for today. "Precious treasure and oil are in a wise man's dwelling, but a foolish man devours it." I thought that was really a good Bible verse today because it reminds us the importance of saving wisely, which we're going to talk about today and being good stewards of the resources God has entrusted to us. So let's get right to it. Now, here's where we're going to start. This is what I'm talking about here is what's called catch up contributions. And basically these were designed with the intention of once you hit a certain age, you're able to contribute more to your retirement plan. So here's the big takeaway for 2025. And it's not too late to make a change on this. If you're in your early 60s, basically ages 60 to 63. In 2025, now I'm gonna talk about 2026 in a second 'cause it changes a little bit. But in 2025 it gives you an additional way to save more money. So, like I said, if you're in that age range, age range of 60 to 63, your catch up contribution goes up to an additional $11,250. Now, currently, if you're over 50, between 59 or 50 and 59, you can put an additional $7,500. So what this basically does, it allows you to supersize or catch up on your retirement contributions, which basically, as you get closer to retirement, and that's what this listener was talking about, he's in his 60s or she's in her 60s, I'm not sure which, but they want to make sure they're putting more money into retirement. So that's one of the great things that you can do for 2025. But here's where I'm going to sound the alarm bells. Something's changing in 2026. Now I'm making an assumption that we don't have some changes in the tax code, which to be honest with you, I think we might see some changes, but in 2026, this is going to change a little bit. And what they're doing here is there's basically going to be two tiers of these catch up contributions. If you make more than $145,000 a year, you're going to have to make those catch up contributions in a Roth. Now you might be saying, okay, I don't get the difference, Ralph. Here's the big difference. A traditional 401k, what we call pre tax retirement is a deduction on your current year income. So it reduces your taxable income. Well what they've basically done is they said, well if you're over that $145,000, now you'll still be able to make the traditional, the baseline that whatever that number is, whether it be $23,000 or whatever the inflation adjusted amount is. But once you hit that $145,000, if your income's over that, you're not going to be able to make that in traditional IRA contributions or in 401k contributions. You're going to have to do those in Roth. Now you might be saying, okay, why does that matter? Well, here's the problem. Roth contributions are taxed up front. You're doing that with after tax money. Now, the benefit to that is in the end, you're going to not have to pay taxes on that money when you take the money out. But I want to really make sure that everyone understands that's that magic 145 number. Now, honestly, and we can talk about this for a second if you want Craig, but this is one of the things I think you might see change in the tax code because this is one of the things that was carved out back in this Secure Act 2.0. And I want to say it was in 2022 or 2020, I think it was 2022, but this is a great way to catch up on your retirement savings. But I don't like how they carved this out at 145, although it doesn't affect as many people, but people just need to be aware of that.

Craig00:06:50

Ralph, are there downsides to doing the catch up? Is it for people, if people are already on track for their retirement, should they be using their money that way or should they be using it some other way?

Ralph00:07:04

Well, I guess it really comes down to your personal belief structure, to be honest. You know, is there ever, can you ever put enough into retirement? That said, I always tell my clients to max out on your pre tax retirement. I just feel like that's the right thing to do. Now in 2025, my advice would still be the same. Max out on that pre tax retirement. Now in 2026, if I've got a client that's had that 145, then I might make a different decision. I'm still going to have them max out on that pre tax piece, but on that Roth piece, I don't know. It's after tax money. The benefit, I've never, I gotta be honest with you. I've never been a huge fan of Roth IRAs. And it's funny because Roth actually comes from a Delaware Senator. Bill Roth was actually the one who actually created those. A lot of people don't know that. He was a great guy. This is a guy, I'll tell you a little funny story, right? So Bill Roth was this guy. He would always be around Delaware politics and he always brought this huge St. Bernard everywhere he went. I mean, this dog was like, it looked like a bear with him, but he was actually the one that set up the Roth IRAs. But Craig, to answer your question, it depends. You know, if I've got a client that's got debt, obviously I'm telling them before they go to, into the extreme of that Roth IRA, pay off your debts. If they've got other things going on that they need to plan for, then I would say my answer to you is it depends.

Craig00:08:25

Yeah. I brought that up because I think sometimes we might get over focused on retirement and make some bad decisions like not paying off a high interest debt, not having an emergency fund. I mean, because that money is really not as liquid, right? If it goes into an IRA, don't you have problems if you try to pull it out?

Ralph00:08:49

Well absolutely, and especially if it's a pre-tax IRA, because you're gonna pay tax on that. Now the Roth's not so much of an issue 'cause as long as that money's been in there for five years, there's no tax ramification. But yeah, absolutely. I think this is where you need to sit down with, and I'm gonna talk about that in a second actually, someone who understands your entire financial picture. It's not as simple as, well, let me just throw a dart at this particular dartboard because we've got a whole bunch of games going on at once. We've got to be looking at, is your house suitable for retirement? Do you need to be making some modifications or accessibility changes? Do you have things set up to be debt free? All those types of questions. And that's really what it comes down to, Craig. And the other part of the listener's question, which I love because we do this Christian show is how can we honor God in this decision? So a couple of things I want to mention in that regard is you can use these higher contribution limits and this dovetails in exactly what you were saying, Craig, to remember that your resources, God has entrusted them to you and it need to serve his purposes and even in retirement. See, and this is a bold statement and a lot of people, you know, sometimes I'll probably get hate mail after this, but I always say this. It's not yours to begin with. You have an, you have an opportunity to steward this money. It's not yours. So that's why I say one of the things I'm going to mention here is, you know, pray for guidance on this. Like Craig said, you know, think about that big picture. How does it, how does it fit in with all of your plans in retirement? You know, the book of Proverbs chapter 3, verse 5 and 6 encourages us to trust in the Lord and lean on, not on our own understanding. And I think Craig, this is a great time to do just that. Another thing I'm going to bring up in the listener kind of mentioned this is, I think that people get stuck on retirement being like this end, like, okay, I'm just not going to work. I'm not going to do anything. And I think we have to try to change our perspective on that. And I think we need to think about retirement as not just being a time to stop working. I look at it as a, and I, and listen, I'm 52. So I'm a little bit, I'm not quite at the retirement age yet, but I think we need to look at it as an opportunity to retire to something else. And what I mean by that is maybe do missions work. I know Craig, you're an educator. Maybe you're going to do more education. Maybe you're going to do speaking. It's a great time to volunteer. It's a great time to help with your church. And the last two things I'm going to mention and Craig, I'll get your comments on this is this is a great time to find a trusted professional to help you. Now I'm going to lean towards pushing you towards a Christian person because I think there's more to it than just the secular. Hey, I can go make you a million dollars in the market. I think that's a great thing to do, but I think you also have to measure that and put your faith out on the line, which is another thing a lot of people don't understand. And I, I've been, I do the accounting for my church and I do the accounting for a couple of other churches. And one of the things I see, and this is, this just bothers me a little bit, Craig is that sometimes I see people who go to into retirement and their generosity just dries up. They don't do any more giving back. And I get it. You know, there's this mentality they're worried about. Well, am I going to have enough money to pay my bills? Am I going to have this? And so that's all part of this planning stage as well. I think this is a time as, and I'm going to direct this right to the listener that sent a message in your 60s, start thinking about what that looks like. What are you going to do in retirement? Are you going to do missions work? Are you going to do travel? Are you going to support, you know, your church? What causes are you going to get into? Because here's the deal. I look at it like this. These additional monies that you can put in it, it's really a gift. It's a way for God to give you, to get more secure in your retirement and to serve Him because that's what we're all supposed to do. And that's why you listen to this show. It's not just about, Hey, I can go make you, you know, I say this on the time on the show. I said, I can make you a very wealthy scoundrel. I mean, I can do that. Like I have the skillset to do that, but at the end of the day, you need to know what is your heart saying, and what biblical principles are you focusing on? Now Craig, I know I dropped a lot there on you, so I don't know if you had any feedback on what we just talked about.

Craig00:12:41

Yeah, as somebody who's rapidly approaching retirement, I've given a lot of thought to this. And to me, retirement equals freedom. And so, for many of us, it's the first time in our lives where we can separate out income from labor, you know for most of us we trade our labor for a certain amount of income and certain amount of you know, standard of living, that sort of thing, and a well planned retirement gives you freedom to spend your time not worrying about the money you're going to make. You know, you're, you've made your money, it's time to enjoy it, however enjoy it might be defined for you. And one of the big reasons that I see for paying a lot of attention to retirement savings is that it gives you some freedom from worry. Being in your 70s and having to worry about money,that's a bad idea and you don't want to do it. I don't know if I like that widescreen. You can see just how messy my home office is.

Ralph00:13:43

Sorry about that. I wanted to make you the focus there for a second, Craig, but no, you're bringing up a very good point and that is, I think you need to be prepared for retirement. You're right. It brings along that freedom, but a lot of people go into it. Listen, I was just counseling a couple of the other day. They're in their 70s. And they just refinanced a 30 year fixed rate mortgage. And I'm not judging them. I get it. Like I understand what they're doing, but you know, you got to start thinking about the longterm and what that's going to look like. So Craig, I think that's a hundred percent right on point.

Craig00:14:16

I have to wonder about that lender.

Ralph00:14:20

Well, I mean, the lender's going to make, bottom line is this, Craig, the house is appraised, the house appraises, the lender's got very little downside because guess what? If the people pass away, the money's going to come out before the kids get any of the money anyway. So it's kind of a no brainer for the lender, but that's a very good point though.

Craig00:14:35

Well, if we could take a little tangent there, but on one hand, if they refinance and drop their monthly mortgage payment way down, I mean, not in this interest rate, it may not be the best idea, but you know, if you're struggling to make ends meet and you push off your mortgage for 30 years, and I mean, maybe that's not such a bad idea.

Ralph00:14:57

Listen Craig, I say this to people all the time. It depends on your individual circumstance. If I've got a client that comes in and they're not terribly, I said this something bold the other day to a client, she came in and she's pretty well off financially. She's got a lot of money in her IRA. And she goes, Ralph, she says, I feel conflicted. Like I really want to go do things. I want to travel, but I'm so worried that I need to leave something for my kids. And I said, well, here's a truth bomb. It's not your responsibility to leave something for your kids. You know, and that, that may be, that may seem a little harsh, but I truly believe that it's not the responsibility of a parent. Now I'm not saying, look, the Bible talks about leaving inheritance for your children's children. I get that, but I don't think that's what the intention was. But Craig, no, you're absolutely right. If you're faced with a situation and that's why I say to clients all the time. Let's look at all the cards on the table, because if you're in a position where you're struggling, Hey, if we can free up monthly income, if we can pay off some bad debts with some good debts, Yeah, and I do, but I'm not Dave Ramsey. I believe there are good debts. I don't think all debt is bad. I think it depends on the debt. Another thing, you know, like you, like you said, I mean, interest rates right now aren't fantastic, but listen, if you're paying 18, 22%, 29% on credit cards, I think it's okay to say, well, maybe I do refinance this house. You know, I had a client it was probably two or three months ago. And that's what I said to her. I said, best thing you can do is refinance. She goes, well, but I don't want it. I said, listen, it's going to help you enjoy your life.

Craig00:16:24

Well, especially if you're not putting yourself in a position where you're in danger of losing the house. So, you know, that, that's what you don't want to do is put yourself at that risk. But yeah, I like Jeff's comment. You know, you bring up a really interesting point about leaving things for your kids. I don't have kids, so I don't have to worry about this. But I've always thought that unless your wealth is inherited wealth, then you earned it. Do what you want with it. You know, that's your decision. It's your money.

Ralph00:16:58

Absolutely right. And but at the same time, my Christian heart tells me, are there things you can do to help your faith or the things you can do for the kingdom? But you're right. If you don't have kids, you know, I like what Jeff said, and I agree with Jeff. My mom used to say that all the time, you know, and let's see, it looks like Mark made a comment. I'll let's see what Mark says. Our plan is to spend, what does Mark say, spend and leave them a bounced check. I like that one, Mark. That's a good one.

Craig00:17:23

That's my running joke is my goal is to die penniless. You know, I want to spend my last nickel right before I go on the ground.

Ralph00:17:30

I say that to my youngest all the time. And he gets so aggravated because my oldest, my oldest is like so frugal. Like I think I've told stories about that. I sent my daughter in law, a heating blanket because he's too cheap to turn the heat on in the house. Now he does live in Houston. So it's not like it gets real cold down there.

Craig00:17:48

I like him already.

Ralph00:17:49

I'm like, yeah, he's a, well, how about we move on to the second question, Craig, and the second question is, and I see Kevin, I think it's Kevin is in our chat today. Actually, Kevin is the one that sent me a Kevin, Kevin sent this over. So let's get right to Kevin's question. It says this. "What exactly is form 8606 and who needs to file it and when should I care? Do I need to file every year I contribute to a Roth or are there other special situations I need to concern myself with? We're in our 70s and haven't contributed or rolled into our Roth in five years. Doubt it's an issue for us, but what do younger people need to worry about? What's the impact if not filed when it should have been?" Well, you know what? I really do appreciate that question because it's a question that I don't get often. And a lot of people don't even know what form of 8606 is. And I'm not going to lose everybody in the weeds, but Kevin, you asked a question. So the 8606 form is a form that you file with your tax return that, that basically tracks non deductible contributions to pre tax IRAs. So basically there are situations where you may continue to contribute to an IRA, a traditional IRA, but you're not getting the tax benefit from it. So what that basically means is that you've got to keep track of what money you've put into that. Because unlike a traditional IRA, when you go to take a traditional IRA, all of that money is taxable because it's all pre tax money. But if you have an IRA that's mixed pre tax and after tax, you've got to set this base so the IRS knows what's taxable and what's not taxable. It's the same thing if you do a Roth IRA conversion or certain IRA distributions, because basically what it's doing here, this form is basically making sure that you're not taxed twice on the same money. Because it's already been taxed. If you're using it, now, I'm not a big fan of this. Like I have some clients that do this. I'm not a huge fan of it. I, and one of the things I do tell them is put that with a broker or put that in an account that's separated. You know, have your traditional IRAs and then have your non deductible IRAs. Yes, they're both quote traditional IRAs, but I think to segregate those out would be a good idea. So you might be asking. Okay, so, and Kevin, I think you're answering this question too, so you know what situations trigger filing this 8606 form, and like I said, it's when you make a non-deductible contribution to a traditional IRA or when you do a traditional IRA to a Roth IRA. A lot of wealthy people do what's called a backdoor Roth conversion. I'm not even going to talk about that today because that will get so far down in the weeds that people will drop like flies in the live show. They'll be like, I'm done. I can't listen to this anymore. But the whole point is if you want to segregate those monies out, in other words, if you've got a mix of here are things that are deductible, here are things that are not deductible. You want to make sure you file that 8606 form. Now, here's a simple truth. And Kevin, this is what you asked. Do you need to file this form 8606 every year when you contribute or when you have Roth IRAs? And the answer, the simple answer is no, you don't need to file that form every year for regular Roth IRA contributions. Now, the thing you need to understand, a lot of people don't understand this is if you're putting a Roth IRA, if you're making a Roth IRA contribution, there are some income limits that you need to stick by. But again, they're made with after tax money. And as long as it's being put into a Roth account, I really don't see this as being a big issue. Now, again, if you have special circumstances, like if you did a Roth IRA, or you're taking a distribution, so sometimes I see this Craig, where I'll have a client that has one of those mixed accounts where there was both pre tax and after tax. Well, when you file your tax return, the 1099 that you get from the broker isn't going to necessarily break out the taxable portion versus a non taxable portion. So that's where you've got to include that tax form in your tax filing so that you're not paying twice on the same money. A lot of people get that confused because they'll put it all in the same account. I'm like, don't do that. That's a bad plan because why are you going to pay tax on the same money twice? One of the things that Kevin said is should I care? Well, the truth is Kevin, people like you in their 70s, you really shouldn't care. If you haven't contributed or converted and like you said in over five years and you aren't taking any distributions from any of those IRAs with what we call basis, in other words an IRA with the basis and I'm gonna lose people on this one too, an IRA basis basically means you have some pre or some after tax money in that. So the only thing you pay tax on is whatever the earnings are, not the original principle that went in there. So in your case, Kevin, I really don't see where you need to file that 8606 form. Now, if you're taking distributions that include those non deductible pieces, then you're going to need to put that in your tax return because you're going to have to show the IRS what is taxable and what is not taxable. Now Kevin, the next thing you asked about was for younger individuals. So for younger individuals and active savers, if they're making non deductible contributions, which again, this is common for high earners, they want to still be putting into that traditional IRA. Now I would be honest with you. I'm not a financial investment professional. Like that's not what I do. I do accounting, I do tax, I do tax planning and advising. I guess there are some people out there that promote this. I just don't really understand. I think there are better vehicles to do this with, but if you are doing that, then that's when you would need to do that. Now Kevin, I just want to say one more thing, and that is what happens if you don't file that form? Well, if you don't file it, then the IRS isn't going to know that part of this is non taxable and you're going to effectively pay some extra tax. And unfortunately, I have seen tax returns. A client will come in, maybe a new client. And I'll say, Hey, can I get a copy of your return from last year? And I look at this and I'm like, wait a second. You just said to me that you've got an IRA that is partially taxable and partially non taxable. But when you did your tax return last year, you didn't take that into consideration. We had to file an amended return and get their money back. So to really to answer your question, Kevin, in your particular situation, I don't see any issue with that. Again, and it's going to, it's going to sound kind of funny, but to be honest with you, this particular area in the IRS code is kind of on the honor system. Because if you don't file this form every year, I've never seen a situation, I don't, I don't deal with a lot of these, but I've never seen a situation where the IRS said, well, you need to go back and file all those 8606 forms. When I looked up the IRS code, you can go back and do that. So if there is an issue, you could go back and file those 8606. You might be saying, Craig, what in the world are you talking about, Ralph? Well, this 8606, the reason you might file it year after year is it can keep track of that basis of that non deductible IRA as it rolls forward. It's kind of like a when I was a kid, we had checkbook or a passbook savings accounts, you know, had this little book. And every time you went into the bank that you put your mind, they'd stamp it.

Craig00:24:56

Right.

Ralph00:24:56

And that was your proof that you had this. Well, kind of works the same way in this particular case. So Kevin, I hope that really answers your question. It's kind of a in the weeds kind of question, but I get why you're asking it because what you don't want to have is the IRS situation where you're double paying on income that you shouldn't have been paying tax on.

Craig00:25:15

Yeah. Don't give them any more than they deserve.

Ralph00:25:19

Absolutely. And I think my key takeaway with this is talk to a tax professional that understands your particular situation. You know, we talk about a lot of pie in the sky things here on the show. We talk about some things that you should do, but you've got to consult with somebody that understands your particular situation. I'm not, I can't give you advice. I, you are not my client and it sounds kind of funny the way I say that. I mean, I give you general advice. I give you ideas to go check up on, but at the end of the day, this is one of those things you want to talk to a tax professional and let them understand your particular situation.

Craig00:25:52

Ralph, I have one quick clarifying question. So let's say that I've got a combined account that's got some taxable some non taxable. Is it worthwhile to try to do something to separate those out? So moving forward you don't have this problem anymore?

Ralph00:26:09

Yeah, you know what? That's a good point. I honestly don't know if you can do that without triggering an issue. That's more of a question you would have to ask your broker where this becomes an issue Craig I see a lot of times is if you inherited an IRA from someone or if there was some kind of situation where you've had this account for because the truth is, most modern brokerage companies are going to track this because they have to report this to the IRS. So I see this as less of an issue if you have more, I'm going to say modern, I don't mean like old school. I mean, talking about if you've had it for a while, you know, if you had 20 years ago, you were putting money into a non deductible, then that's where I see it as an issue. But that's a really good question. I don't honestly know the answer to that. My grandfather told me if you don't know the answer, it's okay to tell people I don't know the answer and I don't know the answer to that. I mean, it's a good question because if you could do that and from a practical standpoint, I don't see why you couldn't. It seems like you could say to the broker, listen, here's the part that's taxable. Here's the part that's non taxable because all you're doing in that case Craig is doing a rollover. As long as you're not taking the money out, you're basically rolling. Yeah. Yeah. I'm going to answer the question, even though I don't know a hundred percent the answer, but I don't see that as being an issue because you're basically, as long as you're doing a direct rollover, you're not touching that money.Then I don't see that as being a problem.

Craig00:27:25

Sometimes it's easier to deal with those sorts of little administrative things as you go along because there's going to be a lot of that when you retire. You're going to be dealing with a lot of paperwork, a lot of bureaucracy. And if you can get rid of one thing before you start having to deal with all the rest of it, it seems to me it might be a reasonable thing to consider.

Ralph00:27:46

It's absolutely true. Like right now I'm in tax filing season. I just had a couple in a couple hours ago. I was working on their taxes and they said, you know, Ralph, it seems like in retirement, our taxes are more complicated they were than they were when we were working. I said, that's true. I said, you can think about it. You've got social security, you've got IRA distributions, you've got pension, maybe you've got annuities. You're right, Craig. So if you can try to set these things up in a way that prepares you for not having nightmares down the road, man, I a hundred percent agree with you. I think that's a great idea to start that process.

Craig00:28:17

Well, and this is a little bit of a sensitive topic, but you know, your mental abilities sometimes degrade when you get older as well, ask me how I know, and you know, if you can handle some of this complicated stuff up front, it really seems like it's worth the investment.

Ralph00:28:36

Absolutely. And I say this to clients all the time, it might be a good time to consolidate your investments, get them into maybe one brokerage where everything's in one account, not only for you, but maybe for your beneficiaries. You know, like for example, like my mother in law is advanced stages of dementia and a couple years ago, my wife and my sister in law convinced her to go and put everything with one broker. And it's made it so much easier because we don't have this piece over here. And this piece because one of the nightmare scenarios I've dealt with in my practice is someone will pass away. I remember this one particular situation, and this has probably been 15 years ago. I had a client and he'd love to invest in CDs, but he invested in CDs all across the country because I think he liked to travel and like his thing was go buy a CD here, go buy a CD here. Well, when he passed away, his widow's like, he handled all the finances. She had no idea where to start. Actually the way we handled that situation was we went back and did some forensic accounting at the last 10 years of his tax returns and figured out where he was getting interest statements from. So Craig, no, you're absolutely right. And if you start to have some cognitive decline, and that's a nice way of saying it, It's better to be prepared and have those things in order. Another big thing that people don't think about is you can also miss required minimum distributions if you've got accounts all over the place. So what I mean by that is once you hit a certain age, and I think it's now 74. Once you hit 74, you've got to take a minimum amount out of your retirement each year. And it's from every account. It's not just from the account in general. So if you don't have everything in one basket or in a more clean basket, I'll say it that way, it can make things much more complicated.

Craig00:30:18

Because that's complicated enough. Oh, absolutely. You've got to, you've got to look at the actuarial tables and, you know, what the minimum distribution is and do some math and so, yeah, simplifying in advance seems like a good idea.

Ralph00:30:32

Absolutely. Well, how about we get to our third, and a fun question for today, I think. And I saw an article in the paper the other day about this and I happened to get a question from somebody and it says this. It says, "I've been hearing a lot about side hustles lately, especially with the economy tightening and prices going up. I don't have much experience, but I'm thinking about starting one to help make ends meet. What's the best side hustle for somebody like me and how can I make it successful? Now Craig, I thought that was a great question because one of the things I talk about on the show all the time is sometimes it's a question of bringing more money in the door. So this is an area where I've seen some people get into some side hustle. So I said, okay, let me go take a look and see what's available. And I found some great ones, Craig. The first one, this was the most high paying one I found. And it's called, it's a side hustle of being in a focus group. And what you basically do, and from what I understand from doing some research is you don't have to have any experience at all. You just have to be a person and you can earn about $28 an hour just by allowing companies to kind of probe your brain and focus on products or on services they offer. And I thought that was really a cool one because, again, you don't necessarily need any experience. It's probably not very stressful. You're just going to be involved and it kind of reminds me, I remember my in laws did this. They took a trip to Las Vegas because they wanted to go see about these timeshares. And timeshare, I mean, kind of the same idea, right? So they would, they would fly you out to Vegas. They put you up in a hotel. Now, of course, the whole point was they were going to get you to buy a timeshare. But I mean, you're basically a focus group to see if that works for you. And I thought that was a pretty cool one.

Craig00:32:09

And I actually use, they call them research panels and I use some of these in my academic research and the more special you are, the more you can make. So if you, like, if you're a retired physician, you can probably get paid pretty well. So it really does depend on me. Some of the studies we run are pretty lucrative for the participants.

Ralph00:32:37

And how do you find those, Craig? Is there like a clearinghouse where people can find these things? Do they contact universities? How do they find them?

Craig00:32:44

We use one of two or three different systems. There's one called Qualtrics that helps us find people and there are some others that basically will go out and they'll build the pool of people. You'll sign up with them as a participant, then somebody like me will come along and I want to, you know, I want to interview accounting experts and Ralph pops up on the list. Now I won't know that it's Ralph, but I'll get connected with those people. It's not a bad thing to check out.

Ralph00:33:17

No, it's really a great, it's a great way to subsidize your income. And if you find that prices are going up a lot of, you know, a lot of my clients that are retired have said this to me as I see them during tax season this year, man, we're having a hard time Ralph. Prices are just going up and up. And you know, we've got sort of a, you know, the old adage is I've got a fixed income. Well, that's kind of true, right? So this is a way to subsidize that.

Craig00:33:36

Yeah, but four bags at the grocery store was $125 yesterday. So, yeah.

Ralph00:33:41

Oh, absolutely. Absolutely true. Now, another one they mentioned was virtual assistants. I hear about these talked about all the time. The average pay for a virtual assistant and these are people that might do some routine tasks, manage emails for you, maybe do some scheduling or some simple administrative work, they earn like $26 an hour, which I thought was great. Now here's what I really thought was cool, Craig. And that is a website tester. So there are people out there paying $25 an hour for people who want to test websites for usability and provide feedback. I guess maybe they're trying to get you to break their site. And another one we came up with here, and this is another one I thought was a great idea, especially if you like outdoors and if you're a pet person, being a professional dog walker as a side hustle is not a bad gig either. Average making $24 an hour. You get to be outside, you work with animals. Maybe you don't want to work at Cujo. You want to screen what dogs you're working with. Maybe I could do that with the cows here on the farm, you know, have somebody come out and be a cow walker.

Craig00:34:41

I'll do that. I'll walk your cows for you.

Ralph00:34:44

Well, Craig, that's a whole thing I got. Somebody told me this the other day. I didn't know this was a thing. There are actually farms now that are opening up where you can go and hang out with cows. Like you can lay in the pasture with them and kind of just relax and show them. I don't want to be out there in the mud with those cows, but they're just, but it might be an opportunity for me when I retire. Maybe my side hustle would be, you know, I could be the cow whisperer and people could come and they can pet the cows and hang out in the pasture with the cow.

Craig00:35:08

Just a word of warning, you know, goat yoga is a thing.

Ralph00:35:11

Goat yoga, I hadn't heard about that one.

Craig00:35:13

But cow yoga just seems like a really bad idea. I don't think I'd do that.

Ralph00:35:17

Yeah, I think I'll pass on that one. And the final one that they came, that I had on the list here was online tutoring. And you can make $20 plus an hour doing that. So then you might be saying, okay, Ralph, that sounds good, but how do you make these things successful? And I think that's one of the things I want to talk about for a second here, Craig. If you're getting into one of these side hustles, the first thing I want to tell you is start small. Just dedicate a couple hours a week. See if you like it. Test the waters. You don't want to go buy a bunch of equipment or get too involved in it. You might decide, you know, maybe you decided you were going to do that a dog walking and like, I don't really like doing this. Well, you don't really want to spend a lot of time out there doing that if you don't enjoy. So that's the first thing. Another thing I'm going to talk about, and this is why I was asking you about Craig. One of the things that mentioned here in the article I read was signing up for what they call freelance platforms. Maybe you've used Fiverr or Upwork or People Per Hour. That may be an opportunity to do that. I know personally I've used Fiverr for a couple things. And the nice thing about that is it's sort of a framework and you just go put yourself up there. Now, Fiverr takes a piece of that, but it's a way to get started.

Craig00:36:22

Is TaskRabbit still a thing?

Ralph00:36:24

I don't know. That one didn't come up in my research. It could be, I'm not sure.

Craig00:36:28

You know, doing, somebody to do local tasks, run around, do a little odd jobs. I mean, that's a, that can be a huge thing.

Ralph00:36:36

Yeah, I got to share Jeff's comment because I love it. You know, can I lay with cows and eat cheeseburger? You know what? Did you, I like it Jeff. I like it Jeff, but you know what? They might tell you to move on out of here. That was a bad pun, wasn't it?

Craig00:36:50

Just make sure they're not related to the cows in the field, the cheeseburger.

Ralph00:36:53

Exactly. Exactly. Now another thing if you're gonna do this I think you need to start off by treating it like a business because this is probably not going to be a W-2 job. It's going to be a freelance job. So create a simple business plan. Think about what it's going to cost you, what kind of time commitment you're going to do, and then make sure you're keeping track of your income. Make sure you're keeping any expenses and mileage and all those kinds of things. There are some free tools out there. There's AI powered apps that can help you work smarter, not harder. For example, like there's scheduling tools for virtual assistants or grammar tools for writing gigs. I know Craig, we'll park here for a second cause I know that you are big into the AI, and I think this has opened up a lot of doors for people to use AI. Maybe people who don't understand AI, you can start to use these tools and help other people.

Craig00:37:39

No, that's exactly right. Things like chat GPT, deep research. If you know what you're doing, you can crank out a pretty credible white paper on a very narrow topic and not much time. And I suspect charge a lot of money for it. You know, if you have some research skills and some writing skills.

Ralph00:37:57

Yeah, I just, you know, like I think what Craig was alluding to is make sure you look it over before you send it because sometimes stuff that comes out of AI is not quite ready for prime time. But see, if the thing is, if you, if you're somebody that doesn't understand that the technology doesn't understand the tools, you can make yourself a nice side hustle by understanding the tools, seeing how they engage and go out and market yourself. Yeah. And that's why I say the next thing I mentioned here is that you don't network and build relationships because it's all about building those relationships. That's a great way to get into those side hustles.

Craig00:38:27

Can we go back to the business aspect?

Ralph00:38:30

Absolutely. I know a little bit about business. I've heard.

Craig00:38:36

I really wonder about people that have these side hustles if they understand the difference between income and profit. You know, I see things online where somebody talks about how much money they make on DoorDash and I always want to ask him now is that how much you get or is that how much you make? Because you're paying for your car. You're paying for your insurance. You're paying for gas.

Ralph00:38:58

Absolutely, Craig. It's funny you bring that up. I had a client in it was last tax season. Now, he's been a client for many years and I know he was looking to subsidize his income. He bought a new truck and he's like Ralph. I really want to subsidize my income. So he started doing DoorDash and he comes in to get his taxes done. He said, man, I made a killing on DoorDash, you know, said I had, I had all this up. I said, okay, let's think about this for a second. And I don't remember the exact numbers, but when I looked at like, for example, the mileage rate, the IRS gives you in 2024 is 67 cents a mile. When I looked at the amount of time he put into it, when I looked at the amount of wear and tear on his vehicle, Craig, he lost money. He absolutely lost money. Now, to be blunt with you, maybe he earned some cash tips, but what as I, and I'm not an expert in this, but what I, as I understand it, the tipping all happens on the platform too. So those tips are already built into that. But Craig, I think that is a very good point. So many people are focused on the revenue side of this. Oh, I got this much coming in, but they don't think about how many hours they spent, you know, like it makes no sense to me. You know, my son, my youngest son, he'll order DoorDash to get a couple of donuts on a Sunday morning. And I'm thinking, that's great. But like how much can a person, if you order a $10 order, how much can you really charge to deliver that order to make it functionally? Now, if you live in a big city where you're working in a zone of where you don't have much travel time, maybe so. But Craig, I think you kind of live out in the country like I do. And for DoorDash or Uber Eats or any of those things, I think that's a challenge. And I see Jeff made a comment here. Oh yeah. There you go. I mean, Jeff nailed it. I know so many employers say they make six figures and actually spend seven. Yes, exactly. And that's the part where you've got to really consider it. And that's why, that's why I'm getting ready to say this is, you know, if you're going to do one of these side hustles, make sure you're looking at it objectively. And that's why I say start small, make sure you're keeping track of those things because yeah, it might be something that is bringing in gross revenue dollars. But how much is it costing you? How much time are you putting into it?

Craig00:41:05

Well, and there's another hidden expense too that a lot of people aren't aware of. So if you're using one of these platforms, they're going to report the income and they're going to send you, I guess, a 1099.

Ralph00:41:19

Absolutely.

Craig00:41:20

And you have to be careful. I started out teaching part time in a little college, Florida Southern College, and I think I got $700 a month, something like that, for teaching. Well, the way the pay came in, they never withheld, the IRS never withheld what they should have withheld. And so I always had this tax bill at the end of the year because I was short on that withholding just because I think they paid once every two months or once every, I don't remember what it was, but just they didn't withhold enough money. And you know that 1099, you're going to owe income taxes on that. And I don't know about self employment taxes. That sort of thing, but that could really eat into a lot of the revenue that you're pulling in.

Ralph00:42:10

Absolutely. And the truth is with the 1099, they're not withholding any tax.

Craig00:42:13

Right.

Ralph00:42:14

And they're self employment. I just released a show about a week ago, it might be coming out this week on self employment tax, because that's a big deal. Most people don't understand what that is. Self employment tax is an additional $15.2 percent of whatever that net income is. So if you're running that Uber Eats route or that Door Dash route or whatever that looks like, you're not only going to pay federal tax and if you live in a state that has state income tax, you're going to pay federal state and you're going to pay self employment tax. And that's all something you got to consider because I have a lot of clients that come in Craig, they are new to this. They'll come in and they'll say, Hey Ralph, I got this 1099 for $25,000. Is this going to impact me? I'm like, yeah, it's going to impact you. And it's going to be a big deal and you're probably going to end up owing tax. You're probably going to end up owing penalty and interest because you didn't make estimated taxes as you want. And that's a discussion for a whole different show. But that is a very valid point, Craig.

Craig00:43:11

Well, and that's another reason to treat it like a business because, and correct me if I'm wrong, but if you, let's say that you make $10,000 on your side hustle, but you've got, you know, the 67 cents a mile on your vehicle, you've got maybe some other expenses. That all comes off of the $10,000 before the taxes are calculated, right?

Ralph00:43:33

Absolutely, you pay tax on the net and that's, a lot a lot of people get hung up on that. But it is on the net.

Craig00:43:39

And if you don't know what your expenses are, I mean literally just yesterday the day before, I sat down and added up all of my expenses for my writing activities. And you know that comes right off of my royalties and that makes a huge difference. It really does when that tax bill comes through at the end of the year. But if they're, if you don't track them, you can't pull them off of the gross income.

Ralph00:44:05

Absolutely. And that's why I say to people, you got to start with the end in mind is think about this in terms of a business. When you have a business, keep every receipt. You know, one of the things that I recommend clients do, Craig, and I'm glad you went there because it's a very valid point. Set up a separate checking account for that business, set up a separate credit card for that business. Because two things, number one thing, we've got the immediate tax concerns. What is that tax issue going to look like? Secondarily, if you're the unlucky winner of the audit lottery and you get that letter from the IRS, it says, Mr. Van Slyke. Hey, great news. You've been selected to get audited. Well, you filed this tax return and you put numbers on the tax return. Well, now the IRS wants to see receipts for that. So it's a two part to what you're talking about, Craig, but a lot of people overthink that. Cause that same situation, that person that I was talking about had that $25,000, 1099. I said, okay, well let me see your mileage log. And he's like, What? I said, yeah, I need to see your mileage log. And he goes, well, I didn't keep track of that. I said, well, you're going to have a problem. I said, because technically the IRS wants to see you starting odometer, ending odometer. Where did you go? How many miles was it? On what date? Now, fortunately for him, he was able to go, and this was a great way he did it. He went back and got his oil change receipts. And because he had odometer readings on that, and then he went back and just went, I guess there's some way, and like I said, I'm not an expert on this, but one of these, I think it was DoorDashes particular, well I'm not throwing him on the bus, but they were able to give him a report of what days he worked and where he went, which, so he was able to reconstruct those details after the fact, but listen, it's so much easier if you do it from the front end. So you can get an app like MileIQ is one, Intuit actually has an app built into QuickBooks. Even if you get the simple start edition has a thing and it's simple, just keep track of it. But Craig, what you're alluding to is do it from the beginning so that you're not scrambling at the end of the time to like, you know, we're trying to get taxes done before april 15th and you'll be shocked how many clients are coming in and i'll say to them Okay, I see you had a little side and a lot of people have side income. That's a very common thing now and i'll say to them. Okay, what were your expenses? I don't know. And the problem is, you know, so you think about like you just said. You're paying tax on money that you earned but you didn't really earn it because you, it cost you money to do it but you don't have any proof that it costs you money to do it. So now your problem is exacerbated because you're paying tax on money you never really got.

Craig00:46:30

Well that's why, come back to your idea of treat it as a business.

Ralph00:46:34

Absolutely.

Craig00:46:36

Do that and you know, a lot of the dominoes or chips or something will fall into place.

Ralph00:46:41

Yeah. And the other side of this, I think you also had to be careful that it doesn't become a second job for you. A lot of people, it becomes a second job. It just needs to be something that's flexible. It needs to be something that's enjoyable, do something that fits in your interest, something that fits in your schedule. Because I had a client not too long ago, Craig, I couldn't believe when they said, they said, you know, my, my side job is really cutting into my main job. And I said, what do you mean by that? They said, well, I, you know, I got to go deliver these pizzas and I have to leave work early or I got to, I got to be late for work because I'm doing morning deliveries. I'm thinking, wait a second, you're fixing to lose your main job because you're chasing after side work. So you have to be really careful of that. And I think that's just a really good point to the whole thing.

Craig00:47:24

I think they have bigger problems, Ralph.

Ralph00:47:26

Well, you know, I try to be kind and what's the word charitable in that regard. So, but anyway, I don't know if we got any questions in the chat. This would be a great time to ask any questions you might have. It's actually funny. One of the, one of the people sent me an email when I didn't get a chance to get it into the, into the show today, but they sent this question says, Ralph, I'm interested in starting a side hustle, but worried about the time commitment. Any tips on managing time effectively? And let me just tell you right now, I think with a side hustle, time management is the key because it's real easy for that to get unruly. So one of the things that I recommend people, set specific goals, you know, put it down in writing or however you want to put your life together and put down those goals. Would it, make it clear? What is the measurement? How is this going to be successful? Because like Craig and I talked about. Understand not only the revenue side of that, but the cost of that. And don't forget about your time because time is money. I had a client in a couple of weeks ago, Craig, and I can't remember what kind of business he ran. I wouldn't say anyway, cause it's in a public domain, but I looked at the income he had for the year. And I said, I think you work like 50, 60 hours a week. I said, do you realize you're making six bucks an hour? And he goes, what do you mean? I said, I said, dude, I said, when I look at what your income is, net income, you're working for $6 an hour. I said, minimum wage in Delaware is $15. I mean, you can go flip burgers and I'm not going to pick on McDonald's, but you go flip burgers and McDonald's and make $15 an hour and have a great deal less stress and probably a more harmonious life because you've got a set schedule. It goes along the same thing with these side hustles. You got to be really careful how much time, how much effort, how much money you're putting into it.

Craig00:49:07

Unless it's something you just really enjoy. We have a lot of part time faculty, you know, somebody like you that comes in and just wants to teach a class. So I think it's okay to get paid in other ways, but be aware. You want to have your eyes open.

Ralph00:49:21

Yeah, absolutely. And that's where you want to use technology. We talked about AI technology. We talked about keeping track of stuff and make sure you clearly understand what you're getting into. And that's why I said start small, but start with that business start in mind. I think that's really just the best way to do it.

Craig00:49:37

Agreed.

Ralph00:49:39

All right. Well, we're getting to the end of our time today. So I just want to say thank you to everybody. There were some fantastic questions today and I hope the answers we provided today give you some clarity and guidance. And remember this, financial planning is a journey. It's not a destination. And it's okay to take small steps. The key to all of this is to keep making progress moving forward. I'm going to share just a couple of things we got in the mail bag today. I got a couple of messages about the show. The first one says this, "Dear Ralph, your show has been a lifesaver for me. I've been struggling with debt for years, but your practical advice and Christian perspective have given me the courage to take action. Thank you so much." Well, thank you for impacting you that way. And this last one I'm gonna mention. "Hi Ralph, I just wanted to say thank you for your show. It's been a beacon of hope for me as I navigate my financial journey. Your insights have helped me make a better decisions and grow in my faith. Keep up the good work." And listen. I wanna encourage everybody. I wanna hear from our listeners because that's what keeps me going. That's what makes me wanna do this live show every week. That's what makes me wanna do the daily show. It keeps me going. And if you've got a story to share, now, a lot of people won't do this. But I'm going to tell you right now, you can email me directly. My email address is really simple. It's ralph@askralph.com because I absolutely want to hear from you. And if you want to go a little deeper into the things we talked about today, you can go to my blog every day. I read a blog about the show. I read a show, a blog about the live show. You can get to that by going to askralphpodcast.com/blog. You know Craig, I have slides for this and I always forget to click them on. So I need to start doing that, right? So anyway, getting back to where we were. All right. So let me just end it with this and you know, we can talk a lot about what we talked about today, but go back and listen, look at the show notes that will be available afterward as well. So I just want to say, before we close, I want to share something from my heart, and this is really what, this is really the truth about this thing. I want you to know that I know what it feels like to be weighed down with financial struggles. I get the stress. I get the shame and that's what it really is. It's shame. And I get that lonely feeling of thinking you're the only one dealing with it. But I can tell you something. The people in the chat today, the people who are around you, you are not the only one dealing with it. And you don't have to stay stuck in where you are right now. Every single day, I'm here to remind you that there's hope and there's a way forward. And what I encourage you to do is to sign up for my newsletter. You can do that at askralphpodcast.com/newsletter. And when you sign up, I'm going to send you a daily dose of encouragement. I think that's one of the big things we all need. I'm going to send you simple, practical tips to help you take small steps forward towards that financial freedom. Craig talked about that financial freedom, that freedom in retirement, and it doesn't matter where you're starting. You can always get to another place because God has a plan for your journey. And here's the best part. When you join our mail list, you're not just signing up for a newsletter. I'm not just going to blow you up with a bunch of stuff. You don't need to worry. You're stepping into a community of people that are just like you. All of us are dealing with these situations. These are people who are breaking free of shame. They're finding hope and they're learning to live in God's freedom. And we're doing it one day at a time. And I want you to be a part of that. So if you're interested in doing that, just go to askralphpodcast.com/newsletter and let's do this together. You are not alone and I'm here to walk this road with you. And I can't wait to see you there. So Craig, thank you so much for joining me today. I truly appreciate it. And thank you to the listeners for supporting the show. Remember my passion is to help you achieve financial success. I want to see you live out your dreams and I want to see you grow in your faith and working together we can master your finances from a Christian perspective. So as I always end this show, stay financially savvy out there and God bless you.

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